Commissioner of Income Tax vs Broadways Enterprises P. Ltd.

B.P. Saraf, C.J.—By this reference u/s 256(1) of the Income Tax Act, 1961 (""the Act""), the Income Tax Appellate Tribunal (""the

Tribunal""), Amritsar Bench, Amritsar, has referred the following question of law to this court for the opinion at the instance of the Revenue :

Whether the hotel building owned by the assessee constituted plant within the meaning of Section 43(3) of the Income Tax Ac, 1961, and

whether the assessee is entitled to depreciation thereon at the rate as admissible on the plant ?

The assessee-firm derives income from hotel business. Its return of income for the assessment year 1980-81 was filed on July 29, 1979,

declaring an income of Rs. 10,01,840. Subsequently, the assessee revised its return on November 3, 1981, declaring net loss of Rs. 9,96,806. In

the revised return, the assessee claimed that the hotel building was plant and machinery and claimed depreciation on hotel building at a higher rate.

The Income Tax Officer did not accept the assessee's claim on the plea that a building cannot be treated as plant and machinery. He, therefore,

allowed depreciation as claimed by the assessee in his original return, treating the hotel building as a building and not a plant and completed the

assessment on July 29, 1982, at nil income. The balance depreciation of Rs. 78,870 was carried forward. The assessee appealed to the

Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) accepted the contention of the assessee and held that the

hotel building was a tool of the trade of the assessee and hence it was a plant. Against the order of the Commissioner of Income Tax (Appeals),

the Revenue appealed to the Tribunal. The Tribunal dismissed the appeal of the Revenue and upheld the order of the Commissioner of Income Tax

(Appeals). The Tribunal did not accept the contention of the Revenue that hotel building could not be construed as a plant. Hence, this reference

u/s 256(1) of the Act at the instance of the Revenue.

We have heard learned counsel for the Revenue, Mr. Anil Bhan. We have also heard Mr. M. I. Qadri, learned counsel for the assessee.

It is true that there was a divergence of opinion between various High Courts on the question whether a building used as a hotel constituted

plant"" within the meaning of Section 43(3) of the Income Tax Act, 1961, and whether the assessee was entitled to higher depreciation thereon at

the rate admissible on ""plant"". The Calcutta High Court in S.P. Jaiswal Estates (P.) Ltd. Vs. Commissioner of Income Tax, and a Full Bench of the

Kerala High Court in Commissioner of Income Tax Vs. Hotel Luciya, had held that hotel building was plant within the meaning of Section 43(3) of

the Act and accordingly entitled to depreciation at the rate applicable to plant. The Karnataka High Court in Commissioner of Income Tax Vs.

Hotel Rama Pvt. Ltd., and Commissioner of Income Tax Vs. Woodlands Hotel (P) Ltd., also held that hotel building was a plant within the

meaning of Section 43(3) of the Act. The Andhra Pradesh High Court in Hotel Banjara Ltd. Vs. Commissioner of Income Tax, and the Patna High

Court in Commissioner of Income Tax Vs. Lawly Enterprises (P.) Ltd. , held that it would depend upon the facts of each case whether a hotel

building is a plant or not. Both these courts, however, held that depending upon the facts, in a given case, a hotel building might qualify as a plant.

Contrary views were expressed by a Division Bench of the

Kerala High Court in Commissioner of Income Tax Vs. Damodar Corporation, , the Rajasthan High Court in Commissioner of Income Tax Vs.

Lake Palace Hotels and Motels Pvt. Ltd., and the Madras High Court in Commissioner of Income Tax Vs. N. Sathyanathan and Sons P. Ltd. and

Hotel Srilekha (P.) Ltd., . This controversy, however, has now been set at rest by the Supreme Court by its latest decision rendered on May 12,

2000, in Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, (Civil Appeal No. 4758 of 1998 and other connected appeals).

The question involved in the appeals before the Supreme Court was whether a building which is used as a hotel or a cinema theatre can be

considered to be an apparatus or a tool for running the business so that it can be termed as plant and depreciation can be allowed accordingly or it

remains a building wherein either hotel business or business for cinema could be conducted. The Supreme Court, on a perusal of the relevant

provisions of the Act, viz., Section 32 and Section 43(3) and on consideration of a large number of decisions on the subject, both Indian and

English, held that hotel building and theatre building cannot be construed as ""plant"".

On a scrutiny of the relevant clauses of Section 32 and the table of rates at which depreciation is applicable, the Supreme Court observed (page

215) :

From the aforesaid discussion, it is apparent that for a building used as a hotel, there is a specific provision for granting depreciation allowance at

specified rates depending upon fulfilment of the conditions mentioned therein. Hence, there is no question of referring to the dictionary meaning of

the word 'plant' which may or may not include building, for arriving at a conclusion that a building which is specifically designed and constructed as

a hotel building would be a 'plant'.

Further, in the context of the legislative scheme u/s 32 stated above, which provides depreciation at different rates for building, machinery and

plant, furniture and fixtures, ships, building used for hospital, aeroplanes, cinematograph films, machinery used in the production and exhibition of

cinematograph films, recording equipment reproducing equipment, developing machines, printing machines, synchronisers and studio lights except

bulbs, projecting equipment of film exhibiting concerns, 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 would be 'plant' under the

Act appears, on the face of it, to be inconsistent with the aforesaid provisions. Such meaning would be clearly against the legislative intent,

The Supreme Court, therefore, held (page 216) :

The scheme of Section 32 unequivocally leads to the conclusion that 'building' and 'plant' are treated separately for the purpose of grant of

depreciation. A higher rate of depreciation is granted to 'machinery' and 'plant' as against 'building' which has more durability.

Referring to the definition of ""plant"" in Section 43(3) of the Act, it was observed (page 217) :

It is to be stated that Section 43 itself provides that 'unless the context otherwise requires' the word 'plant' is to be given wider meaning as stated

therein. This wider meaning does not include building. But in any case even for the time being presuming that the judge-made meaning of the word

'plant' includes building in certain set of circumstances, in the context of Section 32 such wider meaning cannot be given and plant would not

include building in which hotel business is run or a theatre building in which cinema business is carried on.

It was held that the business of a hotelier is carried on in a building or premises and building is not an apparatus for running such business. It is a

shelter or a home for the conduct of such business.

The Supreme Court also referred with approval to the observation of the Chancery Division of England in Can (H. M. Inspector of Taxes) v.

Sayer [1992] 65 TaxCas 15, that a hotel building remains a building even when constructed to a luxury specification.

In view of the above decision of the Supreme Court in Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, , the controversy

whether hotel building can be construed as ""plant"" or not for the purpose of determining the rate of depreciation applicable thereto is no more res

integra. Law is now settled that the building in which the business of a hotelier is carried on is not an apparatus for running such business. It is a

shelter or a home for the conduct of such business. It remains a building even when constructed to a luxury specification because a purpose-built

building also is no more than the premises on which the business is conducted. The building used for a hotel or a cinema theatre, therefore, cannot

be construed as a plant within the meaning of Section 43(3) of the Act.

Following the above decision of the Supreme Court, we hold that the hotel building owned by the assessee cannot be construed as plant within

the meaning of Section 43(3) of the Income Tax Act, 1961, and the assessee is not entitled to depreciation thereon at the rate admissible on plant.

The question referred to us is, therefore, answered in the negative, i.e., in favour of the Revenue and against the assessee.

This reference is disposed of accordingly with no order as to costs.