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Petitioner: COMMISSIONER OF INCOME-TAX VS Respondent: ANAND THEATRES and others
Court Name: Supreme Court of India Judge(s): A. P. Misra, M. B. Shah Title: COMMISSIONER OF INCOME-TAX vs ANAND THEATRES and others Case No.:Civil Appeals Nos. 4758, 5198, 5199 and 5391 of 1998, 15, 241, 242, 243,244,
JUDGMENT
Reported As: 2001 PTD 1288 Result: Order accordingly Judgment JUDGMENT Leave granted in S.L.P. (Civil) Nos.4373 and 4374 of 1999. The 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 termed as a plant and depreciation can be allowed accordingly or whether it remains a building wherein either 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 the Income Tax Act, 1961 (hereinfter referred to as "the Act"), and also to decide whether the 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 the artificial and largely Judge made sense of the word "plant", which is given an inclusive meaning under section 43(3) and in the context of the scheme of section 32? In this batch of civil appeals, some appeals are filed by the Revenue and some by the assessee. 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 per cent. On the theatre, building claiming it to be a plant. The Assessing Officer by order, dated September 27, 1988, rejected the claim and allowed depreciation only at 5 per cent. The appeal filed by the assessee before the Commissioner of Income-tax (Appeals), Trivandrum, was allowed by order, dated July 21, 1989, holding that the theatre building is to be treated as a
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"plant". Being aggrieved, the Revenue filed Appeal I.T.A. No.748/Coch of 1989 before the 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 buildings. The Tribunal by order, dated September 29, 1994, held that the entire theatre building should be construed as plant for the purposes of granting depreciation and further allowed the claim of the assessee for extra shift allowance. The Revenue filed Reference Application No.264 of 1994 before the Income-tax. 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 the Tribunal passed in I.T.A. No.748/Coch of 1989, dated September 29, 1994, for the opinion of the High Court of Kerala. After hearing both the sides, the Tribunal referred the following questions to the High Court of Kerala (see (2000) 241 ITR 111 (FB)): "(1) Whether, on the facts and in the circumstances of the case, the theatre building can be considered 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 I.T.R. No.85 of 1996 ( CIT v. Anand Theatres (2000) 241 ITR 111 (FB)), considered the above questions and after relying upon its earlier decision in CIT v. Abhilash Theatre, answered in favour of the assessee and against the Revenue. (Against the decision rendered in Abhilash Theatre's case---Civil Appeals Nos.5198 and 5199 of 1998 are pending before this Court--being disposed of by this judgment). The question considered by the High Court in Abhilash Theatre's case was---whether hotel building and theatre building can be considered as "plant". 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 hotel, meaning thereby whether the building is such without which business of hotel cannot be conceived; and if a building is an integral part of hotel business, that is something more than merely a place, accommodating some requisites of hotel, then that would partake of the character of plant. For this purpose, the High Court considered the decisions in IRC v. Barclay, Curle & Co. Ltd. (1970) 76 ITR 62 (HL); (1969) 1 WLR 675 (HL) and Scientific Engineering House (P.) Ltd. v. CIT (1986) 157 ITR 86 (SC). The Court observed that the principle that can be deduced 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 merely accommodate something or which cannot be regarded merely as a setting or premises, but if that plays an important role in carrying on the 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. The building is essential to run the business of hotel. Without befitting building it is idle to think of a hotel business. A good hotel requires amenities and a building which is so erected as to fulfil the requisite norms of hotel. A building simply accommodating machinery or other apparatus to run a factory is different from the hotel building, which is specially designed, suiting the hotel requirements. So, a specially erected building cannot be said to be a mere setting or premises. No hotel can function without a suitable building satisfying the norms of hotel." The Court further observed-- "Building and plant are not mutually exclusive. When a dry dock, a concrete dry structure can be held a plant, because the whole dock was used for carrying on the entire operation, we fail to understand why the hotel building specially erected for that purpose, cannot be held as 'plant'. As a
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specially erected building for hotel is used for carrying on the hotel operations, it must come within the inclusive definition of the 'plant'." The High Court further considered the case of Scientific Engineering House (P.) Ltd. (1986) 157 ITR 86 (SC), and applying the functional test held that the hotel building is a tool of the assesssee's business. Plant cannot necessarily be confined to an apparatus which is used for mechanical operations or process or is employed in industrial operations. The Court further held that the terms "building" and "plant" occurring in section 32(1) are not mutually exclusive and a building depending on its nature and peculiarity can be held as plant. The High Court disagreed with the decisions in CIT v. Lake Palace Hotels and Motels (P.) Ltd. (1997) 226 ITR 561 (Raj) and CIT v. Damodar Corporation, Hotel Pankaj (1997) 225 ITR 699 (Ker.), but agreed with the decision of the Karnataka High Court in CIT v. Dr. B. Venkata Rao (1993) 202 ITR 303 and the decision of the Calcutta High Court in S.P. Jaiswa l Estates (P.) Ltd. v. CIT (1995) 216 ITR 145. The High Court finally held that the "hotel" building is plant entitled to depreciation applicable to plant under the rules framed under the Act. Further with regard to the "theatre' building, the Court referred to the decision of the Allahabad High Court in S.K. Tulsi & Sons v. CIT (1991) 187 ITR 685 and held that "what holds goods for the hotel building, that equally applies to a theatre