The Judgment of the Court was delivered by

Ajit K. Sengupta, J.:— In this reference under section 256(1) of the Income-tax Act, 1961, the following questions of law have been referred by the Tribunal for the opinion of this court:

Questions at the instance of the assessee:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the rate of depreciation as made applicable with effect from April 2, 1983, was not applicable for the assessment year 1983–84 in the case of the assessee?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the company was not an industrial company mainly engaged in manufacturing of goods?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the rate of income-tax applicable to the company will be that applicable to a non-industrial company?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the company was not entitled to extra shift depreciation?”

Questions at the instance of the Revenue:

“1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the preparation of food in a hotel was manufacture or production of article of the nature as envisaged in section 32A of the Income-tax Act, 1961?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding the hotel building as plant when the Tribunal itself viewed in Income-tax Appeals Nos. 937/(Cal) of 1982 and 666/(Cal) of 1983 in the assessee's own case that no building or structure used as premises in which the business is carried on can be ex facie taken as plant unless it is established that it is impossible for the manufacturing equipment in the hotel to function without the particular type of structure and the building of the hotel had no such particular structure?”

2. This reference relates to the income-tax assessments of the assessee-company for the previous year ending on November 14, 1982, corresponding to the assessment year 1983–84. The assessee-company runs a five-star hotel in Calcutta styled “Hotel Hindusthan International”. At the outset, we find that questions Nos. 2, 3 and 4 referred at the instance of the assessee, and question No. 5 referred at the instance of the Revenue, are already covered by our earlier judgments in the case of the assessee-company itself. Questions Nos. 2 and 3 relate to the issue whether the assessee is an industrial company entitled to claim the concessional rate of income-tax. This issue came up for consideration before this court in the case of the assessee-company for the assessment year 1982–83 in Income-tax Reference No. 74 of 1990 (S.P Jaiswal Estates Pvt. Ltd. v. CIT (No. 1), [1994] 209 ITR 298). By our judgment delivered on September 22, 1993, we have already held that having regard to the definition of industrial company as contained in section 2(7)(c) of the Finance Act, 1981, the assessee-company is entitled to claim the concessional rate of income-tax since it was engaged in the processing of goods during the relevant previous year. In this year too we find that the definition of industrial company as contained in section 2(7)(c) of the Finance Act, 1983, is in pari materia with that contained in the Finance Act, 1982. We also find from the printed accounts of the assessee-company that the earnings from the restaurant on account of food, beverages, etc., were as under:

Rs. Restaurant receipts from food, beverages account 54,24,279 Less : Cost of food and beverages consumed earning from restaurant 28,85,286 25,38,993 Net profit as per profit and loss account 28,37,915 Assessed total income as per assessment order 30,76,560

3. The earnings from the restaurant are more than 51 per cent. of the assessed total income as well as the net profit as per profit and loss account of the assessee-company drawn up for the previous year ending on November 14, 1982, corresponding to the assessment year 1983–84. In the light of our decision in the assessee's own case for the assessment year 1982–83 in Income-tax Reference No. 74 of 1990 (S.P Jaiswal Estates Pvt. Ltd. v. CIT (No. 1), [1994] 209 ITR 298), we answer questions Nos. 2 and 3 in the negative and in favour of the assessee by saying that the assessee-company is an industrial company engaged in the processing of goods and is liable to be assessed at a concessional rate of income-tax of 60 per cent. as laid down in the Finance Act, 1983, in respect of the assessment year 1983–84. Question No. 4 in the assessee's reference is covered against the assessee by the decision of this court in the assessee's own case as in S.P Jaiswal Estates Pvt. Ltd. v. CIT, [1991] 188 ITR 603. We, accordingly, answer question No. 4 in the assessee's reference as above in the affirmative and in favour of the Revenue.

4. Question No. 1 raised in this reference at the instance of the Revenue is also covered against the assessee-company by the decision of this court as in Commissioner Of Income-Tax v. S.P Jaiswal Estates (P.) Ltd., [1992] 196 ITR 179. Following the said decision, we answer question No. 1 referred at the instance of the Revenue in the negative and in favour of the Revenue.

