V.K Singhal, J.:— This order shall dispose of all the above listed matters which have been referred by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961, for opinion of this court since the controversy involved in the above cases is as to whether a cinema building or hotel building is plant or not for the purpose of claiming depreciation.

2. In the case of Lake Palace Hotels and Motels Pvt. Ltd., the Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated September 2, 1988, in respect of the assessment year 1983-84 under section 256(1) of the Income-tax Act, 1961.

“Whether, on the facts and in the circumstances of the case, the learned members of the Income-tax Appellate Tribunal were justified in holding that hotel is to be treated as plant and accordingly depreciation should be allowed at the rate applicable to a plant, and in further holding that the hotel being run 24 hours a day is also eligible to extra shift allowance on the basis of its being a plant?”

3. The facts of this case relevant for the purpose of decision on the above question of law are that the assessee is a private limited company and is running two hotels under the name and style of Lake Palace Hotels and Motels and Garden Hotels and Motels. During the year in dispute, the assessee claimed depreciation on the hotel buildings at 10 per cent, claiming it to be a plant, but the Income-tax Officer allowed depreciation at 5 per cent. In appeal before the Commissioner of Income-tax (Appeals), Jodhpur, the disallowance of the claim was upheld. In second appeal before the Income-tax Appellate Tribunal, an additional ground was also taken that the hotel building being a plant, the assessee is entitled to extra shift allowance on the hotel building. The Tribunal allowed the said additional ground to be raised before it and it was observed that depreciation should be allowed at the rate applicable to a plant and that as the hotel is being run 24 hours a day it is also eligible to extra shift allowance on the basis that it is a plant.

4. The facts of the case of Payal Theatre are that the Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated May 29, 1985, in respect of the assessment year 1983-84 under section 256(1) of the Income-tax Act, 1961:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the cinema building belonging to the assessee-firm should be treated as a plant and depreciation should be allowed at the rate applicable to a plant?”

5. The assessee is running a cinema hall called Payal Theatre at Sriganganagar. The claim of the assessee before the Income-tax Officer was that the cinema hall is a plant in itself and, therefore, depreciation should have been allowed at the rate applicable to plant. The Income-tax Officer however restricted the depreciation on the cinema building treating it as a normal building. In appeal before the Commissioner of Income-tax (Appeals), the contention of the Income-tax Officer was upheld and the appeal was dismissed. In second appeal before the Tribunal it was observed that the cinema building cannot be treated as any other ordinary building since it has to be designed in such a manner for the effective exhibition of the film and, therefore, it is an apparatus/plant. The cinema building was considered to be a basic apparatus without which exhibition of film is impossible. When a film is exhibited then the entire building needs to be used for housing the people for screening the exhibition and, therefore, it was considered that the cinema building is a tool and an apparatus for carrying on the exhibition of films and as such is plant.

6. In order to consider the controversy whether the hotel or cinema building is a plant or not, the provisions of section 32 of the Income-tax Act are taken into consideration which read as under:

“32. Depreciation.— (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed—…

(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:

Provided that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession:

Provided further that no deduction shall be allowed under this clause in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists:

Explanation 1.— Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.

Explanation 2.— For the purposes of this clause ‘written down value of the block of assets’ shall have the same meaning as in clause (c) of sub-section (6) of section 43. The various authorities relevant to the point are discussed hereunder.

7. The word “building” has not been defined under the Income-tax Act but an inclusive definition of “plant” has been given under section 43(3) as under:

“‘Plant’ includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession.”

8. The word “building” has to be considered in its wider import and must be interpreted from a common man's point of view.

9. According to the functional test, it has to be seen whether the structure is used for carrying on the business and hence is a tool of the trade or whether it is only a place of business in which the business is carried on.

10. In Appendix I (Table of rates at which depreciation is admissible) from the assessment year 1988-89 bifurcated building for residential purposes and other purposes which include hotel till the assessment year 1983-84. The table was on the basis of material used in the construction of building while from 1984-85 to 1987-88, the table was changed on the basis of general rates or special rates.

