1997 (6) TMI 5 - HC - Income Tax

Summary

Issues:
1. Eligibility for investment allowance under section 32A of the Income-tax Act, 1961.
2. Treatment of hotel building as "plant" for depreciation.
3. Deduction of bonus liability.
4. Interest on excess advance tax payment.

Analysis:

1. Investment Allowance Eligibility:
The case involved the eligibility of the assessee, a hotelier, for investment allowance under section 32A of the Income-tax Act, 1961. The Assessing Officer and the first appellate authority initially rejected the claim, stating that the assessee was not an industrial undertaking engaged in manufacturing or production. However, the Tribunal allowed the claim, which was further challenged. The court, relying on the decision in CIT v. Hotel Ayodya [1993] 201 ITR 1002, held that hotel business is a trading activity, not industrial, thus denying the investment allowance to the assessee.

2. Treatment of Hotel Building for Depreciation:
The issue revolved around whether the hotel building used for lodging should be considered as "plant" for the purpose of depreciation. The court, referring to judgments in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86 and CIT v. Taj Mahal Hotel [1971] 82 ITR 44, concluded that a building used for lodging in a hotel business is a tool of the trade and should be treated as "plant" for depreciation purposes.

3. Deduction of Bonus Liability:
The court addressed the deduction of bonus liability by the assessee. The Assessing Officer allowed only a portion of the claimed amount, disallowing the rest due to lack of enforceable liability. This decision was upheld by the Tribunal. Citing Mysore Lamp Works Ltd. v. CIT [1990] 185 ITR 96, the court held that setting aside an amount under the Bonus Act is a provision for future liability, not a diversion of funds at the source by overriding title.

4. Interest on Excess Advance Tax Payment:
The final issue concerned the payment of interest on excess advance tax paid by the assessee. Despite the payments being made after the due dates, the court, following the precedent in CIT v. Karnataka State Warehousing Corporation Ltd. [1990] 185 ITR 25, ruled that interest on excess advance tax must be paid by the Government, even if the payments were made after the due dates but within the financial year.

In conclusion, the court ruled against the assessee on questions related to investment allowance and bonus liability but in favor of the assessee regarding the treatment of the hotel building as "plant" for depreciation and interest on excess advance tax payment. No costs were awarded in the case.