5. The issues for our consideration are question No. 1 in the assessee's reference and question No. 2 in the Revenue's reference. These two questions are now considered hereunder:

Question No. 1 in the assessee's reference relates to the issue whether the assessee-company is entitled to claim depreciation in respect of the previous year relevant to the assessment year 1983–84 at the higher rates as laid down by the Income-tax (Fourth Amendment) Rules, 1983. It is an undisputed fact that the higher rates of depreciation were laid down by the Amendment Rules as aforesaid with effect from April 2, 1983. The Tribunal, following the decision of this court in Burrakur Coal Co. Ltd. v. Commissioner Of Income-Tax, West Bengal-Iv., [1982] 135 ITR 804, held that since the new rates were made effective from April 2, 1983, the assessee-company was not entitled to claim depreciation at the higher rates in respect of the assessment year 1983–84. Mr. Poddar, learned counsel appearing for the assessee, drew our attention to the observation of this court made at page 809 of the reports in Burrakur Coal Co. Ltd.'s case, [1982] 135 ITR 804 as aforesaid. In that case, this court held that the depreciation or allowance of expenditure must be determined with reference to the law prevalent in the year of assessment. It was submitted by Mr. Poddar that the new rules have already come into force with effect from April 2, 1983, and these should obviously be applied to the assessment for the assessment year 1983–84. Mr. Poddar also drew our attention to the decision of the Supreme Court in CIT v. Isthmian Steamship Lines, [1951] 20 ITR 572. There the Supreme Court held that the law to be applied is the law in force in the assessment year unless otherwise stated or implied. Mr. Poddar argued that since the new. depreciation rates were in force during the assessment year 1983–84, the amendment having come into force on April 2, 1983, new rates should be applied to the case of the assessee-company.

6. Mr. Poddar fairly drew our attention to the decision of the Kerala High Court in Commissioner Of Income-Tax v. S.A Wahab., [1990] 182 ITR 464. There one of the questions involved related to allowance of depreciation to the bus operators. The rate of depreciation admissible to bus operators was 30 per cent. This was enhanced to 40 per cent. by the Income-tax (Fifth Amendment) Rules, 1980, which came into effect only on July 24, 1980. The Kerala High Court held that the law that has to be applied is the law as it stands on April 1 of a financial year; any amendments in the Act which come into force after April 1 of a financial year would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. The Kerala High Court, therefore, held that the higher rate of depreciation of 40 per cent. will not be available to the assessee since such higher rate was made effective only on July 24, 1980.

7. The particular issue which is involved in this case did not arise for consideration before this court in Burrakur Coal Co. Ltd. v. Commissioner Of Income-Tax, West Bengal-Iv., [1982] 135 ITR 804. Of course, at page 809 of the reports, this court did observe, as rightly pointed out by Mr. Poddar, that depreciation or allowance of expenditure must be determined with reference to the law prevalent in the year of assessment. It was sought to be argued by Mr. Poddar that the Kerala High Court in S.A Wahab's case, [1990] 182 ITR 464, considered several decisions of the Supreme Court, wherein it was pointed out that the provisions of the Income-tax Act as they stand on April 1 of a financial year must apply for that year. But, this cannot be applied universally for the Income-tax Rules as well. Rules are generally procedural in nature. In this context, Mr. Poddar drew our attention to the decision of this court in Smt. Manjushree Biswas v. CWT, [1988] 171 ITR 348. In that case, while dealing with rule 1BB of the Wealth-tax Rules, 1957, which had come into force on April 1, 1979, it was held that it was a procedural rule and would apply in all cases where valuation was pending irrespective of the date of valuation for the purpose of assessment. Accordingly, rule 1BB was held to be applicable even in respect of the years earlier to the assessment year 1979–80.

8. In Commissioner Of Income-Tax v. Moran Tea Co. (India) Ltd., [1992] 194 ITR 429, this court was dealing with rule 6AA of the Income-tax Rules, 1962, framed under sub-clause (ix) of section 35B(1)(b) of the Income-tax Act, 1961. Rule 6AA was inserted by the Income-tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981. The question before this court was whether the assessee will be entitled to weighted deduction permissible on expenditure incurred on the maintenance outside India of a warehouse for the promotion of sale outside India of goods during the entire period of the relevant previous year corresponding to the assessment year 1982–83 and not merely to a pro rata deduction on expenditure incurred from August 1, 1981, to December 31, 1981. This court held that rule 6AA was inserted with effect from August 1, 1981. The rule was operative during the previous year relevant to the assessment year 1982–83. It was in force on the 1st day of the assessment year in question. In that view of the matter, the assessee was held to be entitled to weighted deduction on expenditure incurred during the whole of the previous year relevant to the assessment year 1982–83 and not merely to a pro rata deduction on expenditure incurred between August 1, 1981, and December 31, 1981.

