D.P Wadhwa, C.J & Aftab Alam, J.:— These eight tax cases constituting one batch have come to this Court on reference made by the Income Tax Appellate Tribunal, Patna Bench, Patna under Section 256(1) of the Income Tax Act, 1961. These reference cases arise from assessment proceedings concerning the same assessee but relating to different assessment year from 1979-1980 (T.C No. 9/1990) to assessment year 1987-1988 (T.C No. 40/1994). There appears to be some confusion in mentioning the assessment years in these cases, for example T.C No. 9/1994 is shown to arise from assessment years 1982-1983, 1983-1984 and 1984-1985 while T.C No. 1/1991 and T.C No. 3/1994 are also shown to arise from assessment years 1982-1983 and 1984-1985 respectively; similarly assessment year 1986-1987 is mentioned in three cases being T.C Nos. 11/1994, 39/1994 and 40/1994. We have not tried to find out whether this confusion is the result of typing mistake or some other mistakes. We propose to confine ourselves to the question of law referred for our opinion and we have merely indicated the anomaly so that it may be sorted out in the Tribunal.

2. In all these cases the Tribunal has referred the same question of law for the opinion of this court, for some assessment years the question of law has been split up into two questions, (see T.C No. 9/1990; assessment year 1979-1980) as under:

(1) “Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in directing to allow the assessee's claim in regard to depreciation of the hotel building?”

(ii) Whether on the facts and in the circumstances of the case the hotel is a plant within the meaning of Section 43(3) of the I.T Act, 1961?”

3. For other assessment years, however, the same section of law was formulated into a single unified question (see T.C No. 1/1991; assessment year 1982-1983) as under:

“Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was correct in holding that the hotel building was plant and the depreciation at the rate of 15% was admissible to it?”

4. It is further interesting to note that in six cases out of the eight of this batch, that is to say, upto assessment year 1986-1987 the Income Tax Appellate Tribunal had been taking the view in favour of the assessee and was issuing directions to allow the assessee's claim for depreciation of the hotel building accepting the assessee's plea that the hotel building was a plant and, therefore, it lawfully attracted depreciation at the rate of 15%. This view was first taken by the Tribunal in the proceeding relating to the assessment year 1979-1980 on the basis of a decision of the Madras Bench of the Tribunal in the case of Hotel Sulekha Private Limited v. I.T.O and the Tribunal simply followed its decision in the subsequent assessment years upto 1986-1987. Hence, the references arising from these assessment years are at the instance of the revenue. However, in the last two cases of the batch being T.C Nos. 39 and 40 of 1994 (which are also shown to arise from assessment years 1986-1987 and 1987-1988), the Tribunal took the contrary view. It held that a hotel building cannot be treated as plant and, therefore, cannot be allowed depreciation at the rate admissible to a plant. This was due to the fact that some decisions of the Delhi High Court and the Allahabad High Court had come in the meanwhile and the Tribunal followed the decisions of the High Courts in preference to that of the Madras Bench of the Tribunal. Hence, these two cases have come to this Court on reference at the instance of the assessee.

5. The material facts of the case are brief and simple. The assessee is a private limited company and one of the sources of its income is the running of a hotel under the name and style of ‘Republic Hotel’. It made certain investments in the construction of the 3rd storey of the hotel building and raising the plea that hotel building was plant within the meaning of Section 43(3) of the Act claimed depreciation accordingly. The Assessing Officer did not accept the assessee's claim and allowed normal depreciation admissible to a building. The appeals preferred by the assessee were rejected by the appellate authority, C.I.T (Appeals) who kept on confirming the assessment orders upto the assessment year 1986-1987 (T.C No. 11/1994). The assessee's appeals before the Income Tax Appellate Tribunal, arising from those assessment years were, however, allowed and the Tribunal accepting the assessee's plea, kept on holding that the hotel building was plant and the assessee was entitled to depreciation on it accordingly. In the last two cases (T.C Nos. 39 and 40 of 1994), the Assessing officer as usual decided against the assessee; the assessee's appeals were, however, allowed by the C.I.T (Appeals) who following the decisions of the Tribunal for the earlier assessment years allowed depreciation @ 15% accepting the hotel building to be plant. In these two cases, however, the Tribunal reversed its view and allowed the appeals preferred by the revenue holding that the hotel building was not plant and the assessee was, therefore, not entitled to depreciation on it at the enhanced rate.

6. The income tax authorities do not seem to have made any investigation regarding the design and the nature of the building, the rate of depreciation over which is in controversy. There are absolutely no materials on the record from which one may be able to gather even vaguely the design and the nature of the building; whether it has been specially constructed and has some special features to serve as a hotel or is it just an ordinary building with a multi purpose utility.

7. Mr. Vidyarthi, learned counsel appearing for the revenue contended before us that a hotel building is simply like any other building and it cannot be treated as plant. He also pointed out that in the new classification brought into force following the amendment of the Income Tax Act, 1961, with effect from 2.4.1987, hotels have been classified under ‘buildings’ and this, according to the learned counsel, was sufficient indication that hotel building should not be viewed as plant.

