Holding

A building used for running a hotel or cinema business is not a "plant" within the meaning of Section 43(3) and must be depreciated at the rate applicable to buildings.

Summary

The assessee, Mis Anand Theatres, claimed a 15% depreciation on its theatre building by treating it as "plant" under the Income Tax Act, 1961. The Assessing Officer allowed only the standard 5% rate for buildings, leading to an appeal that was initially allowed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The Revenue challenged this, and the matter reached the Supreme Court. The Court examined the statutory scheme of Sections 32 and 43(3) and the functional test, concluding that a hotel or cinema building is a "building" and not "plant" for depreciation purposes. Consequently, the higher plant rate could not be claimed and the building must be depreciated at the building rate. The Court allowed the revenue appeals and dismissed the assessee's appeals.

Issues considered

Whether a building used for hotel or cinema business qualifies as "plant" under Section 43(3) of the Income Tax Act, 1961 for depreciation purposes.
Whether the assessee is entitled to claim depreciation at the higher plant rate of 15% on such a building.

Legislation cited

Income Tax Act, 1961s. 32, s. 43(3)
Income Tax Rules, 1962s. Appendix I, s. Rule 5

Subjects

depreciationplantbuildingIncome Tax ActSection 32Section 43(3)functional testhotelcinematax law

Judgment

A COMMISSIONER OF INCOME TAX, TRIV ANDRUM
v.
MIS ANAND THEATRES ETC. ETC.

MAY 12, 2000

B [A.P. MISRA AND M.B. SHAH, JJ.]

Income Tax Act, 1961-Sections 32 and 43 (3)-Depreciation-Rate
of-'Building' and 'Plant '-Meaning of-Difference between-Building of a
hotel or a cinema-Held, are not apparatus or tool for running the business
C of hotel or cinema-Cannot be 'plant' for the purpose of depreciation-
Income Tax Rules, 1962-Rule 5 and part I Appendix I.

Rule 5 of the Income Tax Rules, 1962 provides for calculation ot
depreciation as specified in table in Part I o( Appendix I to the Income Tax
D Rules, 1962. The general rate of depreciation to be charged for 'buildings'
under the said Appendix is 5% whereas the general rate of depreciation to
be charged for 'machinery and plant' is 10%.

The assessee claimed depreciation at 15% on his theatre building
claiming the same to be a 'plant'. The Assessing Officer rejected the claim
E and allowed depreciation only at 5%. i:he assessee filed an appeal before the
Commissioner of Income Tax (Appeals) which was allowed by holding that the
theatre building is to be treated as 'plant'. The Income tax Appellate Tribunal
confirmed the order of the Commissioner of Income Tax (Appeals). On
reference by the Income Tax Appellate Tribunal to the High Court, the High
Court also decided the reference in favour of the assessee. Hence the Revenue
F filed the instant appeal by way of Special Leave Petition. Appeals filed by other
assessees and the Revenue involving the same question of law were heard by
this Court.

Before this Court, the assessees contended that the words 'plant' and
'building' are not mutually exclusive. 'Plant' may include building in certain
G set of circumstances and, therefore, applying the functional tests the
assessees would be entitled to depreciation under the head 'plant' which is
more beneficial to it In the modern era theatre building and hotel building
are integral part of the operation of carrying out such business and are
constructed and designed for facilitating such business and therefore, they
H are apparatus or tool for running the cinema or hotel business and are
338
C.I.T. v. ANAND THEATRES 339
therefore, 'plant'. A
Allowing the appeals filed by the Revenue and dismwing the appeals
filed by the assessees, the Court

HELD : 1.1. The building used for running a hotel or carrying on cinema
business cannot be held to be a 'plant'. The scheme of Section 32 of the Income B
Tax Act, 1961 is to provide different rates of depreciation for building,
machinery, plant or furniture, ships, buildings used for hotels, aeroplanes
and other items mentioned therein. For a building u~ed for a hotel, specific
provision is made granting depreciation under Section 32 (1) (v) of the Income
tax Act, 1961. The word 'plant' is given inclusive meaning under Section 43(3)
of the Income tax Act, 1961 which nowhere includes buildings. All throughout C
Section 32 for building it is specifically mentioned that 'whenever it is erected'
while for the machinery and plant, the words used are 'whenever it is
installed' and there is no question of installing building. The Income Tax
Rules, 1962 prescribing the rates of depreciation specifically provide for
grant of depreciation on buildings, fu.miture and fittings, machinery and plant D
and ships. The legislature has not considered hotel building by itself as a
plant. The Legislature has considered building as separate from the hotel
business and building is not considered as a plant for running the hotel.
(364-F-H; 365-A-G)

1.2. There is no question of referring to dictionary meaning of the word E
'plant' which may or may not include t.uilding, for arriving at a conclusion
that building which is a specifically designed and constructed as a hotel
building would be a 'plant'. 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 F
would be 'plant' under the Income tax Act, 1961 appears, on the face ofit, to
be inconsistent with the provisions of the Act. Such meaning would be clearly
against the legislative intent. (366-F-H; 367-A)

2. Business of a hotelier is carried on in a building or a premises and
building is not an apparatus for running such business. It is a shelter or a G
home for conduct of such buJlines5. Such buildings cannot be termed as tools
for running business but are mere shelter for carrying on such business
activities. Therefore, even functiona1 test, which would not be conclusive in
all cases, is not satisfied. (369-8; 370-8)

3. The contention of the Assessee that the words 'plant' and 'building' H
340 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A are not mutually exclusive and that 'plant' may include 'building' in certain
set of circumstances and, therefore, applying the functional tests assessee
would be entitled to depreciation under the head which is more beneficial to
it cannot be accepted. Firstly, it would be difficult to draw a line between a
building which is specifically constructed for the aforesaid purposes and
B buildings which are used for the aforesaid purposes by converting a residential
accommodation or industrial premises for such purposes. Secondly,
depreciation as a general principle represents the diminution in value of capital
asset when applied to the purpose of making profit or gain. The object is to
get true picture of real on come of the business. Hence, it can be inferred
that the Legislature never intended to give such benefit of depreciation to a
C 'building' which is usually more durable than 'machinery' or 'plant'.
[375-D-G)

4. 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 as a residential accommodation
D or business purpose can be converted for running hotel business. To
differentiate a building for grant of additional depreciation under the Income
Tax Act, 1961 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
E namely, as a hotel or theatre, would be unreasonable. [374-D-E; 378-C-DJ

5. 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 suit the requirement of a particular industry, trade or business.
But that would not make such building a 'plant'. It only shelters running of
F such business. 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. (375-8-D]

G Dy. Chief Controller ofImports and Exports, New Delhi v. K.T. Kosa/ram
& Ors., (1970) 3 SCC 82; C./. T. v. Mir Mohammad Ali, (1964) 53 ITR 165
SC; C.l.T., Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44 SC;
Commissioner of Inland Revenue v. Scottish & Newcastle Breweries Ltd., 55
Tax Cases 252; Benson v. Yard Arm Club Ltd., (1979) 1 WLR 347; Wimpy
International Ltd. v. War/and and Associated Restaurants Ltd. v. War/and, 61
H Tax Cases 51; Carr (H.M Inspector of Taxes) v. Sayer, 65 Tax Cases 15; Gray
C.l.T. v. ANAND THEATRES 341

v. Seymours Garden Centre, 67 Tax Cases 401 and C./. T. Punjab, J & K. and A
Himachal Pradesh, Patiala v. Mis Alps Theatre, AIR (1967) SC 1437, relied
OIL

Inland Revenue Commissioner v. Barclay, Curle & Co. Ltd, (1969) l
WLR 675, referred to.
B
Scientific Engineering House P. ltd, v. Commissioner ofIncome Tax, A.P.
(1986) 157 ITR 86 SC; C.I. T. Lucknow v. Knodia Cold Storage, (1975) 100
ITR 155 (Allahabad); C./. T., Patiala II v. Yamuna Cold Storage, (1981) 129
ITR 728, (Punjab & Haryana); C.l.T. v. Warner Hindustan ltd, (1991) 117
ITR IS (Andhra Pradesh); C.I. T. v. Ca/tax Oil Refinding (India) Ltd, (1979)
116 ITR 404 (Bombay); C.l.T. v. Dr. B. Venkata Rao, (1993) 202 ITR 303 C
(Kamataka); Additional C.I. T. v. Madras Cement ltd, 110 ITR 281 (Madras);
C.I. T. v. Krishna Bottlers P. Ltd, (1989) 175 ITR 154 (Andhra Pradesh) and
Webster Conprehensive Dictionary (International Edition); Webster's Third
New International Dictionary, referred to.