9. In this case, we find that the Income-tax (Fourth Amendment) Rules, 1983, by which the higher rate of depreciation was laid down came into effect on April 2, 1983. The assessment year 1983–84 began on April 1, 1983. In other words, this new rule was not intended to be made applicable to the assessment year 1983–84. The rates of depreciation laid down in the Rules, in our view, are matters of substantive law. The new rates were intended to apply only from the assessment year 1984–85 since these were not in force on the first day of April, 1983, on which the assessment year 1983–84 began. In this view of the matter and agreeing with the view expressed by the Kerala High Court in Commissioner Of Income-Tax v. S.A Wahab., [1990] 182 ITR 464, we hold that the assessee is not entitled to the higher rate of depreciation as laid down in the Income-tax (Fourth Amendment) Rules, 1983, in the assessment year 1983–84. Such higher rates will be applicable only from the assessment year 1984–85. Accordingly, we answer question No. 1 in the assessee's reference in the affirmative and in favour of the Revenue.

10. The second question raised in this reference at the instance of the Revenue is concerned with the short issue whether the hotel building is plant or not for the purpose of allowing depreciation. In this respect, Mr. Poddar, learned counsel for the assessee, referred to the decision of the Supreme Court in CIT v. Taj Mahal Hotel, [1971] 82 ITR 44. The Supreme Court in that case was considering the meaning of the expression “plant” in the context of a hotel business. The question before the court was whether the sanitary and pipeline fittings in a hotel fell within the definition of “plant” in the context of section 10(5) of the Indian Income-tax Act, 1922, corresponding to section 32(1) of the Income-tax Act, 1961. Their Lordships referred to the decision of the Court of Appeal in Jarrold (Inspector of Taxes) v. John Good and Sons Ltd., [1963] 1 WLR 214, 223. There, the nature of the assessee's business required that its office accommodation should be capable of sub-division into a number of rooms varying in size, etc., according to the requirements from time to time of the agencies which it carried on. The office accommodation consisted of a large open floor space in which any partitions could be erected so as to sub-divide the floor space into a number of rooms of any size. Certain partitions were made which were screwed to the floor and ceiling only and could be easily moved, if it was desired to alter the size or number of the rooms. It was held that the partitions were plant as they were used in the carrying out of the company's trade or business. The Supreme Court approved of the principles laid down in the aforesaid case by the Court of Appeal. Their Lordships further observed at page 48 of the reports that it could not be denied that the business of a hotelier was carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities which are provided for their comfort and convenience. The court held that to have sanitary fittings in a bathroom attached to a hotel room was one of the essential amenities or conveniences which are normally provided in any good hotel in the present time. If the partition in Jarrold's case, [1963] 1 WLR 214 (CA) could be treated as having been used for the purpose of business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn larger profits by charging higher rates for the use of rooms if the bathrooms have sanitary fittings and similar amenities. The court held that the intention of the Legislature in the Income-tax Act was to give the expression “plant” a wider meaning and that is why articles like books and surgical instruments were expressly included in the definition of plant. The court held that the sanitary fittings were required by the nature of the hotel business which the assessee was carrying on. They are not merely a part of the setting in which the hotel business was being carried on. In that view of the matter, the Supreme Court upheld the assessee's claim in considering sanitary fittings and other amenities provided in a hotel bathroom as “plant”.

11. Mr. Poddar further submits that in R.C Chemical Industries v. Commissioner Of Income-Tax, New Delhi., [1982] 134 ITR 330 (Delhi), the assessee carried on the business of manufacture of saccharine and other allied chemicals. The assessee erected a factory comprising many buildings. In one of the buildings, the assessee installed machinery and plant for the manufacture of saccharine for which certain atmospheric controls, e.g, moisture, temperature and provision for filtered air, were required. The building was constructed with particular specifications and standards, the installed machinery and plant and portions of the building had to be built with fire-bricks and lined with asbestos sheets and also made air-tight to conserve the temperature and preserve filtered air so that saccharine could be manufactured properly. The question before the court was whether the building in question was a plant. In this context, the court laid down the following principles:

(a) The definition of “plant” in section 43(3) of the Income-tax Act, 1961, should be given a wider meaning as it was an inclusive definition.

(b) All buildings are not “plant” but a building or structure is not per se to be excluded from the ambit of “plant”.

(c) If the concrete construction or building is used as the premises or setting in which the business is carried on in contradistinction to the fulfilling of the function of the “plant”, the building or construction or part thereof is not considered “plant”. The true test is whether it is the “means of carrying on the business” or “the location” for so doing.

(d) What is important is the functional test. If the building in a particular case is the means of carrying on the business and not a mere location, the building must be held to be “plant”.

12. Reliance has been placed on the decision in Scientific Engineering House P. Ltd. v. CIT, [1986] 157 ITR 86 (SC). There the Supreme Court observed that the expression “plant” was not necessarily confined to an apparatus which was used for mechanical operations or process or was employed in mechanical or industrial business. But, in order to qualify as “plant”, a particular article ought to have some degree of durability. The test to be applied was: did the article fulfil the function of a plant in the assessee's trading activity? Was it a tool of its trade with which it carried on his business? If the answer was in the affirmative, it would be “plant”.

