CIT v. Elel Hotel & Investment Ltd
[Citation -2019-LL-0820-101]

Citation 2019-LL-0820-101
Appellant Name CIT
Respondent Name Elel Hotel & Investment Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 20/08/2019
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags income from house property • expenditure incurred • revenue expenditure • capital expenditure • intangible asset • business income • original return • material facts • total income • book profit • royalty
Bot Summary: The AO passed an assessment order on 31st December, 2008 under Section 143 read with Section 153-A of the Act assessing the total income of the Assessee at Rs.2,85,42,450/-, as against the returned loss of Rs.5,08,73,700/-. Against the aforementioned assessment order, the Assessee filed an appeal before the Commissioner of Income Tax CIT. During the course of the proceedings before the CIT, the Assessee was allowed to raise a ground that the amount paid by it to ITC Limited at the time of termination of the agreement with ITC Limited, ought to be allowed, as a revenue expenditure. The ITAT came to the conclusion that since on account of the aforementioned payment to ITC Limited the Assessee s business acquired a new lease of life it could only be held to be an expenditure of capital in nature. If the expenditure is not to be treated as capital expenditure , then it will have to be treated as revenue expenditure was perhaps not addressed in the manner it should have been treated by the ITAT. On this aspect the Court considers it appropriate to remit the matter to the ITAT for decision afresh on the treatment to be accorded to the expenditure incurred by the Assessee of the aforementioned sum of Rs.30.86 crores and whether in particular, it should be treated as a revenue expenditure or as capital expenditure. The Court makes it clear that it has not expressed any view one way or the other on the respective contentions of the Revenue or the Assessee on the issue, and, it will be open to the ITAT, after examining the entire records, including the original return filed by the Assessee to come to a fresh decision independent of its earlier decisions and any observations in the instant order. As far as the Question is concerned, the Court is of the view that the findings both of the CIT as well as the ITAT are consistent that the only business of the Assessee was its hotel business and the income shown by the Assessee should be treated as income from house property and not as income from other sources. Question is answered in the affirmative i.e. in favour of the Assessee and against the Revenue.


IN HIGH COURT OF DELHI AT NEW DELHI 98 ITA 129/2012 CIT Appellant Through: Ms Vibhooti Malhotra, Senior Standing Counsel for Revenue with Mr Anjinkya Tiwari and Mr Siddharth Manocha, Advocates. versus ELEL HOTEL & INVESTMENT LTD Respondent Through: Mr S. Ganesh, Senior Advocate with Mr Muneesh Malhotra, Mr Ajay Wadhwa and Mr Sandeep Guptal, Advocates. CORAM: JUSTICE S.MURALIDHAR JUSTICE TALWANT SINGH ORDER 20.08.2019 1. This is appeal by Revenue against order dated 5 th August, 2011 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 918/Del./ 2010 for Assessment Year (AY) 2006-07. 2. While admitting this appeal by order dated 22 nd August, 2013, following substantial questions of law were framed: (i) Whether Income Tax Appellate Tribunal was right in holding that respondent-assessee is entitled to depreciation on Rs.30.86 crores @10 % as building? (ii) Whether Income Tax Appellate Tribunal was right in holding and setting aside findings of Assessing Officer ITA 129/2012 Page 1 of 7 that income shown by assessee as business income should be taxed as income from house property or as income from other sources? [The contention of respondent-assessee that Assessing Officer had not examined and objected to depreciation as building will be also decided while examining aforesaid question No.(i)]. 3.The material facts necessary for purposes of present appeal are that Respondent Assessee was owner of hotel known as Sea Rock at Band Stand, B.J. Road, Bandra (West), Mumbai managed by ITC Limited under Hotel Operator Agreement effective from 1st July, 1986 up to 15th May, 2005. After 11th May, 2005, hotel was being managed by Hotel Claridges Private Limited ( HCPL ) under another Hotel Operator Agreement between Assessee and HCPL. 4. For AY in question, Assessee filed its return on 21st October, 2006 declaring loss of Rs.39,39,710/-. Assessee being covered under Section 115-JB of Income Tax Act, 1961 ( Act ), it paid aggregate tax of Rs.9,15,785/- on book profit under aforementioned provision. 5. search took place under Section 132 of Act in Suresh Nanda Group of Companies on 28th February, 2007. Pursuant thereto, Assessing Officer ( AO ) issued notice to Assessee on 9 th September, 2008 under Section 153-A of Act for reopening of proceedings. Pursuant to notice, Assessee filed return of income declaring loss of Rs.5,08,73,700/-. This difference in return of income was attributed to changed claim of depreciation. Whereas in original return, ITA 129/2012 Page 2 of 7 depreciation was claimed to tune of Rs.3,08,93,616/-, claim increased in return filed pursuant to notice under Section 153-A of Act to Rs.7,78,27,608/- 6. AO passed assessment order on 31st December, 2008 under Section 143 (3) read with Section 153-A of Act assessing total income of Assessee at Rs.2,85,42,450/-, as against returned loss of Rs.5,08,73,700/-. Against aforementioned assessment order, Assessee filed appeal before Commissioner of Income Tax (Appeals) [ CIT (A) ]. During course of proceedings before CIT (A), Assessee was allowed to raise ground that amount paid by it to ITC