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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Shamim Yahya
O R D E R This appeal by the assessee is directed against order of learned CIT(A) dated 24.10.2016 and pertains to assessment year 2012-2013.
The ground of appeal reads as under:-
“1. On the facts and in the circumstances of the case and in law, the Appellant contends that the learned CIT(A) erred in confirming disallowance of depreciation claim of Rs.41,61,203/- without appreciating the nature of business of the appellant.”
In this case, the assessee is engaged in the business of hospitality and restaurant business. In the concerned assessment year the Assessing Officer made disallowance of excess claim of depreciation by holding as under:-
. M/s.Degustibus Hospitality Private Limited. “Perusal of the computation of total income shows that assessee has claimed the depreciation on civil work @ 15% which works out to Rs.9,13,39,920/-. During the course of assessment proceedings assessee was asked to give justification for claim of depreciation on civil work @ 15% instead of eligible depreciation @ 10%. In response to the same, assessee vide letter dated 23.01.2015 submitted that depreciation on civil work has been claimed at 15% and the Department has allowed depreciation at 10% from assessment year 2010-2011. Due to this revision the opening written down value has undergone a change and submitted the revised working of depreciation. The explanation of the assessee has been considered and found the same to be tenable. It can be seen from the depreciation that assessee has claimed the depreciation on civil work @ 15% but was eligible for depreciation only at 10%. Hence the excess claim of depreciation amounting to Rs.41,61,203/- is disallowed and added to the total income of the assessee.”
Against the above order assessee appealed before the learned CIT(A). The assessee also gave certain case laws in support of its proposition. However, the learned CIT(A) confirmed the action of the Assessing Officer by holding as under:- “I have carefully considered the facts and submissions of the Id.AR. As seen from the depreciation scheduled, under the Block-Plant & Machinery the appellant has claimed 15% depreciation on sub-heads of (i) Plant & Machinery, (ii) Air conditioner, (iii) Electrical equipments, (iv) office equipments, (v) plumbing fittings and (vi) civil works. Even though the AO has no objection for allowing 15% depreciation for other sub-heads he has objected for claiming 15% depreciation on "civil work" holding that it will not fall under the Block-Plant & Machinery and allowed only normal depreciation of 10%. I am in full agreement with the AO. The civil work narrated by the appellant in above paragraph either fall under I (2) - Building or II -Furniture and . M/s.Degustibus Hospitality Private Limited. Fittings mentioned at part-A of New Appendix-l of depreciation schedule which are eligible for depreciation at 10% but not under Plant & Machinery which is eligibly for 15%. I, therefore, agree with the AO and confirmed the disallowance.” 5. Against the above order, the assessee in appeal before the ITAT.
I have heard both the Counsel and perused the records. The learned Counsel of the assessee submitted a decision of the Hon’ble Apex Court in the case of CIT v. Taj Mahal Hotel [(1971) 82 ITR 44 (SC)], wherein vide order dated August 12, 1971, the Hon’ble Apex Court has held as under:-
“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. If the partitions is could be treated as having been used for the purpose of the business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn larger profit by charging higher rates for the use of rooms if the bath rooms have sanitary fittings and similar amenities. It is unable to see how the sanitary fittings in the bath rooms in a hotel will not be "plant" with in S. 10(2)(vib) read with S. 10(2}(5) when it is quite clear that the intention of the Legislature was to give it a wide meaning and that is why articles like books and surgical instruments were expressly included in the definition of "plant". In decided cases, the High Courts have rightly understood the meaning of the term "plant" in a wide sense. - Jarrold (Inspector of Taxes) v. John Good & Sons Ltd. (1963) 1 WLR 214 (CA) relied on & CIT v. Indian Turpentine and Rosin Co. Ltd. (1970) 75 ITR 533 (All) approved.
. M/s.Degustibus Hospitality Private Limited.
The High Court was right in not accepting the reasoning of the Tribunal based on the rates relating to depreciation under S. 10(2)(vi) and the assessee having claimed that the sanitary and pipe line fittings fell within the meaning of "furniture and fittings" in rule 8(2) of the Rules. It has been rightly observed that the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect. If the assessee had claimed higher depreciation allowance that would not detract from the meaning of the word "plant" in cl. (vib) of S. 10(2).”
The learned Counsel of the assessee further brought to the notice the fact that assessee is running a hotel in the name of Inter Continental Hotel which is a leasehold property.
