Geetha Hotels P. Ltd. vs Commissioner of Income Tax

R. Jayasimha Babu, J.—The assessee contends that electrical installations and sanitary fitting in a hotel buildings, are also required to be

treated as building for the purpose of determining the depreciation for the building the assessment year 1979-80. That contention of the assessee

having been rejected by the Revenue as also by the Tribunal, the correctness of the Tribunal''s view is questioned by the assessee in this reference

before us.

Learned senior counsel contended that once the electrical installations are embedded in the building and the sanitary fittings are fitted on to the

bath rooms attached to the hotel rooms, they become part of the building and, therefore, higher initial depreciation provided for u/s 32(1)(v) of the

Income Tax Act, 1961, hereinafter referred to as ""the Act"", as it stood during the assessment year, should have been allowed in respect of those

fittings as well. It was submitted that the Supreme Court in the case of Commissioner of Income Tax, Andhra Pradesh Vs. Taj Mahal Hotel,

Secunderabad, , has recognised such fittings as capable of being regarded as ""plant"" for the purpose of development rebate, even though the

assessee therein had claimed depreciation under the head ""Furniture and fittings"". Counsel contends that even though these fittings may but fall

under the terms ""plant"", nevertheless, they should also be regarded as being encompassed by falling within the term ""building"" when they are

attached to the buildings.

We are unable to agree with this submission. Section 32 of the Act which deals with depreciation in Clause (i) of Sub-section (1) refers to

buildings, machinery, plant and furniture being tangible assets. Section 33 of the Act on the other hand does not refer to buildings but only refers to

ships, new machinery and plant. It was in that background that the Supreme Court in the case of Commissioner of Income Tax, Andhra Pradesh

Vs. Taj Mahal Hotel, Secunderabad, , held that for the purpose of claiming development rebate, the sanitary fittings were to be regarded as plant.

The court, however, did hot hold that for the purpose of depreciation such fittings should be regarded as falling within the term buildings and

depreciation allowed thereon accordingly.

This court, in the case of Commissioner of Income Tax Vs. N. Sathyanathan and Sons P. Ltd. and Hotel Srilekha (P.) Ltd., , made the

following observations in relation to the case of Commissioner of Income Tax, Andhra Pradesh Vs. Taj Mahal Hotel, Secunderabad, :

After having noticed the wide amplitude of the expression ''plant'', the court, however, did not proceed to hold that a building is included in the

term ''plant'' though the question raised before the court was one which was examined in the context of the facts that the claim was made by an

assessee carrying on the business of running a hotel and the items in respect of which the claim was made for development rebate were items which

were used in the building in which the hotel was run. If the building itself was to be regarded as plant, it would have been unnecessary for the court

to proceed further to examine as to whether the sanitary and pipeline fittings which are essential for the hotel building to constitute plant. The court

did not hold that the building in which a hotel was run was a plant. It was only held that the sanitary fittings were one of the essential amenities

which are normally provided in any good hotel and such fittings, having regard to the wide meaning required to be given to the word ''plant, were

to be regarded as ''plant''.

The apex court in the case of Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, , approved the manner in which this court

had construed the judgment of the apex court in f he case of Commissioner of Income Tax, Andhra Pradesh Vs. Taj Mahal Hotel, Secunderabad,

. The sanitary fittings and the electrical installations, therefore, are clearly ""plant"". Once they are regarded as plant the fact that they are used in a

hotel building and fixed to the building does not render those fittings depreciable in the same manner as the building itself, when the provisions

dealing with depreciation in the Act make a clear distinction among building, machinery and plant. When a thing by itself is to be classified under

one head as ""plant"" or ""building"", it should not, normally, when used along with an item falling under another head be treated as also falling under

the other head by a process of osmosis as it were. The electrical installations and sanitary fittings which by themselves are ""plant"" for the purpose of

depreciation in the scheme of Section 32, cannot be regarded as ""building"" when such fittings are fitted to the building. Those fittings do not

become brick or mortar which are essential for the construction of the buildings. They remain electrical and sanitary fittings which are meant to be

used for a purpose other than giving shelter. These installations are installations which are capable of being used in a wide variety of circumstances

to make a variety of goods. Their use is not confined to hotel buildings. Such installations, therefore, remain ""plant"" only even when they are

installed in a building used as a hotel.

The Tribunal was right in the view that it took that such fittings are not eligible for initial depreciation as they cannot be regarded as falling within

the scope of the term ""building"" used in Section 32 of the Act.

The question referred to us, viz.,

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in disallowing the claim for initial depreciation u/s 32(1)

(v) of the Income Tax Act, 1961, in respect of electrical installations and sanitary fittings embedded in the hotel building itself ?

is, therefore, answered in favour of the Revenue and against the assessee.