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TMI Blog1995 (11) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... article or object, fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to any apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. The article must have some degree of durability. (v) The building in which the business is carried on cannot be considered to be a plant . (vi) The item should be used as a tool of the trade with which the business is carried on. For that purpose the operations it performs have to be examined. Hotel business is a business in which the building is one of the components besides the other facilities like food, air-conditioning, etc. The building itself is of different uses like rooms for stay, conference hall, kitchen, etc. The hotels are also of different categories. The facility in the hotels differs according to the star mark given to them. The facility of comfortable stay is also provided by guest houses, house hotels, inn, sarai, etc. The building which is used in the business of hotel remains a building inspite of the fact that it is decorated by plaster of paris, timber work, etc. If the skeleton of the building without deco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered that a cinema is nothing but a large house with furniture, etc., supplied and cinema apparatus and other accessories affixed therein. Thus, we are of the view that the Income-tax Appellate Tribunal was not justified in holding that the cinema building/hotel building belonging to the assessee-firm should be treated as plant and depreciation should be allowed at the rate applicable to a plant . Accordingly, the reference is answered in favour of the Revenue and against the assessee. No order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the rate applicable to plant. The Income-tax Officer however restricted the depreciation on the cinema building treating it as a normal building. In appeal before the Commissioner of Income-tax (Appeals), the contention of the Income-tax Officer was upheld and the appeal was dismissed. In second appeal before the Tribunal it was observed that the cinema building cannot be treated as any other ordinary building since it has to be designed in such a manner for the effective exhibition of the film and, therefore, it is an apparatus/plant. The cinema building was considered to be a basic apparatus without which exhibition of film is impossible. When a film is exhibited then the entire building needs to be used for housing the people for screening the exhibition and, therefore, it was considered that the cinema building is a tool and an apparatus for carrying on the exhibition of films and as such is plant. 6. In order to consider the controversy whether the hotel or cinema building is a plant or not, the provisions of section 32 of the Income-tax Act are taken into consideration which read as under : 32. Depreciation. --- (1) In respect of depreciation of buildings, machinery, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness in which the business is carried on. 10. In Appendix I (Table of rates at which depreciation is admissible) from the assessment year 1988-89 bifurcated building for residential purposes and other purposes which include hotel till the assessment year 1983-84. The table was on the basis of material used in the construction of building while from 1984-85 to 1987-88, the table was changed on the basis of general rates or special rates. 11. Section 32(1)(v) was added by the Finance Act (No. 2) of 1967, and remained in operation for the assessment years 1968-69 to 1987-88 and initial depreciation was allowed for hotel buildings. 12. The Madras High Court in CIT v. Buhari Sons Pvt. Ltd. [1983] 144 ITR 12, observed that the hotel business carried by the assessee cannot be considered a manufacturing activity. 13. The Calcutta High Court in CIT v. S. P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 179 has also taken the view that the business of a hotel is quite essentially a non-manufacturing or non-producing or even non-processing concern and is a trading concern. 14. The Karnataka High Court in CIT v. Hotel Ayodya [1993] 201 ITR 1002 has also held that hotel business cannot be calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. To have sanitary fittings, etc., in a bath room is one of the essential amenities or conveniences which are normally provided in any good hotel in the present times. By providing sanitary fittings more customers are attracted resulting in earning larger profit and charging of higher rates for the use of rooms. The sanitary and pipeline fittings were held to be "Plant". It was observed by the apex court : "Now, it is well-settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means ' that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it.' In the present case, section 10(5) enlarges the definition of the word 'plant' by including it in the words which have already been mentioned before. The very fact that even books have been included shows that the meaning intended to be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rators and other machinery needed for the operation of the dock, was allowable expenditure as it constitutes a plant. 24. In Benson v. Yard Arm Club Ltd. [1978] 2 All ER 958 (Ch D), it was observed that a ship which was converted into a restaurant cannot be considered to be an apparatus for carrying on the business of a floating restaurant, and it was held by the Chancery Division that the vessel is the place or setting where the restaurant business was carried on and is not the apparatus for carrying on the business. The learned judge further observed that one has only to think of certain large stores and of hotels and restaurants generally, placed in different landscapes and built with different structures to be more attractive. The commercial utility of particular and, it may be, unusual premises or places in that way does not, in my judgment, convert them into plant in the sense of the income-tax legislation or affect the application of the functional test ; they still remain the setting and not the apparatus. 25. To determine whether a structure which had been provided for the purposes of a trade was plant, regard was to be had to the use which was made of the structure. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered ' plant '. The true test is whether it is the ' means of carrying on the business ' or ' ' the location ' for so doing. (d) What is important is the functional test. If the building in a particular case is the means of carrying on the business and not a mere location, the building must be held to be ' plant '." 29. In Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86 (SC), it was observed by the apex court that the term "plant" could be any article or object, fixed or movable, live or dead used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. In order to qualify as "plant", the article must have some degree of durability. The functions of a plant in the assessee's trading activity as a tool of his trade with which he carries on his business was considered to be the functional test on which an item could be considered to be a plant. 