INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Expenses incurred for repair and maintenance of existing noted building to keep it fit to get renewal of three star classification - -

Assessee company was running a 3 star hotel. It claimed deduction of expenses incurred on repairs and maintenance to hotel building, AO required assessee to explain as to why said expenditure should not be treated as capital expenditure. Assessee submitted that hotel had been classified as a three star hotel by the Department of Tourism, with effect from 12-4-2006 and this classification was valid for 5 years. As per the condition of the issue of this three star classification, assessee had to apply for re-classification of hotel after completion of four years' time which was during the year, 2010-11. When assessee applied for re-classification during 2010-11, entire hotel building, including sanitary, electrical, flooring, aluminium cladding work, painting, interior furnishing had to be renovated. Entire furniture and furnishing had to be refurnished. The entire hotel had to look like a new one during the visit of committee for revaluation of allotting three star classification. For executing all the works, assessee incurred concerned expenses. AO rejected this on the ground that renovation expenses brought enduring benefit to assessee in the form of three star certification issued by Tourism Department, by virtue of which it would enjoy advantage in future years.Held: Assessee's hotel was already having three star facility from year 2006 and for renewal of three star facility, the assessee had to incur impugned expenses on periodical basis. On basis of these expenses incurred, assessee did not derive a new asset and there was no increase in total rooms nor there was an increase in total area of hotel. The expenditure incurred by assessee such as painting of hotel, floor tiles, glazing works, etc., was nothing but periodical expenditure which a hotel had to necessarily incur for its upkeep as without good ambience and atmosphere, it would not be possible to attract customers for running hotel business carried on by assessee. Accordingly, expenses in question could not be termed as capital expenditure.

Relied:CIT(Central) v. Dasaprakasha (1978) 114 ITR 211 (Mad) : 1978 TaxPub(DT) 360 (Mad-HC), CIT v. Rex Talkies (1984) 148 ITR 560 (Karn) : 1984 TaxPub(DT0 1312 (Karn-HC), CIT v. Ooty Dasaprakash (1999) 237 ITR 902 (Mad) : 1999 TaxPub(DT) 422 (Mad-HC) and CIT v. Lake Palace Hotels & Motels P. Ltd. (2002) 258 ITR 562 (Raj) : 2002 TaxPub(DT) 705 (Raj-HC). Distinguished:Ballimal Naval Kishore & Anr. v. CIT (1997) 224 ITR 414 (SC) : 1997 TaxPub(DT) 0992 (SC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

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