In the present case COMMISSIONER OF INCOME-TAX Versus SCINDIA INVESTMENT P. LTD. [2010 -TMI - 78137 - BOMBAY HIGH COURT[, the assessee was the owner of a building and holding licence for running a hotel. But he never claimed the higher depreciation of 20% on such building.

AO treated such building under a separate block of assets and therefore sale of such building and purchase of new building was not allowed as setoff from each other. Assessee has computed the income as short term capital gain at Rs. 85,08,270.  While AO computed the income at Rs. Rs. 3,98,23,370 considering such building as a hotel building.

Held that:

The Tribunal has observed that the receipts earned by the assessee and the number of employees employed at the Palace strengthen the claim of the assessee that it was not running a hotel in the premises and had never claimed the higher rate of depreciation of 20 per cent. which was applicable to a hotel building.

While dealing with the submissions which have been urged on behalf of the Revenue, the court must on the one hand have due regard to the finding of fact which has been entered both by the Commissioner of Income-tax (Appeals) and by the Tribunal on the question as to whether the building in question at Pune was used as a hotel. Undoubtedly, as the Revenue urges, the assessee had during the course of the assessment years 1994-95 to 1997-98 classified the property at Pune and the property at Gwalior in the same block of assets. At the same time, as the Tribunal noted, the assessee had claimed depreciation at the rate of 10 per cent. and not at the rate of 20 percent. which was the applicable rate for buildings used as hotels. The assessee evidently had a licence to utilize the premises at Pune as a hotel, but the question which fell for determination was whether the premises had been actually used as a hotel. The circumstances which have weighed with the Commissioner of Income-tax (Appeals) and the Tribunal are relevant and germane to the question as to whether the property was as a matter of fact used as a hotel. The circumstances upon which reliance has been placed by the Revenue have been duly taken into account by the appellate authority and by the Tribunal and therefore it can- not be said that there was a failure on the part of the appellate authorities to take into consideration relevant and germane material. The balance which has been drawn on the basis of all the circumstances which have been adverted to in the earlier part of this judgment must primarily rest in the finding of fact which has been recorded by the fact finding authorities.

Assets can not be treated as a separate block of assets as hotel building.

 

Nature of building use: factual indicators, not licence alone, determine hotel classification for tax treatment. Determination of whether premises qualify as a hotel building depends on factual indicators such as receipts, staffing and the depreciation rate claimed; a licence alone does not convert an asset into a hotel for tax purposes, and classification into a separate block of assets requires actual use consistent with the higher depreciation regime.