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TMI Blog1983 (4) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... t') or rules for treating the hotel building as a plant. On appeal, the Commissioner (Appeals) referred to the decision of the Supreme Court in the case of CIT v. Taj Mahal Hotel [1971] 82 ITR 44 in which certain sanitary and pipeline fittings in a hotel were allowed to be treated as plant and the observation made therein that they were not merely part of the setting in which the hotel business was being carried on. The Commissioner (Appeals) thereupon concluded that the building was nothing but a part of the setting in which the hotel business is carried on and, therefore, the building as such cannot be considered as a plant. 3. In this further appeal, it was contended on behalf of the assessee that the word 'plant' not having been defined in the Act, it must be given the meaning ascribed to it in decided cases and since the hotel business cannot be carried on without a building, the building should be taken as a plant. It was submitted that there was nothing against the treating of the building as a plant in the Act or Rules. It was also pointed out that under section 56 read with section 57 of the Act if the letting out of building is inseparable from the letting of plant and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve facilities over their useful life, so as to measure periodic income as precisely as possible. The charges must be systematic, objectively measured, and on a consistent basis from year to year. This mathematical process of distributing the cost of an asset over the various periods in which it is deemed the asset will earn revenue (sic) has to be prescribed by the CBDT according to section 32 of the Act. That section states that in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business, the deduction shall be allowed at such percentage on the written down value thereof as may be prescribed in any case or class of cases. It may be noticed that this section itself appears to have a certain classification for all commercial assets into buildings, machinery, plant or furniture There is no definition of any of these words except that section 43(3) of the Act defines 'plant' to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of business or profession. In framing the rules, the CBDT has specified in rule 5 read with the Table in Part I of Appendix I of the Rules, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employer resisted the claim by contending that a horse cannot be regarded as a plant and, therefore, it was not a case of defective plant which caused the injury. Lindley, L.J. held that the horse was a plant and said : " There is no definition of plant in the Act : but, in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business ; not his stock-in-trade which he buys or makes for sale ; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business ". Though that judicial definition appears in the context of the employer's liability to pay compensation under the Employers' Liability Act, it has been long accepted as good guidance for income-tax cases. In Jarrold v. John Good & Sons Ltd. [1963] 40 TC 618 (CA), Lord Pearson spoke of plant being that with which the trade is carried on as opposed to the place where it was carried on. In the latest case of Barclay, Curle & Co. Lord Donovan said : "At the end of the day I find the functional test propounded by Lindley, L.J. and by Lord Pearson to be as good as any, though, as was said in Jarrold v. John Good & Sons 40 TC 681 some plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nied that the business of a hotelier is carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities are provided for their comfort and convenience. . . . " From this it is apparent that the building as such is an essential part of the overall trading capacity of the assessee. The amenities provided by the assessee is not a setting in which he carries on the business but the setting which he offers to his customers for them to resort to and enjoy. It follows that the hotel building is a plant being that with which trade is carried on or in other words, the assessee's tool of trade because without that building it is not possible for the assessee to carry on the hotel business. 9. While deciding this issue by applying the basic test, it may not be out of place to keep in mind the analogies which are helpful to clarify the issue. In the case of Barclay, Curle & Co. Ltd., dry dock, which was essentially a cavity lined up in concrete, was treated as a plant. It was observed in the latest decision in IRC v. Scottish & New Castle Breweries [1982] 1 WLR 322, 334 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate at a nominal rate. By its very function its useful life is greatly reduced. Therefore, if the premises used as a hotel is to be taken as just a building, we would be disregarding the extent of its useful life and its functions which are the primary basis for the classification of the assets for the purpose of allowing deduction of depreciation. The item regarding buildings, no doubt, allows double the rate for factory building, but the actual classification does not take into account a building which functions as the tool of the trade. We are, therefore, of the opinion that there is nothing in the Act or the Rules to prohibit the treatment of a hotel building as a plant for the purpose of ascertaining the rate of depreciation that has to be applied in determining income therefrom. 11. We are fortified in our view by the provisions of sections 56 and 57. Under section 56, if an assessee lets on hire machinery, plant or furniture, the income from such letting is not chargeable to income-tax under the head 'Profits and gains of business' as being chargeable under the head 'Income from other sources'. In such an event under section 57, depreciation is to be allowed thereon. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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