30. In J. Lyons and Co. Ltd. v. Attorney General [1944] 1 Ch 2 81 : [1944] 1 All ER 477, electric lamps and fittings in a tea shop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Yarmouth v. France [1887] 19 QBD 647 ; 57 LJ (QB). 33. In CIT v. Alps Theatre [1967] 65 ITR 377 (SC) ; AIR 1967 SC 1437, the question before the apex court was with regard to the claim to depreciation on the value of the building as to whether it would include land as well. It was observed that the word " building " has to be understood in the common sense point of view and its use in the Income-tax Act has to be appreciated in the context in which the provision for depreciation on such building has been made treating the same as the capital asset of the assessee. 34. In Stroud's Judicial Dictionary, Fourth Edition VI. 4, at page 2036, a distinction between "plant" and " machinery " has been drawn as under : 'Plant and machinery ' are two quite different things (per Kekewich J., Re Brooke 64 LJ Ch 27). On a contract for the sale of a freehold brewery which provided that its ' fixed plant and machinery ' should be paid for by valuation, Kekewich J., held that, ' speaking generally ', ' machinery ' includes everything which by its action produces or assists in production ; and that 'plant' might be regarded as that with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imes distinguished from architecture and construction as involving relatively simple artistic and engineering problems 3 : archaic : a flock of rooks : Rookery ". 37. Webster's Third New International Dictionary, at page 1094, defined hotel as under : "Hotel/(')hotel/n-s (F hotel, fr. of ostel, hostel---more at Hostel) 1 archaic : a city mansion of a person of rank or wealth 2a : a house licensed to provide lodging and usu. meals, entertainment, and various personal services for the public : INN b : a building of many rooms chiefly for overnight accommodation of transients and several floors served by elevators, usu. with a large open street-level lobby containing easy chairs, with a variety of compartments for eating, drinking, dancing, exhibitions, and group meetings (as of salesmen or convention attendants), with shops having both inside and street-side entrances and offering for sale items (as clothes, gifts, candy, theater tickets, travel tickets) of particular interest to a traveller, or providing personal services (as hair-dressing, shoe shining) and with telephone booths, writing tables, and washrooms freely available. " 38. In Broken Hill Pty. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e building laws are applicable to it for its construction and in common and commercial parlance also it is considered as a building. If an item is covered by the term " building " then it cannot be considered to be falling within the category of "plant". The various rates of depreciation provided in the Income-tax Act make the legislative intent clear that the different rates of depreciation/extra-shift allowance are applicable to different items. The hotel building is used to accommodate the customers and even in the case of Taj Mahal Hotel [1971] 82 ITR 44 (SC) referred to above, it was observed 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 an arrangement for meals and other amenities are provided for their comfort and convenience. The installation or fittings therein were the subject-matter of dispute in that case, and by use of sanitary fittings and similar amenities in the bath room, it was observed that the assessee can get a higher rate for the use of the rooms. There may be a hotel building having no amenities---even the residentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 309, was relied upon wherein the apex court observed that : " The definition of ' premises ' set out above is in very wide terms and includes not only gardens, grounds and out-houses, if any, appertaining to a building or part of a building, but also furniture supplied by the landlord for the tenants' use and any fittings affixed to the building thus indicating that the Legislature was providing for all kinds of letting. The definitions of ' premises ' and hotel or lodging house between them almost exhaust the whole field covered by the relationship of landlord and tenant, subject to the exceptions noted in the definition of premises." 46. The decision of the Kerala High Court in the case of K. Kungu Govindan v. Parakhat Kunhilekshmi Amma, AIR 1966 Ker 244, was also taken into consideration wherein the Full Bench of the Kerala High Court expressed a similar view that lease of a cinema theatre including furniture, fittings, electrical installations, machinery and equipment came within the ambit of the definition of building. 47. From a perusal of various judgments and dictionary meaning it is evident that the Legislature has also by subsequent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is more near to one category, then by stretching it should not be considered to fall in a category which is far off. 50. Hotel business is a business in which the building is one of the components besides the other facilities like food, air-conditioning, etc. The building itself is of different uses like rooms for stay, conference hall, kitchen, etc. The hotels are also of different categories. The facility in the hotels differs according to the star mark given to them. The facility of comfortable stay is also provided by guest houses, house hotels, inn, sarai, etc. The building which is used in the business of hotel remains a building inspite of the fact that it is decorated by plaster of paris, timber work, etc. If the skeleton of the building without decoration is building then the items by which it is decorated would not change the character of building. The item may, however, be considered as plant subject to its use. The use of the building is as a setting. Building is not used as a tool of the trade. Different rates of depreciation for building have been provided which also makes the legislative intent clear that the different types of buildings remain as building. The ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re but for that reason it will not cease to be building. The functional test requires to find out as to whether it is an apparatus with which the business is carried on or is it the setting or part of the premises in which the business is carried on. If the functional test is applied, it would be found that it accommodates the machinery for exhibition of the film like any other factory where production is carried on and provides the accommodation to the public for viewing the picture and cannot be taken out from the definition of " building ". The building is not used as a tool of the trade as it is used for accommodating the customers as a setting. In respect of cinema the work is carried on by the projector which displays the film on screen. The hall of the cinema may be air-conditioned and even it may be an open theatre. In the case of Mohd. Jaffar Ali, AIR 1971 AP 156 [FB], it was considered that a cinema is nothing but a large house with furniture, etc., supplied and cinema apparatus and other accessories affixed therein. 52. In these circumstances, we are of the view that the Income-tax Appellate Tribunal was not justified in holding that the cinema building/hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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