1. This appeal by the assessee reiterates the claim for higher rate of depreciation and consequential deductions on the ground that the hotel building should be treated as a plant for such purposes.
2. The assessee is a private limited company carrying on hotel business, that is, boarding and lodging as well as restaurant, in a building situated in Mount Road, Madras. For the assessment year 1980-81 corresponding to the previous year ended 31-3-1980, the assessee filed a return showing total income of Rs. 5,09,340. Before the ITO the assessee made an additional claim that the hotel building should be treated as a plant for the purpose of grant of higher rate of depreciation for the purpose of allowing extra shift allowance, etc.
This was rejected by the ITO on the ground that there was no such definition in the Income-tax Act, 1961 ('the Act') or rules for treating the hotel building as a plant. On appeal, the Commissioner (Appeals) referred to the decision of the Supreme Court in the case of CIT v. Taj Mahal Hotel  82 ITR 44 in which certain sanitary and pipeline fittings in a hotel were allowed to be treated as plant and the observation made therein that they were not merely part of the setting in which the hotel business was being carried on. The Commissioner (Appeals) thereupon concluded that the building was nothing but a part of the setting in which the hotel business is carried on and, therefore, the building as such cannot be considered as a plant.
3. In this further appeal, it was contended on behalf of the assessee that the word 'plant' not having been defined in the Act, it must be given the meaning ascribed to it in decided cases and since the hotel business cannot be carried on without a building, the building should be taken as a plant. It was submitted that there was nothing against the treating of the building as a plant in the Act or Rules. It was also pointed out that under Section 56 read with Section 57 of the Act if the letting out of building is inseparable from the letting of plant and furniture, income has to be ascertained after deducting depreciation, etc., which indicated that such a building could not be considered merely as a building but as a plant. It was submitted that in the circumstances the claim of the assessee should be allowed.
4. On the other hand, it was contended on behalf of the revenue that the classification of business assets treated buildings as a separate entity and could not, therefore, be confused with a plant. It was also pointed out that building in which hotel business was carried on was treated separately for the purpose of development rebate, which indicated that it was not the intention to treat the building as a plant under any circumstances. It was submitted that the orders of the authorities below should, therefore, be confirmed.
5. On a careful consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed. Before we deal with the main issue as to whether the premises in which the hotel business is carried on can be regarded as a plant, we may keep in mind the reasons why such a claim is made. The main purpose of the assessee is to claim depreciation at a higher rate which is available for plants as against a nominal rate at which depreciation is allowable for buildings. Depreciation represents that part of the cost of a fixed asset to its owner which is not recoverable when the asset is finally put out of use by him. Provision against this loss of capital is an integral cost of conducting the business during the effective commercial life of the asset and is not dependent upon the amount of profit earned. Yorston and Smyth's Advanced Accounting, Sixth edition, continues to state, at page 66 that the assessment of depreciation involves the consideration of three factors : the cost of the asset, which is known, the probable value realised on ultimate disposal, which can generally be estimated only within fairly wide limits and the length of time during which the asset will be commercially useful to the undertaking. In most cases, this last factor is not susceptible of precise calculation. Provisions of depreciation are, therefore, in most cases matters of estimation based upon the available experience and knowledge, rather than of accurate determination. The purpose of depreciation accounting is, therefore, to allocate, in a systematic manner, the costs of productive facilities over their useful life, so as to measure periodic income as precisely as possible. The charges must be systematic, objectively measured and on a consistent basis- from year to year. This mathematical process of distributing the cost of an asset over the various periods in which it is deemed the asset will earn revenue (sic) has to be prescribed by the CBDT according to Section 32 of the Act. That section states that in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business, the deduction shall be allowed at such percentage on the written down value thereof as may be prescribed in any case or class of cases. It may be noticed that this section itself appears to have a certain classification for all commercial assets into buildings, machinery, plant or furniture. There is no definition of any of these words except that Section 43(3) of the Act defines 'plant' to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of business or profession. In framing the rules, the CBDT has specified in Rule 5 read with the Table in Part I of Appendix I of the Rules, the rates at which depreciation is to be allowed for various kinds of commercial assets.