11. section 32(1)(v) was added by the Finance Act (No. 2) of 1967, and remained in operation for the assessment years 1968-69 to 1987-88 and initial depreciation was allowed for hotel buildings.

12. The Madras High Court in Commissioner Of Income-Tax (Central), Madras v. Buhari Sons Pvt. Ltd., [1983] 144 ITR 12, observed that the hotel business carried by the assessee cannot be considered a manufacturing activity.

13. The Calcutta High Court in Commissioner Of Income-Tax v. S.P Jaiswal Estates (P.) Ltd., [1992] 196 ITR 179 has also taken the view that the business of a hotel is quite essentially a non-manufacturing or non-producing or even non-processing concern and is a trading concern.

14. The Karnataka High Court in Commissioner Of Income-Tax v. Hotel Ayodya., [1993] 201 ITR 1002 has also held that hotel business cannot be called an industrial undertaking.

15. In Yarmouth v. France, [1887] 19 QBD 647 : 57 LJ QB 7 Lindley L.J, observed there is no definition of plant in the Act, but in the 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.

16. In Thomas v. British Thomson-Houston Co. Ltd., [1953] 1 All ER 29 : [1953] 1 WLR 67 (QB), it was held that the restaurant run within the curtilage of a factory exclusively for executive and administrative employees must be regarded as solely used for some purpose other than the processes carried on in the factory and was not considered as part of the factory while in Luttman v. Imperial Chemical Industries Ltd., [1955] 3 All ER 481 : [1955] 1 WLR 980, a canteen meant for and solely used by the works people employed in the factory was regarded for the purpose incidental to the process of manufacturing carried on in the factory.

17. In Commissioner Of Income-Tax v. R.G Ispat Ltd., [1994] 210 ITR 1018 (Raj), it was observed by this court that the functional test is whether a structure is used for carrying on the business and hence is a tool of the trade or whether it is only the place of business in which the business is carried on.

18. In Commissioner Of Income-Tax, Lucknow v. Kanodia Cold Storage., [1975] 100 ITR 155 (All), it was observed by the Allahabad High Court that in common parlance the word “plant” includes within its ambit buildings and equipment used for manufacturing purposes. The building in question was held to be part of the air-conditioning plant of the cold storage, where a building with insulated walls was used as a freezing chamber, though it is not machinery or part thereof it is part of the air-conditioning plant of the cold storage. The decision in Yarmouth v. France, [1887] 19 QBD 647 : 57 LJ QB 7, referred to above, was followed. This decision was followed by the Punjab and Haryana High Court in Commissioner Of Income-Tax, Patiala-Ii v. Yamuna Cold Storage, [1981] 129 ITR 728.

19. In CIT v. Taj Mahal Hotel, [1971] 82 ITR 44 (SC), referred to above, the dispute was, with regard to the sanitary and pipeline fittings in the hotel as to whether they would fall within the definition of “plant”. It was observed that it cannot be denied that the business of a hotelier is 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 are provided for their comfort and convenience. To have sanitary fittings, etc., in a bath room is one of the essential amenities or conveniences which are normally provided in any good hotel in the present times. By providing sanitary fittings more customers are attracted resulting in earning larger profit and charging of higher rates for the use of rooms. The sanitary and pipeline fittings were held to be “plant”. It was observed by the apex court (page 47):

“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 conversant 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 it in 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 comprehending 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.”

20. The Karnataka High Court in Santosh Enterprises v. Commissioner Of Income-Tax, [1993] 200 ITR 353, applying the functional test, observed that (page 360):

“…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.”

21. The chairs outside the auditorium were held not falling within the definition of “plant”. The building, structures or part thereof by means of which the business activities are carried on was considered to be a plant and the structure which plays no part in the carrying on of these activities but merely constitutes a place in which such activity is carried on was considered not to be a “plant”.

