Mumbai v. M/S.narang Motels Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 123 OF 2006 INCOME TAX APPEAL NO. 123 OF The Commissioner of Income Tax ) Central -III, First Floor, ) Room No.109, Aayakar Bhavan, ) M.K. Road, Churchgate, ) Appellant Mumbai-400020. )....Appellant Versus M/s.Narang Motels Pvt. Ltd. ) (Now M/s.Narang International ) Hotels Pvt. Ltd.,) C/o. ) Ambassador Hotel, Churchgate, ) Mumbai-400 020. )..Respondent Mr. Suresh Kumar with Mr. P.S. Sahadevan, for the Appellant. Mrs. Beena Pillai i/b. D.M. Harish & Co., for the Respondent. CORAM: F.I. REBELLO, & CORAM: F.I. REBELLO, &R.S. MOHITE, JJ. R.S. MOHITE, JJ. DATED: JANUARY 19, 2009 DATED: JANUARY 19, 2009 (JUDGMENT (PER F.I. REBELLO, J.): (JUDGMENT (PER F.I. REBELLO, J.): . The Revenue is in Appeal on the following question of law:- "Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal is right in allowing the depreciation on motor and platform of revolving restaurant at the rate as applicable to machinery ignoring the ratio of the Hon’ble Apex Court in the case of C.I.T. vs. Anand Theatre, reported in 2004 C.I.T. vs. Anand Theatre, reported in 2004ITR 182?" ITR 182?" Appeal is in respect of assessment year 1984-85. -2- The Tribunal in its order noted, that in the assessee’s own case for the assessment year 1988-89, the Tribunal had held that the motor and the platform of the revolving restaurant are mechanical in nature and is not a part of normal hotel building and, therefore, the rate of depreciation applicable to machinery are applicable to the motor and platform of revolving restaurant. The Tribunal, therefore, following its own order held that the depreciation on motor and platform of revolving restaurant should be allowed at the rate of depreciation applicable to machinery. 2. The factual situation is explained as under: There is a building on which is fixed a platform with a motor. On this platform and motor is fixed the restaurant building which revolves. Based on this it is submitted that the platform and motor is not part of the restaurant and/or building and consequently depreciation on the motor and platform has to be on the basis that is plant and or machinery and not as a building. The submission made on behalf of the Revenue is that the view taken by the Tribunal is contrary to the view taken by the Supreme Court in Commissioner of Income vs. Anand Commissioner of Income vs. AnandTheatre, 244 ITR 182. Theatre, 244 ITR 182. . Let us, theerfore, first examine the ratio in Anand Theatre (supra). The issue before the Supreme Court was, whether a building used as a hotel or cinema theatre can be considered to be an -3- mgn apparatus or a business so that it can be termed as a plant and depreciation can be allowed accordingly. The Supreme Court in that context was pleased to hold that the meaning of the words "building" and "plant" have to be gathered in the context of Section 32 and it is not necessary to adopt a judge-made sense, which is artificial and impermissible in application. The Supreme Court considered its earlier judgment in East India HotelsLtd. vs. Commissioner of Income-tax, 223 ITR 1. In that case the A.O. allowed deduction for depreciation which included extra shift depreciation allowance of plant and machinery and also extra depreciation of office equipment. This order was revised by the Commissioner, who remanded the matter to the Assistant Commissioner to redetermine the The Supreme Court in that context was pleased to hold that the meaning of the words "building" and "plant" have to be gathered in the context of Section 32 and it is not necessary to adopt a judge-made sense, which is artificial and impermissible in application. The Supreme Court considered its earlier judgment in East India HotelsLtd. vs. Commissioner of Income-tax, 223 ITR 1. In that case the A.O. allowed deduction for depreciation which included extra shift depreciation allowance of plant and machinery and also extra depreciation of office equipment. This order was revised by the Commissioner, who remanded the matter to the Assistant Commissioner to redetermine the grant of admissible depreciation in accordance with law as in his opinion in case of an approved hotel, only extra depreciation allowance was admissible, but not extra shift depreciation allowance. An appeal was preferred by the assessee to the Tribunal. The Tribunal allowed the Appeal. The Supreme Court held that the depreciation is allowable on machinery and plant and not with reference to the nature and character of activities carried on in the premises where the said machinery is installed. The Court further held that if any machinery is installed in the hotel such machinery is certainly entitled to depreciation allowance and, therefore, entitled to claim the extra shift depreciation allowance on the machinery and plant. -4- mgn From the ratio of the judgment it is clear that though the hotel may be a building, in respect of which depreciation is allowable, plant and machinery installed in the Hotel would also be entitled to the depreciation allowance as plant and machinery and not as a building. The Supreme Court also considered the judgment in C.I.T. vs. Taj Mahal Hotel (1971) 82 ITR 44. Judgments of High Courts were also noted, where the Courts have taken the view that a freezing Chamber though it is not machinery or part thereof is part of Air Condition Plant of Cold Storage and would be entitled for special depreciation. The judgment of this Court was also noted that fencing around factory of processing unit constitute plant and entitled to depreciation rebate. The Court then held that the Scheme of Section 32 unequivocally leads to the conclusion that "building" and "plant" are treated separately for the purpose of grant of depreciation and that higher rate of depreciation is granted to "machinery" and "plant" as against "building" which has more durability. The Court relying on the judgment in CIT v. Mir Mohammad Ali (1964) 53 ITR CIT v. Mir Mohammad Ali (1964) 53 ITR165 noted that the word "machinery" is an ordinary 165 and not a technical word and unless there is some thing in the context in the Act, the ordinary meaning would prevail. In that case held that diesel engine is clearly machinery. On the fact there the Court arrived at a conclusion that the building used for running of a hotel or carrying on cinema business cannot be held to be a plant. -5- mgn Therefore, in Anand Theatre (supra) the issue really was not whether machinery installed in a building is entitled to special depreciation. The issue only was whether the Theatre or hotel building specially designed could be treated as a plant. The issue of machinery and plant entitled to depreciation apart from the judgment in the case of Taj Mahal Hotel (supra) is also concluded by the judgment in East India Hotels Limited(supra). 