Though the Board's classification again follows the four items of buildings, furniture and fittings, machinery and plant and ships, there is a general rate of 10 per cent depreciation for machinery and plant not being a ship for which no special rate has been prescribed in the Table. In respect of buildings there is a further classification based on whether it is first class, second class, third class or a temporary structure. We must, therefore, see whether this classification is mutually exclusive or there could be certain buildings which may fall within the category of machinery and plant. We may at once state that it is not in dispute that masonry structure which is part of a machinery or plant has always been treated as a plant and not as a separate building. The test for finding out whether the structure is part of the plant which is installed, has always been whether it is an essential part of the plant or whether it is merely a setting in which the operation takes place. For instance, canopy over a petrol pump is only a part of a setting in which the business is carried and cannot, therefore, be regarded as a plant (see Dixon v. Fitch's Garage Ltd. 50 TC 509). We are, however, not concerned with such a question because in this case there is no other plant to which building could be regarded as integrally attached, so that the building itself becomes part of that plant. On the other hand we are concerned with the building as such and the question is whether that building by itself could be regarded as a plant.
6. The word 'plant' though defeated of precise definition, is an ordinary English word which has received judicial consideration on a number of occasions. What was said by Fenner, L.J. in construing the word has long been accepted as good guidance-IRC v. Barclay, Curie & Co. Ltd.  1 All ER 732. Yarmouth v. France  19 QB 647 was an action to recover compensation under the Employers' Liability Act, 1880, which provided that if there was a defect in the machinery or plant which was to be operated by the workman, the employer has to compensate him for any injury caused thereby. It was the duty of one of the workmen to drive carts of the employer and among the horses one was of vicious nature which caused his leg to be broken while driving the cart. The employer resisted the claim by contending that a horse cannot be regarded as a plant and, therefore, it was not a case of defective plant which caused the injury. Lindley, L.J. held that the horse was a plant and said: "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". Though that judicial definition appears in the context of the employer's liability to pay compensation under the Employers' Liability Act, it has been long accepted as good guidance for income-tax cases. In Jarrold v. John Good & Sons Ltd.  40 TC 618 (CA), Lord Pearson spoke of plant being that with which the trade is carried on as opposed to the place where it was carried on. In the latest case of Barclay, Curie & Co. (supra) Lord Donovan said: At the end of the day I find the functional test propounded by Lindley, L.J. and by Lord Pearson to be as good as any, though, as was said in Jarrold v. John Good & Sons 40 TC 681 some plant may perform its function passively and not actively.
To this Lord Denning has added in the case of Munby v. Furlong 50 TC 491 that : ...these statements show quite conclusively that in the Taxing Statute the Courts do not apply the meaning to the word 'plant' as the ordinary Englishman understands it. It has acquired by the course of decisions a special meaning in tax cases. It has acquired a special meaning, it seems to me, in the interests of fairness, that 'plant' extends virtually to a man's tools of trade-that is the phrase which Cross, J. used. It extends to the things which he used day by day in the exercise of his profession. (p. 503) 7. From the acceptation of the word 'plant', we have to apply this functional test to the asset in question to determine whether it is a plant or not. The meaning of the word 'plant' is clear from the discussion above but the application of the meaning to the facts of the case is purely a question of fact to be decided taking into account all the circumstances of the individual case. This makes it necessary for us to consider the nature of the business of the assessee.
8. The assessee carries on a hotel business, It has a premises with several rooms to let with furnishings for the purpose of rest and recreation of the customers and it also provides food and beverages along with such other facilities as may attract customer. This nature of the business cannot be better described than by adopting the words of Justice Krishna Iyer in the case of Southern India Caterers (India) Ltd. v. Lt. Governor of Delhi AIR ...high-style restaurants or residential hotels render a bundle of special services like ball dance, rare music, hot drinks, 'viands of high regale', glittering crockery, regal attention or 'bikni' service and even sight-seeing transport or round-the-city visits, shoe-shining, air-conditioning, massage in the room, etc., on a consolidated sum. You cannot dissect the items or decode the bill to discover separately the component of goods sold. This situation may obtain even in India with the throng of foreign tourists who want to be taken care of and pay all inclusively. (p. 679) It is not in dispute that the assessee does offer many, if not all, of the services mentioned above because it is admittedly a three star hotel. The Supreme Court has observed in the case of Taj Mahal Hotel (supra) 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.... (p. 48) From this it is apparent that the building as such is an essential part of the overall trading capacity of the assessee. The amenities provided by the assessee is not a setting in which he carries on the business but the setting which he offers to his customers for them to resort to and enjoy. It follows that the hotel building is a plant being that with which trade is carried on or in other words, the assessee's tool of trade because without that building it is not possible for the assessee to carry on the hotel business.