22. In S.K Tulsi and Sons v. CIT, [1991] 187 ITR 685 (All), it was observed by the Allahabad High Court that the cinema building constructed and used as a cinema wherein the cinema business is carried on by the assessee constitutes plant along with its fittings and fixtures.

23. In IRC v. Barclay, Curie and Co. Ltd., [1970] 76 ITR 62, it was held by the House of Lords that the expenditure incurred to build a dry dock for use in its trade of ship builders, ship repairers and marine engineers, incurring capital expenditure which comprised the cost of excavating a specially shaped new basin, having direct access to the Clyde and a floor below the level of high tide to enable ships to float in and out, and the cost of lining the excavation with concrete and installing valves, pumps, electricity generators and other machinery needed for the operation of the dock, was allowable expenditure as it constitutes a plant.

24. In Benson v. Yard Arm Club Ltd., [1978] 2 All ER 958 (Ch D), it was observed that a ship which was converted into a restaurant cannot be considered to be an apparatus for carrying on the business of a floating restaurant, and it was held by the Chancery Division that the vessel is the place or setting where the restaurant business was carried on and is not the apparatus for carrying on the business. The learned judge further observed that 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 particular 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.

25. To determine whether a structure which had been provided for the purposes of a trade was plant, regard was to be had to the use which was made of the structure. If the structure was something by means of which the business activities were in part carried on it was plant, but if it played no part in the carrying on of these activities but was merely the place within which they were carried on, it was not plant. This functional test applies whether or not the structure was attached to the soil; e.g, a vessel and barge for a floating restaurant business, although chattels and used in connection with the business, were not part of the apparatus employed in the commercial activities of the business, but were merely the structure within which the business was carried on and therefore not plant (Benson v. Yard Arm Club Ltd., [1979] STC 266).

26. The Calcutta High Court in S.P Jaiswal Estates Pvt. Ltd. v. CIT (No. 2), [1994] 209 ITR 307, observed that 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 genetic 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 hotel building in its entirety was not considered as plant within the meaning of section 32(1) of the Income-tax Act, 1961.

27. A conference hall was considered as falling within the term “hotel building” under section 32(1)(v) and was considered to be a new building by the Allahabad High Court in Commissioner Of Income-Tax, Lucknow v. U.P Hotel-Restaurant Ltd., [1980] 123 ITR 626.

28. In R.C Chemical Industries v. Commissioner Of Income-Tax, New Delhi., [1982] 134 ITR 330 (Delhi), the Delhi High Court has laid down the following principles to determine whether a building is a plant or not:

“(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’.”

29. In Scientific Engineering House P. Ltd. v. CIT, [1986] 157 ITR 86 (SC), it was observed by the apex court that the term “plant” could be 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 process or is employed in mechanical or industrial business. In order to qualify as “plant”, the article must have some degree of durability. The functions of a plant in the assessee's trading activity as a tool of his trade with which he carries on his business was considered to be the functional test on which an item could be considered to be a plant.

30. In J. Lyons and Co. Ltd. v. Attorney General, [1944] 1 Ch 281 : [1944] 1 All ER 477, electric lamps and fittings in a tea shop were held not part of the apparatus used for carrying on the business, but were part of the setting, in which the business was carried on and therefore, were not considered “plant”. The concept of “plant” has overtones of moveability, even though an item of plant may become fixed to the building in which it is situated but the overtones for moveability means that the building in which the trade is carried on cannot be considered as “plant” (Jarrold v. John Good and Sons Ltd., [1963]-1 All ER 141 (CA)).

