Commissioner of Income Tax vs N.L. Mehta Cinema Enterprises Pvt. Ltd.

V.A. Mohta J.

u/s 256(1) of the Income Tax Act, 1961 ("the Act"), the Income Tax Appellate Tribunal has referred the following questions at the instance of the Revenue :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the false ceilings and other accessories costing Rs. 2,65,240 were part of the ''fittings'' and consequently in directing the Income Tax Officer to grant depreciation allowance thereon at 15 per cent. as against 2 1/2 per cent. allowed by the Income Tax Officer ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the chairs installed in the auditorium should be treated as ''plant'' and in directing the Income Tax Officer to grant development rebate thereon for the assessment year 1973-74 ?"

The assessee owns twin cinema theatres "Badal" and "Bijili", in the metropolitan city of Bombay. The business of exhibiting films to the public is carried on there. The theatres are modern, fitted with false ceilings and other accessories to meet the acoustic requirements, costing Rs. 2.65 lakhs. The assessee claimed depreciation u/s 32 of the Act at the rate of 15 per cent., on the basis that they were part of the fittings in the theatres. The Income Tax Officer treated them as decorative fixtures and fittings and as a part of the building and granted depreciation only at the rate of 2 1/2. The Appellate Assistant Commissioner confirmed the said order. But, the Tribunal upheld the stand of the assessee.

In the auditorium are fixed cozy chairs for the viewers costing Rs. 1,99,898. The assessee claimed development rebate u/s 33 on the basis that those chairs were "plant" as contemplated under the provisions. The Income Tax Officer rejected the claim. The Appellate Assistant Commissioner confirmed the order of the Income Tax Officer. The Tribunal, however, upholding the stand of the assessee, granted development rebate as claimed.

It seems to us that having regard to the purpose for which the fixtures were fitted, they must be treated as a part of the "fittings" and not part of the building and, hence, the correct rate of allowable depreciation would be 15 per cent. as granted by the Tribunal. It also seems to us that the chairs for the auditorium are "plant" and not a part of the building. The word "plant" is not defined u/s 43(3) of the Act. Considering its inclusive nature and the whole context, it has been given wide and liberal meaning by consistent judicial pronouncements made from time to time. The functional test has been held to be the ideal test for interpreting the said word. Cinema theatres have to comply with several laws and regulations including about sitting arrangement for the viewers. The chairs in the auditorium are essentially functional in nature, being an integral part of the exhibition of films. Even a building or a part thereof can constitute "plant" depending upon the function of the subject-matter in the whole context. The acid test is whether it constitutes an apparatus or a tool of the assessee or whether it is merely a space to carry on the business.

In this connection, useful reference may be made to the decision of the Supreme Court in the case of Commissioner of Income Tax, Andhra Pradesh Vs. Taj Mahal Hotel, Secunderabad, , wherein, sanitary and pipe-line fittings in a hotel were treated as "plant" by applying the functional test. The Karnataka High Court, in the case of Santosh Enterprises Vs. Commissioner of Income Tax, , has also taken a view that chairs in the auditorium of a cinema theatre are "plant". We are in respectful concurrence with the said view.

Under the circumstances, both the questions are answered in the affirmative and in favour of the assessee.

There will be no order as to costs.