R.C. Chemical Industries v. C.L T. New Delhi, (1982) 134 ITR 330 (Delhi); D
C.LT. v. lake Palace Hotels and Motels P. ltd, (1997) 226 ITR 561
(Rajasthan); C.LT. v. Damodar Corporation Hotel, Pankay, (1997) 137 ITR
574 (Kerala); Siemens India ltd. v. C.l.T., (1996) 217 ITR 622 (Bombay) and
C.l T. v. N. Sathyanathan and Sons P. ltd, (200ll) 242 ITR 514 (Madras), approved.

S.K. Tulsi and Sons v. C./. T., (1991) 187 ITR 685 (Allahabad); C.l T. v. E
Hotel Luciya, (1998) 231 ITR 492 (Kerala); Tutsi Theatre v. C./. T., (1991) 190
ITR 575 (Allahabad); Leela Movies v. C.l T., 191 ITR 113 (Allahabad); C.l T. v.
Hotel Rama Pvt. ltd., (1998) 146 CTR 243 (Karnataka); C./. T. v. Lawly
Enterprises (P) ltd, (1997) 225 ITR 154 (Patna) and S.P. Jaiswal Estates (P)
Ltd v. C./. T., (1995) 216 ITR 145 (Calcutta), disapproved. F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4758 of
1998.

From the Judgment and Order dated I 1.3.98 of the Kerala High
Court in I. T.A. No. 85 of I 996.
G
WITH
Civil Appeal Nos. 5198-99/98, 5391/98,15, 241, 242-43, 244, 245, 246,-48
of 1999, CA Nos. 3434-35 of2000, CA Nos. 2784-86, 2787, 3690of1999 and
55-57 of2000.

T.L.V. Iyer, B.B. Ahuja, Joseph Vellapally, S. Ganesh, Ms. Sushma Suri, H
342 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A S. Sukumaran, Ramesh Babu M.R., Tarun Gulati, Vinod M.P., Romy Chaim,
Rajiv Mehta, Ms. Revathy Raghavan, Shail Kumar Dwivedi, Ms. Neelam
Prasad and B.K. Prasad for the appearing parties.

The Judgment of the Court was delivered by

B SHAH, J. Leave granted in SLP (Civil) Nos. 4373-74 of 1999.

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 tenned as a plant and depreciation
can be allowed accordingly or whether it remains a building wherein either
C 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 Income Tax Act, 1961 (herein after referred to as "the
D Act"). And also to decide whether 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 artificial and largely judge-made sense of the word "plant",
which is given inclusive meaning under Section 43(3) and in context of the
Scheme of Section 32?
E
In this batch of civil appeals, some appeals are filed by the Revenue and
some by the assessees. 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% on the theatre building claiming it to be a plant. The
·F assessing officer by order dated 27.9.1988 rejected the claim and allowed
depreciation only at 5%. The appeal filed by the assessee before the
Commissioner of Income Tax (Appeals), Trivandrum was allowed by order
dated 21.7.1989 holding that the theatre building is to be treated as a 'plant'.
Being aggrieved, the Revenue filed appeal ITA No. 748/Coch/89 before the
G 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 building. The Tribunal by order dated 29.9.1994 held that the entire
theatre building should be construed as plant for the purposes of granting
H depreciation and further allowed the claim of assessee for extra shift allowance.
C.l.T. v. ANAND THEATRES [SHAH, J.] 343
Revenue filed Reference Application No.264 of 1994 before Income Tax A
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
Tribunal passed in ITA No. 748 [Coch]/1989 dated 29.9.1994, for opinion of
the High Court of Kerala. After hearing both the sides, the Tribunal referred
following questions to the High Court of Kerala.
B
(I) Whether on the facts and in the circumstances of the case, the
theatre building can be con~idered 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 ITR No.85 of 1996 considered the above
c
questions and after relying upon its earlier decision in CIT. Trivandrum v.
Mis. Abhilash Theatre, Kottayam answered in favour of the assessee and
against the revenue. [Against the decision rendered in Abhi/ash Theatre's
case, Civil Appeal No.5198-5199 of 1998 is pending before this Court-being
disposed of by this judgment] D
The question considered by the High Court in Abhi/ash Theatre's case
(Supra) was - whether hotel building and theatre building can be considered
as a "plants". 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 hotei meaning thereby whether the building is such E
without which business of hotel cannot be conceived; and if a building is an
integral part of hotel business, that is some thing more than merely a place,
accommodating some requisites of hotel, then that would partake the character
of plant For this purpose, the High Court considered the decisions in Inland
Revenue Commissioners v. Barclay, Curle & Co. Ltd, (1969) 1 WLR 675 and F
Scientific Engineering House P. Ltd v. Commissioner of Income-Tax, A.P.,
(1986) 157 ITR 86 SC. The Court .observed that the principle that can be
deducted 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 IJlerely accommodate something or which cannot be regarded merely
as a setting or premises, but if that plays an important role in carrying on the G
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.
Building is essential to run the business of hotel. Without befitting H
344 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A building it is ideal to think of an hotel business. A good hotel requires.
amenities and a building which is so erected as to fulfill 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 to the hotel requirements. So specifically
erected building cannot be said to be a mere setting or premises. No
B hotel can function without a suitable building satisfying the norms of
hotel."

The Court further observed:-

"Building and plant are not mutually exclusive. When dry dock a
c 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 specially erected building for hotel is used for
carrying on the hotel operation, it must come within the inclusive
definition of the plant."
D
The High Court further considered the case of Scientific Engineering
House (P) Ltd (Supra) and applying the functional test held that the hotel
building is a tool of the assessee's business. Plant cannot necessarily be
confined to an apparatus which is used for mechanical operations or process
E or is employed in industrial operations. The Court further held that 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 C./. T. v. La/re Palace Hotels
& Motels P. Ltd., (1997) 226 !TR 561 Rajasthan] and CIT v. Damodar
Corporation Hotel Pan/cay, (1997) 137 !TR 574 Kerala] but agreed with the
F decision ofKamataka High Court in C.l.T. v. Dr. B. Venkata Rao, (1991) 202
!TR 302 and the decision of Calcutta l:ligh Court in S.P. Jaiswal Estates (P)
Ltd v. CIT, (1995) 216 !TR I45 Calcutta. 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
G Court referred to the decision of Allahabad High Court in S.K. 'Tutsi and Sons
v. C.l.T. (1991) 187 !TR 685 and held that 'what holds good for the hotel
building, that equally applies to a theatre building'.
Being aggrieved, the Revenue has filed the present appeal by special
leave.
H VARIOUS RELEVANr DECISIONS RENDERED BY THIS COURT ..
C.l.T. v. ANAND THEATRES [SHAH, J.] 345
AND THE HIGH COURTS ON THE ISSUE. A
(A) DECISIONS OF THIS COURT

In CIT, Andhra Pradesh 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 I 0(5) of the Income Tax Act, 1922 and therefore, the B
assessee was entitled to development rebate 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 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 C
as under: -

"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 D
comfort and convenience. To have sanitary fittings etc., in a bath
room is one of the essential amenities or conveniences which are
normally provided in any good hotel, in the present times. If the
partitions in Jarrold's case (1963) I W.L.R. 214 could be treated as
having been used for the purpose of the business of the trader, it is E
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 large profit by charging higher rates for
the use of rooms if the bath rooms have sanitary fittings and similar
amenities." (Emphasis supplied)
F
Thereafter, the Court further held "if the dictionary meaning of the word
"plant" were to bC: 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 Clll)not 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 G
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 H
346 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A assessee was carrying on. They were not merely a part of the setting in which
hotel business was being carried on."

In Scientific Engineering House P. Ltd (Supra) this Court considered
that the drawings, designs, charts, plans, processing data and other literature
comprises in the "documentation service" as specified in clause (3) constituted
B 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 perfonn any mechanical
operations or processes, but that cannot militate against their being a 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
C the assessee, namely, the technical know how in the shape of drawings,
desi~ns, charts, plans, processing data and other literature falls within the
definition of"plant" and therefore a depreciable asset. The Court also referred
to the functional test referred by Lord Guest in Barclay's case and observed
as under:

D "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 aflinnative, it will be a plant."

We would add that the learned counsel for the assessees on 3rd May,
E 2000 has filed an additional submission pointing out the decision rendered by
this Court in C/Tv. Dr. B. Venkata Rao, (2000) 243 ITR 81, wherein this Court
dismissing the appeal fi!ed by the revenue held that the nursing home building
was specially equipped as a plant for the assessee's business. The Court
observed:

F "... What is to be detennined 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
G order that the assessee's nursing home is equipped to enable the
sterilisation 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 sterilisation room
covers about 250 sq. ft. that the nursing home is also equipped with
H an operation theatre. In the circumstance, we think that the finding of
C.l.T. v. ANAND THEATRES [SHAH, J.] 347
the High Court should be accepted." A
This decision is based on the facts found by the Tribunal and the High
Court wherein it was held that nursing home was equipped to enable
sterilisation of surgical instruments and bandages to be carried on and tl\at
room covered 250 sq. fts. and hence was a "plant" As such, no legal
contentions were raised and considered by the Court and the matter is B
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
c
· In C./. T. Lucknow 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% on its written D
down value.

