The term "plant" in section 43(3) of the Income Tax Act, 1961, should be given a wide meaning and whether a building is a "plant" or not has to be determined with reference to the functional test.

SYED SHAH MOHAMMED QUADRI, J.

( 1 ) IN this reference case the assessee is carrying on hotel business . It claimed investment allowance under s. 32a of the IT Act, 1961, for short "the Act". The ITO negatived the claim of investment allowance on the ground that hotel business could not be treated as in industrial concern which was manufacturing an article or thing. The assessee carried the matter in appeal before the CIT (A ). The appellate authority took the view that the assessee was not entitled to investment allowance under s. 32a of the Act. He also opined that there was no manufacturing or processing activity and accordingly dismissed the appeal. Against the order of the first appellate authority two appeals were filed, one by the assessee and the other by the assessing authority. Those two appeals were disposed of by a common order dt. 18th Feb. , 1986. On the applications of the assessee as well as the Revenue, under s. 256 (1) of the Act, the following questions are referred to this Court for opinion :" (1) Whether, on the facts and in the circumstances of the case, the assessee is not entitled for investment allowance under s. 32a of the IT Act, 1961 in respect of plant and machinery installed for running hotel business ? (2) Whether, on the facts and in the circumstances of the case, the building for running the hotel should be treated as "plant" under s. 43 (3) of the IT Act, 1961".

( 2 ) MR. Y. Ratnakar, the learned counsel for the assessee contends that hotel is plant so far as the business of the assessee is concerned both for purposes of s. 32a of the Act as well as s. 43 (3) of the Act, therefore the Tribunal ought to have granted the relief under the said provisions.

( 3 ) THE learned standing counsel for the IT Department, has contended that hotel is mere a building and it cannot be treated as plant , wherever the Parliament intended to grant relief to a hotel it included the word hotel for purposes of granting relief, so where the word plant is used, the assessee cannot bring in hotel within the concept of plant . He further contended that after amendment of the IT Act, 1961 w. e. f. 2/04/1987 new classification has been introduced by the Parliament classifying hotel under building and that would also give an indication that the Parliament never intended hotel to be brought within the meaning of plant .

( 4 ) AT the outset we may point out that w. e. f. 2/04/1987 Appendix I is amended for the purposes of granting depreciation and buildings are classified into three categories. Clause (i) of sub-item (3) of Item I of Appendix I is buildings used as hotels . But the question in this case relates to the asst. yr. 1980-81, so the amendment has no bearing on the answer to the said question.

( 5 ) SINCE we are concerned with the entitlement of the assessee under s. 32a of the Act, it would be useful to read here s. 32a (1) of the Act, which is relevant for our purpose and is in the following terms :"32a. (1) In respect of a ship or an aircraft or machinery or plant specified in sub-s. (2) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee : Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-s. (8b), this sub-section shall have effect as if for the words "twenty five per cent", the words "twenty per cent" had been substituted : Provided further that no deduction shall be allowed under this sect

Click Here to Read the rest of this document