building". Being aggrieved, the Revenue has filed the present appeal by special leave . Various relevant decisions rendered by this Court and the High Courts on the issue. (A) Decisions of this Court. In CIT v. Taj. Mahal Hotel (1971) 82 ITR 44 (SC), this Court considered that the sanitary and pipeline fittings fell within the definition of "plant" in section 10(5) of the Indian Income-tax Act, 1922, and therefore, the assessee was entitled to development relate in respect thereof. The Court further held that the fact that the assessee claimed depreciation on the basis that sanitary and pipeline fittings fell under "furniture and fittings" in rule 8(2) of the Indian Income-tax Rules, 1922, did not detract from this position as the rules cannot take away what is controlled by the Act or whittle down its effect. After considering the contentions raised by the Revenue, the Court observed as under (page 48): "It cannot be denied that the business of a hotelier is carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities are provided for their comfort and convenience. To have sanitary fittings, etc., in a bath room is one of the essential amentities or convenience which are normally provided in any good hotel in the present times. L the partitions in Jarrokl's case (1963) 1 WLR 214 (CA), could be .Treated as having been used for the purpose of the business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn larger profit by charging higher rates for the use of rooms if the bath rooms have sanitary fittings and similar amenities." (Emphasis supplied) Thereafter, the Court further held (page 49): "If the dictionary meaning of the word. 'plant' were to be taken into consideration on the principle that the literal construction of a statute must be adhered to unless the context renders it plain, that such a construction cannot be put on the words in question---this is what is stated in Webster's Third New International Dictionary: 'Land, buildings, machinery, apparatus and fixtures employed in carrying on trade or other industrial business...' It is, however, unnecessary to dwell more on the dictionary meaning because, looking to the provisions of the Act, we are satisfied that the assets in question were required by the nature of the hotel ' business which the assessse e was carrying on. They were not merelya part of the setting in which hotel business was being carried on."
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In Scientific Engineering House (P.) Ltd.'s case.(1986) 157 ITR 86, this Court considered that the drawings, designs, charts, plans processing data and other literature comprised in the 'documentation service" as specified in clause (3) constituted a book which fell within the definition of "plant"- in section 43(3) of the Income-tax Act. The Court held that these documents did not perform any mechanical operations or processes, but that cannot militate against their being plant since they were in a sense the basic tools of the assessee's trade having a fairly enduring utility. The Court further held that capital assets acquired by the assessee, namely, the technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature fall within the definition of "plant" and, therefore, were a depreciable asset. The Court also referred to the functional test referred to by Lord Guest in Barclay's case (1970) 76 ITR 62, 75 (HL) and observed as under (page 96): "In other words, the test would be: Does the article fulfil the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative, it will be a plant." We would add that learned counsel for the assessees on May 3, 2000, has filed an additional submission pointing out the decision rendered by this Court in CIT v. Dr. B. Venkata Rao (2000) 243 ITR 81, wherein this Court dismissing the appeal filed by the Revenue held that the nursing home building was specially equipped as a plant for the assessee's business. The Court observed (page 82): "What is to be determined is whether the particular nursing home building was equipped as to enable the assessee to carry on the business of a nursing home therein or whether it is just any premises utilised for that object. We find from the order of the Tribunal as also the assessment order that the assessee's nursing home is equipped to enable the sterilization of surgical instruments and bandages to be carried on. It is reasonable to assume in the circumstances, particularly having regard to the Tribunal's order which states that the sterilization room covers about 250 sq. Ft. That the nursing home is also equipped with an operation theatre. In the circumstances, we think that the finding of the High Court should be accepted." This decision is based on the facts found by the Tribunal and the High Court, wherein it was held that the nursing home was equipped to enable sterilization of surgical instruments and bandages to be carried on and that room covered 250 sq. Ft. And hence was a "plant". As such, no legal contentions were raised and considered by the Court and the matter is decided solely on the facts as quoted above without any discussion. Hence, this decision would not be of any assistance in determining the question involved. (B) Decisions rendered by the High Courts. In CIT v. Kanodia Cold Storage (1975) 100 ITR 155, the Allahabad High Court arrived at the conclusion that where a building with insulated walls is used as a freezing chamber, though it is not machinery or part thereof, it is part of the air-conditioning plant of the cold storage of the assessee and will be entitled to special depreciation at 15 per cent. On its written down value. In S.K. Tulsi & Sons v. CIT (1991) 187 ITR 685, the Allahabad High Court arrived at the conclusion that the cinema building constructed and used as a cinema alongwith its fittings and fixtures and wherein cinema business was carried on constituted a plant. In CIT v. Hotel Luciya (1998) 231 ITR 492, the Full Bench of the Kerala High Court held that for deciding whether a building is plant or not the Court must apply what is called "functional tests" and further held that hotel building and theatre building are plant within the meaning of section 43(3) of the Act and accordingly entitled to depreciation as applicable to the "plant" [Against this decision, Civil Appeal No.15 of 1999 is pending before this Court--being disposed of by this judgment].
