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Income Tax Appellate Tribunal, CHANDIGARH BENCHES ‘B’, CHANDIGARH
Before: SHRI SANJAY GARG & Ms. ANNAPURNA GUPTA
Per Sanjay Garg, Judicial Member:
The above captioned appeals relating to the different assessment
years have been preferred by the assessee against the separate orders
of Commissioner of Income Tax (Appeals), [hereinafter referred to as
‘CIT(A)’] Shimla dated 30.12.2016.
The sole issue raised in all the appeals is as to whether the assessee
who is engaged in running of a hotel is entitled to deduction u/s 80IC of
the Income-tax Act, 1961 (in short 'the Act') on account of substantial
expansion of the unit. For the sake of convenience, ITA No. 374/Chd/2017
for assessment year 2007-08 is taken, as the lead case for discussion of facts.
The brief facts of the case are that the assessee, a private limited
company is running a hotel at Kala Amb under the name of ‘Black Mango
Hotel’ in District Simour in the State of Himachal Pradesh. During the year
under consideration, the assessee company claimed deduction @ 100% of
the net profits u/s 80IC of the Act on account of substantial expansion of the
unit claimed to be carried out in financial year 2005-06. The assessee
claimed that it was running an Eco-tourism project as mentioned in XIV
schedule, Part C of the Income-tax Act, 1961. For the sake of clarity, at this
stage, we deem it fit to reproduce the relevant provisions of section 80IC
and Schedule XIV of the Act :-
“Section 80IC Special provisions in respect of certain undertakings or enterprises in certain special category States. 80-IC. (1) ……….
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd. 3
(b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning— ……. (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or …… (8) For the purposes of this section,— (i)…… (ix) "Substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken; …..” SCH XIV – LIST OF ARTICLES OR THINGS OR OPERATIONS
. “PART C FOR THE STATE OF HIMACHAL PRADESH AND THE STATE OF UTTARANCHAL S.No. Activity or article 4/6 digit Sub-class ITC (HS) or thing or excise under NIC Classification operation classification classification 4/6 digit on1998 1. …………. 15 Eco-tourism - 55101 including hotels, resorts, spa, entertainment / amusement parts and ropeways ………
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd. 4
A perusal of the above provisions reveals that these are special
provisions for promotion of certain class of industry in the specific states of
Himachal Pradesh and Uttaranchal. The deductions under the provisions of
section 80IC of the Act is admissible to an undertaking who has begun or
begins to manufacture or produce any article or thing, as specified in XIV
schedule or commences any operation as specified in the Schedule and even
the benefit of deduction is also available to the Industries who are already
in operation and undertakes substantial expansion during the period as
mentioned in sub clause (2) to Section 80IC (2)(b)(ii) of the Act. In the XIV
schedule, one of the activity is mentioned as ‘Eco-tourism including hotels,
resorts, spa, entertainment / amusement parts and ropeways’.
The claim of the assessee was that it had made substantial expansion
in its hotel which was included in the definition of ‘Eco-tourism’ as provided
in the XIV Schedule.
The Ld. Assessing officer, however, held that the assessee’s hotel did
not qualify as an Eco-tourism unit. He was of the view that mere establishing
of a hotel does not itself constitutes an Eco-tourism unit. He observed that
the hotel was not located in the area of operation of the Eco-tourism policy
of the State Government of Himachal Pradesh, rather the same was situated
in the most urbanized, industrialized and polluted zone of district Sirmour
of Himachal Pradesh. That the hotel was not involved in conversation of
ecology while carrying out its business operation. He, therefore, held that
the hotel of the assessee did not qualify for deduction u/s 80-IC of the Act
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd. 5
being not an Eco-tourism unit. The Assessing officer further observed that
even as per the meaning of section 80IC(8) of the Act, ‘substantial
expansion’ means increase in investment in the plant and machinery by at
least 50% of the book value. He observed that the expansion in the hotel
building, furniture and equipment did not constitute expansion in the plant
and machinery. He referring to the definition of ‘plant’ given u/s 43(3) of
the Act, observed that plant excluded building, furniture and fittings. He
also referred to the decision of the Hon'ble Supreme Court in the case of
‘CIT Vs. Anand Theatres’ (2000) 244 ITR 192 (SC) and ‘CIT Vs. Abad
Hotels India Pvt Ltd’ (2000) 119 Taxman 429 (SC) and held that building
could not be considered as plant and, therefore, the same would not be a
part of the substantial expansion as defined in sub section (8) of section
80IC of the Act. He, therefore, denied the benefit of deduction under the
provisions of section 80IC of the Act to the assessee.
Being aggrieved by the above order of the Assessing officer, the
assessee preferred appeal before CIT(A). The Ld. CIT(A) relying upon the
decision of the ITAT in the case of ‘Raghunath Singh Thakur’ in ITA No.
152 & 469/Chd/2010 held that the assessee would qualify as an Eco-tourism
project within the meaning of item 15 in Schedule XIV of the I.T. Act. He,
however, upheld the findings of the Assessing officer that the substantial
expansion had to be looked into only after excluding the building, furniture
and fittings. He, therefore, held that the assessee was not entitled to benefit
of deduction under section 80IC of the Act.
The Revenue has not preferred any appeal against the findings of the
CIT(A) holding the assessee as an Eco-tourism project as provided at item
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd. 6
No.15 in Schedule XIV of the I.T. Act. However, the assessee has come in
present appeal agitating the action of the CIT(A) holding that the expansion
in the hotel unit which mainly consisted of investment in building, furniture
and fixtures did not constitute involvement of plant and machinery.
Since the Revenue has not come in appeal against the findings of the
CIT(A) holding that the assessee was an eco-tourism project, hence, the sole
question left for adjudication before us is, as to whether in a hotel business
the investment made in building, furniture and fixture can be said to
constitute substantial expansion as per the provisions of section 80IC of the
Act?.
