Hotel operating receipts as business income, while hotel building remained non-depreciable as plant

Receipts from a hotel operating agreement were treated as business income because the hotel had been commercially exploited through an experienced operator while the owner retained a profit share, termination rights, and reversion of assets, showing continuation of the business rather than its abandonment. The Tribunal also held that the hotel building was not depreciable as plant, since a hotel structure remains a building and does not become plant merely by being used in hotel operations. The assessee obtained relief on the income characterization issue but failed on depreciation.

---

---

Issues: (i) Whether the licence fee / minimum guaranteed business profits received from the hotel operating agreement was assessable as business income or income from other sources; (ii) Whether the hotel building was entitled to depreciation as 'plant'.

Issue (i): Whether the licence fee / minimum guaranteed business profits received from the hotel operating agreement was assessable as business income or income from other sources.

Analysis: Business has a wide connotation and the heads of income under the Act are mutually exclusive. Where a commercial asset is exploited, the real question is whether the assessee has gone out of business or has only adopted a more profitable mode of carrying on the same business. On the facts, the hotel had been run earlier as a business, the agreement was entered into to exploit the hotel commercially through an experienced hotel group, the assessee retained a right to receive a share in operating profits or minimum guaranteed profits, and the agreement preserved the right of termination and reversion of assets, showing an intention to continue the business rather than abandon it.

Conclusion: The receipts were assessable as business income and not as income from other sources, in favour of the assessee.

Issue (ii): Whether the hotel building was entitled to depreciation as 'plant'.

Analysis: The claim depended on whether the hotel building could be treated as an apparatus of the business. The Tribunal preferred the view that a hotel building remains a building and not plant, particularly in light of the binding Rajasthan High Court view applicable on the facts, and held that the contrary line of authority did not displace that conclusion for the assessee's case.

Conclusion: The hotel building was not entitled to depreciation as plant, against the assessee.

Final Conclusion: The appeals succeeded on the characterisation of the hotel licence receipts as business income, but failed on the claim that the hotel building qualified as plant for depreciation, resulting in a partial relief to the assessee.

Ratio Decidendi: Where commercial assets of an ongoing hotel business are temporarily exploited under an arrangement that preserves the owner's intention to continue the business and to recover the assets on termination, the resulting receipts are business income; a hotel building, however, does not by itself become plant for depreciation merely because it is used in hotel operations.

---