In S.K. Tulsi and Sons v. C./. T., (1991) 187 ITR 685, the Allahabad High
Court arrived at the conclusion that the cinema building constructed and used
as a cinema along with its fittings and fixtures and wherein cinema business
was carried on constitute a plant. E
In C./. T. v. Hotel Luciya, {1998) 231 ITR 492 the Full Bench of Kerala
High Court held that for deciding whether a building is plant or not 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" F
[Against this decision, Civil Appeal No.15 of 1999 is pending before this
Court-being disposed of by this judgment]

Further, in CIT Patiala llv. Yamuna Cold Storage, (1981).129 ITR 728,
Punjab & Haryana High Court held that the building with insulated walls of
the cold storage was a plant and was entitled to depreciation at 15%. Allahabad G
High Court in Leela Movies v. CIT, [191 ITR I IJ] and Tulsi Theatre v. CIT,
( 1991) 190 ITR 575 held that the cinema building constitute "plant" within the
meaning of Section 43(3). Andhra Pradesh High Court in CIT v. Warner
Hindustan Ltd, (1991) 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 H
348 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A meaning of Section 43_(3) and, therefore, the assessee was entitled to
depreciation and development rebate on the cost of digging the well. Bombay
High Court in CIT v. Ca/tax Oil Refinding (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. Kamataka High Court
B in C/Tv. Dr. B. Venkatarao, (1993) 202 ITR 303 held that building which was
used as nursing home was a plant. Similarly, in CIT, Karnataka v. Woodlands
Hotel Pvt. Ltd., [IRTC No. 48 & 49of1993 dt. 16th June, 1997) [Against this
decision, Civil Appeal Nos. 4373-74of1999 are pending before this Court-
being disposed of by this judgment] and in CIT v. Hotel Rama Pvt. Ltd.,
( 1998) 146 CTR 243 held that building in which hotel business is carried on
C is a plant for the purpose of grant of depreciation. Madras High Court in
. Additional C/Tv. Madras Cement Ltd, [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.

D In C.I.T. v. 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 Income-tax. In that
case, Court exhaustively considered various decisions including the decisions
of the Courts in England and inter alia held that the building or the "setting"
E 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
F 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 CITv. Lawly Enterprises (P) Ltd, (1997) 225 ITR 154 the High Court
of Patna considered - whether the hotel is a plant within the meaning of
G 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
H have certain special design and features and those buildings may be said to
C.I. T. v. ANAND THEATRES [SHAH, J.) 349

fonn an integral part of the business of running that hotel and in those cases, A
die buildings may qualify as plant but that would depend upon the facts of
each case.

In S.P. Jaiswal Estates (P) Ltd. v. Commissioner ofIncome-Tax, (1995)
216 ITR 145], the Calcutta High Court considered similar questions and
observed as under: (Page 151): - B
''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 C
purpose of depreciation allowance under Section 32."

(C) Judgments expressing contrary views: -

In C/Tv. Damodar Corporation Hotel Pankay, (1997) 137 ITR 574 the
Kerala High Court held that a hotel in its entirely is not a plant for the purpose D
of depreciation and observed as under: -

"a perusal of the said statutory provisions of Section 32- A of the Act
would show that the words machinery and plant have been separately
with an exclusive character from each other finds place in the concerned E
enactments of the Section. The statutory provision also of other
requirements for entitlement to investment allowance on the count".

In R.C. Chemical Industries v. CIT, New Delhi, (1982) 134 ITR 330
(Delhi)], the Delhi High Court held that the definition of word "plant" given
under Section 43(3) should be given a wide meaning as it is inclusive definition. F
It held that 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 G
is free from atmospheric vagaries might have certain advantages as compared
with a nonnal construction, but it remained the space or shelter where the
business of manufacturing saccharine was carried on as opposed to the
'means'.
H
350 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A In Siemens India Ltd. v. CIT, (1996) 217 ITR 622 (Bombay) the Court
observed that an item would not qualify to be "plant" even if it satisfied the
"functional test", if on an application of "premises test" it is found to be used
as or part of the premises or place upon which the business was conducted.

In C.J. T. v. La/re Palace Hotels & Motels P. Ltd., (1997) 226 ITR 561 the
B 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:-

C (i) The functional test is a decisive test.

(it) An item which falls within the category of "building" cannot be
considered to be "plant". Buildings with particular specification
for atmospheric control like moisture temperature are not "plant".

D (m) 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
E movable, live or dead, used by a businessman 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.

F (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."
G
On the basis of aforesaid principles, the Court came to the conclusion
that: -

"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
H
C.l.T. v. ANAND THEATRES [SHAH, J.] 351
the category of plant then it could not be considered to be a plant A
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
which is far off."

The Court further observed: - B
" ... The building which is used in the business of hotel remains a
building inspite of the fact that it is decorated .. .lf the skeleton of the
building without decoration is building then the items by which it is
decorated would not change the character of building. The item may,
however, be considered as plant subject to its use. The use of the C
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( I )(v) has
only clarified the legislative intent that the building of hotel is a D
building, though by amendment a higher rate of deprecation 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 E
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 F
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.
G
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 H
352 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A 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 meaning and
the specific use of the word "building" in section 32 of the Act, the building
of a hotel is a "building" and not a "plant".
B
SUBMISSIONS: -

On the basis of the aforesaid judgments, the learned counsel for the
revenue as well as assessee have made elaborate submissions. Mr. S. Ganesh,
learned senior counsel for the appellant-revenue submitted: (i) Section 32(1)
C of the Income Tax Act draws a clear line of distinction between a building
used for the purpose of business and plant/machinery used for the same
purpose. A building though specially designed for use in a particular business
does not, therefore, cease to be a building. Every building used for the
purpose of a particular business would contain special features which make
D the building suitable for that particular business use. Further, without the
building, the business cannot be carried on. That does not lead to the
conclusion that the building becomes plant. Otherwise, every building would
become 'plant' and the d.ividing line between 'plant' and 'building' would get
obliterated which is not permissible. (ii) Section 43(3) defines plant in inclusive
terms. Each item included in Section 43(3) is movable. Section 43(3) does not,
E therefore, contemplate immovable property lik;e a building being considered
as plant. The 'ejusdem generis' and 'noscitor a socis' principles are relevant
in this connection. (iii) Section 32(i)(ii), Section 32-A and the Appendix to the
Income Tax Rules speak of plant and machinery being "installed" and of
building being "erected". This again brings out the distinction clearly. (iv)
F Section 32(i)(v) unequivocally provides that a new building used as hotel is
regarded as a building for purpose of depreciation. In other words, a building
which is specially designed and constructed for use as a hotel is nevertheless
a building, for the purpose of depreciation. (v) Section 32(l)(iia) and Section
33(1Xb)(B)(ii) and the Appendix to the Income Tax Rules speak of plant and
machinery installed in premises used as a hotel, thereby clearly, establishing
G that the hotel premises are not machinery or plant, but are only a building.
The same principle would also apply to a theatre building. Section 32(i)(iv)
makes it clear that even structures/buildings which are constructed in
compliance with the requirements of the Factories Act and Rules are "buildings"
for the purpose of depreciation.
H
C.l.T. v. ANAND THEATRES [SHAH, J.] 353
Mr. B.B. Ahuja and Mr. Joseph Vellapally, learned seniot counsel for the A
assessee submitted: ( i) From the ratio of the various judgments of this Court
and that of the House of Lords and Court of Appeal, it is clear that the words
buildings, machinery, plant and furniture in S. 32( I) are not mutually exclusive.
It follows that a particular item could fall under both the heads, buildings as
well as plant on functional test and the assessee would be entitled to
depreciation under the head more beneficial to it. In other words, buildings · B
and structures can also be considered as plant provided they fulfil the
functional test, that is, they are part of whole apparatus with which the trade
is carried on as opposed to the place or setting where it is carried on. (ii) In
the modem era, the theatre building including auditorium, stage projection
room etc. are a tool of the trade, the theatre building is an integral part of the C
operation of theatre business and cannot be said to merely a setting in which
the business is carried on. It is their contention that most of the High Courts
in India have followed the functional test propounded while determining as
to whether a structure is a building or plant. The High Courts have taken the
view that structures which forms part of the apparatus with which the business D
is carried on are not mere settings for the business and hence ought to be
considered as 'plant' for the purposes of allowance of depreciation under
S.32(1). According to them, on this functional test, a modem theatre building
and a hotel building will qualify as a 'plant'. (iii) After the judgments in
Kanodia Cold Storage and S.K. Tulsi & Sons cases (supra) following the
decision in Taj Mahal Hotel's case, the Legislature amended the definition of E
'plant' in Section 43(3) of the Act by Finance Act of 1995. The amending
section clearly shows that the legislative intent was never to exclude cinema
and hotel buildings which satisfy the functional test from the meaning of the
word 'plant'. (iv) Use of the word 'installed' or erection' has no bearing on
the issue. (v) The subject of determination - whether a hotel building or a
cinema theatre can be held to be a plant is not free from difficulty and it is F ·
difficult to draw a clear line for plant or building in some cases. Despite this
as legislature or Central Board of Direct Taxes has not issued any clarification
on the subject, the view adopted by various High Courts requires to be
accepted. They submitted that cinema theatre or a hotel building is to be
considered as one unit with all attendant apparatus for running the business G
and if they are construed as one unit it would be a plant. Secondly, these
buildings are to be considered not on their own but in relation to the business ·
carried on by the assessee namely running of hotel or cinema. In support of
this contention, the learned counsel heavily relied upon Inland Revenue
Commissioners v. Barclay, Curle & Co. Ltd, ( 1969) I WLR 675-also reported
in (1970) 76 ITR 62 and other decisions stated above. H
354 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A Hence, the controversial question for consideration is-whether building
used for running hotel or cinema business could be held a "plant" as provided
under Section 43(3) of the Act?

