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Issues involved:
1. Whether the hotel building is a plant entitled to depreciation at 15%? 2. Whether the expenditure of Rs. 6,31,267 paid as compensation to retrenched employees is a capital or revenue expenditure, and if depreciation should be allowed on it? Analysis: *Issue 1:* The court referred to a Supreme Court decision stating that a building used for running a hotel business is not considered a plant for depreciation purposes. Therefore, the court answered this question in the negative against the assessee. *Issue 2:* The assessee claimed depreciation on the compensation paid to retrenched employees, arguing it was necessary to run the business. The original assessment disallowed this claim, treating it as capital expenditure. The Tribunal, however, viewed it as a capital expenditure incidental to acquiring the asset, allowing depreciation. The Revenue argued that the compensation was not a liability of the purchaser and did not result in tangible assets for depreciation. The court agreed, stating that no improvement in capital assets occurred, citing a Supreme Court precedent. The Tribunal's decision was deemed incorrect as the expenditure was not connected to acquiring capital assets and was not considered an improvement. The court held that even if the expenditure was capital, it was not linked to acquiring capital assets, thus disallowing the deduction of Rs. 6,31,267. In conclusion, the first issue was decided against the assessee based on a Supreme Court precedent. For the second issue, the court ruled that the compensation expenditure, although considered capital, was not incurred in connection with acquiring capital assets, leading to the disallowance of depreciation. Both clauses of question No. 2 were answered in the negative against the assessee.
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