TaxTMI 
TaxTMI 
2018 (3) TMI 66
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....ent Corporation (ITDC) all the assets, liabilities, profits, losses and business of the Lodhi Hotel unit were demerged from ITDC and transferred to the assessee on a going concern basis. The scheme was approved by the Central Government vide its order dated 22 February, 2002. Pursuant to the scheme of arrangement physical possession and operation of Lodhi Hotel was given on 11 March 2002 to the assessee. Hotel was operational for some period of time till 31 October 2002. 3. Since the hotel building was in a dilapidated condition, the management decided to demolish the existing super structure and reconstruct the hotel building. For such purpose, the management of the assessee decided to temporarily suspend the operations of Lodhi hotel. A voluntary retirement scheme for the hotel employees was also framed for retirement of staff of the hotel. The date fixed for voluntary retirement of employees was 20 May 2002. During the AY 2007-08 the construction of the building was under progress. Name of the assessee company was changed from 'Hotel Scopevista Limited' to 'Lodhi Property Company Limited' with effect from 10 January 2007. 4. For Assessment year 2007-08, assesse....
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....63,725/- was added back in the palace of Rs. 7,38,96,181/-. Assessee challenged the categorization of expense as capital by the Ld. CIT(A) and the consequent disallowance thereof in ITA No.4851/Del/2011, whereas the Revenue challenged the direction of the Ld.CIT(A) to allow deprecation in respect of the same, holding to be capitalized on building account, though no business activity was carried out during the year in ITA No.4970/Del/2011. 9. Ld. CIT(A) further observed that the assessee borrowed a sum of Rs. 23 crores to purchases of shares in Golden Green Golf Resorts Ltd. ("GGGRL"), and incurred an interest expenditure of Rs. 2,77,70,375/- on the said loan during this assessment year. Assessee further borrowed Rs. 36 crores for giving loans to GGGRL and incurred an interest expenses of Rs. 3,26,54,017/- during this assessment year. Ld.CIT(A) concluded that the loans borrowed by the assessee were used for the purpose of acquisition of shares of GGGRL as such it cannot be said that the borrowed capital was used for business purpose and consequently interest on the borrowed amount is not deductible u/s 36(1)(iii) of the Act. 10. Learned CIT(A) placed reliance on the decision of Ho....
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....d its commercial operation in April, 2009. Basing on all this he submits that as a business entity the assessee never ceased to exist but for a total renovation the hotel business was suspended between the period October 2002 and April 2009, during which period the assessee continued with their business operations in the management of Golden Green and Golf Resorts Ltd. (GGGRL). The hotel business resumed its commercial operation in April 2009. In the circumstances, as is the routine practice in hotel business, reopening operations were taken before commencement of hotel activity and in that process the expense of Rs. 3,55,63,725/- was incurred towards salary of the company Secretary, membership and subscription to the Northern India Regional Circle for corporate membership fee of ICI, Board meeting fees, rates and taxes paid to municipality, lease rent to the Govt. of India. In respect of lease rent, the assessee claims the expense relating to AY 2007-08 and charged it off to the Profit and Loss account. 13. Basing on all these things, it the argument of the learned AR that the hotel building is only a devise in the business of the assessee and the temporary suspension of such bus....
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....uld clearly show that it is ready to commence business. However, it is not so in this case because the assessee is not ready to cater the customers inasmuch as the construction activity went on till 2009. He also submitted that in Samsung India (supra) also, the Hon'ble high Court held that in manufacturing activity when the first activity towards the production takes place, the business is said to be commenced. In Carefour WC & C India P. Ltd. case (supra) when the premises was rented out, bank account was opened, employees are appointed, the business is said to have commenced. In ESPN Software case (supra), it was held that as soon as the essential activity of business is started, it is said that business is commenced. In M/s Multi Act Realty case, the Mumbai Tribunal held that if the assessee has done requisite preparation and if the assessee can be said to be in a position to cater its customers, it can be said that the business is set up. He submitted that the golden thread that runs through these decisions is that whether or not the assessee was earning from the business, but what is essential to say that the business has set up is that the assessee must be in a position to c....
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....it difficult to agree with the findings of the learned AO that inasmuch as during the financial year 2006-07 the assessee was unable to cater the needs of the customers, the business was not yet commenced. We also do not agree with the theory of estoppel proposed by the learned CIT(A) that since the assessee did not claim the expenses relatable to Asstt. Year 2002-03 for the period subsequent to 31.10.2002, by their own conduct they are estopped from claiming the same for any period subsequent thereto. As a matter of fact, the assessee purchased the business that had already been commenced and conducted business operations till 31.10.2002, from which date the assessee suspended the business operations till April 2009 for renovation of the hotel building. The period between November 2002 and April 2009 is only the temporary suspension of the Lodhi Hotel business of the assessee, but as a matter of fact, as a business entity, the assessee did not cease to exist or permanently shut down the business. 21. Respectfully following the decision of the Hon'ble apex court in Vikram Cotton Mills case (supra), we find that merely because there was a temporary lull in the business for some per....
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....e controlling share in GGGRL and for the purpose of giving loan to GGGRL, observed that the borrowed amount was not spent for the purpose of business as such the interest is not deductible under section 36(1)(iii) of the Act. He placed reliance on the decision reported in Sarabhai Sons P. Ltd. vs CIT (1993) 201 ITR 464 (Guj) for the principle that when the shares which were acquired for the purpose of acquiring the controlling rights of another company, the interest on the borrowed funds cannot be treated as per the business purpose of the assessee and was not allowable. 25. In CIT vs. Tulip Star Hotels Ltd. (2011) 16 Taxman.com 335 (Del) it was noticed that the assessee was in the business of owning, running and managing hotels and for affective control of new hotel acquired by the assessee under its management it had invested in a wholly owned subsidiary. The Hon'ble jurisdictional High Court held that under such circumstances, interest borrowed on capital should be treated as expenditure incurred for business purpose and allowable under section376(1)(iii) of the Act. 26. In CIT vs Reliance Communications Infrastructure Ltd. (2012) 21 Taxman.com 118 (Bom), the authorities found....