The Judgment of the Court was delivered by

S.A Hakeem, J.:— In these references made under section 256(1) of the Income-tax Act, 1961 (“the Act”), the Income-tax Appellate Tribunal, Bangalore Bench, has referred the following common questions of law for the opinion of this court:

“(1) Whether, on the facts and in the circumstances of the case, the entire cinema theatre comprising each and every part of the theatre, whether it is within the auditorium portion of it or outside it, including rolling shutters, fountains, mirrors, furniture and fixtures, etc., outside the auditorium is ‘plant’ for the purposes of the Act or only certain parts of the theatre are plant?

(2) Whether, on the facts and in the circumstances of the case, wall, ceiling, including wooden walls, false ceiling, and wooden panelling of the auditorium and furniture and fixtures including chairs in the auditorium could be treated as plant?”

2. The brief facts giving rise to the above questions are as follows:

The assessee is a partnership-firm carrying on the business of exhibiting films in the cinema building owned by it. For the assessment years 1975–76 and 1976–77, the assessee claimed that the cinema building, furniture and fixtures, etc., should be considered as “plant” for the purposes of depreciation allowance and development rebate. This claim having been rejected by the Income-tax Officer, the assessee filed appeals before the Commissioner of Income-tax (Appeals), who held that the entire cinema building has to be treated as plant, and accordingly directed the allowance of development rebate and depreciation as claimed by the assessee. Aggrieved by the said order, the Revenue filed further appeals before the Tribunal. On a consideration of the matter the Tribunal has held (1) that the entire cinema theatre comprising each and every part of it cannot be considered to be a plant; (2) that the wooden walls, including false ceiling, wooden panelling, furniture and fixtures in the auditorium and false ceiling of the auditorium would-fall within the definition of “plant”; and (3) the rolling shutters, fountains, mirrors and furniture and fixtures outside the auditorium will not be treated as plant. Gn the above findings both the assessee and the Revenue raised several questions for reference as arising out of the Tribunal's order and which, as modified by the Tribunal, have been referred as above.

3. The main question that really arises for determination in the case is regarding the interpretation of the term “plant”. Under section 32 of the Act depreciation allowance is permissible only in respect of certain assets specified therein, viz., buildings, machinery, plant and furniture owned by the assessee and used for the purpose of business. Section 43(3) of the Act gives an inclusive definition of the term “plant” to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. The question with which we are concerned is whether the cinema theatre as a whole or what parts of it fall within the definition of “plant”. The assessee's case is that the cinema building in question is a construction which cannot be used for any purpose other than the show business which necessitates the construction of a lounge, an auditorium with a false ceiling, screens, balconies and terraced floorings. The walls of the building have to be constructed using specific materials as to play a very active role in the exhibition of cinema and hence the whole cinema house including the entire structure with furniture and fittings and other material used therein constitutes plant. The plant and the building, according to the assessee, therefore, are not mutually exclusive. The auditorium with all the contents therein is the tool with which the show business of the assessee is carried on and not merely the premises in which the assessee's trade and business are carried on.

4. On the other hand, the contention of the Revenue appears to be that the cinema house in question is nothing but a setting in which the asses-see's business is carried on and not an apparatus with which the business is carried on. In other words, it is not a tool of the assessee's trade and as such it satisfies only the “amenities test” evolved by judicial pronounce-ments. However, it seems to us that such a restricted interpretation sought to be given to the term by learned counsel cannot be accepted.

5. Both learned counsel for the parties cited various decisions to support their respective contentions, some of which have been referred to in the rulings of the Supreme Court. However, in view of the emphasis laid by learned counsel upon a few decisions which were principally debated before us, a brief reference thereto appears to be necessary, the first of which is IRC v. Barclay, Curie and Co. Ltd., [1970] 76 ITR 62 (HL). The question that arose for consideration was whether a dry dock could be construed as plant for the purposes of the trade of the company within section 279(1) of the English Act. In that case, the dry dock had been made, the walls and bottom of which had to be strong and impervious to water so that large vessels could get into it for the purposes of repairs. In the facts and circumstances of the said case, it was held that the entire dry dock together with the ancillary structures constituted plant.

6. The next case is Schofield v. R and H. Hall Ltd., [1974] 49 TC 538 (CA) concerning silos built in the ship yard. The company carried on a trade which consisted of storage of grain. The question was whether the silos is part of the setting in which such trade was carried on. It was found that considering the function of the silos in relation to the assessee's trade, the silos served as an essential part of the overall, trading activity. Their function was to hold the grain in a position from which it could be conveniently discharged in varying quantities. Hence, it was held that the silos would rank for capital allowance.

7. In Commissioner Of Income-Tax, Lucknow v. Kanodia Cold Storage., [1975] 100 ITR 155 (All) the question was whether the building with insulated walls used as a freezing chamber though it is not machinery or part thereof, is part of the air-conditioning plant of the cold storage of the assessee entitled to special depreciation on its written down value. In the specific facts of the case, the whole freezing chamber including walls and structure was held to be a plant with which the assessee was carrying on his business activity. On the analogy of the above cases, Sri Prasad, learned counsel for the assessee, contended that the whole theatre should be treated as plant with which the assessee carries on his show business.

