V.K. Singhal, J. - (1.) THIS order shall dispose of all the above listed matters which have been referred by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, for opinion of this court since the controversy involved in the above cases is as to whether a cinema building or hotel building is plant or not for the purpose of claiming depreciation.
(2.) IN the case of Lake Palace Hotels and Motels Pvt. Ltd., the INcome-tax Appellate Tribunal has referred the following question of law arising out of its order dated September 2, 1988, in respect of the assessment year 1983-84 under Section 256(1) of the INcome-tax Act, 1961. " Whether, on the facts and in the circumstances of the case, the learned members of the INcome-tax Appellate Tribunal were justified in holding that hotel is to be treated as plant and accordingly depreciation should be allowed at the rate applicable to a plant, and in further holding that the hotel being run 24 hours a day is also eligible to extra shift allowance on the basis of its being a plant ?" The facts of this case relevant for the purpose of decision on the above question of law are that the assessee is a private limited company and is running two hotels under the name and style of Lake Palace Hotels and Motels and Garden Hotels and Motels. During the year in dispute, the assessee claimed depreciation on the hotel buildings at 10 per cent. claiming it to be a plant, but the Income-tax Officer allowed depreciation at 5 per cent. In appeal before the Commissioner of Income-tax (Appeals), Jodhpur, the disallowance of the claim was upheld. In second appeal before the Income-tax Appellate Tribunal, an additional ground was also taken that the hotel building being a plant, the assessee is entitled to extra shift allowance on the hotel building. The Tribunal allowed the said additional ground to be raised before it and it was observed that depreciation should be allowed at the rate applicable to a plant and that as the hotel is being run 24 hours a day it is also eligible to extra shift allowance on the basis that it is a plant. The facts of the case of Payal Theatre are that the Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated May 29, 1985, in respect of the assessment year 1983-84 under Section 256(1) of the Income-tax Act, 1961 : " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the cinema building belonging to the assessee-firm should be treated as a plant and depreciation should be allowed at the rate applicable to a plant ?" The assessee is running a cinema hall called Payal Theatre at Sriganganagar. The claim of the assessee before the Income-tax Officer was that the cinema hall is a plant in itself and, therefore, depreciation should have been allowed at the rate applicable to plant. The Income-tax Officer however restricted the depreciation on the cinema building treating it as a normal building. In appeal before the Commissioner of Income-tax (Appeals), the contention of the Income-tax Officer was upheld and the appeal was dismissed. In second appeal before the Tribunal it was observed that the cinema building cannot be treated as any other ordinary building since it has to be designed in such a manner for the effective exhibition of the film and, therefore, it is an apparatus/plant. The cinema building was considered to be a basic apparatus without which exhibition of film is impossible. When a film is exhibited then the entire building needs to be used for housing the people for screening the exhibition and, therefore, it was considered that the cinema building is a tool and an apparatus for carrying on the exhibition of films and as such is plant. In order to consider the controversy whether the hotel or cinema building is a plant or not, the provisions of Section 32 of the Income-tax Act are taken into consideration which read as under : " 32. Depreciation.--(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of Section 34, be allowed --. . . (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed : Provided that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession ; Provided further that no deduction shall be allowed under this clause in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists : Explanation 1. -- Where the business or profession of the assessee is carried on in a building not owned by him 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 on the 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, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2. - For the purposes of this clause 'written down value of the block of assets' shall have the same meaning as in Clause (c) of Sub-section (6) of Section 43." The various authorities relevant to the point are discussed hereunder.
(3.) THE word "building" has not been defined under the Income-tax Act but an inclusive definition of "plant" has been given under Section 43(3) as under : " 'Plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession." The word "building" has to be considered in its wider import and must be interpreted from a common man's point of view. According to the functional test, it has to be seen whether the structure is used for carrying on the business and hence is a tool of the trade or whether it is only a place of business in which the business is carried on. ;