8. On the other hand, Mr. Rastogi, learned counsel appearing on behalf of the assessee, submitted that for the purpose of the assessee's business the hotel building was clearly plant both within the meaning of Section 32A as also Section 43(3) of the Act. He submitted that the building in question was an integral part of the assessee's business of running hotel and the business itself could hardly be visualised in the absence of the building. He accordingly urged the Court to answer the reference in favour of the assessee.

9. A number of decisions were brought to our notice by the counsel appearing on behalf of the parties. We, however, propose to take into consideration only those decisions which we find approximate to the controversy forming the subject matter of these references.

10. In C.I.T v. Taj Mahal Hotel (1971) 82 I.T.R 44, the Supreme Court held that sanitary fittings and pipe lines installed in a hotel were plant inasmuch as their installation made it possible for the proprietor to carry on his business more profitably. The question arose under the Indian Income Tax Act, 1992 and the Supreme Court after considering the definition of plant as given in Section 10(5) of that Act found that the sanitary fittings and pipe lines installed in the hotel were covered by the definition of plant and held that the assessee was entitled to development rebate in respect thereof as provided under Section 10(2)(vib). According to this decision it was the intention of the legislature to give the word ‘plant’ a wide meaning.

11. In Commissioner Of Income-Tax, Lucknow v. Kanodia Cold Storage. (1975) 100 I.T.R 155, the Allahabad High Court held that the freezing chamber with its specially designed insulated walls was part of the air conditioning plant of the cold storage and the assessee was therefore entitled to special depreciation on its written down value.

12. In S.K Tulsi and sons v. C.I.T (1991) 187 I.T.R 685 the question that came up for consideration before the Allahabad High Court was whether a cinema building along with its fittings and fixtures could be viewed as plant. B.P Jeevan Reddy, C.J (as His Lordship then was) who authored the division bench judgment, followed the earlier decision of that court in C.I.T v. kanodia Ware Housing Corporation (supra) and applied the ‘functional test’ in order to answer the question. The test lay in the examination as to whether the nature of the building or structures was such as to constitute an apparatus or a tool by means of which the assessee carried on his business. In such a case the building or structures would be covered by the definition of plant. On the other hand, having regard to the type of business, if the building or the structures were of such a nature as to play no part in the carrying on the business activities but merely provided the assessee with a place or accommodation from where he could carry on the business, the building could not be regarded as plant. Applying the aforesaid test it was held that the building constructed and used as a cinema hall where the assessee carried on his business of exhibiting cinematography films did constitute a plant along with its fittings and fixtures.

13. In Santosh Enterprises v. C.I.T (1993) 200 I.T.R 353, the Karnatka High Court too adopted the same view and came to the conclusion that the cinema building was a plant.

14. In C.I.T v. Dr. B. Venkata Rao (1993) 202 I.T.R 303, the Karnataka High Court had the occasion to consider the question whether a nursing home was a plant within the meaning of Section 32 of the Act. The Court observed that having regard to the kind of activities carried on there, the nursing home was not an ordinary building; it was used not only to house the patients and nurse them but also to treat them for which various equipments and instruments were installed. It had an operation theatre, a pathological laboratory, an X-ray room, a plant for sterilisation of clothes and for sterilization of other surgical instruments, an air conditioning room etc. In those facts and circumstances, applying the same ‘functional test’, it was held that the nursing home building was a plant.

15. In R.C Chemical Industries v. C.I.T New Delhi, (1982) 134 I.T.R 330, the Delhi High Court considered this question in respect of a building where the assessee had “installed machinery and plant for the manufacture of saccharine and other chemicals”. According to the assessee's case “certain atmospheric control e.g moisture, temperature and provision for filtered air were required for the manufacture of saccharine” and he accordingly constructed the building with particular specifications and standards to instal the machinery and plant. The Court held that the particular features incorporated in the building in question were not essential to the manufacturing process and the functioning of the equipment. The mere fact that the manufacture of saccharine could be better carried on in the building in question would not convert the building from the ‘setting’ to the ‘means’ for carrying on the business. The Court accordingly answered the question referred to it in favour of the revenue. In this regard, it would be worth while to note the following observations made in the judgment:

“Counsel conceded, when pressed, that there were other companies and concerns which were carrying on the business of manufacture of saccharine in normal buildings which had not been constructed to incorporate special temperature controls. As such, it is clear that the machinery or equipment for the manufacture of saccharine could function without this type of building.

It appears to us that mere fact that the manufacture of saccharine would be better carried on in this type of building would not convert the building from “the setting” to “the means” for carrying on the business. For, if this was the test, then every air conditioned factory building would qualify to be included in the expression “plant”, as there is no doubt that in a hot country like ours it would result in better performance by the workers.”

It may also be noted that on a consideration of a number of earlier judgments on the point, the Delhi High Court also arrived at the conclusion that the key to the answer to the question lay in the ‘functional test’ but elucidated the law in its own way as follows:

“From a perusal of the above decisions and the provisions of the 1961 Act, certain principles emerge.—

1. The definition of “plant” in Section 43(3) should be given a wide meaning as it is an inclusive definition.

2. All buildings are not “plant” despite the dictionary meaning which includes building; but a building or structure is not per se to be excluded from the ambit of the expression “plant”.

