2013 (8) TMI 189 - HC - Income Tax

High Court: Nursing home building qualifies as plant & machinery for depreciation. Functional test key.

The High Court upheld the depreciation claim on a nursing home building, treating it as plant and machinery due to the presence of scientific instruments ... Depreciation on nursing home - Tribunal treated nursing home as plant and machinery and allowed depreciation - Held that:- if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a 'plant' ; but where the structure played no part in the carrying on of those activities but merely constituted a place wherein they were carried on, the building could not be regarded as a plant - assesses nursing home is equipped to enable the sterilisation of surgical instruments and bandages to be carried on which cover 250 sq. ft. and that nursing home is also equipped with an operation theatre. Therefore the plant and nursing home stated as plant and machinery and the depreciation should be allowed on it accordingly - Following decision of CIT Vs. Dr. B. Vankata Rao [1999 (2) TMI 11 - SUPREME Court] - Decided against Revenue. Issues Involved:1. Depreciation on nursing home building treated as plant and machinery.2. Consistency in approach by the Department in tax proceedings.Analysis:1. Depreciation on nursing home building treated as plant and machinery:The appeal was filed against the order passed by the Income Tax Appellate Tribunal regarding the depreciation claim on a nursing home building. The respondent-assessee had claimed depreciation on the hospital building at a higher rate, treating it as plant and machinery. The Assessing Officer initially disallowed the claim, stating that depreciation should be allowed at the normal rate applicable to buildings. However, the Commissioner of Income Tax (Appeals) accepted the claim, allowing depreciation at 25%. The Tribunal upheld this decision, considering the nursing home building as plant and machinery based on the presence of various scientific instruments like X-Ray plant and sterilization systems. The Tribunal emphasized the functional test, stating that if a building is mainly used for diagnosis or treatment and equipped with necessary instruments, it can be considered as plant and machinery. The Tribunal also noted that the Department had adopted a consistent approach in previous assessments by allowing depreciation on the building. The High Court agreed with the Tribunal's decision, citing the Supreme Court's judgment in a similar case where a nursing home building was considered as plant and machinery. The High Court emphasized the importance of functional tests and upheld the depreciation claim on the nursing home building.2. Consistency in approach by the Department in tax proceedings:The Revenue argued that the building of a nursing home should not be treated as plant and machinery, citing a Supreme Court decision related to a cinema theatre building. However, the respondent-assessee relied on another Supreme Court judgment specifically addressing the depreciation claim for a building used as a nursing home. The High Court analyzed these arguments and emphasized the importance of applying the functional test to determine whether a building qualifies as plant and machinery for depreciation purposes. The High Court highlighted that the earlier decisions of the Income Tax Officer allowing depreciation on the building supported the claim made by the respondent-assessee. Ultimately, the High Court dismissed the appeal, stating that there was no legal infirmity in the Tribunal's decision to allow depreciation on the nursing home building treated as plant and machinery.In conclusion, the High Court upheld the depreciation claim on the nursing home building, considering it as plant and machinery based on the functional test and consistent approach adopted by the Department in previous assessments.