TaxTMI 
TaxTMI 
1989 (6) TMI 80
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....ld be applicable in the case of employee-director, while the stand of the Revenue is that the provisions of s. 40A(5) of the Act would be attracted. 4. The learned representative for the assessee relying on the order of the Tribunal in the case of Geoffrey Manners & Co. Ltd. 3 SOT 40 and the decision in the case of CIT vs. D.B.R. Mills (1988) 172 ITR 366 (AP) and CIT vs. Indian Molasses Co. (P) Ltd. (1989) 77 CTR (Cal) 12 : (1989) 176 ITR 473 (Cal) submitted that the provisions of s. 40(c) of the Act would be applicable in the instant case. The learned representative for the Revenue, on the other hand, supported the action of the IT authorities. 5. We have carefully considered the rival submissions of the parties and are of the opinion that in view of the aforesaid order/decisions the stand taken on behalf of the assessee is well founded and should be accepted. The IAC (Asst.) is, therefore, directed to modify the assessment accordingly. 6. The issue involved in the second ground is whether the service charges received by the employees are to be considered for the purposes of computing the disallowance under s. 40A(5) of the Act. 7. Here also the learned representative for ....
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.... Rs. 27,000 and not Rs. 37,000. Further, the CIT(A) was of the view that out of the disallowed amount of Rs. 7,000, the assessee should have been given deduction of Rs. 5,000 as contemplated under s. 80VV of the Act. In para 16 of his order the CIT(A) gave following direction to the IAC Assessment: "16. The IAC was therefore, correct in holding that the expenditure was not allowable as a deduction under s. 37(1) of the Act. However, he should have considered this amount for deduction under s. 80VV. He is, therefore, directed to verify whether the correct amount of fees paid to M/s D.M. Harish & Co. for tax matters was Rs. 17,000, as considered by him, or Rs. 7,000 as contended by the appellant, and allow the same under s. 80VV subject to the ceiling limit of Rs. 5,000 laid down in that section". 10. The learned representative for the assessee submitted that the CIT(A) ought to have given specific direction to the IAC (Asst) to allow deduction of Rs. 5,000 out of the amount disallowed in the assessment. The learned representative for the Revenue, on the other hand, submitted that there was no need to interfere with the order of the CIT(A). 11. On the consideration of the rival....
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....consideration of the rival submissions of the parties and the material to which our attention was drawn, we are of the view that there is no infirmity in the action of the IT authorities in invoking the provisions of s. 37(3A) of the Act. We have come to this conclusion, as we find from some of the copies of the bills that the photographs are also used in in-house magazine of the assessee as well as for display in various hotel premises. Further, according to us, the meaning of the expression 'advertisement/advertising' containing in Stroud's Dictionary or Encyclopaedia Britanica would support the action of the IT authorities rather than that of the assessee's. In view of the matter, we would uphold the order of the CIT(A) on this point. 15. The next ground pertains to the assessee's claim for deduction of Rs. 34,70,845 being the amount spend on decoration. Relying on the decision in the case of CIT vs. Dasaprakash (1978) 114 ITR 210 (Mad), the assessee contended before the IAC(Asst) that this amount should be considered as revenue expenditure and accordingly should be allowed as a deduction in computing its total income. The IAC(Asst), however, held it to be capital in nature. I....
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....y. The learned representative for the assessee, in his reply, submitted that in order to decide the point at issue, one should not be influenced by the quantum of amount involved. For this proposition he relied on the decision of the Hon'ble Bombay High Court in the case of Gulamhussein Ebrahim Matcheswalla vs. CIT (1974) 97 ITR 24 (Bom). 18. We have carefully considered the rival submissions of the parties and the details of expenditure incurred by the assessee and are of the view that there is force in the claim made by the assessee. The hotel industry in India is in the nascent stage and in order to attract tourists/customers, the people engaged in this industry has to incur heavy expenditure regularly. It is seen from the details filed by the assessee that most of the expenditure incurred is on things like glass beads, wooden panelling, plaster of paris, on ceiling walls, decoration on lobby, marble tiles which are fitted to the walls and on mirror, lamp shades, lights, chandelier paintings, etc. which are movable properties and could be removed from one hotel to another. Under the agreement with the lessor, the assessee had to leave the decoration fitted to the wall, while i....