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Further, in CIT v. Yamuna Cold Storage (19.81) 129 ITR 728, the Punjab and Haryana High Court held that the building with insulated walls of the cold storage was a plant and was entitled to depreciation at 15 per cent. The Allahabad High Court in Leela Movies v. CIT (1991) 191 ITR 113 and Tulsi Theatre v. CIT (1991) 190 ITR 575 (All), held that the cinema building constitutes "plant" within the meaning of section 43(3). The Andhra Pradesh High Court in CIT v. Warner Hindustan Ltd. (1979) 117 ITR 15, held that the well dug in the factory by the assessee for the purpose of carrying on its business was a plant within the meaning of section 43(3) and, therefore, the assessee was entitled to depreciation and development rebate on the cost of digging the well. The Bombay High Court in CIT v. Caltex Oil Refining (India) Ltd. (1979) 116 ITR 404, held that the fencing round the refinery processing unit constitutes plant and was entitled to depreciation and development rebate. The Karnataka High Court in CIT v. Dr. B. Venkata Rao (1993) 202 ITR 303, held that the building which was used as nursing home was a plant. Similarly, in CIT v. Woodlands Hotel (Pvt.) Ltd. (1998) 233 ITR 224 (I.R.T.C. Nos.48 and 49 of 1993, dated June 16, 1997) [Against this decision Civil Appeals Nos.4373 and 4374 of 1999 are pending before this Court---being disposed of by this judgment] and in CIT v. Hotel Rama (Pvt.) Ltd: (1998) 233 ITR 235 (Kar.), held that the building in which the hotel business is carried on is a plant for the purpose of grant of depreciation. The Madras High Court in Addl. CIT v. Madras Cements Ltd. (1977) 110 ITR 281, held that the special reinforced concrete foundation for the purpose of locating or installing the rotary kiln in the factory would come within the scope of the expression plant and is entitled to development rebate. In CIT v. Sri Krishna Bottlers (P.) Ltd. (1989) 175 ITR 154, the Andhra Pradesh High Court held that bottles were essential tools of the trade for it was through them that soft drink was passed on from the assessee to the customers and, therefore, were "plant" for the purpose of the Income-tax Act. In that case, the Court exhaustively considered various decisions, including the decisions of the Courts in England, and, inter alia, held that the building or the "setting" in which the business is carried on cannot be plant; in considering whether a structure is plant or premises, one must look at the finished product and not at the bits and pieces as they arrive from the factory. The fact that a building or part of a building holds the plant in position does not convert the building into plant. A piecemeal approach is not permissible and the entire matter must be considered as a single unit unless of course, the component parts can be treated as separate units having different purposes and the functional test is a decisive test. In CIT v. Lawly Enterprises (P.) Ltd. (1997) 225 ITR 154, the High Court of Patna considered---whether the hotel is a plant within the meaning of section 43(3) of the Income Tax Act, 1961, and depreciation at the rate of 15 per cent. Is admissible to it? The Court observed that a building intended to be used or in fact used earlier as a residential accommodation can be converted any time into a lodge and used for running a hotel business. On the other hand, there are hotels, self-contained in many ways and having a small world of their own; and it is possible that the buildings housing such hotels may have certain special design and features and those buildings may be said to form an integral part of the business of running that hotel and in those cases, the buildings may qualify as plant but that would depend upon the facts of each case. In S.P. Jaiswa l Estates (P.) Ltd. v. CIT (1995) 216 ITR 145, the Calcutta High Court considered similar questions and observed as under (page 151): "....The hotel building owned by the assessee and used for the purpose of carrying on its hotel business was an apparatus with which the assessee's hotel business was carried on. It cannot be treated as a setting, within which, or a canopy under which, the assessee carried on its business.... The hotel building is to be treated as 'plant' for the purpose of depreciation allowance under section 32. (C) Judgments expressing contrary views:
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In CIT v. Damodar Corporation, Hotel Pankaj (1997) 225 ITR 699, the Kerala High Court held that .a hotel in its entirety is not a plant for the purpose of depreciation and observed as under (page 702): "A perusal of the said statutory provision of section 32A of the Act would show that the words 'machinery and plant' have been used separately with an exclusive character from each other, finds place in the concerned enactments of the section. The statutory provision also speaks of other requirements for entitlement to investment allowance on the count." In R.C. Chemical Industries v. CIT (1982) 134 ITR 330 (Delhi), the Delhi High Court held that the definition of the word "plant" given under section 43(3) should be given a wide meaning as it is an inclusive definition. It held that the assessee who constructed a building having atmospheric controls, namely, moisture, temperature