ORDER
Per Shri A. Satyanarayana, A.M. - These appeals filed by the revenue are against the separate orders of the CIT (A) dated 31-12-1986 for the assessment years 1978-79, 1981-82 and 1982-83. As the point involved is common in all these appeals, they are being disposed of by a consolidated order for the sake of convenience.
2. The assessee companys business consists of export of cast iron goods and running of Hotel East Coast at Haldia. The assessee claimed depreciation of 10 per cent on hotel building contending that it should be treated as plant in view of the Supreme Courts decision in the case of CIT v. Taj Mahal Hotel : [1971]82ITR44(SC) . The ITO stated that, by any stretch of imagination, the hotel building could not be treated as plant. Accordingly he rejected the assessees claim for treatment of hotel building as plant. He allowed depreciation according to the rates permissible for hotel building. Aggrieved by the orders of the ITO the assessee carried the matter before the CIT (A).
3. Before the CIT (A), none was present on behalf of the assessee. Hence he decided the appeals on merits and allowed the assessees appeals observing as under :
'In CIT v. Taj Mahal Hotel : [1971]82ITR44(SC) , the Supreme Court referred to the meaning of plant in Websters Dictionary as under :
Land, building, machinery, apparatus and fixtures employed in carrying on trade or other industrial business..........
and approved it. Dealing with the narrow question whether sanitary and pipelines fittings constituted plant the court held that the asset in question were required by the nature of hotel business. In other words the Supreme Court has confirmed the view that when a building is required to carry on the hotel business it constitutes plant.
There cannot be a hotel business without a hotel building. The building itself is one of the tools of trade and thereby constitutes plant. Without the building it is not possible for the assessee to carry on the hotel business. Thus as per functional test hotel building constitutes a plant. As the classification of building in the depreciation schedules do not take into account a building which functions as the tool of trade, there is no prohibition to treat a hotel building as a plant, for the purpose of ascertaining the rate of depreciation. This was the ruling given in Hotel Srilekha (P.) Ltd. v. Third ITO [1983] 5 ITD 541 (Mad.). Respectfully, the above decisions are followed.'
Against the said orders of the CIT (A), the revenue field the present appeals before the Tribunal.
4. The arguments of the Departmental Representative were to the following effect. The CIT (A) followed the decision of the Madras Bench of Income-tax Appellate Tribunal in the case of Hotel Srilekha (P.) Ltd. v. Third ITO [1983] 5 ITD 541. There is no definition of plant in the Income-tax Act, 1961. Section 43(3) is only an inclusive definition according to which plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of business of profession. Table of rates at which depreciation is admissible (Appendix-I, Part-I) as per rule 5 of Income-tax Rules, 1962 prescribed different rates of depreciation for buildings, furniture and fittings and machinery and plant. Thus it would be seen that the Income-tax Rules prescribed two different categories such as, building and plant for the purpose of depreciation. The CIT (A) referred to the decision of the Supreme Court in Taj Mahal Hotels case (supra) which dealt with sanitary and pipeline fittings installed in a hotel building and held them as plant. The Supreme Court did not deal with the question whether hotel building constituted plant or not. The Hyderabad Benches of Income-tax Appellate Tribunal in the cases of Hotel Banjara Ltd. v. ITO [1986] 16 ITD 692 and Hotel Emerald (P.) Ltd. v. ITO [1986] 19 ITD 298 held that the hotel building could not be treated as a plant. The Bombay High Court in the case of CIT v. Sandvik Asia Ltd. : [1983]144ITR585(Bom) held that the building cannot be treated as a plant. Reliance is also placed on the decision of the Kerala High Court in the case of CIT v. Casino (P.) Ltd. : [1973]91ITR289(Ker) .