We would first refer to the judgment in Barclay, Curle & Co. case
(supra) upon which most of the judgments of the High Courts are based for
B arriving at the conclusion that building which is used for running the hotel
business or cinema theatre would be a plant. In the said case, the House of
Lords considered whether a dry dock constructed by a Company for use of
shipbuilders, ship repairers and marine engineers incurring capital expenditure,
which comprised the cost of excavating a specially shaped new basin, having
C direct access to the Clyde and a floor below the level of high tide to enable
ships to float in and out could be considered to be a plant for the purpose
of trade of the Company within the meaning of Section 279 of the Income Tax
Act, 1952. Relevant part of Section 279 as applicable, which was considered,
reads thus: -

D " ... where a person carrying on a trade incurs capital expenditure on
the provision of machinery or plant for the purposes of the trade,
there shall be made to him, for the year of assessment in the basis
period for which the expenditure is incurred, an allowance (in this
Chapter referred to as 'an initial allowance') equal to three tenths of
the expenditure."
E
The matter was decided by the majority view and it was held that the dry dock
was a plant. For this purpose, Lord Reid considered the definition of the word
'plant' given by Lindley L.J. in Yarmouth v. France, (1887) 19 Q.B.D. 647,658.
This definition reads "in its ordinary sense, it includes whatever apparatus
p is used by a businessman carrying on his business,-ilot his stock-in-trade
which he buys or makes for sale; but all goods and chattels, fixed or movable,
live or dead, which he keeps for permanent employment in his business."
Thereafter it was observed as under:

"The dry dock was in our view not the mere setting or premises
G in which ships were repaired. It was different from a factory which
housed machinery, for in the operation of the dock, the dock itself
played a part in the control of water and enabled the valves, pumps
and electricity generator, which were an integral part of its construction,
to perform their functions. The dock was not a mere shelter or home
but itself played an essential part in the operations which took place
H in getting a ship into the dock, holding it securely and then returning
C.l.T. v. ANAND THEATRES [SHAH, J.) 355
it to the river." A
It was further observed that "plant" was not defined under the Income
Tax Act and thereafter held that "every part of this dry dock plays an
essential part in getting large vessels into a position where the work on the
. outside of the hull can begin, and that it is wrong to regard either the concrete
or any other part of the dock as a mere setting or part of the premises in which B
this operation takes place. The whole dock is, I think, the means by which,
or the plant with which, the operation is performed."

Lord Guest agreed with the view taken by Lord Reid. In the judgment
rendered by him it was observed that in order to decide whether a particular
subject is an 'apparatus' it seems obvious that an inquiry is to be made as C
to what operation it performs.

Lord Hodson disagreed with the above. view and observed:

"The dock as a complete unit contained a large amount of
equipment without which the dry dock could not perform its function. D
This equipment admittedly qualifies for the initial allowance appropriate
to expenditure on plant It includes a dock gate and operating gear,
cast iron keel blocks, electrical installation, pipe work installation,
pumping installation and other subsidiary equipment, expenditure on
which clearly qualifies for initial allowance as having been incurred in E
paying for machinery or plant."

Further with regard to building it was observed:

"A building or structure is normally to be regarded in the context
of this statute as something more durable than machinery or plant, F
hence the differentiation in favour of the less durable. The dock in
question, it was found in the case stated, might last for 80- I 00 years
if reasonable and timely repairs were carried out when requisite."

The learned Lord disagreed with the argument based on functional test.
He agreed with the reasoning given by Finlay J. in Margrett v. Lowestoft G
Water & Gas Co., ( 1887) 19 T.C. 481 wherein it was inter alia observed that:
•
"Clearly, -if one takes the case of a factory with machinery inside
it, the machinery in all probability would be plant, but equally clearly
the factory, the bricks and mortar, would not be plant."
H
356 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A It was finally observed that to regard the dock as apparatus was wrong
as it was something quite different from the generally accepted conception
of "plant".

Lord Upjohn also disagreed with the majority view by observing that
too much emphasis on a functional element ought not to have been given.
B In a modem sophisticated factory "purpose built" for a particular manufacture
without which the factory would be useless, makes the walls of a factory part
of the plant and that is not intended. Jt was further observed that function

.
is no more than an element for deciding whether it is a plant or a building.

C We may mention at the stage that even in England House of Lords has
repeatedly commented that the word "plant" is given imprecise application
because of the artificial meaning given to it. In Cole Brothers ltd. v. Phillips
(Inspector of Taxes), (1982) 1 WLR 1450, House of Lords considered the
guestion - whether expenditure incurred in electric lighting installation and
· conduit and cables to socket outlets, constituted expenditure on the provision
D of "plant" so as to qualify for capital allowance. For the expression "Plant"
Lord Hai/sham observed:

" .. that the word "plant" in the relevant sense, although admittedly not
a term of art, and therefore part of the general English tongue, is not,
in this sense, an ordinary word, but one of imprecise application, and,
E so faf as I can see, has been applied to industrial and commercial
equipment in a highly analogical and metaphorical sense, borrowed,
unless I am mistaken, from the world of botany.'.'

For this purpose; the Court quoted the words of Buckley L.J. in Benson
v. Yard Arm Club ltd., (1979) I WLR 347, 351:
F
"~ a man who speaks English and understands English accurately
but not pedantically would interpret it in [the] context, applying it to
the particular subject matter in question in the circumstances of the
particular case."

G The Court further observed:

"To this admirable precept Oliver L.J. [19811STC671, 682 (e) ii
delivering the leading judgment in the Court of Appeal in the instant
case, warily, and perhaps wearily, added the cautionary rider that "the
English speaker must, I think, be assumed to have studied the
H
C.l.T. v. ANAND THEATRES [SHAH, J.] 357
authorities." These however, as he cautiously admitted in an earlier A
passage (p.676) cannot be pretended to be at all easy to reconcile,
and, as he said in a still earlier passage, at p.675 (d): "it is now beyond
doubt that [the word 'plant'] is used in the relevant section in an
artificial and largely judge-made sense."

The Court thereafter observed: B
"if 'plant' is to be contrasted with the place in which the business is
carried on, the line must be drawn somewhere. There must, therefore,
be a criterion (or criteria) by which the courts define the frontier
between the two.".
c
But, on the special facts relating to these components carrying electricity,
they held that it was an exceptional case where the Commissioners were right
in taking each component separately as each was serving a "different purpose"
and held that each of them was not "plant".

In Inland Revenue Commissioners v. Scottish & Newcastle Breweries D
Ltd., (1982) 1 WLR 322 the question was whether the moneys spent on
electrical rewiring, installation of new electric light fittings and of various
categories of decor and murals in the hotel was on the provision of "plant".
Lord Wilberforce observed that:

"The word 'plant' has frequently been used in fiscal and other E
legislation. It is one of a fairly large category of words as to which
no statutory definition is provided ('trade', 'office', even 'income' are
others), so that it is left to the court to interpret them. It naturally
happens that as case follows case, and one extension leads to another,
the meaning of the word gradually diverges from its natural or F
dictionary meaning. This is certainly true of "plant." No ordinary
man, literate or semi- literate, would think that a horse, a swimming
pool, moveable partitions, or even a dry-dock was plant-yet each of
these has been held to be so: so why not such equally improbable
items as murals, or tapestries, or chandeliers?"
G
The House of Lords observed that even the "functional" test was
inconclusive. Therefore, the Court suggested that each case must be resolved
by considering carefully the nature of the particular trade being carried on,
and the relation of the expenditure to the promotion of the trade. Applying
that test the Court held: "I do not find it impossible to attribute to Parliament H
358 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A an intention to encourage by fiscal inducement the improvement of hotel
amenity."