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....namely. Taj Mahal Hotel, New Delhi, is located." 22. The facts regarding this issue are: (a) Under a Memorandum of Understanding dt. 13th March, 1975 entered into between the assessee and Shri S.N. Singh and others, the assessee had undertaken to manage and run a hotel situated at No. 1, Man Singh Road, New Delhi, owned by M/s Fonseca Pvt. Ltd. whose shareholders were S/Shri S.N. Singh, Anand K. Johar and their nominees. It was also agreed that the assessee would purchase the shares of M/s. Fonseca Pvt. Ltd in due course. Further, it was agreed that the assessee would pay Rs. 25 lacs to S/Shri S.N. Singh and Anand K. Johar. It appears that the assessee wanted to construct a Five Star Hotel on the said place. However, this Agreement fell through and the property being evacuee property, the same vested with the Government of India. Thereafter the New Delhi Municipal Corporation (NDMC) acquired the said land along with hotel building of M/s Fonseca Pvt. Ltd. (b) On 18th Dec., 1976, the assessee entered into a collaboration agreement with NDMC for construction of a Five Star Modern Hotel building at No.1, Man Singh Road, New Delhi. Under the said agreement, NDMC was to invest Rs.....
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....the ground that the same did not arise out of the orders of the IT authorities. In this connection, he highlighted the fact that before the IT authorities as well as in the original ground taken up before the Tribunal, the assessee's claim was regarding initial depreciation under s. 32(1)(v) of the Act. Relying on the decision in the case of Ugar Sugar Works vs. CIT (1982) 27 CTR (Bom) 174 : (1983) 141 ITR 326 (Bom) and the orders of the Tribunal (Special Bench) in the case of National Thermal Power Corpn. vs. IAC (1985) 12 ITD 99 (Del) (SB) and Ranbir Raj Kapoor vs. ITO (1988) 30 TTJ (Bom) 650 (SB) : (1988) 25 ITD 56 (Bom) (SB), he strongly urged that the additional ground should not be entertained. As regards the merit of deduction of Rs. 31,24,688, he submitted that in the event the additional ground is admitted, the matter should be sent back to the CIT (A) for his decision. 27. The learned representative for the assessee, in the reply, invited our attention to the order of the Tribunal in the assessee's own case for the asst. yr. 1976 77 in Misc. Appln. No. 220/Bom/87 and pointed out that in the said order the Tribunal has considered at great length, the issue regarding admi....
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...., roads and taxes and other general expenses. The hotel was opened in 11th Oct., 1978. The IT authorities had disallowed the assessee's claim for deduction Rs. 18,28,953 on the ground that this expenditure was incurred prior to the starting up of the hotel on 11th Oct., 1978. 31. The learned representative for the assessee submitted that here also the IT authorities have failed to appreciate the assessee's case in proper perspective. He once again stressed the point that the assessee is engaged in hotel industry and apart from owing certain hotels, it also manages and runs hotel of others on lease. According to him by entering into the agreement with NDMC in respect of the hotel at No.1 Mansingh Road, New Delhi, the assessee had expanded its already existing hotel activities. Therefore there was no question of "pre-start-up" or "pre set-up" expenditure as held by the IT authorities. Relying on the decision in the cases of CIT vs. Alembic Glass Industries Ltd. (1976) 103 ITR 715 ((Guj)), B.R. Ltd vs. V.P. Gupta, CIT 1978 CTR (SC) 82 : (1978) 113 ITR 647 (SC) Hotel Alankar vs. CIT (1981) 22 CTR (Guj) 252 : (1982) 133 ITR 866 (Guj), CIT vs. Ralliwolf Ltd. (1979) 8 CTR (Bom) 129 : (1....
