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 qualifies as "plant." It held that where a building constitutes an apparatus or tool through which the business is carried on, it is "plant," but if it is merely a place where business is conducted, it is not. On facts, the cinema building, together with its fittings and fixtures, was integral to the assessee's cinema business and therefore constituted "plant." The question was answered in the negative, in favour of the assessee and against the Revenue, thereby entitling the assessee to the claimed development rebate and depreciation.

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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.

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