Kerala High Court
Hotel Allied Trades Pvt. Ltd vs The Additional Commissioner Of ... on 21 May, 2024
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M.
TUESDAY, THE 21ST DAY OF MAY 2024 / 31ST VAISAKHA, 1946
ITA NO. 7 OF 2023
APPELLANT
HOTEL ALLIED TRADES PVT. LTD
C/O CASINO HOTEL, WILLINGDON ISLAND,KOCHI PAN
AAACH 6770 P, PIN - 682682
BY ADVS.
ABRAHAM JOSEPH MARKOS
ISAAC THOMAS'
P.G.CHANDAPILLAI ABRAHAM
ALEXANDER JOSEPH MARKOS
SHARAD JOSEPH KODANTHARA
JOHN VITHAYATHIL
AIBEL MATHEW SIBY
RESPONDENT/RESPONDENT
THE ADDITIONAL COMMISSIONER OF INCOME-TAX
CIRCLE 1(2), KOCHI, PIN - 682018
OTHER PRESENT:
SC-JOSE JOSEPH
THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION
ON 21.05.2024, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
ITANo. 7 of 2023
2
JUDGMENT
============
Dated this the 21st day of May, 2024
Dr. A.K.Jayasankaran Nambiar, J.
The appellant-M/s. Hotel & Allied Trades Pvt. Ltd. impugns
the order dated 09.11.2022 of the Income Tax Tribunal that was
passed in relation to the appellant for the assessment year 2009-
10.
2. By the said order, the Appellate Tribunal had affirmed
the order of the Assessing Authority as also the First Appellate
Authority that disallowed a claim for an amount of Rs.101.87
lakhs as revenue expenditure since, according to the Assessing
Authority and the First Appellate Authority, the expenditure that
was incurred by the appellant/assessee by way of addition to
buildings and electrical fittings on leasehold premises was in the
nature of capital expenditure and not revenue expenditure. In the
appeals before us, the appellant raises the following questions of
law:
"a) Whether on the facts and in circumstances of the case
the Tribunal is justified in confirming the disallowance of the
claim for deduction of the cost of repairs and additions
incurred on buildings in leasehold premises amounting to
Rs.1,01,87,412/-?
b) Whether on the facts and in the circumstances of the
case, there is any material or evidence on record to justify
the finding of the Appellate Tribunal that the sum of
Rs.1,01,87,412/- cannot be allowed as deduction for the
assessment year in question?
3. We have heard Sri.Abraham Joseph Markos, the learned
Counsel for the appellant and Sri.Jose Joseph, the learned
Standing Counsel for the Income Tax Department.
4. The sole issue that arises for consideration is whether
the claim by the appellant/assessee of an amount of Rs.101.87
lakhs as revenue expenditure is allowable or not. The Assessing
Authority as also the First Appellate Authority while considering
the claim of the appellant/assessee found that based on the
description of the expenditure as given by the appellant/assessee,
the expenditure was more in the nature of capital expenditure
and not revenue expenditure and hence, the appellant could not
claim these expenses as revenue expenses for the assessment
year in question. The alternate claim of the appellant/assessee to
permit them to claim depreciation to the prescribed extent in
respect of the said expenditure incurred by them was however
allowed by the said authorities. In the further appeal carried by
the appellant before the Income Tax Appellate Tribunal, the
Appellate Tribunal found as follows in respect of the claim for
revenue expenditure:
6. Disallowance of Current Repairs
6.1 The assessee claimed an amount of Rs.101.87 lakhs
as revenue expenditure which is addition to building and
electrical fittings on leasehold premises. The Ld. AO,
invoking Explanation-1 to Sec.32(1) held that capital
expenditure incurred on a leased building was to be
capitalized and depreciation would be allowed. Therefore,
the amount of Rs.101.87 lakhs was disallowed. The Ld.
CIT(A) confirmed the same but directed the LD. AO to
allow depreciation on capital component of expenditure.
Aggrieved the assesee is in further appeal before us.
6.2. From the facts, it emerges that the assessee has
incurred expenditure on existing building which is erected
on leased land. This being so, Explanation-1 would apply
since the nature of expenditure is capital expenditure.
Therefore, the expenditure is to be capitalized and
depreciation would be allowable to the assessee. The Ld.
AO is directed to allow depreciation on this expenditure.
The asessee is directed to provide requisite details. This
ground stand partly allowed."