5. The arguments of the assessees counsel were to the following effect : The case of Sandvik Asia Ltd. (supra) is not helpful to the revenue. In that case the High Court was considering whether the roads constructed in the premises of its factory constituted plant or building within the meaning of section 32 read with section 43(3) of the Income- tax Act, 1961. They did not consider whether the hotel building constituted a plant or not. The Madras Bench of the Tribunal in the case of Hotel Srilekha (P.) Ltd. (supra) held that the hotel building is the assessees tool of trade in the case of an assessee carrying on hotel business. It also held that the hotel building was not a setting in which the assessee carried on the business but the setting which it offered to its customers to resort to and enjoy. The Supreme Court in the case of Taj Mahal Hotel (supra) at page 48 held that it cannot be denied that the business of a hotelier is carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities are provided for their comfort and convenience. The CIT (A) is justified in holding the hotel building as the assessees tool of trade and that there was no prohibition to treat a hotel building as a plant for the purpose of depreciation. In these facts and circumstances the orders of CIT (A) should be upheld.
6. We have considered the rival submissions and the case law cited before us. It is an admitted fact as can be seen from the assessment order for 1979-80, that the assessee company was engaged in the running of Hotel East Coast at Haldia by letting out the rooms to its customers. The Allahabad High Court in the case of CIT v. Kanodia Warehousing Corpn. : [1980]121ITR996(All) held as under :
'In order to find out if a building or structure or part there of constitutes plant, the functional test must be applied. It must be seen whether the subject-matter involved, that is, the building or structure or part thereof, constitutes an apparatus or a tool of the taxpayer or whether it is merely a space where the taxpayer carries on his business. If the building or structure or part thereof is something by means of which the business activities are carried on, it would amount to a plant but where the structure playes no part in the carrying on of those activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant.'
The determination depends on the description and the nature of the use of the concerned item-Orissa Cement Ltd. v. CIT : [1969]73ITR14(Delhi) . In this view of the matter, a particular item may be plant in the hands of one person but not necessarily so in the hands of another. For example, certain types of fixtures may constitute plant and machinery used in the assessees business if the assessees business is a hotel, but such fixtures and fittings would not amount to plant and machinery of another assessee whose business may be totally different e.g. and ordinary commercial office. In the latter case, it may merely be a part of the building or setting in which the business is caried on and not the apparatus with which the business is carried on CIT v. Bank of India Ltd. : [1979]118ITR809(Bom) . The Gujarat High Court in the case of CIT v. Elecon Engg. Co. Ltd. : [1974]96ITR672(Guj) held as under :
'The word plants, in its ordinary meaning, is a word of wide import and in the context in section 32 it must be broadly construed. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, that is goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on as distinguished from a part of the plant with which the business is carried on. An article to qualify as plant must furthermore have some degree of durability and that which is quickly consumed or born out in the course of a few operation or within a short time cannot properly be called plant. But an article would not be any the less plant because it is small in size or cheap in value or a ledge quantity thereof is consumed while being employed in carrying on business. In the ultimate analysis the enquiry which must be made is as to what operation the apparatus performs in the assessees business. The relevant test to be applied is : Does it fulfil the function of plant in the assessees trading activity It is the tool of the taxpayers trade If it is, then it is plant no matter that it is not very long- lasting or does not contain working parts such as a machine does and plays a merely passive role in the accomplishment of the trading purpose.'
The decision of the Gujarat High Court in the case of Elecon Engg. Co. Ltd. (supra) was approved by the Supreme Court in the case of Scientific Engg. House (P.) Ltd. v. CIT : [1986]157ITR86(SC) . In that case the Supreme Court held as under :
'That plant was not necessarily confined to an apparatus which was used for mechanical operations or process or was employed in mechanical or industrial business. But in order to qualify as plant, the particular article had to have some degree or durability. The test to be applied was : Did the article fulfill the function of the plant in the assessees trading activity Was it a tool of his trade with which he carried on his business If the answer was in the affirmative, it would be a plant.'
In the case before us, the Hotel building is not merely used by the assessee as a space or place for carrying on the business. It constituted a tool of his trade with which he carried on the business of letting out the rooms to its customers. Respectfully following the decision of the Supreme Court in the case of Scientific Engg. House (P.) Ltd. (supra), we hold that the Hotel Building in the assessees case constituted plant and depreciation is to be allowed as such.
7. In the result, the appeals are dismissed.