In the said case, Lord Lowry also considered the case of Benson v. Yard
Arm Club ltd, (1979) I WLR 347: (1979) 2 All ER 336, in which ship, or
floating hulk, used as a restaurant was held not to be plant and observed:
B "the Crown relied on the case because of the fact that the ship was used to
create a 'shipboard feeling', in other words, a certain kind of atmosphere,
among the patrons. But the distinction is that the ship, although a chattel,
was the place in which the trade was carried on and was therefore the
equivalent of the various premises in which the present taxpayer company
C carry on their trade and not of the apparatus used as an adjunct of the trade
carried on in those premises." It was further observed that "the dry dock in
Barclay Curle & Co. ltd. (supra) was a structure as well as plant".

RELEVANT PROVISIONS UNDER THE ACT FOR
GRANT OF DEPRECIATION
D
Before dealing with the rival contentions, we would refer to the relevant
parts of Sections 32 and 43(3) of the Act:

"Section 32. Depreciation-{!) In respect of depreciation of building,
machinery, plant or furniture owned by the assessee and used for the
E purposes of the business or profession, the following deductions
shall, subject to the provisions of section 34, be allowed-

(0 in the case of ships other than ships ordinarily plying on inland
waters, such percentage on the actual cost thereof to the assessee
as may, in any case or class of cases or in respect of any period
p or periods, be prescribed:

Provided that different percentages may be prescribed for different
periods having regard to the date of acquisition of the ship.
(ii) in the case of buildings, machinery, plant or furniture, other than
ships covered by clause (I), such percentage on the written
G down value thereof as may in any case or class of cases be
prescribed:
Provided that where the actual cost of any machinery or plant
does not exceed seven hundred and fifty rupees, the actual cost
thereof shall be allowed as a deduction in respect of the previou_s
H year in which such machinery or plant is first put to use by the
C.l.T. v. ANAND THEATRES [SHAH, J.] 359
assessee for the purposes of his business or profession: A
Provided further that no deduction shall be allowed under this
clause or clause (iii) in respect of any motor-car manufactured
outside India, where such motor-car is acquired by the assessee
after the 28th day of Febmary, 1975, and is used otherwise than
in a business of running it on hire for tourists; B
(iia) in the case of any new machinery or plant (other than ships and
aircraft) which has been installed after the 31st day of March
1980 but before the I st day of April, 1985, a further sum equal
to one-halfofthe amount admissible under clause (ii) (exclusive
of extra allowance for double or multiple shift working of the C
machinery or plant and the extra allowance in respect of
machinery or plant installed in any premises used as a hotel) in
respect of the previous year in which such machinery or plant
is installed or, if the machinery or plant is first put to use in the
immediately succeeding previous year, then in respect of that
previous year: D
Provided that no deduction shall be allowed under this clause in
respect of-

(a) any machinery or plant installed in any office premises or any
residential accommodation: E
(b) any office appliances or road transport vehicles; and

(c) any machinery or plant, the whole of the actual cost of which
is allowed as a deduction (whether by way of depreciation or
otherwise) in computing the income chargeable under the head F
"profits and gains of business or profession" of any one previous
year."

Explanation : For the purpose of this clause,-

(a) "new machinery or plant" shall have the meaning assigned to it
in clause (2) of the Explanation below clause (vi) of this sub- G
section:

(b) "residential accommodation" includes accommodation in the
nature of a guest house but does not include premises used as
a hotel;
H
360 SUPREME COURT REPORTS [2000) SUPP. 1 S.C.R.

A (iii) in the case of any building, machinery, plant or furniture which
is sold, discarded, demolished or destroyed in the previous year
(other than the previous year in which it is first brought into
use), the amount by which the moneys payable in respect of
such building, machinery, plant or furniture, together with the
amount of scrap value, if any, fall short of the written down
B value thereof:
Provided ..... .

Explanation ..... .

(iv) in the case of any building which has been newly erected after
c the 31st day of March, 1961, where the building is used solely
for the purpose of residence ofpersons employed in the business
and the income of each such person chargeable under the head
"Salaries" is ten thousand rupees or less, or where the building
is used solely or mainly for the welfare of such persons as a
D hospital, creche, school, canteen, library recreational centre,
shelter, rest-room or lunch-room, a sum equal to forty percent of
the actual cost of the building to the assessee in respect of the
previous year of erection of the building; but any such sum shall
not be deductible in determining the written down value for the
purposes of clause (ii) of sub-section (I);
E
(v) in the case of any new building, the erection of which is
completed afterthe 31st day of March, 1967, where the building
is owned by an Indian company and used by such company as
a hotel and such hotel is for the time being approved in this
behalf by the Central Government, a sum equal to twenty-five
F percent of the actual cost of erection of the building to the
assessee, in respect of the previous year in which the erection
of the building is completed or, if such building is first brought
into use as a hotel in the immediately succeeding previous year,
then in respect of that previous year; but any such sum shall
G not be deductible in determining the written down value for the
purposes of clause (ii);

(vi) in the case of new ship or a new aircraft acquired after the 31st
day of May, 1974, by an assessee engaged in the business of
operation of ships or aircraft or in the case of new machinery or
H plant (other than office appliances or road transport vehicles)
C.I.T. v. ANAND THEATRES [SHAH, J.] 361
installed after that date for the purposes of business of A
generation or distribution of electricity or any other form of
power or of construction, manufacture or production of any one
or more of the articles or things specified in items I to 24 (both
inclusive) in the list in the Ninth Schedule or in the case of new
machinery or plant (other than office appliances or road transport
vehicles) installed after that date in a small-scale industrial B
undertaking for the purposes of business of manufacture or
production of any other articles or things, a sum equal to twenty
percent of the actual cost of the ship, aircraft, machinery or plant
to the assessee, in respect of the previous year in which the ship
or aircraft is acquired or the machinery or plant is installed, or C
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; but any such sum shall not be deductible in
determining the written down value for the purposes of clause
(ii):
D
Provided..... .
Provided further that no deduction shall be allowed under this clause
in respect of-
(a) any machinery or plant installed in any office premises or any
residential accommodation including any accommodation in E
the nature of a guest-house;
(b)

(c)

Explanation ... F
(IA) Where the business or profession is carried on in a building
not owned by the assessee but in respect of which the assessee
holds a lease or other right of occupancy and any capital
expenditure is incurred by the assessee for the purposes of the
business or profession after the 3 I st day of March, 1970, on the G
construction of any structure or doing of any work in or in
relation to, and by way of renovation or extension of, or
improvement to, the building, then, in respect of depreciation of
such structure or work, the following deductions shall, subject
to the provisions of section 34, be allowed-
H
362 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A (i) such percentage on the written down value of the structure
or work as may in any case or class of cases be prescribed;

(ti)
Provided..... .

B Explanation......

(2)........ "
"Section 43- In sections 28 to 41 and in this section, unless the
context otherwise. requires-

c (1) ...
(2) ...
(3) "Plant" includes ships, vehicles, books, scientific apparatus and
surgical equipment used for the purposes of the business or
profession."
D
Rule 5 of the Income Tax Rules, 1962 provides for calculation of
depreciation at the percentages specified in second column of the Table in
Part I of Appendix I to the Rules. Appendix I to Rule 5 is as under: -

Part - I
E
TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE

Class of assets Depreciation allowance as %age of (i) Remarks
actual cost in the case of ocean-going
ships; (ii) written-down value in the case
F of any other asset
2 3

I. BUILDINGS
[(1) General rate 5 "Buildings include
G (2) Special rate in respect of factory roads, bridges,
building (excluding offices, godowns, culverts, wells and
officers' and employee's quarters, tube-wells]
roads, bridges, culverts, wells and
tube-wells] 10
H (3) Purely temporary erections such as
c
C.l.T. v. ANAND THEATRES [SHAH, J.] 363
wood-en structures. 100 A
(4) In respect of any structure of work
in or in relation to a building referred to
in sub-section (IA) of section 32,~
(a) where such structure is constructed The percentage specified
or such work is done by way of against sub-Items (I, 2
B
renovation or improvement to any such or 3), as may be approxi-
building. · mate to the class of
building in or in relation
to which the renovation
or improvement is effected. c
(b) where the structure is constructed or The percentage specified
work is done by way of extension to any against sub-items [ 1,2 or
such building. 3). As would be appro-
priate if the structure of
work constituted a D
separate building.
II. FURNITURE AND FITIINGS
(I) General rate 10
(2) Rate for furniture and fittings used in 5
Hotels, restaurants and boarding houses; ...
E
15 Cinema-houses; theatres and ...
III. MACHINERY AND PLANT
(not being a ship)
(i) General rate applicable to machinery and p
plant (not being a ship) for which no special
rate has been prescribed under Item (ii)
herein below.
(ii) Special rates: 15

C(I) Cinematograph films-Machinery used in G
the production and exhibition of cinematograph
films (N.E.S.A.)
(a) Recording equipment, reproducing equip-
ment, developing machines, printing machines,
synchronisers and studio lights except bulbs. 20
H
364 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A (b) Projecting equipment of film exhibiting
concerns.

