Trading receipt and accrued liability principles required deduction for hotel receipts tax despite statutory stay, while investment allowance needed asset-wise review.

Investment allowance under section 32A required item-wise examination of the plant and machinery claimed, because the earlier rejection rested on a general view that hotel business was not an industrial undertaking. The proper approach was to test each asset separately on its own facts, and the matter was restored for fresh decision without any final allowance at that stage. Hotel receipts tax collected through bills in the course of business was treated as a trading receipt; however, under mercantile accounting, the corresponding tax liability had accrued in the year despite the statutory stay, so deduction could not be denied merely because payment was deferred. The taxable receipt was therefore matched by an accrued-liability deduction.

---

---

Issues: (i) Whether the assessee was entitled to investment allowance under section 32A on the plant and machinery items claimed, and whether the claim had to be examined asset-wise; (ii) Whether the amount collected as hotel receipts tax formed part of the assessee's trading receipts, and whether a corresponding deduction was allowable in the year of collection despite the stay of the taxing statute.

Issue (i): Whether the assessee was entitled to investment allowance under section 32A on the plant and machinery items claimed, and whether the claim had to be examined asset-wise.

Analysis: The claim had been rejected below on the broader premise that a hotel business was not an industrial undertaking. The record, however, showed that the allowance had been dealt with differently in earlier years in relation to different assets, and the factual position varied item-wise. The proper course was therefore to examine first, with reference to each item, whether the machinery or plant qualified for investment allowance on the assumption that there was no general bar arising merely from the nature of the business. The appellate authority had not undertaken such an item-wise adjudication for the year in question.

Conclusion: The matter on investment allowance was restored for fresh decision asset-wise; the assessee obtained no final allowance on this issue at this stage.

Issue (ii): Whether the amount collected as hotel receipts tax formed part of the assessee's trading receipts, and whether a corresponding deduction was allowable in the year of collection despite the stay of the taxing statute.

Analysis: The collections were made through the bills as hotel receipts tax and were received in the course of the hotel business. They therefore constituted trading receipts. At the same time, the assessee maintained mercantile accounts and the liability to pay the tax, though the statute's operation had been stayed pending constitutional challenge, was not extinguished; the stay only postponed enforcement and payment. The liability was real and had accrued in the accounting year, even though actual payment had not yet been made. Accordingly, the amount brought to tax as trading receipt had to be matched by a corresponding deduction for the accrued liability in the same year.

Conclusion: The collection was taxable as trading receipt, but a deduction for the corresponding accrued liability was allowable; the addition was reduced to that extent.

Final Conclusion: The appeal succeeded in part, with the investment allowance issue remitted for reconsideration and the hotel receipts tax addition substantially neutralised by allowing the corresponding liability deduction.

Ratio Decidendi: A receipt collected in the course of business remains a trading receipt even if shown as a liability, but where the assessee follows mercantile accounting and the liability to pay has accrued, the corresponding deduction cannot be denied merely because payment is stayed or deferred.

---