31. The functional test was satisfied in respect of a hotel keeper's expenditure on decor and murals (e.g, wall plaques, tapestries, pictures and sculptures), such items creating or enhancing an atmosphere conducive to the comfort and well-being of his customers. It was observed that where it was claimed that part of a taxpayer's premises was plant, the test to be applied was that something which became part of the premises, instead of merely embellishing them was not plant except in the rare case where the premises were themselves plant. In relation to a hotel, the creation of the right atmosphere or setting to make the interior attractive to customers was a means to an end in the carrying on of such a trade, and was not a trade in itself or a separate part of the trade. Accordingly, the amenities and decoration were not the setting in which the taxpayers carried on their business, but the setting which they offered to their customers for them to resort to and enjoy. It followed that the expenditure incurred by the taxpayers on the electric light fittings, decor and murals qualified for relief as expenditure on the provision of “plant” (IRC v. Scottish and New Castle Breweries Ltd., [1982] 2 All ER 230 : [1982] 1 WLR 322 (HL)).

32. A beautiful or unusual or historic building, attractive views, gardens shrubberies and waterfalls, ornaments, the equipment used by the staff and the glasses, china, cutlery, table linen, and the tables and chairs used by the customers, everything in this list, from the ornaments onwards, is apparatus used in the hotel business and the ornaments are used purely to create atmosphere. The mere fact that some of the ornaments are free standing on the floor or on shelves or tables and that others are suspended from or affixed to walls or ceiling is quite beside the point. They are all part of the hotelier's plant as defined in Yarmouth v. France, [1887] 19 QBD 647 : 57 LJ (QB).

33. In CIT v. Alps Theatre, [1967] 65 ITR 377 (SC) : AIR 1967 SC 1437, the question before the apex court was with regard to the claim to depreciation on the value of the building as to whether it would include land as well. It was observed that the word “building” has to be understood in the common sense point of view and its use in the Income-tax Act has to be appreciated in the context in which the provision for depreciation on such building has been made treating the same as the capital asset of the assessee.

34. In Stroud's Judicial Dictionary, Fourth Edition VI. 4, at page 2036, a distinction between “plant” and “machinery” has been drawn as under:

“‘Plant and machinery’ are two quite different things (per Kekewich J., Re Brooke, 64 LJ Ch 27). On a contract for the sale of a freehold brewery which provided that its ‘fixed plant and machinery’ should be paid for by valuation, Kekewich J., held that, ‘speaking generally’, ‘machinery’ includes everything which by its action produces or assists in production; and, that ‘plant’ might be regarded as that without which production could not go on… and included such things as brewer's pipes, vats, and the like; and that therefore a chimney shaft, which was built just outside the boiler-house but formed no part of it, a double-boarded partition, forming a malt and grain store, and staging, erected by placing joists on the stout bearers built into the walls, were not to be included in the valuation (Re Nutley and Finn, [1894 WN 64).”

35. Encyclopedia Britannica 1968 Edn. vol. II, on page 748, dealing with modern hotels, observed as under:

“All first class new hotels that were built in the late 1950's and early 1960's made provision for private bathrooms, and the larger London ones, such as the Churchill, Britannica, Portman, London International, and Sky line, mostly had accommodation for dealing with conferences, exhibitions and banqueting, which provide the back-bone of their off season business. Similarly, in some of the chief provincial centres and at the more important holiday resorts, establishments were specially geared to catering to conference trade. One new luxury establishment, the 60 bedroom Capital Hotel in Knightsbridge, London, took the novel step of providing disposable razors and toothbrushes in all bathrooms as well as individual telephones in all rooms. Also in use in the United Kingdom, were service credit cards valid at certain establishments for the payment of accommodation and meals.”

“Building” has been defined in Webster's Third New International Dictionary at page 292, as under:

“Building/‘bilding, den/n-s(ME Bilding, fr. gerund of bilden to build) 1 : a thing built : a : a constructed edifice designed to stand more or less permanently, covering a space of land, usu. covered by a roof and more or less completely enclosed by walls, and serving as a dwelling, storehouse, factory, shelter for animals, or other useful structure—distinguished from structures not designed for occupancy (as fences or monuments) and from structures not intended for use in one place (as boats or trailers) even though subject to occupancy b : a portion of a house occupied as a separate dwelling : apartment, tenement—used only in some legal statutes 2 : the act or practice of making, erecting, or establishing; specif : the art or business of assembling materials into a structure— sometimes distinguished from architecture and construction as involving relatively simple artistic and engineering problems 3 : archaic : a flock of rooks : Rookery”.