D.(l) Aeroplanes-Aircraft, Aerial photographic
Apparatus (N.E.S.A.) 30

B E.(I) Aeroplanes-Aero-engines[N.E.S.A.] 40

F.(2) Cinematograph films-Bulbs of studio lights. 100

IV.SHIPS
(I) Ocean going ships- IO
c (i) Fishing vessels with wooden hull
(ii) Dredgers, tugs, barges, survey launches 7
And other similar ships used mainly for
Dredging purpose. 5
D (iii) Other Ships
To be calculated on
the actual cost.

(2) Vessels ordinarily operating on Inland
waters--

E (i) speed boats 20

(ii) Other vessels IO

Aforesaid clauses of the Section 32 deal with depreciation allowance in
F respect of assets of the specified description used for the purpose of business
or profession. From a careful scrutiny thereof what emerges is: -

(I) The scheme of Section 32 is to provide different rates of
depreciation for building, machinery, plant or furniture, ships,
buildings used for hotels, aeroplanes and other items mentioned
G therein. Clause (ii) of Section 32 specifically provides for grant
of depreciation for building, machinery, plant or furniture at
prescribed percentage on the written down value thereof. The
Rates are prescribed under Income Tax Rules.
(2) Under clause (iia) of Section 32(1) specific provision is made for
H new machinery or plant which has been installed and it provides
C.l.T. v. ANAND THEATRES [SHAH, J.] 365
for additional sum equal to one half of the amount admissible as A
depreciation under clause (ii) if the conditions mentioned therein
are fulfilled. Further, the proviso carves out an exception to the
effect that no deduction shall be allowed in respect of any
machinery or plant installed 'in office premises or any residential
accommodation'. That means the Legislature has divided building
into different categories, namely, (i) buildings used for office B
premises or (ii) for residential accommodation; or (iii) premises
used for other purposes. Meaning to the phrase 'residential
accommodation' is also given under the Explanation which
includes accommodation in the nature of a guest house and it
specifically excludes "premises used as a hotel". So, the C
Legislature has not considered hotel building by itself as a plant.
The phrase is 'premises used as a hotel' where machinery or
plant is installed.

(3) Under sub-clause (v) of clause (I) of Section 32 specific provision
is made for a 'new building', the erection of which is completed D
after 31.3.1967, which is 'used as a hotel'. If the conditions
mentioned therein are satisfied then for a building which is used
for a hotel, a sum equivalent to 25 per cent of the actual cost
of the erection of the building is granted as depreciation. Further,
the Legislature has considered building as separate from the
hotel business and building is not considered as a plant for E
running the hotel. Therefore, building and the use of such
building as a hotel are considered distinct.

(4) All throughout Section 32 for building it is specifically mentioned
that 'whenever it is erected', while for machinery and plant, the F
words used are 'whenever it is installed' and there is no question
of installing building. Section 32( I )(iia) uses the phrase
"machinery" or "plant" installed il'l any premises used as a hotel
and Section 33(1 )(bXB)(ii) provides in case of "machinery" or
"plant" is installed for the purposes of business or construction
etc. which indicates that "plant" is to be installed and there is G
no question of erection.

(5) Under the Rules as quoted above, separate rates are prescribed
under the headings (I) Buildings, and (II) Furniture and fittings,
(III) Machinery and Plant and (IV) Ships. These headings have
been further sub-divided providing different rates. Like, Building H
366 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A is divided into (i) building generally, (ii) special rate in respect
of factory building and (iii) temporary erections such as wooden
structures. In the remarks column (3) it is stated that buildings
include roads, bridges, culverts, wells and tube-wells. Furniture
and Fittings is also divided into (i) general rate and (ii) rate for
furniture and fittings used in hotels, restaurants and boarding
B houses, cinema house theatres etc. Similarly, Machinery and
Plant are under one heading and are divided into two parts-(i)
general rate applicable to machinery and plant and (ii) special
rates, which includes machinery and plant for cinematograph
films, recording equipments, reproducing equipments, developing
c machines, printing machines, synchronisers and studio lights
and projecting equipments of film exhibiting concerns. Further,
special rates are provided for machinery used in production and
exhibition of cinematograph films being (a) recording equipment,
reproducing equipment, developing machines, printing machines,
editing machines, synchronisers and studio lights except bulbs
D and (b) projecting equipment of film exhibiting concerns. Further
different rates have _been provided for machinery for
cinematograph films that includes studio lights except bulbs
under the heading C( I )(b) and for bulbs of studio lights under
the .heading F(2).
E 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 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
F 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,
G cinematograph films, machinery used in the production and exhibition of
cinematograph films, recording equipment, reproducing equipment, devel<Jl'ing
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
H of hotel or a cinema would be "plant" under the Act appears, on the face of
C.l.T. v. ANAND THEATRES [SHAH, J.] 367
it, to be inconsistent with the aforesaid provisions. Such meaning would be A
clearly against the legislative intent.
While interpreting the words "consumption", "raw material" and
"utilised" in clause (c) of the Import Control Policy formulated by the
Government of India this Court in the case of Dy. Chief Controller of Imports
and Exports, New Delhi v. K.T. Kosa/ram and others, (1970) 3 sec 82 B
observed thus: -
"In our opinion dictionary meanings, however helpful in understanding
the general sense of the words cannot control where the scheme of
the statute or the instrument considered as a whole clearly conveys
a somewhat different shade of meaning. It is not always a safe way C
to construe a statute or a contract by dividing it by a process of
etymological dissection and after separating words from their context
to give each word some particular definition given by lexicographers
and then to reconstruct the instrument upon the basis of these
definitions. What particular meaning should be attached to words and
phrases in a given instrument is usually to be gathered from the D
context, the nature of the subject matter, the purpose or the intention
of t.'1e author and the effect of giving to them one or the other
permissible meaning on the object to be achieved. Words are after all
used merely as a vehicle to convey the idea of the speaker or the
writer and the words have naturally, therefore, to be so construed as E
to fit if! with the idea which emerges on a consideration of the entire
context." (Emphasis added)
Applying the said test,· 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 F
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.
G
In C.J. T. v. Mir Mohammad Ali, (1964) 53 ITR 165 this Court considered
the meaning of the word "machinery" and observed that the word 'machinery"
is an ordinary and not a technical word and unless there is something in the
context in the Act, the ordinary meaning would prevail. Thereafter, the Court
observed:
H
368 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A According to the above definition, a diesel engine is clearly
"machinery''. Indeed, rule 8 of the Income-true Rules treats aero-engines
separately from aircraft. It is true that this rule cannot be used to
interpret the clauses in the Act but it does show that components of
an aircraft, which are machinery, can be treated separately. "

B For the words "plant" and "installed" the Court held :-

"Further, when the assessee purchased the diesel engines, they
were not "plant" or part of a plant: because they had not been
installed in any vehicle. They were, according to the definition given
by the Privy Council, machinery. They were not yet part of a plant,
C and, according to the Act, 20% of the cost thereof was allowable of
the assessee. All the conditions required by the Act are satisfied. If
we look at the point of time of purchase and installation, what was
purchased and installed was machinery."

Thereafter, the Court considered the meaning of the expression "install"
D and held that when an engine is. fixed in a vehicle it is installed within the
meaning of Section 10(2Xvi) and 10(2Xvi-a) of the Act, 1922. Similarly, in the
present case the word "plant" is given meaning under Section 43(3) to include
ships, vehicles, books, scientific apparatus and surgical equipment used for
the purposes of the business or profession, but this would not mean that it
E includes building which is treated separately from machinery and plant. Wider
meaning to word "plant' is given by including specified items mentioned
above, that is, it includes ships, vehicles, books etc.

