High Court decision limits depreciation to 10% for hotel electrical & sanitary installations

The High Court of Madras upheld the decision to restrict depreciation to 10% for electrical and sanitary installations in a hotel business, considering them as integrated units serving all rooms collectively. The court ruled in favor of the Revenue, rejecting the firm's claim for 100% depreciation on these systems for new rooms constructed within the existing building. The court emphasized that while specific items like commodes, seat covers, and flush tanks could be depreciated at 100%, overall depreciation for integrated systems was limited to 10%.

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Issues involved: Interpretation of depreciation under section 32(1)(ii) of the Income-tax Act, 1961 for electrical and sanitary installations in a hotel business.

Summary:
The High Court of Madras addressed the issue of depreciation claimed by a registered firm operating a hotel business for the assessment year 1975-76. The firm sought 100% depreciation on electrical switch boards, distribution boards, and sanitary pipeline installations for new rooms constructed within the existing building. The Income-tax Officer disallowed this claim, stating that such installations should be considered as an integrated unit. The Appellate Assistant Commissioner and the Tribunal also rejected the claim, emphasizing the integrated nature of the electrical and sanitary systems.

The Tribunal referred two questions of law to the High Court:
1. Whether the electrical and sanitary installations should be considered as one integrated whole or individual plants.
2. Whether depreciation should be restricted to 10% or allowed at 100% for these installations.

The firm argued for separate consideration of each room's installations, while the Revenue contended that the systems should be viewed as integrated wholes. The court analyzed the nature of the electrical and sanitary systems, concluding that they serve all rooms collectively and cannot be divided roomwise for depreciation purposes. Therefore, the court upheld the Tribunal's decision to restrict depreciation to 10% for these integrated systems, except for specific items like commodes, seat covers, and flush tanks.

In conclusion, the court ruled in favor of the Revenue, affirming that the electrical and sanitary systems should be treated as integrated units, and depreciation should be limited to 10%. The questions of law were answered in the affirmative against the assessee, with costs awarded to the Revenue.

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