THE COMMISSIONER OF INCOME TAX vs. EXPRESS RESORTS & HOTELS LTD

Facts

The Revenue (Commissioner of Income Tax) is aggrieved by the order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, dated September 14, 2006, for Assessment Year 2002-03. The ITAT had upheld the order of the CIT(Appeals) which treated sanitary and pipe fittings, and electrical installations in the assessee's hotel as 'plant' eligible for depreciation at 25%. The Assessing Officer had initially allowed depreciation at 20% on furniture and 15% on electrical installations, treating them as electric fittings. The CIT(Appeals) enhanced the depreciation rate to 25% by classifying these items as 'plant'. The Revenue's appeal to the High Court challenges this classification and the consequent depreciation rate.

Held

The High Court held that the issue is no longer res integra, citing the Supreme Court's decisions in CIT vs. Taj Mahal Hotel and CIT v. Anand Theatres. In these cases, sanitary fittings and electrical installations were unequivocally treated as 'plant'. The Court reasoned that once an item is classified as 'plant' in its own right, its integration with a building does not alter its classification. The fact that these items are used in a hotel building does not mean they should be depreciated in the same manner as the building itself. The Act makes a clear distinction between buildings, machinery, and plant. Electrical and sanitary fittings, by themselves, are 'plant' for depreciation purposes under Section 32. They do not become part of the building's construction (brick or mortar) and serve a purpose beyond providing shelter. Their use is not confined to hotel buildings, thus they remain 'plant' even when installed in a hotel. The Court answered the questions in the affirmative, in favour of the assessee, confirming the Tribunal's order. The appeal was dismissed.

Key Issues

1. Whether, on the facts and in the circumstances, the Appellate Tribunal was correct in law in holding that sanitary and pipe fittings fixed to the hotel building constitute 'plant' eligible for depreciation at 25%, despite being integrated with the building for which a separate depreciation rate of 20% is provided? 2. Whether, on the facts and in the circumstances, the Appellate Tribunal was correct in law in treating electrical installations in the hotel building as part of 'plant' for depreciation purposes, disregarding the specific rate of 15% provided for 'Furniture and fittings' including 'fittings used in hotels'? Assessee's Contentions: The judgment does not explicitly record the assessee's arguments. However, it implies the assessee relied on the decisions of the Supreme Court in CIT vs. Taj Mahal Hotel and CIT v. Anand Theatres, which treated sanitary fittings and electrical installations as 'plant'. Revenue's Contentions: The Revenue argued that sanitary and pipe fittings, being inseparably integrated with the building, should not be treated as 'plant' eligible for a higher depreciation rate when the building itself has a specific rate. Similarly, electrical installations should be considered under 'Furniture and fittings' with a lower depreciation rate, as indicated in the Depreciation Schedule.