In Taj Mahal Hotel (supra) this Court specifically observed that it is
well settled that where the definition of the word has not been given it must
p be construed in its popular sense if it is a word of every day use. The Court
also observed that even books have been included in the word "plant",
therefore, wider meaning should be given so as to include those things which
the interpretation clause declares that they shall include. Further, 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.
G 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
H on. Further, the Court specifically observed that: -
C.LT. v. ANAND THEATRES [SHAH, J.] 369
"the business of a hotelier is carried on by adapting a building or A
premises in a suitable way to be used as a residential hotel where
visitors come and stay...."

These observations clearly indicate that business of a hotelier is carried
on in a building or a premises and building is not an apparatus for running
such business. It is a shelter or a home for conduct of such business. Learned B
counsel also pointed out the decision of the Madras High ~ourt in. CIT v.
(1) N. Sathyanathan And Sons P. Ltd, (2000) 242 ITR 514 wherein the Court
observed that in case of Taj Mahal Hotel, (1971) 82 ITR44 even after noticing
the fact that the dictionary definition of "plant" includes buildings, the court
did not proceed to hold that the building in which the hotel was run, and C
wherein the sanitary fittings were used was 'itself plant', and on that ground
sanitary fittings used in the hotel were part of the plant and emphasised that
Section specifically provides buildings used as hotel would indicate hotel
building cannot be construed as a "plant". We agree with this view of the
Madras High Court.
D
Next, it is to be stated that the judgment in the case of Barclay, Curley
& Co. would be of no assistance for holding that a building used for the
purpose of a hotel or the theatre used for carrying the business of cinema
will be a "plant" because in the said case majority view was that the dry dock
was not the mere 'setting' or the premises in which ships were repaired. It E
was not mere shelter or home but 'itself played 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. It was a complete unit by itself,
therefore, it was a "plant". Against that, for a hotel premises, under the Act,
building is not considered to be an apparatus for running the hotel business
but is merely a shelter or home or setting in which business is carried out. F
In our view, same would be the position with regard to a theatre in which
cinema business is carried on. Webster Comprehensive Dictionary
(International Edition) gives meaning to the word 'theater" that: "(!) A
building especially adapted to dramatic, operatic, or spectacular representations;
playhouse; (2) The theatrical world and everything relating to it; (3) A room
or hall arranged with seats that rise as they recede from a platform, especially G
adapted to lectures, surgical demonstrations, etc.; (4) Any place of semicircular
form with seats rising by easy gradations; (5) Any place or region that is the
scene of events: a theater of operations in war." This would mean that cinema
business can be run in a premises adapted for that purpose which may or may
not be specially designed. Further, on the basis of test laid down in the case H
370 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A of Barclay, Curle & Co. Ltd., such building or premises would be the place
in which operation of carrying on of business takes place and not that they
are means by which the operation is performed. Even the House of Lords in
case of Benson (supra) arrived at the conclusion that a ship or a floating hulks
used as a restaurant was not a plant, even though the ship was used to create
a shipboard feeling and certain kind of atmosphere among the patrons. In our
B view such buildings cannot be termed as tools for running business but are
mere shelter for carrying on such business activities. Therefore, even functional
test, which is followed and which according to us would not be conclusive
in all cases, is also not satisfied.
In England also, there are conflicting decisions involving the question
C whether structure would be a plant or not and it is stated that each case is
required to be decided on facts of that case. In Commissioners of Inland
Revenue v. Scottish & Newcastle breweries Ltd. (55 Tax Cases 252) (decided
by the House of Lords) the Court of Appeal observed that though there is
no statutory definition of "plant" for the purpose of Section 41 of the Finance
D Act, 1971, from a series of cases decided, following principles emerge to be
settled law:

(i) Something which is properly to be regarded as part of the
setting in which a business is carried on and not as part of the
apparatus used for carrying on the business is not plant: see J.
E Lyons and Co. Ltd v. Attorney~General, (1944) Ch 287.
(ii) Something which forms part of the setting of a trade may
nevertheless be plant if it is more a part of the apparatus than
part of the setting {Jarrold v. John Good & Sons Ltd, (1963)
I WLR 214: 40 TC 681}.

F (iii) The term "plant" is not apt to cover the permanent structure of
a building in which a business is carried on [John Good & Sons
Ltd's case].
(iv) Something which is a structure or part of a structure may
nevertheless be plant, if it fulfills the function of plant in the
G trader's operations. [Commissioners of Inland Revenue v.
Barclay, Curle & Co. Ltd, (1969) SC (HL) 30: 45 TC 221].
(v) Apparatus which has no functional purpose in the commercial
process, even if it serves to attract custom, is not plant (Dixon
v. Fitch's Garage Ltd, (1976) I WLR 215: 50 TC 509, in this case
H the apparatus in question was a canopy constructed over the
C.l.T. v. ANAND THEATRES [SHAH, J.J 371
pumps of a petrol filling station to provide shelttr while the A
commercial process of delivering fuel was carried on).

In the said case, Lord Stott adopted the distinction made by Shaw L.J.
in Benson v. Yard Arm Club Ltd., (1979) I WLR 347, at p. 358: 53 TC 67 at
p.88. and relied upon following observation:-
B
"A characteristic of plant appears to me to be that it is an adjunct
to the carrying on of a business and not the essential site or core of
the business itself."

Applying the aforesaid characteristic of "plant", in our view, building
for hotel or cinema cannot be stated to be adjunct, that is to say, (as per the C
dictionary meaning of the word 'adjunct') something added to another, or it
is in a subordinate, auxiliary or dependent position.

Further, in Wimpy International Ltd. v. War/and and Associated
Restaurants Ltd. v. War/and, [61 Tax Cases 51), the Court of Appeal dealt with
a case where the appellants owned and operated fast food restaurants and D
expended money on improving and modernising their restaurants i.e. by
spending on shop fronts, floor and wall tiles, wall finishes and other non-
decorative items which was held by the Special Commissioners as part of
"setting" or premises in which trades were carried on. The appellants contended
• that all the items were installed to improve the ambience of the restaurant and
to attract customers and were thus plant. The Court held that they were not E
plants. The Court took up each and every item of decoration separately for
analysing whether it constituted a plant or not. Like for shop fronts or doors,
the Court agreed with the observations of the Chancery Division that none
of the shop fronts or doors qualifies as plant by holding that their principal
function is to form a necessary part of the premises and doors are needed F
for ingress and egress. None of the floor or wall titles can be classed as
plants. They are chosen so as to create an attractive setting in which customers
will be pleased to sit for the short time required to consume a fast food meal,
but their function in the trade does not go beyond that. Considering the facts
of this case and various decisions Fox L.J. observed:
G
"In the light of the aQJ:horities the position appears to me to be
this. There is a well-established distinction, in general terms, between
the premises in which the business is carried on and the plant with
which the business is carried on. The premises are not plant. In its
simplest form that is illustrated by Lord Lowry 's example of the creation
of atmosphere in a hotel by beautiful buildings and gardens on the H

7
372 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A one hand and fine china, glass and other tableware on the other. The
latter are plant; the former are not. The former are simply the premises
in which the business is conducted.