The Ld. Counsel for the assessee has relied upon the findings of the
Hon'ble Supreme court in the case of ‘CIT Vs. Anand Theatres’ (supra)
wherein the question before the Hon'ble Supreme Court was whether
building which was used as a hotel or a cinema theatre could be given
depreciation as ‘plant’. The Hon'ble Supreme Court referred to the definition
of ‘plant’ as provided u/s 43(3) of the I.T. Act and held that as per the
scheme of section 32, separate rate of depreciation for building, machinery
and plant, furniture and fittings etc. was provided. The definition of plant
was provided u/s 43(3) which nowhere included buildings. That there was
different rate of depreciation for each asset and further that for a building
used for a hotel, specific provisions was made granting additional
depreciation u/s 32(1)(v) of the Act. The Hon'ble Supreme Court, therefore,
held that even the building used for a hotel or theatre could not be given
depreciation as a plant as the term ‘plant’ and ‘building’ had been defined
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd. 7
separately and different rate of depreciation were available on different
items.
Most humbly, in our view, the above proposition laid down by the
Hon'ble Supreme Court in relation to the claim of depreciation on hotel or
building cannot be imported while deciding the claim of an assessee for
deduction on account of substantial expansion in ‘hotel’, if such hotel
undertaking is otherwise falls in the list of eligible undertakings for
deduction under the provisions of section 80IC of the Act. The deduction u/s
80IC of the Act is not only allowable on the commencement / start of
operation of such units as are listed in the XIV schedule but also on the
substantial expansion of such units. Admittedly, carrying of hotel business
does not involve the setting up or installation of plant and machinery as is
usually done in case of an industrial undertaking involved in manufacturing
/ production of things or articles. Despite the fact that in the project of a
hotel, the setting up / installation of plant and machinery is not required, the
benefit of deduction u/s 80IC of the Act has been given to such units
provided they start / commence their operation within the stipulated dates or
undertake substantial expansion during the said stipulated period if set up in
the special category of States including state of Himachal Pradesh. In our
humble view, when a unit like a hotel is established in the special category
of states whose main investment is on building, which has been so planned
and constructed to serve the assessee’s special technical requirements of
hotel/ hospitality services including the investment on furniture and fixtures,
so specially required for carrying out such activity, and is eligible for
deduction on its commencement of activity u/s 80IC of
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd. 8
the Act, then under such circumstances, for the purpose of the meaning of
‘substantial expansion’ the expansion in such building, furniture and fixtures
would constitute an investment in plant and machinery for the purpose of
claim of deduction u/s 80IC of the Act. The term ‘plant and machinery’ in
view of the special provisions of section 80IC of the Act, specifically
enacted for promotion of certain industrial undertaking or enterprise in the
special category of states of Himachal Pradesh and Uttaranchal will include
the technically designed building and furniture, fittings and fixtures therein
in case of hotel wherein otherwise no plant and machinery is required. We
find support, in our view, from the decision of the Hon'ble Supreme court
in the case of ‘CIT Vs. Karnataka Power Corporation’ (2001) 247 ITR 268
(SC) wherein the Hon'ble Supreme Court has held that the question whether
a building can be treated as plant, basically, is a question of fact and where
it is found as a fact that a building has been so planned and constructed as
to serve as assessee’s special technical requirements, it will qualify to be
treated as a plant for the purpose of investment allowance. The dispute
involved in the present case before us is relating to the benefit of deduction
on account of investment. The special provisions of section 80IC of the Act
are enacted for promoting investment activity in certain undertaking or
enterprises in the special category of states including state of Himachal
Pradesh. The Eco-tourism unit including the hotel has been specifically
allowed in the list eligible for deduction as per special provisions which
otherwise does not involve installation of plant and machinery. If the
original investment made for setting up of such unit is eligible for deduction
u/s 80IC of the Act, then certainly the further investment in the same
infrastructure for the purpose of expansion cannot be denied, merely because
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd. 9
the investment does not involve setting up / installment of plant and
machinery. Any other or strict definition of word ‘substantial expansion’ in
our view, would defeat purpose for which the special provisions under the
section 80IC of the Act have been made. We, therefore, hold that the
restrictive meaning given by the lower authorities to deny the deduction u/s
80IC of the Act to the assessee on account of substantial expansion cannot
be held to be justified. We, accordingly set aside the order of the lower
authorities on this issue and hold that the investment in building, furniture,
fixture in the case of a hotel will qualify to be treated as investment in plant
and machinery for the purpose of section 80IC of the Act and, therefore,
hold that the assessee will be entitled to deduction u/s 80IC of the Act on
account of substantial expansion of the unit.
Before parting with the order, we wish to clarify again that we have
not addressed the question as to whether the assessee hotel qualifies to be
an Eco-tourism unit, as the said issue has not been raised before us.
Since the issue raised in ITA No. 376/Chd/2017 is also similar to that
of ITA No. 375/Chd/2017, this appeal of the assessee, therefore, stands
allowed.
However, in ITA No 375/Chd/2017 for assessment year 2007-08, 13.
besides the above identical issue, the assessee has also raised another issue
relating to reopening of the assessment u/s 147 of the Act. However, no
arguments have been addressed on this issue. Neither the said ground has
been pressed nor have any arguments been advanced by the counsel of the
assessee on this issue. This ground is, therefore, dismissed as not pressed.
However, the assessee succeeds on the issue of eligibility of deduction on
ITA No. 374 to 376-Chd/2017 Sirmour Hotels Pvt Ltd.
account of substantial expansion of the undertaking. This appeal of the
assessee is partly allowed.
Order pronounced in the Open Court on 19.03.2018.
Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 19.03.2018
Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR