1992 (7) TMI 135 - AT - Income Tax

Tribunal allows investment allowance for hotel restaurants & grants extra depreciation on building

The Tribunal ruled in favor of the assessee, a private limited company operating a hotel with restaurants and a swimming pool, allowing the claim for ... Hotel Building, Investment Allowance Issues:Claim for investment allowance under section 32A for machinery in restaurants and purifier in swimming pool. Disallowance of claim based on nature of business. Granting of depreciation on hotel building as a 'plant'. Claim for extra depreciation on the building as a 'plant'.Analysis:The primary issue in this case revolved around the claim for investment allowance under section 32A by the assessee, a private limited company operating a hotel with restaurants and a swimming pool. The Income-tax Officer disallowed the claim, stating that the assessee was not engaged in the manufacture of any article. The dispute centered on whether the restaurants could be considered engaged in manufacturing activities. The assessee argued that the wording of section 32A differed from previous cases cited by the revenue, and the restaurants were independent entities earning income from the public, not just hotel residents. The Tribunal noted that the Calcutta High Court's decision regarding a five-star hotel did not apply here, as the restaurants were not merely adjuncts to the hotel but operated independently. The Tribunal emphasized that denying investment allowance to the hotel industry would contradict the purpose of encouraging industrial investment, ultimately ruling in favor of the assessee and directing the Income-tax Officer to grant the investment allowance.Regarding the depreciation issue, the appeals of the revenue challenged the grant of depreciation on the hotel building treated as a 'plant' by the CIT(Appeals). The Tribunal upheld the CIT(Appeals) decision, citing a functional test satisfied by the hotel building. Additionally, the assessee claimed extra depreciation on the building as a 'plant', contending that the building qualified for such allowance. The Tribunal agreed with the assessee, highlighting that the building had already been recognized as a 'plant' for depreciation purposes and thus should also be eligible for extra depreciation. The Tribunal rejected the revenue's argument that extra depreciation should only apply to plant and machinery inside a building, clarifying that the term 'premises' encompassed more than just the building itself, leading to the allowance of extra depreciation on the hotel building.In conclusion, the Tribunal allowed the appeals of the assessee, directing the Income-tax Officer to grant the investment allowance and extra depreciation on the hotel building. The appeals of the revenue were dismissed, affirming the decisions of the CIT(Appeals) regarding depreciation treatment.