1990 (9) TMI 68 - HC - Income Tax

Cinema building with fittings treated as 'plant' under section 43(3), allowing depreciation and development rebate claims.

HC applied the functional test under section 43(3) of the Income-tax Act, 1961 to determine whether a cinema building with tube lights and fittings ... Plant - functional test - development rebate - depreciation - integral part of business asset - effect of Cinematograph Act on classification of plantPlant - functional test - development rebate - depreciation - integral part of business asset - Whether the cinema building together with its fittings and fixtures (including tube lights) constitute 'plant' within the meaning of section 43(3) of the Income-tax Act, 1961, entitling the assessee to development rebate and depreciation. - HELD THAT: - The Court applied the established functional test as laid down in CIT v. Kanodia Warehousing Corporation: if a building or structure (or part thereof) functions as an apparatus or tool by means of which the taxpayer's business activities are carried on, it qualifies as plant; if it only provides a place within which activities occur, it does not. The Tribunal's conclusion that a permanent building could not be an integral business asset because the Cinematograph Act, 1952 and its Rules do not require a permanent building was rejected as a wrong approach. The Court held that the cinema building used for running the cinema business, together with its fittings and fixtures, constitutes an apparatus integral to the carrying on of the business and therefore amounts to plant for the purposes of entitlement to development rebate and depreciation. The Tribunal's separate treatment excluding the permanent building (while treating certain installations like fans as plant) was overturned because the determinative criterion is the functional role of the structure and its fittings in the business, not the regulatory permissibility of non-permanent premises.The cinema building and its fittings and fixtures are plant within the meaning of section 43(3) and the assessee is entitled to development rebate and depreciation thereon; the Tribunal's contrary conclusion is set aside.Final Conclusion: Question answered in favour of the assessee and against the Revenue: the cinema building used for the business, together with its fittings and fixtures, qualifies as plant under the functional test and is eligible for development rebate and depreciation. Issues Involved: The issue involves the classification of assets for depreciation and development rebate under section 43(3) of the Income-tax Act, 1961, specifically whether a cinema building and its fittings constitute 'plant' for the purpose of claiming benefits.Judgment Details:The petitioner operates a cinema theatre in a well-constructed building with various fittings like tube lights, furniture, fans, and other fixtures. The income from the theatre is assessed as business income. The petitioner contended that the cinema building and its fixtures should be considered as 'plant' for depreciation and development rebate. However, the Income-tax Officer, Appellate Assistant Commissioner, and Tribunal did not agree with this classification. The Tribunal's reasoning was based on the Cinematograph Act, 1952, stating that a permanent building is not essential for cinema business, leading to the conclusion that the building is not an integral part of the business asset. While fans, electric installations, furniture, fixtures, fire-extinguisher, and internal telephone were considered as 'plant,' tube lights and show-cases were excluded. The Tribunal's approach was deemed incorrect.In the case of CIT v. Kanodia Warehousing Corporation [1980] 121 ITR 996, the court established the 'functional test' to determine if a building or structure constitutes 'plant.' If the building or structure acts as an apparatus or tool for carrying out business activities, it qualifies as 'plant.' Applying this principle, the court held that the cinema building, along with its fittings and fixtures, should be considered as plant since it plays a crucial role in conducting the cinema business.Therefore, the court answered the question in favor of the assessee, ruling that the cinema building and its fittings do constitute 'plant' for depreciation and development rebate purposes. No costs were awarded in this matter.