Per contra, the learned Departmental Representative submitted that the above decision of the Hon’ble Apex Court has been duly considered by the Apex Court itself in the decision of CIT v. Anand Theatres in Civil Appeal No.4373/74 of 1999, wherein the Hon’ble Apex Court has elaborately considered all the previous case laws on this subject. The Hon’ble Apex Court had concluded as under:-
“In the result, it is held that the building used for running of a hotel or carrying on cinema business cannot be held to be a plant because: (1) The scheme of section 32 as discussed above clearly envisages separate depreciation for a building, machinery and plant, furniture and fittings, etc. The word "plant" is given inclusive meaning under section 43(3) which nowhere includes buildings. The rules prescribing the rates of depreciation specifically provide grant of depreciation on buildings, furniture
. M/s.Degustibus Hospitality Private Limited. and fittings machinery and plant and ships. Machinery and plant include cinematograph films and other items and the building is further given a meaning to include roads, bridges, culverts, wells and tube-wells. (2) In the case of ray Mahal Hotel [1971] 82 ITR 44, this court has observed that the business of a hotelier is carried on by adapting building or premises in suitable way, meaning thereby building for a hotel is not apparatus or adjunct for running of a hotel The court did not proceed to hold that a building in which the hotel was run was itself a plant, otherwise the court would not have gone into the question whether the sanitary fittings used in bath room was plant. (3) For a building used for a hotel, specific provision is made granting additional depreciation under section 32(1 )(v) of the Act. (4) Barclay, Curie and Co.’s case [1970] 76 ITR 62, decided by the House of Lords pertains to a dry dock yard which itself was functioning as a plant that is to say, structure for the plant was constructed so that dry dock can operate. It operated as an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river. The dock as a complete unit contained a large amount of equipment without which the dry dock could not perform its function. (5) Even in England, courts have repeatedly held that the meaning of the word "plant" given in various decisions is artificial and imprecise in application, that is to use the words of Lord Buckley, "it is now beyond doubt that the word “plant" is used in the relevant section in an artificial and largely judge-made sense." Lord Wilberforce commented by stating that "no ordinary man, literate or semi-literate, would think that a horse, a swimming pool, movable partitions, or even a dry-dock was plant."
. M/s.Degustibus Hospitality Private Limited. (6) For the hotel building and hospital in the case of Carrv. Sayer65 TC 15 (Ch. D.), it has been observed that a hotel building remains a building even when constructed to a luxury specification and similarly a hospital building for infectious diseases which might require a special layout and other features also remains a premises and is not plant. It is to be added that all these decisions are based upon the interpretation of the phrase "machinery or plant" under section 41 of the Finance Act, 1971, which was applicable and there appears no such distinction for grant of allowance on different heads as provided under section 32 of the Income-tax Act. 7) To differentiate a building for grant of additional depreciation by holding it to be a "plant" in one case where the building is specialty designed and constructed with some special features to attract the customers and a building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable. Hence, the question is answered in favour of the Revenue and against the assessees by holding that building which is used as a hotel or a cinema theatre cannot be given depreciation as plant.”
Referring to the above decision, the learned Departmental Representative pleaded that it is manifest that the impugned issue has been decided in favour of the Revenue by the Hon’ble Apex Court in its later decision after considering the decision which has been referred by the learned Counsel of the assessee. Hence, the learned Counsel of the assessee pleaded that the order of the authorities below should be upheld.
I have carefully considered the issue and perused the records. I note that the assessee has incurred the concerned expenditure on civil works in a leasehold premise. In such situation, the assessee can be eligible for . M/s.Degustibus Hospitality Private Limited. depreciation mainly as per the provisions of section 32(1). Section 32(1) Explanation 1, which reads as under:-
[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.
Thus, from the above it is evident that an exception has been carved out from the general principle that the depreciation has to be provided only to the person who owns to the assets inasmuch as the above Explanation 1 provides for depreciation on an addition to building of which assessee is not the owner. In this case as submitted by the learned Counsel of the assessee, the assessee is having leasehold rights over the said hotel building, hence, the assessee can be granted depreciation only as building for which the rate as specified in the Act at 10%. Furthermore, the decision of Hon’ble Apex Court relied upon by the learned Counsel of the assessee in the case of Taj Mahal Hotel (supra) does not support the case of the assessee as subsequently the Hon’ble Apex Court in the case of Anand Theatres (supra) has duly considered the said decision and thereafter expounded that the building which is used as a hotel, cannot be given depreciation as a plant.
In the background of the aforesaid discussion and precedent, I do not find any infirmity in the order of the learned CIT(A). Accordingly, I uphold the same.
. M/s.Degustibus Hospitality Private Limited.
It may be noted that this appeal was fully heard on 4th July, 2017. In view of the fact that the assessee was himself claiming depreciation as plant in a leasehold property, the learned Counsel of the assessee was asked if he would like to withdraw the appeal because of specific provision of Explanation 1 to section 32(1). The learned Counsel of the assessee in this regard sought one day time. However, on the next date of hearing, i.e., on 5th July, 2017, the learned Counsel of the assessee filed an application seeking adjournment. Since the case had already been fully heard and the case laws have already been submitted by the Revenue as well as the assessee, the adjournment application has been rejected.