2021 (12) TMI 1175 - AT - Income Tax

Tribunal grants deduction for establishing Five Star Hotel, emphasizing liberal interpretation of beneficial provisions.

Taj GVK Hotels And Resorts Ltd Versus Asst. Commissioner of Income Tax, Circle-2 (2), Hyderabad.

Taj GVK Hotels And Resorts Ltd Versus Asst. Commissioner of Income Tax, Circle-2 (2), Hyderabad. - TMI Issues Involved:1. Denial of deduction under Section 35AD of the Income Tax Act.2. Interpretation of 'building' under Section 35AD.3. Eligibility of expenditure incurred for deduction under Section 35AD.Issue-wise Detailed Analysis:1. Denial of Deduction under Section 35AD of the Income Tax Act:The primary issue in the appeal is whether the assessee is entitled to a deduction under Section 35AD of the Income Tax Act for expenditures incurred in constructing and operating a new Five Star Hotel. The Assessing Officer (AO) disallowed the claim, stating that the assessee did not build the hotel building but merely operated it on a leased property. The AO's decision was based on the premise that Section 35AD aims to promote fresh investments in specified businesses, and the assessee had not made any investment in the land and building.2. Interpretation of 'Building' under Section 35AD:The term 'building' is not explicitly defined in the Income Tax Act, leading to differing interpretations. The AO and CIT (A) interpreted 'building' narrowly, implying that the assessee must construct the entire structure to qualify for the deduction. The Tribunal, however, referred to dictionary definitions and judicial precedents, concluding that 'building' encompasses not only civil construction but also the establishment, fabrication, erection, and assembly of structures. The Tribunal emphasized a liberal interpretation of beneficial provisions to promote economic growth and development.3. Eligibility of Expenditure Incurred for Deduction under Section 35AD:The Tribunal examined the lease deed and found that the assessee had undertaken significant construction activities, including interior civil works, plumbing, electrical works, and installation of various equipment. These activities were deemed substantial enough to qualify as 'building' the hotel. The Tribunal noted that Section 35AD does not require the assessee to construct the entire building or own the land and building. The provision only mandates that the specified business should involve building and operating a new hotel of a specified category. The Tribunal concluded that the assessee's expenditures met these criteria and directed the AO to grant the deduction.Conclusion:The Tribunal allowed the appeal, holding that the assessee is entitled to a deduction under Section 35AD for the expenditure incurred in establishing and operating a new Five Star Hotel. The decision emphasized a liberal interpretation of beneficial provisions to advance the legislative intent of promoting specified businesses. The Tribunal directed the AO to grant the deduction of Rs. 101,98,52,291 under Section 35AD of the Act.