1989 (5) TMI 96 - AT - Income Tax

Hotel building classified as plant for depreciation upheld by Appellate Tribunal, citing functional test and nature of use.

The Appellate Tribunal upheld the decision to treat a hotel building as plant for depreciation purposes, emphasizing the functional test and nature of use ... Hotel Building Issues:- Whether the hotel building can be considered as plant for the purpose of depreciation.- Interpretation of the term 'plant' under the Income-tax Act, 1961.- Application of functional test to determine if a building constitutes plant.- Comparison of various judicial precedents regarding the classification of buildings as plant.- Consideration of the nature of use of the building in determining if it qualifies as plant.Analysis:The appeals before the Appellate Tribunal ITAT CALCUTTA-E involved the question of whether a hotel building could be treated as plant for the purpose of depreciation. The CIT(A) allowed the assessee's claim based on the Supreme Court's decision in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, which held that a building required to carry on a hotel business could be considered as plant. The CIT(A) referred to the functional test and concluded that the hotel building constituted a tool of trade necessary for the business. The Tribunal noted that the Income-tax Act, 1961 does not provide a specific definition of 'plant' but observed that the nature of use and functional test are crucial in determining if a building qualifies as plant.The Tribunal considered various judicial precedents to analyze the classification of buildings as plant. It noted the decision of the Madras Bench in Hotel Srilekha (P.) Ltd. v. Third ITO [1983] 5 ITD 541, which supported treating a hotel building as a plant. The Departmental Representative argued against this classification, citing decisions where hotel buildings were not considered as plant. However, the assessee's counsel emphasized the functional aspect, highlighting that the hotel building was integral to the business operations. The Tribunal referred to the Allahabad High Court's decision in CIT v. Kanodia Warehousing Corpn. [1980] 121 ITR 996, which emphasized the functional test to determine if a building constitutes plant.Furthermore, the Tribunal relied on the Gujarat High Court's decision in CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672, which broadly construed the term 'plant' to include items used in carrying on a business. The Tribunal applied the principles laid down by the Supreme Court in Scientific Engg. House (P.) Ltd. v. CIT [1986] 157 ITR 86, emphasizing that an item qualifies as plant if it fulfills the function of the taxpayer's trade. In this case, the Tribunal concluded that the hotel building served as a tool of trade for the assessee's business of letting out rooms to customers, thereby qualifying as plant.Ultimately, the Tribunal dismissed the appeals, upholding the CIT(A)'s decision to treat the hotel building as plant for the purpose of depreciation. The judgment reaffirmed the significance of the functional test and the nature of use in determining the classification of a building as plant under the Income-tax Act, 1961.