8. The other decision to which specific reference may be made here is Benson v. Yard Arm Club Ltd., [1978] 2 All ER 958, 968; [1979] Tax LR 778, 785 (Ch D) upon, which strong reliance is placed by Sri K. Srinivasan, learned counsel for the Revenue. In this case the subject-matter was a ship which was converted into a restaurant by the assessee. The whole ship was claimed as an apparatus for carrying on their busi-ness of a floating restaurant, and as such it was a plant to claim allowance. On a review of various earlier decisions, the Chancery Division has held that the vessel is the place or setting where the restaurant business was carried on and was not plant and hence the expenditure on them did not qualify for capital allowance. In this context, the learned judge has observed thus:

“One has only to think of certain large stores and of hotels and restaurants generally, placed in different landscapes and built with different structures to be more attractive. The commercial utility of parti-cular and, it may be, unusual premises or places in that way does not, in my judgment, convert them into plant in the sense of the income-tax legislation or affect the application of the functional test: they still remain the setting and not, the apparatus.”

“A word can have many meanings. To find out the exact conno-tation of a word in a statute, we must look to the context in which it is used. The context would quite often provide the key to the meaning of the word and the sense it should carry. Its setting would give colour to it and provide a clue to the intention of the Legislature in using it. A word, as said by Holmes, is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used.” (see Manickam and Co. v. State of Tamil Nadu, [1977] 39 STC 12, 17 (SC)).

9. The term “plant” had come up for interpretation in a number of decisions and the courts have evolved what is known as the functional test as against merely the amenities test for determining as to what con-stitutes “plant”. The classic definition of “plant” as given by Lindley L.J with reference to the Employers' Liability Act in Yarmouth v. France, [1887] 19 QBD 647, 658 (CA), reads as under:

“There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business, — not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business.”

10. In Scientific Engineering House (Pvt.) Ltd. v. Commissioner Of Income-Tax., [1986] 157 ITR 86, 96 (SC), after referring to the classic definition of “plant” as stated above, the Supreme Court has observed thus:

“In other words, plant would include any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. In order to qualify as plant, the article must have some degree of durability, as for instance, in Hinton v. Maden and Ireland Ltd., [1960] 39 ITR 357 (HL), knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. In CIT v. Taj Mahal Hotel, [1971] 82 ITR 44 (SC), the respondent, which ran a hotel, installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipeline fittings installed fell within the defi-nition of plant given in section 10(5) of the 1922 Act which was similar to the definition given in section 43(3) of the 1961 Act and this court after approving the definition of plant given by Lindley L.J in Yarmouth v. France, [1887] 19 QBD 647, as expounded in Jarrold v. John Good and Sons Ltd., [1962] 40 TC 681 (CA), held that sanitary and pipeline fittings fell within the definition of plant.”

11. In IRC v. Barclay, Curie and Co. Ltd., [1970] 76 ITR 62 (HL), the House of Lords held that a dry dock, since it fulfilled the function of a plant, must be held to be a plant. Lord Reid considered the part which a dry dock played in the assessee-company's operations and observed (at page 67):

“It seems to me that every part of this dry dock plays an essen-tial part… The whole dock is, I think, the means by which, or plant with which, the operation is performed.”

12. Lord Guest indicated a functional test in these words (page 75 of 76 ITR):

“In order to decide whether a particular subject is an “apparatus” it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary.”

13. In other words, the test would be:

Does the article fulfil the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative, it will be plant.”

(emphasis* added)

14. In CIT v. Taj Mahal Hotel, [1971] 82 ITR 44, 47, the Supreme Court has observed thus:

“Now it is well-settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means ‘that sense which people conver-sant with the subject-matter with which the statute is dealing, would attribute to it’. In the present case, section 10(5) enlarges the definition of the word ‘plant’ by including in it the words which have already been mentioned before. The very fact that even books have been included shows that the meaning intended to be given to ‘plant’ is wide. The word ‘includes’ is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used, these words and phrases must be construed as com-prehending not only such things as they signify according to their nature and import, but also those things which the interpretation clause declares that they shall include. The word ‘include’ is also susceptible of other constructions which it is unnecessary to go into.”

15. It is, thus, clear that in order to find out if a building or structure or part thereof (in this case the theatre) constitutes “plant”, the functional test must be applied. It must be seen whether the subject-matter involving building or structure or part thereof constitutes an apparatus or tool of the taxpayer or whether it is merely a space where the taxpayer carries on his business. For this purpose the user which is made of the subject-matter under consideration is to be kept in view. If, as stated above, the building, structure or part thereof is something by means of which the business activities are carried on, it would amount to a plant. On the other hand, where the structure plays no part in carrying on of those activities, but merely constitutes a place in which such activity is carried on, it cannot be regarded as a plant. Viewed from this angle even if a building has special features, generally speaking, it may remain a building and not a plant. On the application of the principles laid down in the above deci-sions, the Tribunal, in our opinion, has rightly come to the conclusion that the screening wall and the ceiling of the auditorium having been constructed with requisite installations so as to have a proper control of the sound effect and for the efficient screening of the films may be treated as part of “plant” but no other part of the building can be included in the said term. The furniture, fittings and fixtures consisting of wooden walls including false ceiling and wooden panelling of the walls and the chairs would come within the purview of “plant” for development rebate. However, as held by the Tribunal, the case of the chairs outside the auditorium would be different and they cannot come within the definition of “plant”.

16. In that view of the matter, our answer to the first question referred to above is in the affirmative and in favour of the Revenue and the answer to the second question is in the affirmative and against the Revenue.