36. Webster's Third New International Dictionary, at page 1094, defined hotel as under:

“Hotel/(‘)hotel/n-s (F hotel, fr. of ostel, hostel—more at Hostel) 1 archaic: a city mansion of a person of rank or wealth 2a : a house licensed to provide lodging and usu. meals, entertainment, and various personal services for the public: INN b : a building of many rooms chiefly for overnight accommodation of transients and several floors served by elevators, usu. with a large open street-level lobby containing easy chairs, with a variety of compartments for eating, drinking, dancing, exhibitions', and group meetings (as of salesmen or convention attendants), with shops having both inside and street-side entrances and offering for sale items (as clothes, gifts, candy, theater tickets, travel tickets) of particular interest to a traveller, or providing personal services (as hair-dressing, shoe shining) and with telephone booths, writing tables, and washrooms freely available.”

37. In Broken Hill Pty. Co. v. Commissioner of Taxation, 41 ALJ 377, it was observed that “plant” included buildings, if through internal structural design they play a part as well in the manufacturing process.

38. In the Digest Continuation, volume 28, it was observed in paragraph 1678(i) that the taxpayer company, who traded as caterers, installed false ceilings in the restaurant premises from which it operated. These were a permanent installation and provided support for services used by the company for carrying on its trade. The company claimed capital allowance under the Finance Act, 1971, section 41 in respect of the expenditure incurred, contending that it constituted capital expenditure on the provision of plant. On appeal by the Crown from the decision of the General Commissioners it was held that in determining whether something was a plant the “functional test” had to be applied, namely, whether it performs function in the actual carrying out of the trade. In the present case, the primary function of the ceiling was to provide cladding for the services. They were not part of the means by which the company provided services to its customers. Accordingly, the expenditure did not qualify for the allowance and the appeal would be allowed, Hampton v. Fortes Autogrill Ltd., [1980] STC 80 : [1979] TR 377.

39. In paragraph 1678(ii), it was further mentioned, the taxpayers owned and managed a large number of hotels and licensed premises in Scotland and England. In 1972-73, they decided that to maintain or increase their turnover they ought to brighten and modernise the facilities offered to the public. They accordingly incurred expenditure on the provision of new electric light fittings, decor and murals, such as plaques, tapestries and pictures, for their premises in order to produce an “atmosphere” which would be attractive to their customers. The taxpayers contended that the expenditure had been incurred on the provision of “plant” for the purposes of their trade, and accordingly claimed a first-year allowance in respect of it under section 41 of the Finance Act, 1971. The Inspector of Taxes disallowed the claim, but on appeal the Special Commissioners reversed the Inspector's decision and upheld the taxpayer's claim.

40. The building in which the hotel is carried on falls within the category of “building”. It may be noted that all the building laws are applicable to it for its construction and in common and commercial parlance also it is considered as a building. If an item is covered by the term “building” then it cannot be considered to be falling within the category of “plant”. The various rates of depreciation provided in the Income-tax Act make the legislative intent clear that the different rates of depreciation/extra-shift allowance are applicable to different items. The hotel building is used to accommodate the customers and even in the case of Taj Mahal Hotel, [1971] 82 ITR 44 (SC) referred to above, it was observed that the business of a hotelier is 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 an arrangement for meals and other amenities are provided for their comfort and convenience. The installation or fittings therein were the subject-matter of dispute in that case, and by use of sanitary fittings and similar amenities in the bath room, it was observed that the assessee can get a higher rate for the use of the rooms. There may be a hotel building having no amenities—even the residential houses are used as house-hotels. The assessee may install items of modern amenities to provide better facilities to the customers. The items so installed in a building will have a different character than the building.

