Section 80-IA deduction for hotel business upheld where prior hotel use had ceased and no transfer of an existing undertaking was shown.

Deduction under section 80-IA was held available for the assessee's hotel business because the venture was not formed by splitting up or reconstruction of an existing business. The earlier hotel had ceased on liquidation, and the property later remained with the Government and then the lessee company without hotel operations. The building was not shown to have been transferred as a hotel undertaking, and no hotel plant, machinery or equipment of the earlier business was transferred. The phrase "previously used" was read as referring to use immediately before formation of the new business, and that requirement was not met. On those facts, the disallowance was unsustainable and the deduction was allowed.

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Issues: Whether the assessee was entitled to deduction under section 80-IA of the Income-tax Act, 1961 in respect of the hotel business, or whether the claim was barred because the building had earlier been used as a hotel and the arrangement amounted to a transfer of a previously used hotel property.

Analysis: The business of the assessee was not formed by splitting up or reconstruction of an existing business. The earlier hotel business had ceased on liquidation, and the property thereafter stood with the Government and later with the lessee company without any hotel activity. The building was not shown to have been transferred as a hotel undertaking, nor were hotel plant, machinery or equipment of the earlier hotel transferred. The expression "previously used" was construed to mean use immediately preceding the formation of the new hotel business, and on the facts the property was not immediately preceding use as a hotel. The arrangement also did not show that the assessee had formed its business by transfer of a building previously used as a hotel or by transfer of machinery or plant previously used for hotel business.

Conclusion: The assessee satisfied the conditions of section 80-IA and was entitled to the deduction. The disallowance was unsustainable and the appeal succeeded.

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