1996 (9) TMI 31 - HC - Income Tax

Court denies assessee's claim for higher depreciation rates on cinema theatre building. Ownership & use crucial.

The court ruled in favor of the Revenue, denying the assessee's claim for higher depreciation rates on the building used as a cinema theatre. The court ... Building used as plant - depreciation under section 32 - separate classification of building, machinery, plant and furniture - investment allowance under section 32ABuilding used as plant - depreciation under section 32 - separate classification of building, machinery, plant and furniture - Whether the building constructed by the assessee and used as a cinema theatre constitutes plant and is entitled to higher rate of depreciation. - HELD THAT: - The court applied the statutory language of section 32, holding that depreciation is available with reference to distinct categories - building, machinery, plant or furniture - and that those categories must be treated individually. Relying on the reasoning in CIT v. Damodar Corporation, the court rejected the contention that an entire building can be treated as plant merely because of its use as a cinema. The decision emphasises that the plain language of the statute and the distinct rates for the separate categories preclude treating the whole building as plant. The court noted that the same statutory approach applies irrespective of the particular use of the building (for example, hotel, cinema or factory), and that the presence of a particular use does not convert the entire building into plant for higher depreciation. The court also observed support from the exclusive pairing of 'machinery and plant' in section 32A in recognising distinct categories.The building used as a cinema theatre does not constitute plant as a whole and is not entitled to the higher rate of depreciation claimed.Final Conclusion: The references are answered against the assessee and in favour of the Revenue: the cinema building cannot be treated as plant for the purpose of claiming a higher rate of depreciation; the court affirmed the principle that building, machinery, plant and furniture are separate categories under the depreciation provisions. Issues:Whether the building used as a cinema theatre constitutes plant and is entitled to higher rate of depreciation.Analysis:The judgment delivered by Judge V. V. Kamat addresses the issue of whether a building used as a cinema theatre can be considered as a plant and thus qualify for a higher rate of depreciation. The Revenue challenged the Tribunal's finding that the building in question constitutes a plant and is eligible for higher depreciation rates. The court examined the statutory provision of section 32(1) of the Income-tax Act, 1961, which allows depreciation on buildings, machinery, plant, or furniture used for business or professional purposes. The court emphasized that ownership and use are crucial factors for claiming depreciation benefits. The court clarified that the statutory provision specifies separate calculation methods for depreciation on buildings, machinery, plant, or furniture, indicating that they are distinct and individual items for depreciation purposes.The court's reasoning was further supported by the language of section 32A of the Act, which distinguishes between 'machinery' and 'plant' as separate entities. The court reiterated that depreciation is granted based on ownership or use of the property, which includes buildings, plant, machinery, and furniture. Different depreciation rates apply to each of these categories. The court rejected the argument that the nature of the property (hotel, cinema theatre, factory) should impact the depreciation claim, emphasizing that the statutory provision applies uniformly regardless of the property's specific use.The court addressed the counsel's reliance on a decision by the Allahabad High Court regarding the classification of cinema buildings and fittings as plants for depreciation purposes. The court noted that the specific question in the present case was whether the building used as a cinema theatre qualifies as a plant in its entirety. The court concluded that the statutory provision's language applies uniformly to buildings used for different purposes and upheld the Revenue's position against the assessee. The court decided in favor of the Revenue, denying the assessee's claim for higher depreciation rates on the building used as a cinema theatre. The judgment will be communicated to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.