2000 Supreme(SC) 1045

2000(4) Supreme 290
Supreme Court of India
(From Kerala High Court)
A.P. Misra & M.B. Shah, JJ.
Commissioner of Income Tax, Trivandrum —Appellant
versus
M/s. Anand Theatres etc. etc. —Respondents
Civil Appeal No. 4758 of 1998
With
C.A. Nos. 5198-99/98, 5391/98, 15, 241, 242-243, 244, 245, 246-248 of 1999, C.A. No. 3434-3435 of 2000 of @ S.L.P. (C) No. 4373-74/99, C.A. Nos. 2784-86, 2787, 3690 of 1999 and 55-57 of 2000
Decided on 12-5-2000
Counsel for the Parties :
For the Appearing Parties : T.L.V. Iyer, B.B. Ahuja, Joseph Vellapally, Sr. Advocates, S. Ganesh, Ms. Sushma Suri, S. Sukumaran, Ramesh Babu, M.R Tarun Gulati, Vinod M.P., Romy Chako, Rajiv Mehta, Ms. Revathy Ragha­van, Shail Kumar Dwivedi, Ms. Neelam Prasad, B.K. Prasad, Advo­cates.

Important Point
Building used for running hotel or cinema business cannot be held as a ‘plant’ as provided under Section 43(3) of the Income Tax Act.

Headnote:(i) Income Tax Act, 1961—Section 32 r/w Section 43—Depreciation —Rate of—Hotel Building and Theatre building—Hotel or a Cinema cannot be considered to be appa­ratus or a tool for running business—It remains a building wherein either hotel business or business for Cinema could be conducted—It cannot be considered as a plant—Not entitled to higher depreciation of 15 .

       (ii) Income Tax Act, 1961—Section 43(3)—Plant—Hotel or Cinema building—Cannot be considered as plant.

       For a building used as a hotel there is a specific provision for granting deprecia­tion allowance at specified rates depending upon fulfillment of the conditions mentioned therein. Hence, there is no question of referring to dictionary meaning of the word “plant” which may or may not include building, for arriving at a conclusion that building which is specifi­cally designed and constructed as a hotel building would be a “plant”. Further, in context of legislative scheme under Section 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. (Paras 39 & 40)

       We have to gather the meaning of words “building” and “plant” in context of Scheme of Section 32 and it is not necessary that we should adopt a judge sense meaning, which is artificial and imprecise in application, given to the word “plant” in context of different statutory provisions. The Scheme of Section 32 unequivocally leads to the conclusion that “building” and “plant” are treated separately for the purpose of grant of depreciation. Higher rate of depreciation is granted to “machinery” and “plant” as against the “building” which has more durability. (Para 42)

       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 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. (Para 45)

       Further, 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 either as a residential accommodation or business purpose can be converted for running hotel business. Section 32 itself contemplates, a hotel business being carried on in a residential accommodation including an accommodation which is in the nature of guest house. On occasions hotel buildings may be constructed with a special design and features so as to attract and accommodate certain class of tourist. Similarly with regard to cinema business, it can be carried on in a specially designed and constructed building and also in other buildings. Still, however, it would be difficult to draw a distinction and differentiate by holding that a building which is specially designed and constructed for running a hotel or cinema would be covered by a ‘plant’ and other buildings used for the same purpose would not get depreciation as ‘plant’, even though such business is carried on in such premises. Simply because some special fittings or controlling equipments are attached for the purpose of carrying on hotel business, it will not take it out of the category of building and make it a plant. In our view special fittings or equipments to control atmospheric effects would be plant, but not the building which house such equipments. (Para 54)

       Further 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 suite the requirement of a particular industry, trade or business. But that would not make such building a plant. It only shelters running of such business. For each and every business, trade or industry, building is required to carry on such activity. That means building plays some role and in other words, its function is to shelter the business, but it has no other function except in some rare cases such as dry dock where it plays an essential part in the operations which take place in getting a ship into the dock, holding it squarely and then returning it to the river. Building is more durable. 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. (Para 55)

       In the result it is held that the building used for running of a hotel or carrying on cinema business cannot be held to be a plant because :

       (1) The scheme of Section 32, as discussed above, clearly envisages separate depreciation for a building, machinery and plant, furniture and fittings etc. The word ‘plant’ is given inclusive meaning under Section 43(3) which nowhere includes buildings. The Rules prescribing the rates of depreciation specifically provide grant of depreciation on buildings furniture and fittings machinery and plant and ships. Machinery and plant includes cinematograph films and other items and the building is further given meaning to include roads, bridges, culverts, wells and tube-wells.

       (2) In the case of Taj Mahal Hotel (supra), this Court has observed that business of a hotelier is carried on by adopting building or premises in suitable way. Meaning thereby building for a hotel is not apparatus or adjunct for running of a hotel. The Court did not proceed to hold that a building in which the hotel was run was itself a plant, otherwise the Court would not have gone into the question whether the sanitary fittings used in bath room was plant.

       (3) For a building used for a hotel, specific provision is made grant­ing additional depreciation under Section 32 (1)(v) of the Act.

       (4) Barclay, Curle & Co.’s case ­decided by the House of Lords pertains to a dry dock yard which itself was functioning as a plant that is to say, structure for the plant was constructed so that dry dock can operate. It operated as an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river. The dock as a complete unit contained a large amount of equipment without which the dry dock could not perform its function.

       (5) Even in England, Courts have repeatedly held that the meaning to the word ‘plant’ given in various decisions is artificial and impre­cise in application, that is to use the words of Lord Buckley, " it is now beyond doubt that the word ‘plant’ is used in the relevant section in an artificial and largely judge-made sense.” Lord Wilberforce commented by stating that “no ordinary man, literate or semi-literate, would think that a horse, a swimming pool, moveable partitions, or even a dry-dock was plant.”

       (6) For the hotel building and hospital in the case of Carr v. Sayer (supra), it has been observed that a hotel building remains a building even when constructed to a luxury specification and similarly a hospi­tal building for infectious diseases which might require a special layout and other features also remains a premises and is not plant.

        It is to be added that all these decisions are based upon the inter­pretation of the phrase ‘machinery or plant’ under Section 41 of the Finance Act, 1971 which was applicable and there appears no such distinction for grant of allowance on different heads as provided under Section 32 of the Income Tax Act.

       (7) To differentiate a building for grant of additional depreciation 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 namely, as a hotel or theatre would be unreasonable. (Para 60)