41. Under section 32(2) it has been provided that “new machinery or plant” includes machinery or plant which before its installation by the assessee was used outside India by any other person. This contemplates that the “plant” is to be installed. Section 32(1A) refers to the building not owned by the assessee where the business or profession is carried on which has reference to a building. The provisions of section 32(1) have separately categorised the building, machinery, plant and furniture owned by the assessee used for the purposes of business. This clause also contemplated the use of the building for the purpose of the business. The use of building by a person who carried on the business of hotel or cinema encompasses the building of hotel or cinema. This is further clarified by section 32(1)(v) where it is mentioned that where the building is owned by an Indian company and used by such company as a hotel it will be liable to higher depreciation. This clause has also contemplated that a hotel building even if used as hotel will remain a building.

42. Entry 49 of List II of the Seventh Schedule to the Constitution provides taxes on lands and buildings and hotels and other buildings which are subject to land and building tax which is levied by the State while exercising the power under this entry.

43. The provisions of section 32 have contemplated different rates of depreciation in respect of buildings, machinery, plant or furniture. If a particular item falls in one category then by stretching the meaning it could not be taken to the other category.

44. A Full Bench of the Andhra Pradesh High Court in the case of Mohd. Jaffer Ali v. S. Rajeswara Rao, AIR 1971 AP 156, while considering the provisions of the A.P Buildings (Lease, Rent and Eviction) Control Act had the occasion to consider whether the cinema theatre equipped with projector and sound equipment is a “building” and the lessee of such a building is a tenant liable to be evicted only under the provisions of the Act and not by a civil suit. In this case, the decision of the apex court in the case of Kamani Properties Ltd. v. Miss Augustine, AIR 1957 SC 309, was relied upon wherein the apex court observed that (page 311):

“The definition of ‘premises’ set out above is in very wide terms and includes not only gardens, grounds and out-houses, if any, appertaining to a building or part of a building, but also furniture supplied by the landlord for the tenants' use and any fittings affixed to the building thus indicating that the Legislature was providing for all kinds of letting. The definitions of ‘premises’ and hotel or lodging house between them almost exhaust the whole field covered by the relationship of landlord and tenant, subject to the exceptions noted in the definition of premises.”

45. The decision of the Kerala High Court in the case of K. Kungu Govin-dan v. Parakkat Kunhilekshmi Amma, AIR 1966 Ker 244, was also taken into consideration wherein the Full Bench of the Kerala High Court expressed a similar view that lease of a cinema theatre including furniture, fittings, electrical installations, machinery and equipment came within the ambit of the definition of building.

46. From a perusal of various judgments and dictionary meaning it is evident that the Legislature has also by subsequent amendments made it clear that hotel and cinema premises will fall within the definition of building. A question arises whether in common parlance meaning given by general public and commercial trade, it is considered as a building or not. A building of hotel may be fitted with air-conditioning or may have the attached bath-room and furnished with furniture and other facilities. Even the walls may be decorated and carpet may be there which increases the utility of the hotel but it will not take it out of the category of building.

47. In Australia and England for the purposes of income-tax laws the building of hotel has been considered to be a building and not plant.

48. The various principles which emerge from the various decisions of the apex court and other courts can be summarised as under:

(i) The functional test is a decisive test.

(ii) An item which falls within the category of “building” cannot be considered to be “plant”. Buildings with particular specification for atmospheric control like moisture temperature are not “plant”.

(iii) In order to find out as to whether a particular item is a plant or not, the meaning which is available in the popular sense, i.e, the people, conversant with the subject-matter would attribute to it, has to be taken.

(iv) The term “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 any apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. The article must have some degree of durability.

(v) The building in which the business is carried on cannot be considered to be a “plant”.

(vi) The item should be used as a tool of the trade with which the business is carried on. For that purpose the operations it performs have to be examined.

