Commissioner Of Income Tax, Trivandrum v. M?S Anand Theatres Etc. Etc

COMMISSIONER OF INCOME TAX, TRIV ANDRUM v. MIS ANAND THEATRES ETC. ETC. MAY 12, 2000 [A.P. MISRA AND M.B. SHAH, JJ.] Income Tax Act, 1961-Sections 32 and 43 (3)-Depreciation-Rate of-'Building' and 'Plant '-Meaning of-Difference between-Building of a hotel or a cinema-Held, are not apparatus or tool for running the business C of hotel or cinema-Cannot be 'plant' for the purpose of depreciation-Income Tax Rules, 1962-Rule 5 and part I Appendix I. Rule 5 of the Income Tax Rules, 1962 provides for calculation ot depreciation as specified in table in Part I o( Appendix I to the Income Tax D Rules, 1962. The general rate of depreciation to be charged for 'buildings' under the said Appendix is 5% whereas the general rate of depreciation to be charged for 'machinery and plant' is 10%. The assessee claimed depreciation at 15% on his theatre building claiming the same to be a 'plant'. The Assessing Officer rejected the claim E and allowed depreciation only at 5%. i:he assessee filed an appeal before the Commissioner of Income Tax (Appeals) which was allowed by holding that the theatre building is to be treated as 'plant'. The Income tax Appellate Tribunal confirmed the order of the Commissioner of Income Tax (Appeals). On reference by the Income Tax Appellate Tribunal to the High Court, the High Court also decided the reference in favour of the assessee. Hence the Revenue F filed the instant appeal by way of Special Leave Petition. Appeals filed by other assessees and the Revenue involving the same question of law were heard by this Court. Before this Court, the assessees contended that the words 'plant' and 'building' are not mutually exclusive. 'Plant' may include building in certain G set of circumstances and, therefore, applying the functional tests the assessees would be entitled to depreciation under the head 'plant' which is more beneficial to it In the modern era theatre building and hotel building are integral part of the operation of carrying out such business and are constructed and designed for facilitating such business and therefore, they H are apparatus or tool for running the cinema or hotel business and are therefore, 'plant'. Allowing the appeals filed by the Revenue and dismwing the appeals filed by the assessees, the Court HELD : 1.1. The building used for running a hotel or carrying on cinema business cannot be held to be a 'plant'. The scheme of Section 32 of the Income B Tax Act, 1961 is to provide different rates of depreciation for building, machinery, plant or furniture, ships, buildings used for hotels, aeroplanes and other items mentioned therein. For a building u~ed for a hotel, specific provision is made granting depreciation under Section 32 (1) (v) of the Income tax Act, 1961. The word 'plant' is given inclusive meaning under Section 43(3) of the Income tax Act, 1961 which nowhere includes buildings. All throughout C Section 32 for building it is specifically mentioned that 'whenever it is erected' while for the machinery and plant, the words used are 'whenever it is installed' and there is no question of installing building. The Income Tax Rules, 1962 prescribing the rates of depreciation specifically provide for grant of depreciation on buildings, fu.miture and fittings, machinery and plant D and ships. The legislature has not considered hotel building by itself as a plant. The Legislature has considered building as separate from the hotel business and building is not considered as a plant for running the hotel. (364-F-H; 365-A-G) 12 मई, 2000 [ 364 12 ਮਈ 2000 341 1.2. There is no question of referring to dictionary meaning of the word E 'plant' which may or may not include t.uilding, for arriving at a conclusion that building which is a specifically designed and constructed as a hotel building would be a 'plant'. Even though the word 'plant' may include building or structure in certain set of circumstances as per the dictionary meaning, but to say that building used for running the business of hotel or a cinema F would be 'plant' under the Income tax Act, 1961 appears, on the face ofit, to be inconsistent with the provisions of the Act. Such meaning would be clearly against the legislative intent. (366-F-H; 367-A) 2. Business of a hotelier is carried on in a building or a premises and building is not an apparatus for running such business. It is a shelter or a G home for conduct of such buJlines5. Such buildings cannot be termed as tools for running business but are mere shelter for carrying on such business activities. Therefore, even functiona1 test, which would not be conclusive in all cases, is not satisfied. (369-8; 370-8) 3. The contention of the Assessee that the words 'plant' and 'building' H 340 SUPREME COURT REPORTS [2000) SUPP. I S.C.R. A are not mutually exclusive and that 'plant' may include 'building' in certain set of circumstances and, therefore, applying the functional tests assessee would be entitled to depreciation under