COMMISSIONER OF INCOME-TAX VS DAMODAR CORPORATION
1999 P T D 895
[225 I T R 699]
[Kerala High Court (India)]
Before V. V. Kamat and P.A. Mohammed, JJ
COMMISSIONER OF INCOME-TAX
Versus
DAMODAR CORPORATION
Income-tax Reference No. 155 of 1991, decided on 05/08/1996.
Income-tax
----Depreciation---Investment allowance---Hotel---Entire hotel complex cannot be treated as plant---Depreciation at flat rate not allowable-- Investment allowance not allowable on entire hotel---Indian Income Tax Act, 1961, Ss.32 & 32-A.
The assessee ran a hotel and claimed depreciation at a flat rate of 15 per cent. on the ground that the entire hotel complex had to be treated as "plant". The assessee also claimed investment allowance on the same ground. The Tribunal allowed the claims. On a reference:
Held, (i) that the benefit of depreciation is available to the assessee with reference to buildings, machinery, plant or furniture. The plain language of section 32(1) of the Income Tax Act, 1961, prohibits any scope for a contention that the entire building would have to be considered as plant when buildings, machinery, plant or furniture were separate and distinct items and the claim for depreciation would have to be understood as referable to them individually and separately from each other. The Tribunal was wrong in allowing depreciation at 15 per cent on the hotel.
(ii) That, similarly, a perusal of section 32-A would show that the words "plant" and "machinery" have been used separately with an exclusive character from each other. The Tribunal was wrong in allowing investment allowance in respect of the hotel.
CIT v. TajMahal Hotel (1971) 82 ITR 44 (SC) ref.
P.K.R. Menon and N.R.K. Nair for the Commissioner,
C. Kochunni Nair, M.A.' Firoz and Dale P. Kurien for the Assessee.
JUDGMENT
V.V. KAMAT, J.---The Income-tax Appellate Tribunal acting on the order, dated April 11, 1991 (see (1992) 193 ITR 272), of this Court in O. P. No. 10709 of 1987 has placed the following question for our answer (at page 273):
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the hotel run by the assessee was "plant" entitled to depreciation at 15 per cent. and investment allowance?"
The assessee is a firm carrying on business in the name and style of "Hotel Pankaj". The assessment year under consideration is 1982-83. What was contended by the assessee was that the entire hotel complex has to be treated as a plant for the purpose of a claim for depreciation and that too at a flat rate of 15 per cent: On this basis an amount of Rs.5,89,080, is claimed as depreciation.
However, the Income-tax Officer allowed permissible depreciation on certain individual items of capital nature and that too as per the prescribed rates under the Income-tax Rules. He worked out of the figure on the count at Rs.4,23,458 which could be considered for grant of depreciation.
The assessee had also claimed deduction of investment allowance at Rs.9,82,699 on the basis of the same contention that the hotel complex was a plant.
This was endorsed by the first appellate authority---the Commissioner of Income-tax (Appeals), on both counts. It appears that the first appellate authority referred to the decision of the apex Court in CIT v. Taj Mahal Hotel (1971) 82 ITR 44, in which business of hotel with reference to installed sanitary and pipeline fittings in one of its branches. A claim for depreciation allowance specifically under the head "Furniture and fittings" came up for consideration in regard to which, the question was whether the sanitary and pipeline fittings installed fell within the definition of "plant" in the assessment proceedings under the Indian Income-tax Act, 1922, by virtue of the provisions of section 10(5) thereof. The apex Court held that the items fell within the definition of the word "plant" with reference to the sanitary and pipeline fittings. The first appellate authority has devoted serious consideration to the understanding of the term "plant", basically with an approach that the best known and the most generally invoked meaning of the term has to be attempted.
Further travel of the proceedings to the Income-tax Appellate Tribunal displays continuation of the same exercise and that too with reference to the contention as to whether the whole hotel would have to be considered as a plant. The Income-tax Appellate Tribunal considered the hotel as a complex which can be treated as a plant. In reaching this conclusion, the Tribunal placed reliance on the decision of the Income-tax Appellate Tribunal, Madras Bench, Hotel Srilekha (P.) Ltd. v. Third ITO (1983) 5 ITD 541, in the matter of Hotel Srilekha (P.) Ltd.
The Tribunal has observed that the hotel virtually extends to a man's tools of trade which is a functional test and in the process the building would be such as an essential part of the overall trading activity of the assessee and in regard thereto the amenities would all go to offer to the customer, resort to and right to enjoy. The entire building would be the assessee's tool of trade without which the assessee cannot carry on his business would have to be understood, says the Tribunal, as plant.
Curiously enough the Tribunal took the logic and extended it to the consideration of investment allowance without much discussion in any sense of the situation. Depreciation of 15 per cent is granted treating the hotel as a plant and consequently investment allowance also is grained to the assessee.
It is little gainsaying that the question of depreciation is statutorily provided under section. 32 of the Income Tax Act, 1961. Section 32(1) therefore, enacts that depreciation is available to the assessee, referable to situations of ownership and use, for the purpose of business or profession and such depreciation is referable to building, machinery, plant or furniture. In other words, the assessee claims benefit of depreciation. He claims benefit on the strength of his ownership and user. The said ownership and user has to be attributable to its use for the purpose of business or profession. In addition thereto this benefit of depreciation is available to the assessee with reference to buildings, machinery,plant or furniture.
This is the plain statutory situation and there cannot be any permissible confusion on this count even for a contention that the entire building could be understood as a plant, in the face of the unambiguous statutory language of the provision above. A further look at the statutory provision would show that there is specification of mode of calculation of percentage with reference to the claim attributable to the four sources, such as building, machinery, plant or furniture. The plain statutory language prohibits any scope for a contention that the entire building will have to be considered as a plant when buildings, machinery, plant or furniture are separate and distinct items and the claim for depreciation will have to be understood as referable to them individually and separately from each other.
Similarly, section 32-A of the Act makes a statutory provision relating to the investment allowance. In regard thereto also if .any ship, aircraft or plant specified in section 32-A(2) of the Act, is owned by the assessee and is wholly used for the purpose of business carried on by him, then and then alone, subject to the provisions of the said section a deduction can be allowed as provided thereunder. A perusal of the said statutory provision of section 32-A of the Act would show that the words "machinery and plant" have been used separately with an exclusive character from each other finds place in the concerned enactment of the section. The statutory provision also speaks of other requirements for entitlement to investment allowance on the count.
It is the misfortune of the situation that the three authorities have not seen the statutory provisions which are basic both with reference to the claim for depreciation and claim for investment allowance. Reading of the three orders we can only say that the statutory provisions of section 32 have been applied by the Income-tax Officer with reference to the details and also with reference to the rates in regard thereto. It can also be said that the first appellate authority has merely referred to the statutory provisions. If the specific statutory requirements of sections 32 and 32-A would have been borne in mind, perhaps the authorities would have been saved to run after the Madras Tribunal decisions and other decisions in the context. The decision of the Madras Bench, though very exhaustive we have found, has not concentrated on the above statutory provisions. The statutory provision provides for the subject of depreciation and in regard thereto buildings, machinery, furniture and plant are emphasised separately. It is clear, therefore, that the contention would have to be understood as contrary to the statutory provisions referred to above. What is more surprising is that investment allowance has. been granted almost automatically without even a look at the statutory provision of section 32-A of the Act. For the above reasons, we answer the question in the negative, against the assessee and in favour of the Revenue.
A copy of this judgment under the seal of this Court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench, for passing consequential orders.
C.M.A./1760/FCReference answered.