JKLR-Part(III)                                              I.T.Ref  1/2000                                           Back to Index

The Commissioner of Income Tax Petitioner
versus
Broadways enterprises pvt. ltd. Respondent

Per Dr. B. P. Saraf, Chief Justice ( Oral )

"Whether the Hotel Building owned by the assessee constituted plant within the meaning of section 43(3) of the Income-tax Act, 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 29th July,1979 declaring an income of Rs.10,01,840/-. Subsequently, the assessee revised its return on 3.11.1981 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 29.7.1982 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 Commissioner of Income-tax (Appeals), 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 under section 256(1) of the Act at the instance of the revenue.

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. V CIT (1995) 216 ITR 145 and a Full Bench of the Kerala High Court in CIT v. Hotel Luciya (1998) 231 ITR 492 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 CIT v. Hotel Rama Pvt.Ltd. (1998) 233 ITR 235 and CIT v. Woodland Hotel Pvt. Ltd. (1998) 233 ITR 224 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. V CIT (1996) 218 ITR 590 and the Patna High Court in CIT v. Lawly Enterprises (P) Ltd. (1997) 225 ITR 154 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 CIT v. Damodar Corporation Hotel (1997) 225 ITR 699, the Rajasthan High Court in CIT v. Lake Palace Hotels & Motels Pvt. Ltd. (1997) 226 ITR 561 and the Madras High Court in CIT v. I. N.Sathyanathan And Sons (P) Ltd. (2000) 242 ITR 514. This controversy,however, has now been set at rest by the Supreme Court by its latest decision rendered on 12th May, 2000 in CIT v. 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 apparatus or a tool for running the business so that it can be termed as a 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 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 a "plant".

"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 fulfillment of the condition 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 ‘ plant’."

"Further, in the 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, airplanes, 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 above provisions. Such meaning would be clearly against the legislative intent."

( Emphasis supplied )

"… [I] t 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 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 an 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 conduct of such business.

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