the head which is more beneficial to it cannot be accepted. Firstly, it would be difficult to draw a line between a building which is specifically constructed for the aforesaid purposes and B buildings which are used for the aforesaid purposes by converting a residential accommodation or industrial premises for such purposes. Secondly, depreciation as a general principle represents the diminution in value of capital asset when applied to the purpose of making profit or gain. The object is to get true picture of real on come of the business. Hence, it can be inferred that the Legislature never intended to give such benefit of depreciation to a C 'building' which is usually more durable than 'machinery' or 'plant'. [375-D-G) 4. There are hotels of all kinds and hotel business can be carried on in all kinds of buildings, may be pucca or kacha constructions. A building intended to be used, or in fact used, earlier as a residential accommodation or business purpose can be converted for running hotel business. To differentiate a building for grant of additional depreciation under the Income Tax Act, 1961 by holding it to be a 'plant' in one case where the building is specially designed and constructed with some special features to attract the customers and a building not so constructed but used for the same purpose E namely, as a hotel or theatre, would be unreasonable. [374-D-E; 378-C-DJ 5. For running almost all industries or for carrying on any trade or business building is required. On occasions building may be designed and constructed to suit the requirement of a particular industry, trade or business. But that would not make such building a 'plant'. It only shelters running of F such business. If contention of the Assessee is accepted, virtually all such buildings would be considered to be a plant and distinction which the legislature has made between the 'building' and 'machinery' or 'plant' would be obliterated. (375-8-D] G Dy. Chief Controller of Imports and Exports, New Delhi v. K.T. Kosa/ram & Ors., (1970) 3 SCC 82; C./. T. v. Mir Mohammad Ali, (1964) 53 ITR 165 SC; C.l.T., Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44 SC; Commissioner of Inland Revenue v. Scottish & Newcastle Breweries Ltd., 55 Tax Cases 252; Benson v. Yard Arm Club Ltd., (1979) 1 WLR 347; Wimpy International Ltd. v. War/and and Associated Restaurants Ltd. v. War/and, 61 H Tax Cases 51; Carr (H.M Inspector of Taxes) v. Sayer, 65 Tax Cases 15; Gray v. Seymours Garden Centre, 67 Tax Cases 401 and C./. T. Punjab, J & K. and A Himachal Pradesh, Patiala v. Mis Alps Theatre, AIR (1967) SC 1437, relied OIL 1998 . 342 v. Seymours Garden Centre, 67 Tax Cases 401 and C./. T. Punjab, J & K. and A Himachal Pradesh, Patiala v. Mis Alps Theatre, AIR (1967) SC 1437, relied OIL Inland Revenue Commissioner v. Barclay, Curle & Co. Ltd, (1969) l WLR 675, referred to. Scientific Engineering House P. ltd, v. Commissioner of Income Tax, A.P. (1986) 157 ITR 86 SC; C.I. T. Lucknow v. Knodia Cold Storage, (1975) 100 ITR 155 (Allahabad); C./. T., Patiala II v. Yamuna Cold Storage, (1981) 129 ITR 728, (Punjab & Haryana); C.l.T. v. Warner Hindustan ltd, (1991) 117 ITR IS (Andhra Pradesh); C.I. T. v. Ca/tax Oil Refinding (India) Ltd, (1979) 116 ITR 404 (Bombay); C.l.T. v. Dr. B. Venkata Rao, (1993) 202 ITR 303 C (Kamataka); Additional C.I. T. v. Madras Cement ltd, 110 ITR 281 (Madras); C.I. T. v. Krishna Bottlers P. Ltd, (1989) 175 ITR 154 (Andhra Pradesh) and Webster Conprehensive Dictionary (International Edition); Webster's Third New International Dictionary, referred to. R.C. Chemical Industries v. C.L T. New Delhi, (1982) 134 ITR 330 (Delhi); D C.LT. v. lake Palace Hotels and Motels P. ltd, (1997) 226 ITR 561 (Rajasthan); C.LT. v. Damodar Corporation Hotel, Pankay, (1997) 137 ITR 574 (Kerala); Siemens India ltd. v. C.l.T., (1996) 217 ITR 622 (Bombay) and C.l T. v. N. Sathyanathan and Sons P. ltd, (200ll) 242 ITR 514 (Madras), approved. S.K. Tulsi and Sons v. C./. T., (1991) 187 ITR 685 (Allahabad); C.l T. v. Hotel Luciya, (1998) 231 ITR 492 (Kerala); Tutsi Theatre v. C./. T., (1991) 190 ITR 575 (Allahabad); Leela Movies v. C.l T., 191 ITR 113 (Allahabad); C.l T. v. Hotel Rama Pvt. ltd., (1998) 146 CTR 243 (Karnataka); C./. T. v. Lawly Enterprises (P) ltd, (1997) 225 ITR 154 (Patna) and S.P. Jaiswal Estates (P) Ltd v. C./. T., (1995) 216 ITR 145 (Calcutta), disapproved. