However, `building' includes roads which link or provide approach to buildings (CIT v Colour-Chem (106 ITR 323)), driveways and compound walls (CIT v Indo-Burma (112 ITR 755)), fences, culvert and drainage (Indian Aluminium v CIT (122 ITR 660)), -- and they are therefore entitled to depreciation.

In deciding whether a building or structure is plant, a functional test is to be applied - is it 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 former, it is a plant; if the latter, it is not (CIT v Kanodia (121 ITR 996)).

Applying this test,the Bombay high court has held that roads within the factory premises cannot be treated as `plant' (CIT v Sandvik Asia (144 ITR 585)); but according to the Andhra Pradesh high court they may be so treated on the facts of a case (CIT v Coromandel Fertilisers (156 ITR 283)).

Even some buildings and structures, eg dockside silos, may qualify to be treated as plant (Schofield v R & H Hall (49 T.C. 538)).

Further, this test should be applied having regard to the nature of the business carried on and the relation of the expenditure to the promotion of the business.

Where a company operated a range of hotels, the particular decor, murals, metal sculptures and electric light fittings provided for producing an `atmosphere' that would attract customers were held by the House of Lords to be plant: they were not the setting in which the business was carried on, but the ambience offered to the customers for them to resort to and enjoy (IR v Scottish & Newcastle (55 T C 252)).

An interesting issue has recentlybeen considered by the Supreme Court of India in CIT v Hindustan Times Ltd (231 ITR 741). The point covers an unusual question, viz, whether depreciation can be claimed on expenses incurred as commercialisation charges for additional area of construction.

The facts in this case were that the assessee had purchased an existing residential building at Kasturba Gandhi Marg, New Delhi, in the year 1961. It wanted to use that building for commercial purposes. For this purpose, it paid certain additional charges to the Development Officer of the Government of India and also extra ground rent in respect of the land.

The built-up area then existing on that plot was 51,198 square feet. A formal agreement was executed and the assessee paid a sum of Rs 3,65,875 to the land development officer, Government of India, as commercialisation charges in addition to the ground rent.

In 1965-66, the original building was demolished and the assessee constructed a new multi-storeyed building on the said land. Theconstruction was completed some time in the year 1973. The assessee applied to the land development officer, government of India, for using the building for commercial purposes.

The assessee paid a sum of Rs 36,96,516 for using the multi-storeyed building for commercial purposes containing an area in excess of 51,198 square feet. The assessee added this amount of Rs 36,96,516 to the cost of the building constructed by it and claimed depreciation on the same for the assessment years in question.

For the assessment years 1973-74 and 1974-75, depreciation was allowed. However, the assessment was reopened and the depreciation granted was disallowed. For the assessment years 1975-76 and 1976-77, depreciation was granted as claimed by the assessee and no appeals were filed from the orders so allowing depreciation.

In respect of the assessment years in appeal, it was the contention of the department that the amount of Rs 36,96,516 was paid for commercial use of the land. Hence, it should be added to the costof the land. The department contended that adding this amount to the cost of the building for the purposes of depreciation, was not justified.

The commissioner (appeals) as also the tribunal, however, came to the conclusion that the sum of Rs 36,96,516 was correctly added to the cost of the building constructed by the assessee because the amount was paid in respect of the commercial use of the additional area constructed as a result of the multi-storeyed building being put up by the assessee. It, therefore, pertained to the building and not to the land.

The high court had also come to a similar conclusion. The high court pointed out that the use of the land had already been converted to commercial use in 1962 when the assessee had paid an additional amount of Rs 3,65,875. There was no question, therefore, of any additional commercialisation of the said plot. The amount was, however, paid for the additional construction which was put up by the assessee. Hence, the Supreme Court held that it formed part ofthe cost of the building.

For the land, the assessee had paid additional ground rent under the agreement of March 5, 1973, which was a separate amount. Hence, the sum of Rs 3696,516 was laid out by the assessee in order to construct the additional space of 3,45,144 square feet for office purposes. The payment was made for construction of a business asset and formed a part of the cost incurred by the assessee in putting up that building.

The Delhi high court (169 ITR 1) had earlier held that the sum of Rs 36,96,516 had been laid out by the assessee in order to acquire permission for constructing an additional space of 3,45,144 square feet for office purposes. In fact, this was made clear by the letter from the government of India.

The payment had clearly been made only to enable the assessee to put up the construction of the business asset and it followed that the payment made by the assessee had to form part of the cost incurred by the assessee in putting up that building. The Supreme Court affirmedthe view of the Delhi high court.

The ratio of the Supreme Court's decision would have far-reaching effects because, in almost every case of commercial real-estate development, additional charges have to be paid as a premium for getting additional right of construction. Further, payments have to be made to acquire Floor Space Index (FSI) which is now transferable in cities like Mumbai.