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TMI Blog1998 (6) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... eciated at the higher rate allowed for plant. The functional test adopted by the Tribunal is also the test that has been adopted by the High Courts at Patna, Calcutta, Andhra Pradesh, Karnataka, Allahabad and Kerala with regard to buildings used as hotels or cinema theatres or as nursing homes. The decision of the Patna High Court is to be found in the case of CIT v. Lawly Enterprises (P.) Ltd. [1997] 225 ITR 154, that of the Andhra Pradesh High Court in the case of Hotel Banjara Ltd. v. CIT [1996] 218 ITR 590, that of the Calcutta High Court in the case of S. P. Jaiswal Estates (P.) Ltd. v. CIT [1995] 216 ITR 145, that of the Karnataka High Court in the case of CIT v. Venkaia Rao (Dr.) (B.) [1993] 202 ITR 303, and that of the Allahabad High Court in the case of S. K. Tulsi and Sons v. CIT [1991] 187 ITR 685. The common reasoning in all these decisions is that the word "plant" used in section 32 of the Act, which expression is defined in section 43(3) of the Act in an inclusive manner, is a word of wide amplitude and capable of comprehending many things including buildings, if the same is used as a tool in the business of the assessee. The buildings though recognisable as such, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass---Substantial buildings of selected materials ; Second Class---Buildings of less substantial construction ; Third Class---Buildings of construction inferior to that of second class buildings, but not including purely temporary erections, and lastly purely temporary erections, such as wooden structures. The rate of depreciation allowed for these classes of buildings was at 2.5 per cent., 5 per cent., 7.5 per cent. and 100 per cent. respectively. In respect of the first, second and third class buildings, double those rates were to be taken for factory buildings excluding offices, godowns and employees' quarters. Another category, viz., structures or doing of any work in or in relation to building referred to in sub-section (1A) of section 32 of the Act was also to be found under the category of "buildings". The rate of depreciation in respect of such structures being determined with reference to the earlier entries (1) to (4) depending on the classes of the building in relation to which the renovation or improvement is effected. The definition of "plant" in section 43(3) of the Act may also be set out in this context. "Plant" as defined therein, "includes ships, vehicles, books, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of " plant". The claim so made was for development rebate on the ground that sanitary and pipeline fittings form part of "plant" and fell within the definition of "plant". The assessee had earlier claimed depreciation on those items by treating them as part of furniture and fittings under rule 8(2) of the Income-tax Rules, 1922. "Plant" had been defined in section 10(5) of the 1922 Act as including vehicles, books, scientific apparatus and surgical equipment purchased for the purpose of the business, profession or vocation. The court, after examining the definition held that the definition enlarges the definition of the word "plant", and the very fact that even books have been included shows that the meaning intended to be given to "plant" is wide. The court pointed out that when the word "includes" is used, it must be considered as comprehending not only such things as they signify according to the nature and import, but also those things which the interpretation clause requires that they shall include. After having noticed the wide amplitude of the expression "plant", the court, however, did not proceed to hold that a building is included in the term "plant" though the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd "plant" as given in Webster's Third New International Dictionary, which defines "plant" as "land, buildings, machinery, apparatus and fixtures employed in carrying on a trade or a mechanical or other industrial business..." Even after noticing the fact that the dictionary definition of "plant" includes buildings, the court did not proceed to hold that the building in which the hotel was run, and wherein the sanitary fittings were used was itself plant, and on that ground sanitary fittings used in the hotel were part of the plant. The court only held that these sanitary fittings were required by the nature of the hotel business, which the assessee was carrying on, and did not merely form part of the setting in which hotel business was being carried on. As we read this judgment, in our view, the court refrained from holding that buildings used as hotels are plant, as the very section which provides for depreciation, viz., section 32 of the Act, made a clear distinction between buildings, furniture and fittings, plant and machinery and ships. The building as such having been treated as a separate item for the purpose of calculation of depreciation, the same could not also be regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentation service provided by a foreign collaborator could be regarded as "plant" for the purpose of allowing depreciation on the amount paid for that service to the collaborator. The court held that the word "plant" was not necessarily confined to an apparatus which was used for mechanical operations or process or was employed in mechanical or industrial business, and that in order to qualify as "plant", the particular article had to have some degree of durability. The test laid down by the court was : Did the article fulfil the function of a plant in the assessee's trading activity ? Was it a tool of his trade with which he carried on his business ? If the answer was in the affirmative, it would be a "plant". Having laid down those tests, the court examined the definition of "plant" in section 43(3) of the Act and held that the drawings, designs, charts, plans, processing data and other literature comprised in the "documentation service" constituted a "book" and fell within the definition of "plant" in section 43(3) of the Act. The decision of the court rested on its conclusion that the word "book" used in the definition of plant comprehended within it the documentation service, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inapplicable to the facts of this case. The rates of depreciation are determined periodically with respect to assets which are specified in the appendix to the Income-tax Rules, such assets having been classified in conformity with the classification set out in section 32 of the Act. The fact that the rate of depreciation has been subsequently altered can never be regarded as a clarificatory amendment which should be understood as having the effect of altering retrospectively the rate of depreciation. Nor can the fact that a sub-classification was created later under the classification "buildings" in the Appendix providing for a higher rate of depreciation in respect of the assets so specified, viz., "buildings used as hotels", be regarded as clarificatory entitling assessees owning hotels to claim depreciation of the higher rate even for earlier assessment years when the rate allowed was far less than the one provided with effect from the assessment year 1988-89.
The question referred to us for our opinion is, therefore, answered in favour of the Revenue and against the assessees. The Revenue is entitled to costs in the sum of Rs. 1,000. X X X X Extracts X X X X X X X X Extracts X X X X
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