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....entioned in para 22 above. When the Memorandum of Understanding between in the assessee and Shri Sheonath Singh and others fell through, the assessee had entered into a collaboration agreement with N.D.M.C. to construct a Five Star most modern Hotel at No. 1, Mansingh Road, New Delhi, which was to be owned by the N.D.M.C. and the assessee would get a lease of 33 years to manage and run the said hotel. Knowing this position Shri Sheonath Singh and others alleged that the assessee had worked behind their back and achieved its objective of running a hotel at No.5, Mansingh Road, New Delhi by approaching the Government of India and entering into agreement with N.D.M.C. Shri Shenoath Singh and others, therefore, made a claim that the assessee should pay them the amount mentioned in the Memorandum of Understanding dt. 13th March, 1975. After protracted correspondence and discussion, the matter was referred to Shri Shankar A. Aiyer for Arbitration, by an Agreement of Reference dt. 25th January, 1979. On 17th March, 1979, the Arbitrator gave his Award and the Relevant portion of which reads as under: "1. I hold that IHCL have undoubtedly obtained the benefit of the ownership and control ....
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.... on behalf of the assessee. On the appreciation of the facts in proper prospective, it cannot be disputed that Shri Sheonath Singh and others could have jeopardised the assessee's plan to manage and run a hotel at No. 1 Manisingh Road, New Delhi. The allegations made by them were quite serious and, therefore, the assessee has to Act like a prudent businessman and arrive at some understanding with Shri Sheonasth Singh and others with a view to facilitate smooth running of its activities at No. 1 Mansingh Road, new Delhi. The assessee, therefore, agreed to refer matter to an Arbitrator to resolve the dispute. After hearing both the parties to the Arbitration and keeping in mind the Memorandum of Understanding dt. 13th March 1975, the Arbitrator called upon the assessee to pay Rs. 28,75,000 to Shri Shenath Singh and others, vide the Award dt. 17th March 1979. The assessee paid this amount during the relevant previous year. It appears that time IT authorities were mainly influenced by the quantum of amount involved whereby they have failed to appreciate the principle involved indeciding the point at issue. It is worth repeating the fact that the assessee is engaged in hotel industry an....
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....allowance for approved hotels. The last item relates to the extra depreciation allowance which is allowed in the case of concerns claiming double shift working or triple shift working. Under this scheme of depreciation in respect of machinery and plant the extra deprecations allowance for approved hotels is to be considered only under Item (iii). As provided in that item, an extras allowance of depreciation of an amount equal to 1/2 of the normal allowance is to be allowed in the case of machinery and plant installed by an assessee, being an Indian Company, in premises used by it as a hotel where such hotel is approved by the Central Government for the purposes of s. 33 of the Act. The hotels in relation to which the extra depreciation allowance is claimed by the appellant are, admittedly, approved hotels. Accordingly, the appellant are entitled to the extra depreciation allowance calculated at 50 per cent of the normal depreciation allowance in relation to the entire machinery and plant installed for the purpose of the hotel business. For this purpose it is immaterial whether any item of machinery and plant is such with reference to which extra shift allowance is not to be allowed....
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....er : "12. On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that deficiency under s. 80J cannot be set-off against profits of other existing units in the same year." The relevant portion of the order of the IAC(Asst)reads as under: B. Taj Mahal Hotel, New Delhi The assessee has produced a Xerox copy of the letter No. 7TH-III (6)/83 issued by Deptt. Of Tourism, Govt. Of India, according to which the Hotel Taj Mahal, New Delhi,has been approved for the purpose of se. 33(1)(A) and (b)(B) (ii) and 80-J(6) of the IT Act, 1961, w.e.f. 11th October, 1978. The Taj Mahal Hotel at Delhi started functioning from 11th October, 1978 and, therefore, this will be the 1st day of the computation period, it is contended by the assessee. The contention is accepted since the profits and gains of the Unit (Hotel) are being taken for the period 11th October, 1978 to 31st March, 1979. The assessee has computed the deduction at Rs.28,30,450. There being loss from the Hole, the deduction is not allowed. The deficiency is allowed to be carried forward and the claim for set off against income from other units is rejected." In appeal the CIT(A) upheld the a....
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...., wherein the Tribunal had entertained such additional ground and had decided the issue in favour of the assessee. 50. As regards the merits of the case, the learned representative for the assessee placed strong reliance on the order of the Tribunal in the case of Hotel Srilekha (P) Ltd. vs. 3rd ITO(1983) 5 ITD 541(Mad), wherein after considering the issue at great length, the Tribunal was pleased to accept the stand taken on behalf of the assessee that the buildings used for the purpose of running a hotel could be treated as plant for depreciation purposes. He also relied on the decision in the case of CIT vs. Tek Chand Dang & Co. (1989) 176 ITR 544 (All) and CIT vs. Taj Mahal Hotel (1971) 82 ITR 44 (SC). Finally, he also stated that in the case of M/s. Ram Bagh Palace accepted the assessee's contention for claiming depreciation on hotel building as plant. The learned representative for the Revenue, on the other hand, strongly urged that if the additional ground was to be admitted then the matter should go back to the IT authorities for their decision on the merits of the claim made by the assessee. 51. We have carefully considered the rival submissions of the parties as well ....