9. While deciding this issue by applying the basic test, it may not be out of place to keep in mind the analogies which are helpful to clarify the issue. In the case of Barclay, Curie & Co. Ltd. (supra), dry dock, which was essentially a cavity lined up in concrete, was treated as a plant, It was observed in the latest decision in IRC v. Scottish & New Castle Breweries  1 WLR 322, 334 that "Barclay case however shows that a structure in which a trade is carried on can be plant with which it is carried on." In Schofield v. R. & H. Hall Ltd.  49 TC 538 silos were found to be plant. In St. John's School v. Ward  49 TC 524 it was held that a prefabricated chemical laboratory and prefabricated gymnasium erected in the grounds of the school was not plant as being a setting in which, as distinct from the apparatus with which the business of educating children was carried on. It was pointed out that neither the laboratory nor the gymnasium had any function other than to shelter the persons who were being admitted inside. We may contrast this decision with the case of Cooke v. Beach Station Caravans Ltd.  49 TC 514 where it was held that swimming pools are not merely passive but were part of the apparatus used by the company for carrying on its business as caravan park operators. On the same analogy, a hotel premises is by itself a profit earning apparatus with which the assessee carries on the business and we are convinced that it must be regarded as a plant.
10. We must now consider whether there is anything in the Act to contradict our finding that a hotel premises could be regarded as a plant in the classification in the Income-tax Rules for the purpose of grant of depreciation. We have been referred to Section 33 of the Act where machinery or plant installed by an Indian company in premises used by it as a hotel is eligibfe for higher rate of development rebate and the rules in the Table in the Appendix to the Income-tax Rules which grant extra depreciation allowance for machinery and plant installed by an Indian company in premises used by it as a hotel. The contention of the revenue was that this was indication that Parliament never considered the premises used as a hotel to be a plant. But we are unable to accept this as an embargo on treating the hotel premises as a plant because that section and the rule concern only with granting extra allowance in respect of other plant and machinery installed in the premises used in a hotel. We must again recall the purpose behind the classification, namely, to allocate the cost of the productive facilities over its useful life and to measure periodic income as precisely as possible. A premises used as a hotel being the tool of the hotel trade is not a mere building which will depreciate at a nominal rate. By its very function its useful life is greatly reduced.
Therefore, if the premises used as a hotel is to be taken as just a building, we would be disregarding the extent of its useful life and its functions which are the primary basis for the classification of the assets for the purpose of allowing deduction of depreciation. The item regarding buildings, no doubt, allows double the rate for factory building, but the actual classification does not take into account a building which functions as the tool of the trade. We are, therefore, of the opinion that there is nothing in the Act or the Rules to prohibit the treatment of a hotel building as a plant for the purpose of ascertaining the rate of depreciation that has to be applied in determining income therefrom.
57. Under Section 56, if an assessee lets on hire machinery, plant or furniture, the income from such letting is not chargeable to income-tax under the head 'Profits and gains of business' as being chargeable under the head 'Income from other sources'. In such an event under Section 57, depreciation is to be allowed thereon. Since the section itself speaks of the letting out of the building being inseparable from the letting out of the plant or furniture, Parliament envisaged a situation where a building may be let out not as mere building but as an integral part of the fixtures therein. The assessee has referred to the fact that the premises in question is centrally air-conditioned which may be regarded as a plant which is let out inseparably with the building. But we do not wish to look at the building as an adjunct of an air-conditioning plant which would be stating the matter upside down for the purpose of bringing the entire asset into the category of plant. Instead, looking at the matter straight, it is a case of the air-conditioning plant and other fixtures and furniture being adjuncts of the building designed to serve as a hotel, which by itself must be regarded as a plant because it is an essential part of the trading activity of the assessee. Whatever be the fixtures and furnitures that are in the premises the entire premises is by itself an integral unit, a commercial asset and the tool of the trade of the assessee, all of them are inseparable and constitute one single commercial asset with which the assessee plies his trade and derives the income. Therefore, that commercial asset being an inseparable combination of building, plant, furnitures, etc., is to be treated as a plant and the assessee is entitled to deduction of depreciation at the appropriate rate. We, therefore, deem it fit to set aside the orders of the authorities below and direct the ITO to recompute the total income after verifying and allowing the claim of the assessee by treating the hotel premises as a plant. The appeal is allowed.