COMMISSIONER OF INCOME TAX, TRIVANDRUM vs. M?S ANAND THEATRES ETC. ETC.

CIVIL APPEAL No. 4758/1998Supreme Court2000 INSC 32812 May 2000Bench: 2 JudgesAuthor: AJAY PRAKASH MISRA, M.B. SHAH COMMISSIONER OF41 pages
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What were the facts?

The assessee claimed depreciation at 15% on its theatre building, contending it was 'plant'. The Assessing Officer allowed only 5% depreciation applicable to buildings. The Commissioner of Income Tax (Appeals) ruled in favour of the assessee, treating the theatre building as 'plant'. The Income Tax Appellate Tribunal upheld this decision. The High Court, on reference, also decided in favour of the assessee. The Revenue filed an appeal against these decisions. The Supreme Court heard appeals involving this common question of law.

What did the Supreme Court hold?

The Supreme Court held that a building used for running a hotel or cinema business cannot be considered 'plant'. The Court reasoned that Section 32 of the Income Tax Act, 1961, clearly provides for different depreciation rates for buildings, machinery, and plant. The definition of 'plant' under Section 43(3) is inclusive but does not encompass buildings. The Act specifically mentions 'erection' for buildings and 'installation' for machinery and plant, indicating a distinction. The Income Tax Rules also prescribe separate depreciation rates for buildings and plant. The Court noted that while a building might be specifically designed for a business, it remains a shelter and not an apparatus or tool for running the business. The functional test, therefore, is not satisfied. The Court rejected the argument that 'plant' and 'building' are not mutually exclusive, stating that such an interpretation would obliterate the distinction made by the legislature and is inconsistent with the scheme of Section 32. The Court relied on previous judgments, including those from the Supreme Court and English courts, which distinguished between buildings and plant.

What were the issues?

1. Whether a building used for running a hotel or cinema business can be considered 'plant' for the purpose of claiming depreciation at a higher rate under Section 32 of the Income Tax Act, 1961, as opposed to the rate applicable to 'buildings'. Assessee's arguments: The terms 'plant' and 'building' are not mutually exclusive. Applying a functional test, theatre and hotel buildings are integral to the business operations, acting as apparatus or tools for running the cinema or hotel business, and thus qualify as 'plant'. The legislature's failure to amend Section 43(3) to exclude such buildings, despite amending it for tea bushes and livestock, implies acceptance of the High Courts' interpretation. Revenue's arguments: The scheme of Section 32 distinguishes between buildings and plant. Section 43(3) defines 'plant' inclusively but does not include buildings. Buildings are shelters, not apparatus for business. The functional test is not satisfied, and legislative intent is to maintain a distinction between buildings and plant.

Which sections of the Income-tax Act were involved?

Section 32,Section 43(3)

AI-generated summary — verify with the full judgment below

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 continues below.

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