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....ge, rather than of accurate determination." It is by applying these principles of allowance of depreciation as a part of the recoupment of cost of a fixed asset and referring to the decisions of the Supreme Court in Taj Mahal Hotel's case and the provisions of s. 56 of the IT Act, where the inseparability of the buildings from plant and machinery installed in it for the purpose of letting out was stationary required, the Bench held that buildings used in a hotel are to be regarded as plant. We are in agreement with this view and following which with respect, we direct the authorities below to regard the buildings used by the hotel as plant and allow appropriate rate of depreciation. But here we are to take note of a submission made by the Departmental Representative that if Hotel Srilekha's decision is to be followed, the entire complex of the buildings should not be treated as plant and that this treatment should be restricted to those buildings only which fall within the category of the decision in Hotel Srilekha's case. What he meant by this submission was thast such of these buildings where offices were located and which were not used as rooms let out and kitchen. Etc., shoul....
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....cumstances of the case. This was not accepted by the assessing officer and he proceeded to make the assessment for the asst. yr. 1978-79 by readjusting the accounts so as to tax the operating fees on accrual basis. The same has been followed by the IAC, this year. The appellant's contentions for the asst. yr. 1978-79 were, however, accepted by the CIT(A) and he directed the deletion of Rs. 25,43,000 made by the ITO in the assessment for that year. 19. Sec. 145 of the Act provides that income chargeable under the head "profits and gains of business or profession" or "Income from other sources" is to be computed in accordance with the method of accounting regularly employed by the assessee. The principle laid down in a series of judgements is that so long as the change in the method of accounting is based on principle and is made bonafide for meeting changed situations or changed circumstances it should be recognised by the assessing officers provided the chain is for regulars adoption. The facts brought out by the appellant in the proceedings for the earlier year when change was effected for the first time to justify the change in the method of accounting clearly show that the cha....
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.... 18,72,000 only and this state of affairs had been continuing for sometime. The estimates made by the appellant were erroneous in four out of nine cases and as such the method of accounting followed earlier did not disclose the profits of the appellant properly. The changed method of accounting does not in any way have an adverse effect on revenue as the correct income is brought to tax in the year of receipt. The adjustments necessary as a result of the difference between the estimated income and the actual income are also avoided as a result of the change in the method of accounting. Are such from the point of view of convenience as well as simplicity, the changed method of accounting is desirable and effective. The circumstances of the case make it quit clear that the changed method is warranted. The reasons for the change adduced by the appellant also make it clear that the change has been effected bonafide. It will settled that a bonafide change in the method of accounting is permissible provided the changed method is to be followed consistently. Since the appellant is following the changed method consistently and the changed method has been resulted in any loss to revenue and....
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....420 (Bom) and CIT vs. Ganga Charity Trust Fund (1986) 53 CTR (Guj) 365 : (1986) 162 ITR 612 (Guj) to urge that the CIT(A) was fully justified in accepting the assessee's contention and deleting the addition made by the IAC (Asst). Finally, he submitted that since the assessee was recovering payment from hotels, there was no question of debiting expenditure in the manner the IAC (Asst) had in his mind. He, therefore, urged that we should uphold the order of the CIT(A) on this point. 56. We have carefully the rival submissions of the parties as well as perused the record and are of the view that there is no infirmity in the order of the CIT(A) on this point. It is pertinent to note that the change in method of accounting had taken place in the previous year relevant to the asst. yr. 1978-79 and this fact was made known to the shareholders by way of note in the printed accounts for the year. Again, it is pertinent to note that ever since then the assessee is consistently following this method of accounting even till today. In this view of the matter and keeping in mind the ratio laid down in the cases reported in (1936) 4 ITR 420 and (1982) 29 CTR (Cal) 8 : (1983) 141 ITR 861 (Cal) ....