and provision for filtered air, which were required for manufacturing of saccharine, would not come within the expression "plant". It observed that the mere fact that manufacture of saccharine would be better carried on in this type of building would not convert the building from "the setting" to "the means" for carrying on the business. Such a building which is free from atmospheric vagaries might have certain advantages as compared with a normal construction, but it remained the space or shelter where the business of manufacturing saccharine was carried on as opposed to. The "means". In Siemens India Ltd. v. CIT (1996) 217 ITR 622 (Bom.), the Court observed that an item would not qualify to be "plant" even if it satisfied the "functional test", if on an application of the "premises test" it is found to be used as or part of the premises or place upon which the business was. Conducted.. In CIT v. Lake Palace Hotels and Motels (P.) Ltd. (1997) 226 ITR 561, the Rajasthan High Court considered similar questions and after perusal of various judgments and dictionary meanings observed that the Legislature has by subsequent amendments made it clear that hotel and cinema premises will fall within the definition of building and summarised various principles emerging from various decisions of different Courts as under (page 576): "(i) The functional test is decisive test. (ii) An item which falls within the category of 'building' cannot be considered to be 'plant'. Buildings with particular specification for atmospheric control like moisture or temperature are not 'plant'.. (iii) In order to find out as to whether a particular item is a plant or not, the meaning which is available in the popular sense, i.e. The people conversant with the subject-matter would attribute to it, has to be taken. (iv) The term 'plant' would include any article or object, fixed or movable, live or dead, used by a businessm an for carrying on his business and it is not necessarily confined to any apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. The article must have some degree of durability. (v) The building in which the business is carried on cannot be considered to be a 'plant'. (vi) The item should be used as a tool of the trade with which the business is carried on. For that purpose the operations it performs have to be examined." On the basis of the aforesaid principles, the Court came to the conclusion that (page 577): "....The building of hotel is a building. Simply because some special fittings or controlling equipments are attached, it will not take it out of the category of building. Even if a particular building falls within the category of plant then it could not be considered to be a plant and will be considered as building because the golden rule of interpretation is that if a particular item is more near to one category, then by stretching it should not be considered to fall in a category whicn is far off." The Court further observed (page 577): "The building which is used in the business of hotel remain a building in spite of the fact that it is decorated...If the skeleton of the building without decoration is building then the items by which it is
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decorated would not change the character of building. The item may, however, be considered as plant subject to its use. The use of the building is as a setting. Building is not used as a tool of the trade. Different rates of depreciation for building have been provided which also makes the legislative intent clear that the different types of buildings remain as building. The amendment of section 32(1)(v) has only clarified the legislative intent that the building of hotel is a building, though by amendment a higher rate of depreciation is provided for it. In an industry no production can be normally carried on without a building where the plant and machinery is installed but for that reason the building cannot be considered as plant when there is a separate entry for buildings for purpose of depreciation. Buildings may accommodate plant and machinery or living persons. It remains a building...If the building of a five star hotel is a plant there is no reason why the building of an ordinary hotel should be treated differently only on account of the charges for extra facilities. The difference of charges is because of extra service facilities, etc., provided and the role of the building in the two types of hotels remains the same and at the same time even better services are provided in a number of guest houses... The building which is used for accommodating the cinema-goers remains a building even if specially designed.... If the functional test is applied, it would be found that it accommodates the machinery for exhibition of the film like any other factory where production is carried on and provides the accommodation to the public for viewing the picture and cannot be taken out from the definition of 'building'. The building is not used as a tool of the trade as it is used for accommodating the customers as a setting. In respect of cinema the work is carried on by the projector which displays the film on screen." The Court lastly held that looking to the common parlance…
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