4. Our attention was also invited to the judgment of the Madras High Court in Geetha HotelsP. Ltd. Vs. Commissioner of Income-tax, (2002)254 ITR 649. There the Madras High Court was pleased to hold that electrical installations and cinema business cannot be held to be a plant. -5- mgn Therefore, in Anand Theatre (supra) the issue really was not whether machinery installed in a building is entitled to special depreciation. The issue only was whether the Theatre or hotel building specially designed could be treated as a plant. The issue of machinery and plant entitled to depreciation apart from the judgment in the case of Taj Mahal Hotel (supra) is also concluded by the judgment in East India Hotels Limited(supra). 4. Our attention was also invited to the judgment of the Madras High Court in Geetha HotelsP. Ltd. Vs. Commissioner of Income-tax, (2002)254 ITR 649. There the Madras High Court was pleased to hold that electrical installations and sanitary fittings embedding the hotel building are not building. The Court further held that the electrical installations and sanitary fittings are by themselves plant for the purpose of depreciation in the scheme of Section 32 and cannot be regarded as building when such fittings are fitted to the building as they do not become brick or motor which are essential for the construction of the buildings. They remain electrical and sanitary fittings which are meant to be used for a purpose other than giving shelter and that such installations therefore remain plant only, even when they are installed in the building used as a hotel. 5. We may gainfully refer to the judgment in the case of Inland Revenue Commissioners vs. Inland Revenue Commissioners vs. -6- The issue before the House of Lords was whether a dry dock was a plant and, therefore, the expenditure incurred therein was entitled to allowance as business expenditure. In the judgment of the House of Lords, Reid J., referred to the tests of the word "plant" given by Lindley L..J. in Yarmouth v. France, (1887( 19 S.B.D. 647. It reads thus: "in its ordinary sense, it includes whatever apparatus is used by a business man 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’.The Court then noted that in its application for income tax purposes this definition is subject to the qualification laid down by Uthwatt J. in J. Jyons Co. Ltd. v. Attorney-General, (1944) Ch. 281 where it was observed that plant does not include ’the place in which the business is carried on’. On the facts there certain amount was allowed as expenditure on plant and machinery. 6. The question, therefore, before us is whether the motor and platform installed in the building on which the restaurant revolves is plant and machinery or is part of the building and, therefore, disentitled to the special depreciation. As noted in Barclay, Qurle & Co., and considering the test it would not be the place in which the business is carried on. The motor and the platform -7- mgn are in the nature of additional fittings provided for better service. The plant and the machinery are not part of the building, but are aids in using the structure fixed on it for the business of the hotel. 7. If we examine the issue now in the context whether the motor, platform are plant and machinery or a building the functional tests which primafacie can be applied is that the building as normally understood is something fixed. The movement of the restaurant is only by virtue of the equipment installed, which makes it to revolve. The platform would serve as the base on which the structure has been placed and the motor as the means by which the platform is made to revolve. If we examine the issue in that context the platform and the motor are not part of the building. Rather they are for better service. The plant and the machinery are not part of the building, but are aids in using the structure fixed on it for the business of the hotel. 7. If we examine the issue now in the context whether the motor, platform are plant and machinery or a building the functional tests which primafacie can be applied is that the building as normally understood is something fixed. The movement of the restaurant is only by virtue of the equipment installed, which makes it to revolve. The platform would serve as the base on which the structure has been placed and the motor as the means by which the platform is made to revolve. If we examine the issue in that context the platform and the motor are not part of the building. Rather they are independent of the building. We are clearly, theerfore, of the view that the judgment of the Supreme Court in Anand Theatre would be inapplicable. The motor and the platform will have to be treated as plant and machinery which is entitled to special depreciation. 8. Considering the above, the question will have to be answered in the affirmative in as much as the Tribunal was right in allowing the depreciation on motor and platform. Considering the above, the is Appeal dismissed. (R.S. MOHITE, J.) (F.I. REBELLO,J.) (R.S. MOHITE, J.) (F.I. REBELLO,J.)