DCIT, CHENNAI vs. SAVERA INDUSTRIES LTD., CHENNAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that replacing mosaic flooring with marble flooring and purchasing new machinery like ACs and dishwashers for a star hotel constitutes maintenance and is revenue in nature, aimed at improving ambiance and maintaining the business asset. Therefore, the expenditure was rightly treated as revenue by the CIT(A).
What were the facts?
The assessee, a four-star hotel, claimed expenditure for replacing mosaic floors with marble floors and for purchasing air conditioners, dishwash machines, and audio-video equipment as revenue expenditure. The revenue department argued these were capital in nature.
What were the issues?
Whether expenditure incurred for replacing flooring and purchasing machinery for a hotel is capital or revenue in nature.
Which sections of the Income-tax Act were involved?
Not explicitly mentioned in the provided text, but the core issue relates to distinguishing between capital and revenue expenditure.
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the assessee are directed against the respective orders of the CIT(A) dated 14.12.2015 for the Assessment Years 2006-07 & 2012-13.
Shri Supriyo Pal, the learned department representative submitted that the assessee-company is engaged in the business of running a four star hotel. In the course of its business activity for the assessment year 2006-07, the assessee claimed that a sum of Rs.58,40,450/- towards ‘renovation expenditure’. According to the learned representative, the assessee has replaced existing mosaic floors into marble floors.
According to the learned representative, the expenditure incurred by the assessee was to improve the property beyond its original condition. Therefore, it has to be treated as ‘capital in nature’.
Accordingly, the assessing officer treated the expenditure as ‘capital in nature’ and allowed depreciation at the rate of 10%. However, the CIT(A) found that the expenditure incurred by the assessee is revenue in nature. According to the learned representative, the expenditure incurred for replacing the mosaic floor into a marble floor would definitely is in the capital field. Therefore, the CIT(A) is not justified in allowing the claim of the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. The assessee company is running a four star hotel in the city. In the course of its business activity, admittedly, the assessee incurred expenditure for replacing the mosaic flooring into marble flooring. By replacing the mosaic flooring, the capacity of the hotel building remains the same.
The profit earning apparatus of the assessee continues to be the same.
Being a star hotel, the assessee has to improve its ambiance to attract more customers. The assessee has to necessarily replace the existing mosaic floor into marble floor in order to maintain the business asset.
Therefore, the expenditure incurred by the assessee in replacing the mosaic floor by marble floor has to be treated as revenue in nature.
Therefore, this Tribunal is do not find any reason to interfere with the order of the CIT(A) and accordingly, the same is confirmed.
Now coming to the assessment year 2012-13, Shri Supriyo Pal, the learned department representative submitted that the assessee has purchased Air Conditioner Machine, Dishwash Machine, Resto Pub Audio Video for Rs.59,50,665/- and claimed the same as ‘revenue expenditure’. According to the learned representative, Air Conditioner Machine, Dishwash Machine, Resto Pub Audio Video are all capital in nature. Therefore, it cannot be allowed as revenue expenditure. On a query from the bench, whether the assessee has replaced the existing Air Conditioner Machine, Dishwash Machine and Resto Pub Audio Video, the learned representative submitted that the fact is not coming out from the assessment order.
On the contrary, Shri G.Seetharaman, the learned representative for the assessee submitted that the assessee is a star hotel and is having Air Conditioner Machine, Dishwash Machine, Resto Pub Audio Video. The assessee has to replace the existing air conditioner in the lobby and resto pub. The assessee has also needs to replace the audio and video in the resto pub. It is not a case of installation of air conditioner for the first time. It is maintenance of the hotel in the course of its business activity. Therefore, the CIT(A) has rightly found that the expenditure has to be allowed as revenue in nature.
We have considered the rival submissions on either side and perused the relevant material available on record. From the order of the lower authorities, it appears that the hotel run by the assessee was classified as four star hotel since 1971. Therefore, the assessee has to necessarily have Air Conditioner Machine, Dishwash Machine and Audio Video in Resto Pub. This Tribunal is of the considered opinion that in the absence of any material to suggest that the assessee has purchased any new machinery, it has to be considered only as replacement of the existing machinery. When we consider the hotel as a single unit, replacement of Air Conditioner Machine, Dishwash Machine and Audio Video in Resto Pub has to be considered as maintenance of the building for the purpose of running the business of hotel. Therefore, the CIT(A) has rightly found that the expenditure was revenue in nature. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.
In the result, both the appeals filed by the revenue in & 577/Mds/2016 stands dismissed.
Order pronounced on 23rd November, 2016 at Chennai.
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