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4758 of 1998. From the Judgment and Order dated I 1.3.98 of the Kerala High Court in I. T.A. No. 85 of I 996. WITH Civil Appeal Nos. 5198-99/98, 5391/98,15, 241, 242-43, 244, 245, 246,-48 of 1999, CA Nos. 3434-35 of2000, CA Nos. 2784-86, 2787, 3690of1999 and 55-57 of2000. T.L.V. Iyer, B.B. Ahuja, Joseph Vellapally, S. Ganesh, Ms. Sushma Suri, H 342 SUPREME COURT REPORTS [2000) SUPP. I S.C.R. A S. Sukumaran, Ramesh Babu M.R., Tarun Gulati, Vinod M.P., Romy Chaim, Rajiv Mehta, Ms. Revathy Raghavan, Shail Kumar Dwivedi, Ms. Neelam Prasad and B.K. Prasad for the appearing parties. The Judgment of the Court was delivered by B SHAH, J. Leave granted in SLP (Civil) Nos. 4373-74 of 1999. Question involved in these appeals is whether building which is used as a hotel or a cinema theatre can be considered to be apparatus or a tool for running the business so that it can be tenned as a plant and depreciation can be allowed accordingly or whether it remains a building wherein either C hotel business or business for cinema could be conducted? The aforesaid question is to be decided in the background of the specific provisions granting depreciation to buildings, machinery and plant under Section 32 of Income Tax Act, 1961 (herein after referred to as "the D Act"). And also to decide whether time has come to have a fresh look at the old precedents and to lay down the law with the changed perceptions keeping in view the provisions of the Act? Further, to what extent are we required to follow and adopt artificial and largely judge-made sense of the word "plant", which is given inclusive meaning under Section 43(3) and in context of the Scheme of Section 32? In this batch of civil appeals, some appeals are filed by the Revenue and some by the assessees. Since the question involved in all these appeals is similar, we would deal with the facts in Civil Appeal No. 4758 of 1998 for convenience. For the assessment year 1986-87 the assessee claimed depreciation at 15% on the theatre building claiming it to be a plant. The · F assessing officer by order dated 27.9.1988 rejected the claim and allowed depreciation only at 5%. The appeal filed by the assessee before the Commissioner of Income Tax (Appeals), Trivandrum was allowed by order dated 21.7.1989 holding that the theatre building is to be treated as a 'plant'. Being aggrieved, the Revenue filed appeal ITA No. 748/Coch/89 before the G Income Tax Appellate Tribunal, Cochin Bench, Cochin. It was contended by the Revenue that the theatre building is not a 'plant' and even if it is to be construed as plant only that part of the building housing the auditorium and furniture and fittings found therein should be construed as plant and not the entire building. The Tribunal by order dated 29.9.1994 held that the entire theatre building should be construed as plant for the purposes of granting H depreciation and further allowed the claim of assessee for extra shift allowance. Revenue filed Reference Application No.264 of 1994 before Income Tax A Appellate Tribunal, Cochin Bench, Cochin requesting the Tribunal to draw up a statement of case and refer the questions, arising out of the order of Tribunal passed in ITA No. 748 [Coch]/1989 dated 29.9.1994, for opinion of the High Court of Kerala. After hearing both the sides, the Tribunal referred following questions to the High Court of Kerala. (I) Whether on the facts and in the circumstances of the case, the theatre building can be con~idered as a plant? (2) Whether on the facts and in the circumstances of the case, the assessee is entitled to higher rate of depreciation on the theatre? The High Court of Kerala in ITR No.85 of 1996 considered the above questions and after relying upon its earlier decision in CIT. Trivandrum v. Mis. Abhilash Theatre, Kottayam answered in favour of the assessee and against the revenue. [Against the decision rendered in Abhi/ash Theatre's case, Civil Appeal No.5198-5199 of 1998 is pending before this Court-being disposed of by this judgment] The question considered by the High Court in Abhi/ash Theatre's case (Supra) was - whether hotel building and theatre building can be considered as a "plants". With regard to the hotel, the Court considered whether hotel building is merely a setting or premises or whether that plays an important role in running the hotei meaning thereby whether the building is such E without which business of hotel cannot be conceived; and if a building is an integral part of hotel business, that is some thing more than merely a place, accommodating some requisites of hotel, then that would partake the character of plant For this purpose, the High Court considered the decisions in Inland Revenue Commissioners v. Barclay, Curle & Co. Ltd, (1969) 1 WLR 675 and F Scientific Engineering House P. Ltd v. Commissioner of Income-Tax, A.P., (1986) 157 ITR 86 SC. The Court .observed that the principle that can be deducted is that if a building is merely a setting or place to accommodate some apparatus, then that will not be held as plant but if a building which does not IJlerely accommodate something or which cannot be regarded merely as a setting or premises, but if that plays an important role in carrying on the G business, then that would fall within the inclusive definition of the plant Thereafter, the Court observed thus: - "The hotel building in our opinion, cannot be equated with a residential building, which provides shelter to the people living therein. Building is essential to run the business of hotel. Without befitting H SUPREME COURT REPORTS [2000) SUPP. I S.C.R.