Limited at time of termination of agreement with ITC Limited, ought to be allowed, as revenue expenditure. In order dated 30th December, 2009, CIT (A) came to following conclusions: 6.3.2. Based on above discussions, ground No. 3 is decided as under: (a) There was existence of business during year. (b) income of Rs.2,02,67,668/- on account of royalty accrued to appellant during year and same has to be added towards its total income (though not added by AO.) (c) hotel building has been used for purposes of business during year and therefore depreciation is allowable. (d) claim of payment made to ITC Ltd as revenue expenditure cannot be allowed. (e) claim of acquiring intangible asset by way of payment of Rs.30.86 crores to ITC Ltd cannot be allowed. ITA 129/2012 Page 3 of 7 (f) payment made to ITC Ltd of Rs.30.86 crores has rightly been capitalized by appellant towards hotel building and depreciation @ 10% applicable to hotel building has to be allowed as was claimed by appellant in original return of income. 7. Aggrieved by above order, both Assessee and Revenue filed appeals before ITAT, which were disposed of by common impugned order (which incidentally was also common to appeals for AY 2005- 06). It is seen from paragraph 24.6 of impugned order of ITAT that counsel for Assessee made three without prejudice arguments before it in following order of preference: (a) expenditure is revenue in nature; (b) expenditure is for acquiring intangible asset; and (c) payment is made for improving title of hotel building. 8. discussion on aspect whether payment made to ITC Limited was capital in nature starts from paragraph 24.11 of impugned order. ITAT came to conclusion that since on account of aforementioned payment to ITC Limited Assessee s business acquired new lease of life it could only be held to be expenditure of capital in nature . 9. ITAT then proceeded to consider second alternative plea that payment had led to acquisition of intangible asset. ITAT in impugned order came to conclusion that payment cannot be said to be for acquisition of any intangible asset . It appears that ITAT, in view ITA 129/2012 Page 4 of 7 of its finding that expenditure was capital in nature, did not consider it necessary to answer first of three submissions of Assessee, viz., that expenditure was revenue expenditure and should be allowed as such. 10. Even when above questions of law were framed before this Court by order dated 22nd August 2013, it appears that no specific question as such was framed on this aspect. 11. However, it is pointed out by Mr S. Ganesh, learned Senior Counsel appearing for Assessee, that if Question (i) is to be answered in favour of Revenue i.e. by holding that ITAT was in error in holding that Assessee was entitled to depreciation on Rs.30.86 crores at 10% as building then corollary would be that said expenditure has to be treated as revenue expenditure. 12. On other hand, Ms Vibhooti Malhotra, learned Senior Standing Counsel appearing for Revenue, submits that ITAT did not have occasion to actually examine whether expenditure could at all be claimed as revenue expenditure. She points out that without examining how Assessee treated amount in original return filed by it i.e. return filed prior to return pursuant to notice under Section 153-A of Act, ITAT could not have come to conclusion, one way or other. 13. It must be noticed at this stage that according to Assessee, it made claim of depreciation at 10% on sum of Rs.30.86 treating as building, both in its original return as well as in return filed pursuant to notice ITA 129/2012 Page 5 of 7 received under Section 153-A of Act. However, alternative plea that this was revenue expenditure or that it was for acquisition of intangible asset was raised by it for first time before CIT (A). 14. Court finds merit in contention that this aspect of matter, viz., if expenditure is not to be treated as capital expenditure , then it will have to be treated as revenue expenditure was perhaps not addressed in manner it should have been treated by ITAT. On this aspect, therefore, Court considers it appropriate to remit matter to ITAT for decision afresh on treatment to be accorded to expenditure incurred by Assessee of aforementioned sum of Rs.30.86 crores and whether in particular, it should be treated as revenue expenditure or as capital expenditure . Court makes it clear that it has not expressed any view one way or other on respective contentions of Revenue or Assessee on issue, and, it will be open to ITAT, after examining entire records, including original return filed by Assessee to come to fresh decision independent of its earlier decisions and any observations in instant order. 15. As far as Question (ii) is concerned, Court is of view that findings both of CIT (A) as well as ITAT are consistent that only business of Assessee was its hotel business and, therefore, income shown by Assessee should be treated as income from house property and not as income from other sources. Consequently, Question (ii) is answered in affirmative i.e. in favour of Assessee and against Revenue. ITA 129/2012 Page 6 of 7 16. appeal i.e. ITA No. 918/Del/2010 is restored to file of ITAT for deciding specific issue mentioned in para 14 of this order afresh in accordance with law. appeal shall be listed for directions before ITAT on 11th September, 2019. ITAT will make endeavour to dispose of appeal as expeditiously as possible and in any event within period of six months from date of receipt of copy of this order. 17. appeal is disposed of in above terms. S. MURALIDHAR, J. TALWANT SINGH, J. AUGUST 20, 2019 rd ITA 129/2012 Page 7 of 7 CIT v. Elel Hotel & Investment Ltd
Report Error