3. 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 a plant, the building or construction or part thereof is not considered a plant. The true test is whether it is the means of “carrying on the business” or the location for so doing.

4. In order, for a building or concrete structure, to qualify for inclusion in the term “plant”, it must be established that it is impossible for the equipment to function without the particular type of structure.

5. The particular apparatus or item must be used for carrying on the assessee's business and must not be his stock-in-trade. The matter has to be considered in the context of the particular business of the assessee, e.g, books are a lawyer's plant but a book seller's stock-in-trade.”

16. In S.P Jaiswal Estate's Private Limited v. C.I.T (II), (1994), 209 I.T.R 306, one of the questions before a Bench of the Calcutta High Court was whether a hotel building could be regarded as plant. The Calcutta decision answered the question in the negative. In this judgment, their Lordships took note of the Delhi decision in R.C Chemical Industries (supra) but for some reasons formed an impression that the Delhi High Court had held that the building for the manufacture of Saccharine was a plant and under this erroneous assumption the judgment takes considerable, though avoidable, pains to distinguish the Delhi decision on facts and to state that a hotel building was not the same as a building used for the manufacture of saccharine.

17. In Hotel Banjara Limited v. C.I.T (1996) 218 I.T.R 590 a Bench of the Andhra Pradesh High Court considered the same question as to whether the building for running a hotel should be treated as a plant within the meaning of Section 43(3) of the Act. On a consideration of several decisions on the point, it came to the view that the answer to the question would depend upon the facts and circumstances of each case and same answer may not be given in all cases relating to hotels. It accordingly found and held as follows:

“Yet another approach to the question would be as to whether the building serving as the setting in which the business is carried on or is a thing with which the business is being carried on. If it is a thing with which the business is carried on, then it would fall within the ambit of “plant”. No general principle can be laid down as to whether a particular building is plant or not. The Court will have to examine various aspects to find out as to whether the building in a given case satisfies the requirements of that object with which the business is being carried on and without that business cannot be carried on, if so, it would fall within the meaning of “plant”.

“So far as “hotels” are concerned, the business of a hotel may be carried on in a building which is converted into a hotel or it may be carried on in a building which is specifically designed with reference to the specifications to satisfy modern needs and the requirements of hotel. As the Tribunal did not approach the question from this angle, the Tribunal has to examine the issue afresh on the material on record and decide as to whether the assessee satisfies the tests so as to fall within the meaning of “plant” under Section 43(3) of the Act and, if so, whether the assessee is entitled to investment allowance under Section 32A of the Act.”

18. On a careful consideration of the decisions referred to above and the submissions advanced on behalf of the parties, we are unable to take the extreme view taken in the Calcutta decision in S.P Jaiswal Estate's Private Limited (supra) and we find ourselves in respectful agreement with the view taken by the Andhra Pradesh High Court in Hotel Banjara Limited v. C.I.T (supra).

19. The judicial pronouncements of the different High Courts appear to be unanimous in so far as the correct legal position is concerned according to which the question whether a building can be viewed as a plant is to be answered on the basis of the ‘functional test’. In other words it has to be seen whether the building serves as the ‘means’ or meraly as a ‘setting’ for carrying on the business. It must, however, be realised that by applying this test one would not get the same answer in cases of all kinds of hotels. This is because the expression ‘running a hotel business’ is so wide and elastic that it may take into its fold vastly different undertakings. The word ‘hotel’ brings to mind very disparate images. There are hotels of all kinds. A building intended to be used or in fact used earlier as a residential accommodation can be converted any time into a lodge and used for running a hotel business. One finds a plethora of such hotels mushrooming in the vicinity of railway stations and bus stands etc. in any city or a big town. On the other hand, there are hotels, self contained in many ways and having a small world of their own. A large, modern hotel is not a place where people merely eat and sleep; it offers manifold other services and facilities and functions as a composite organic structure. It naturally requires vast infrastructural support in the form of equipments, machinery, buildings etc. And it is possible that the building(s) housing such hotels may have certain special design and features and those building(s) may be said to form an integral part of the business of running that hotel and it may not be possible to run the hotel in question in any ordinary building constructed without any consideration for the needs and requirements of the hotel. In those cases the buildings may qualify as plant but that would depend upon the facts of each case. We are conscious that such cases would be few and far between but in order to answer the question definitely it would be necessary to examine the facts from this angle.

20. We find that the Tribunal has not approached the question from this angle and in our opinion the matter requires to be re-considered by the Tribunal in the light of the material facts as indicated in this judgment. As repeatedly observed here-in above, the test would be whether the hotel building of the assessee is such that it formed the ‘means’ for the carrying on of the hotel business or it simply provided the ‘setting’ and the necessary space for the carrying on of the business.

21. The reference is answered accordingly. Let a copy of this order be sent down to the Tribunal.