The distinction, however, needs to be elaborated, for present
purposes, by reference to Lord Lowry's further formulation, !lamely
B that the fact that different things may perform the same function of
creating atmosphere is not relevant: one thing may function as part
of the premises and the other as part of the plant. Thus, "something
which becomes part of the premises instead of merely embellishing
them is not plant except in the rare case where the premises are
themselves plant".
c
I do not think that what Oliver L.J. was saying in Cole Brothers
is at variance with Lord Lowry 's approach. It is proper to consider the
function of the item in dispute. But the question is what does it
function as? If it functions as part of the premises it is not plant. The
fact that the building in which a business is carried on is, by its
D construction particularly well-suited to the business, or indeed was
specially built for that business, does not make it plant. Its suitability
is simply the reason why the business is carried on there. But it
remains the place in which the business is carried on and is not
something with which the business is carried on."
E Similarly, Lord Hoffmann J. (Chancery Division) observed:
"the question is whether it would be more appropriate to describe the
item as part of the premises rather than as having retained a separate ·
· identity. It seems to me that items such as fixed floor tiles and shop
fronts are more naturally to be regarded as part of the "housing" of
F the business than as mere embellishments having a separate identity."
In Carr (H.M Inspector ofTaxes) v. Sayer [65 Tax Cases 15], the Chancery
Division considered a case where the taxpayers carried on business of providing
quarantine kennels and transport services for dogs and cats brought into the
United Kingdom from abroad. Quarantine kennels were constructed at their
G premises. Some of the kennels were movable. The permanent kennels comprised
a flat-roofed structure which consisted principally of a series of pens divided
from each other by walls and with bars and metal mesh across the front. The
Court held that those kennels were not plant; they were purpose-built
permanent buildings or structures, used as such, and were the premises in
H which business was conducted; while they were specifically designed for
C.l.T. v. ANAND THEATRES [SHAH, J.] 373
quarantine purposes, the particular roof and walls were building design features A
and no more, which did not result in structures being characterised as anything
other than buildings or lead to the end result having the character of equipment
or apparatus. For this purpose, the Court referred to various principles in
context of Section 41(1) of the Finance Act 1971 which is applicable to
'machinery or plant'. In the context of that section, the Court observed that
plant carries with it a connotation of equipment or apparatus, either fixed or B
unfixed. It does not convey a meaning wide enough to include buildings in
general. The Court pertinently observed that buildings would not normally be
regarded as a plant, do not cease to be buildings and become plant simply
because they are purpose-built for a particular trading activity. Such a
distinction would make no sense. Thus the stables of a racehorse trainer are C
properly to be regarded as buildings and not plant. A hotel building remains
a building even when constructe<! to a luxury specification. Similarly with
a hospital for infectious diseases. This might require special layout and other
features, but this does not convert the buildings into plant. A purpose-built
building, as much as one which is not purpose-built, prima facie is no more
than the premises on which the .business is conducted. D
In Gray v. Seymours Garden Centre [67 Tax Cases 401], the Court of
Appeal dealt with a case where assessee expended on the construction of
planteria which was a fixed structure designed to maintain plants of many
different kinds moved from nurseries, in an environment in which they would
remain in good condition until sale. It was designed so that an appropriate E
mini-climate could be provided in different parts of the planteria suitable for
different varieties of plant, and so as to be open to the public who could walk
around it and choose from the plants on offer. The Court of appeal held that
the true and only reasonable conclusion from the facts found was that
planteria was part of the premises in which the business was carried on. It F
was a structure to which plants were brought which required special treatment.
However, the fact that planteria provided the function of nurturing and
preserving the plants while they were there could not transform it into
something other than part of the premises in which business was carried on;
the highest it could be put was that it functioned as a purpose-built structure,
but that was not enough to make the structure plant. G
Hence, to rely upon Barclay Curle and Co. 's case (dealing with dry
dock yard) and to hold that hotel building or theatre would be a plant on
functional test would be unjustified and unreasonable in the context of
Section 32 of the Act which deals with grant of depreciation allowance on
building, machinery, plant or furniture and also for extra allowance in case of H
)
374 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A new machinery or plant installed in premises other than the premises used as
office or any residential accommodation and also for new building erected and
used as a hotel. As against that, the aforesaid decisions by Courts in England
are based upon Section 41 of the Finance Act, 1971 which provide for
allowance for capital expenditure incurred on the provisions of machinery or
plant for the purposes of the trade and the Courts were only dealing with
B general meaning of the word 'plant'. Even there, as quoted above, Courts
have specifically held that creation of atmosphere in a hotel by beautiful
buildings and gardens would not make such buildings as plants. Suitability
of such building is simply the reason why the business is carried on there
which may flourish, but the premises remains as premises where business is
C carried on and is not something with which business is carried on. In Carr
v. Sayer (supra), the Court observed that a hotel building remains a building
even when constructed to a luxurY specification and also a hospital building
for infectious diseases which might require special lay-out and other features
was not held to be a plant by observing that a purpose-built building is no
more than the premises on which the business is conducted.
D
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
E 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 tourists.
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,
F 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. In our view, the Delhi High Court has in case
of R.C. Chemical Industry (supra) rightly observed that mere fact that
G manufactu1 e of saccharine would be better carried on in a building having
atmospheric controls would not convert the builciing from 'the setting' to 'the
means' for carrying the business. Similarly, Rajasthan High Court also in Lake
Palace Hotels and Motels (supra) rightly observed that simply because some
special fittings or controlling equipments are attached for the purpose of
H carrying on hotel business, it will not take it out of the category of building
C.l.T. v. ANAND THEATRES [SHAH, J.) 375
and make it a plant. In our view special fittings or equipments to control A
atmospheric effects would be plant, but not the building which house such
equipments.

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 suit the requirement of a particular industry, trade or business. B
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 C
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.
D
Learned counsel for the assessee submitted that the words "plant" and
"building" are not mutually exclusive. "Plant" may include building in certain
set of circumstances and, therefore, applying the functional tests assessee
would be entitled to depreciation under the head "it is more beneficial to it".
He submitted that in the modem era, theatre building and hotel building are E
integral part of operation for carrying out such business and, therefore, such
building should be considered as a "plant".

As discussed above, the aforesaid contention cannot be accepted.
Firstly, it would be difficult to draw a line between a building which is
specifically constructed for the aforesaid purposes and buildings which are F
used for the aforesaid purposes by converting a residential accommodation
or industrial premises for such purposes. Secondly, the depreciation as a
general principle represents the diminution in value of capital asset when
applied to the purpose of making profit or gain. The object is to get true
picture of real income of the business. Hence, it can be inferred that the

- Legislature never intended to give such benefit of depreciation to a "building"
which is usually more durable than "machinery" or "plant". In CIT, Punjab,
J&K, and Himachal Pradesh Patiala v. Mis Alps Theatre, AIR (1967) SC
1437, Court considered the question-whether the cost of land is entitled to
G

depreciation under the schedule to the Income-tax Act along with the cost
of the building standing thereon? The Court observed (in para 6) thus:- H
376 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A "It would be noticed that the word used is "depreciation" ano
"depreciation" means:

"a decrease in value of property through wear, deterioration, or
obsolescence; the allowance made for this in book-keeping, accounting,
etc." (Webster's New Word Dictionary).
B In that sense land cannot depreciate. The other words to notice
are "such buildings". We have noticed that in sub-clause (iv) and (v),
"building" clearly means structures and does not include site."

The Court also held (in para 7 and 8) that: -

C "One other consideration is important. The whole object of S. l 0
is to arrive at the asessable income of a business after allowing
necessary expenditure and deductions.

Depreciation is allowable as a deduction both according to
accountancy principles and according to the Indian Income Tax Act.
D Why? Because otherwise one would not have a true picture of the real
income of the business. But land does not depreciate, and if
depreciation was allowed it would give a wrong picture of the true
income."
Under the new Act also for the building and machinery or plant
E depreciation is allowed probably after taking into consideration its life and
decrease in the value of the property through wear and tear.
Learned counsel for the assessee vehemently submitted that even
though the line between the building and the plant in some cases is absolutely
thin yet the legislature or the Central Board of Direct Taxes (Revenue Board)
F has not clarified the same at any point of time inspite of conflicting judgments
of the High Courts on the subject. Learned counsel for the assessee further
submitted that even though the legislature was alive to the issue and amended
Section 43(3) of the Act by the Finance Act of 1995 by excluding tea bushes
and livestock with retrospective effect from 1962, it has not excluded the
buildings which are used for running hotel or cinema business. It has not
G clarified or carried out any amendment in the provision and, therefore, it
should be held that interpretation given by the High Courts was accepted by
the revenue and the legislature. We do not know that Revenue Board was
alive to the said controversy. If that was so, it would have clarified either way
-
and litigations could have been avoided. But that is no ground for accepting
H interpretation suggested by the learned counsel for the assessees which
would be inconsistent with scheme of Section 32.
C.l.T. v. ANAND THEATRES [SHAH, J.] 377
In the result, it is held that the building used for running of a hotel or A
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 B
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
c
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 D
the question whether the sanitary fittings used in bath room
were plant.

(3) For a building used for a hotel, specific provision is made granting
additional depreciation under Section 32 (l)(v) of the Act.
E
(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, F
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 G
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." H
378 SUPREME COURT REPORTS [2000) SUPP. l S.C.R.

A (6) For the hotel building and hospital in the case of Ca" 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.
B
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.
c (T) 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
D be unreasonable.
Hence, the question is answered in favour of the revenue and against
the assessee by holding that building which is used as a hotel or a cinema
theatre cannot be given depreciation as plant.
Accordingly, the Civil Appeal Nos. 55-57 of 2000 filed by the assessee
E and Civil Appeal Nos. 4758, 5198-99, 5391 of 1998, 15, 2784-86, 2787, 3690 of
1999 and Civil Appeal Nos. 3434-3435 of2000@S.L.P.(C) Nos.4373-74of1999
filed by the Revenue are disposed of, but in the circumstances of the case,
without costs.
In Civil Appeal Nos. 241, 242-243, 244, 245 and 246-48 of 1999, the
F learned counsel for the respondents-assessee has filed additional written
submissions on 4.5.2000 stating that additional question is involved in these
matters and it is required to be heard. Accordingly, in these appeals, we fix
the hearing of the said question in the Month of August 2000. If a counsel
finds that any other additional question which was raised and decided by the
G High Court is left out, he may draw the attention by filing proper application
within four weeks from today.
Ordered accordingly.
B.K.M.
Appeals by the Revenue allowed.
H and Appeals by the assessee dismissed.