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Issues: (i) Whether the assessee, carrying on hotel business with boarding facilities, was entitled to investment allowance under section 32A on hotel building, kitchen boilers and air-conditioners; (ii) whether the hotel building used for lodging purposes was to be treated as 'plant' for depreciation; (iii) whether the disallowance of bonus liability set on was justified; and (iv) whether interest under section 214 was payable on excess advance tax paid after the statutory due dates but within the financial year.
Issue (i): Whether the assessee, carrying on hotel business with boarding facilities, was entitled to investment allowance under section 32A on hotel building, kitchen boilers and air-conditioners.
Analysis: The activity of running a hotel was treated as a trading activity and not an industrial activity. On that basis, the assessee did not satisfy the requirement of being an industrial undertaking manufacturing or producing an article or thing for the purpose of investment allowance. The claim was therefore untenable in respect of the hotel building, kitchen boilers and air-conditioners.
Conclusion: The issue was answered against the assessee and in favour of the Revenue.
Issue (ii): Whether the hotel building used for lodging purposes was to be treated as 'plant' for depreciation.
Analysis: A building used in the lodging side of hotel business was regarded as a tool of the trade. Applying the governing principle that what functions as an apparatus or instrument of business may qualify as plant, the hotel building used for lodging was held to fall within that description for depreciation purposes.
Conclusion: The issue was answered in favour of the assessee and against the Revenue.
Issue (iii): Whether the disallowance of bonus liability set on was justified.
Analysis: The amount set apart towards bonus represented a provision for an unascertained future liability and did not amount to an enforceable liability to the extent claimed. The disallowance of the excess amount was therefore sustainable.
Conclusion: The issue was answered against the assessee and in favour of the Revenue.
Issue (iv): Whether interest under section 214 was payable on excess advance tax paid after the statutory due dates but within the financial year.
Analysis: The assessee had paid advance tax in excess of the assessed liability. Although some instalments were remitted after the prescribed dates, they were paid within the financial year, and the excess payment attracted interest under section 214.
Conclusion: The issue was answered in favour of the assessee and against the Revenue.
Final Conclusion: The reference was answered partly for the Revenue and partly for the assessee, with investment allowance and bonus liability decided against the assessee, while depreciation on the hotel building as plant and interest on excess advance tax were decided in the assessee's favour.
Ratio Decidendi: A hotel business is treated as trading activity for investment allowance purposes, but a hotel building used as lodging may qualify as plant for depreciation; a provision for bonus based on an unascertained liability is not deductible, and excess advance tax paid within the financial year carries interest under section 214 notwithstanding delayed instalments.
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