13. It is finally submitted that the assessee is admittedly running a five-star hotel. It is an approved hotel. The entire building and other structures forming part of the hotel have been constructed with particular specification and particular purpose, that is to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities, which are provided for their comfort and convenience. The hotel building is the tool of the assessee's trade with which it carries on its business and, therefore, plant, vide the Supreme Court decision in Scientific Engineering House P. Ltd.'s case, [1986] 157 ITR 86. As laid down by the Supreme Court in Taj Mahal Hotel's case, [1971] 82 ITR 44, this is not merely a part of the setting in which the hotel business was carried on, but the hotel building is the means of carrying on the business.

14. From the decisions cited, the conclusion is inevitable that the word “plant” is too broad for delimitation of its import. Any structure which is used in the business either as the seat of the business or the location where the business is carried on can be said to be plant in the sense that it also forms part of the means of carrying on the business. Looked at from that angle, even the structure or building which houses the plant and machinery of a manufacturing unit can be said to be plant because the building used as the house for installation of plant and machinery and the functioning of such machinery for the purpose of manufacture or production with the aid of power and labour is not the same building which is used for human habitation. Therefore, if we are to come to the conclusion that wherever a building or structure requires particular arrangements, ramifications, special alignments, it would cease to be a building and not factory building and, if we take, as Mr. Poddar would have us take a hotel building as a plant simply by reason of its having special division into multiple rooms in a particular setting and arrangements to be fit to be used as hotel, then we shall have to also wipe out the classification of depreciable assets into buildings, factory buildings, plant and machinery and so on. The building which is used as a factory can also claim the same attributes of having special features completely unlike other buildings. Yet the Legislature has treated factory buildings as buildings though different from other buildings but not as plant.

15. There are certain extreme cases where the plant and machinery of the assessee is inseparably integrated into the structure so much so that the structure itself forms part of the plant and machinery. It is only in such extreme cases that the building can shed its character as building for the purpose of depreciation. The decision in R.C Chemical Industries' case, [1982] 134 ITR 330 (Delhi), falls in this category where one of the many buildings used for the manufacture of saccharine had to maintain a captive atmospheric condition with regard to the degree of moisture, temperature, provision for filtered air, etc., so that the building ceases to be a building and was rather the container of that captive atmospheric state in which saccharine was manufactured. The building used by a hotel is no analogy of such building containing a particular atmosphere detached from the outer atmosphere. As a matter of fact, in R.C Chemical Industries' case, [1982] 134 ITR 330 (Delhi), the assessee erected a number of buildings constituting its factory, but it was not that all such units of the building were treated as plant. It is that one particular building which was erected for having a particular non-formal state of atmosphere contained in it that was treated as the plant. To our mind, the decision in CIT v. Taj Mahal Hotel, [1971] 82 ITR 44 (SC) does not advance the assessee's case because there it is not the hotel building which was considered as plant. The Supreme Court held that sanitary fittings and pipelines in a hotel have to be treated as plant and not part of the hotel building. Where the large accommodation is partitioned into small spaces, the partitions have been held to constitute plant. The Supreme Court in the said case never suggested that the very building which the assessee was using as hotel should be treated as plant. Therefore, the decision in Taj Mahal Hotel's case, [1971] 82 ITR 44 (SC) is no answer to the question.

16. If we analyse the provisions for depreciation along with the rules and the schedule of depreciation rates, we would find that for the purpose of taxation, buildings, non-factory or factory, are generally treated as buildings even though the extensiveness of the meaning of the word “plant” can also embrace them as a species of plant but where the Legislature treats a particular species differently from the rest under a genus, the scope for bringing that species under the generic description for the purpose of allowing depreciation is not permissible. Law requires that buildings irrespective of their use and function shall qualify for depreciation as buildings and not as plant. The extraordinary instance that we come across in R.C Chemical Industries' case, [1982] 134 ITR 330 (Delhi) cannot be freely used and extended to a building which is being used as a hotel. Mr. Poddar has particularly laid stress on the fact that a five-star hotel has to be constructed with particular specifications and particular purpose, but, in fact, every building is constructed with particular specifications and particular purpose. If this approach to the matter is accepted, in that case virtually in the computation of income all buildings shall qualify as plant and shall be entitled to the higher rate of depreciation. We cannot agree with the view that a hotel building in its entirety is plant within the meaning of section 32(1) of the Income-tax Act, 1961.

17. For the reasons aforesaid, we answer the second question referred at the instance of the Revenue in the negative and in favour of the Revenue and against the assessee. There will be no order as to costs.

Shyamal Kumar Sen, J.:— I agree.