49. Various principles which have been deduced from the judgment of the apex court and other courts lead to the conclusion that the building of hotel is a building. Simply because some special fittings or controlling equipments are attached, it will not take it out of the category of building. Even if a particular building falls within the category of plant then it could not be considered to be a plant and will be considered as building because the golden rule of interpretation is that if a particular item is more near to one category, then by stretching it should not be considered to fall in a category which is far off.

50. Hotel business is a business in which the building is one of the components besides the other facilities like food, air-conditioning, etc. The building itself is of different uses like rooms for stay, conference hall, kitchen, etc. The hotels are also of different categories. The facility in the hotels differs according to the star mark given to them. The facility of comfortable stay is also provided by guest houses, house hotels, inn, sarai, etc. The building which is used in the business of hotel remains a building inspite of the fact that it is decorated by plaster of paris, timber work, etc. If the skeleton of the building without decoration is building then the items by which it is decorated would not change the character of building. The item may, however, be considered as plant subject to its use. The use of the building is as a setting. Building is not used as a tool of the trade. Different rates of depreciation for building have been provided which also makes the legislative intent clear that the different types of buildings remain as building. The amendment of section 32(1)(v) has only clarified the legislative intent that the building of hotel is a building, though by amendment a higher rate of deprecation is provided for it. In an industry no production can be normally carried on without a building where the plant and machinery is installed but for that reason the building cannot be considered as plant when there is a separate entry for buildings for purpose of depreciation. Buildings may accommodate plant and machinery or living persons. It remains a building. The structure having roof and durability is considered as building. Every movable and immovable property has its categorisation. It is basically the hospitality which is provided in a hotel, may be by human service or by equipment, surroundings, atmosphere, etc., which is provided by decorated rooms beautiful furnishing. The recompense of the hotelier is for the care, pain, facility which is provided by him by way of service rendered and not by providing the room alone it could be considered as a tool of the trade. The hotel industry is a service oriented industry and the better the service the higher the charges. The element of service is the dominant object and not providing the room alone. The room in a city like Jaipur differs from hotel to hotel. The ordinary rooms may be available at Rs. 100 per day whereas the suite in a five star hotel may be as costly as Rs. 10,000 per day. If the building of a five star hotel is a plant there is no reason why the building of an ordinary hotel should be treated differently only on account of the charges for extra facilities. The difference of charges is because of extra service facilities, etc., provided and the role of the building in the two types of hotels remains the same and at the same time even better services are provided in a number of guest houses. Looking to the common parlance meaning and the specific use of the word “building” in section 32 of the Income-tax Act, we are of view that the building of hotel is a “building.”

51. The building which is used for accommodating the cinema-goers remains a building even if specially designed. All the provisions of local laws including approval from the local authorities for construction of a building, levy of land and building tax, etc. are applicable to it. A cinema may have air-conditioning in its building besides the furniture but for that reason it will not cease to be building. The functional test requires to find out as to whether it is an apparatus with which the business is carried on or is it the setting or part of the premises in which the business is carried on. If the functional test is applied, it would be found that it accommodates the machinery for exhibition of the film like any other factory where production is carried on and provides the accommodation to the public for viewing the picture and cannot be taken out from the definition of “building”. The building is not used as a tool of the trade as it is used for accommodating the customers as a setting. In respect of cinema the work is carried on by the projector which displays the film on screen. The hall of the cinema may be air-conditioned and even it may be an open theatre. In the case of Mohd. Jaffar Ali, AIR 1971 AP 156 [FB], it was considered that a cinema is nothing but a large house with furniture, etc., supplied and cinema apparatus and other accessories affixed therein.

52. In these circumstances, we are of the view that the Income-tax Appellate Tribunal was not justified in holding that the cinema building/hotel building belonging to the assessee-firm should be treated as “plant” and depreciation should be allowed at the rate applicable to a “plant”. Accordingly, the reference is answered in favour of the Revenue and against the assessee. No order as to costs.