5. The learned Senior Counsel for the appellant would
point out that the Appellate Tribunal merely went by the
Explanation-1 to Section 32(1) of the Income Tax Act ('the IT Act
for short) and presumed that the expenditure incurred by the
appellant/assessee was capital expenditure incurred on a lease
building which had to be capitalized and only depreciation would
be allowed thereon. He takes us to the judgment dated
17.06.2016 of a Full Bench of this Court in Indus Motors
Co.P.vt. Ltd. v. Deputy Commission of Income Tax [(2016)
382 ITR 503 (Ker)]:(ITA No.14 of 2015) to point out that the
provisions of Explanation-1 to Section 32(1) could not be
mechanically applied to any claim made by an assessee in
relation to an expenditure incurred on lease premises. The
nature of the expense, whether capital or revenue, had to be first
ascertained and it was only in circumstances where the
expenditure was found to be a capital expenditure that the
provisions of Explanation-1 to Section 32(1) of the IT Act could
be applied. It is the submission of the learned Senior Counsel
that in the impugned order of the Tribunal, the Tribunal has
mechanically applied the provisions of Explanation -1 to Section
32(1) of the IT Act to the case of the assessment and further, it
does not specifically refer to the aforementioned decision of the
Full Bench of this Court. He therefore prays for a remand of the
case to the Tribunal for a fresh consideration of the issue.
6. Per Contra, Sri.Jose Joseph, the learned Standing
Counsel for the Income Tax Department would point out that by
the impugned order, the Tribunal has merely affirmed the orders
of the Assessing Authority and the First Appellate Authority. The
orders of the Assessing Authority and the First Appellate
Authority clearly discuss the claim made by the assessee and find
that, based on the description of the expenses as given by the
assessee, the expenses had to be treated as capital expenditure
and not revenue expenditure. He points out therefore that, the
Tribunal had in fact endorsed the findings of the authorities
below, on facts, as regards the nature of expenses incurred by
the assessee and it did not mechanically apply the provisions of
Explanation-1 to Section 32(1) of the IT Act.
7. On a consideration of the rival submissions, we find
force in the submission of the learned Standing Counsel for the
Income Tax Department for we find that the assessing authority
and the First Appellate Authority have clearly relied on the
written submissions given by the assessee to find that the nature
of the expenses incurred by the assessee was capital in nature.
We also find that neither in the grounds of appeal before the First
Appellate Authority nor before the Tribunal was there any
material produced by the assessee to show that the expenses
incurred by them were revenue in nature. If the assessee had in
fact a case that the expenditure incurred by it was revenue in
nature, then it was for the assessee to produce materials that
would clearly demonstrate that the expenditure was revenue in
nature. This not having been done at any stage before the First
Appellate Authority or the Appellate Tribunal, we see no reason
to interfere with the impugned order of the Tribunal which
merely endorses the views taken by the said authorities.
8. Before parting with this case, and taking note of the
apprehension raised by the learned Senior Counsel, we reiterate
that the applicability of Explanation -1 to Section 32(1) of the IT
Act has to follow an independent finding by the Assessing
Authority on whether the expenditure incurred by an assessee is
capital or revenue in nature. This is the ratio of the decision of
the Full Bench of this Court in Indus Motors Co.P Ltd (supra)
and it is binding on all the authorities under the IT Act.
In the result, we dismiss the IT Appeal by answering the
questions of law raised therein against the assessee and in favour
of the revenue.
Sd/-
DR. A.K.JAYASANKARAN NAMBIAR
JUDGE
Sd/-
SYAM KUMAR V.M.
JUDGE
smm
PETITIONER ANNEXURES
Annexure A STATEMENT OF EXPENDITURE
Annexure B TRUE COPY OF ASSESSMENT ORDER DATED 14-
12-2011 OF THE ADDITIONAL COMMISSIONER
OF INCOME TAX, RANGE-1, KOCHI
Annexure C TRUE COPY OF THE ORDER DATED 15.03.2017
OF THE COMMISSIONER OF INCOME TAX
(APPEALS)-1, COCHIN
Annexure D TRUE COPY OF THE SECOND APPEAL DATED
08.05.2017 FILED BY THE APPELLANT BEFORE
THE INCOME TAX APPELLATE TRIBUNAL,
COCHIN BENCH, COCHIN.
Annexure E CERTIFIED COPY OF THE ORDER DATED
09.11.2022 OF THE APPELLATE TRIBUNAL,
COCHIN BENCH, COCHIN IN ITA ITA NO.
187/COCH/2017 FOR ASSESSMENT YEAR 2009-
Annexure F TRUE COPY OF JUDGMENT DATED 18.05.2022
IN ITA 28 OF 2017 OF THIS HON'BLE COURT
