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Issues Involved:
1. Jurisdiction of the Commissioner under section 263 of the Income-tax Act. 2. Rate of depreciation applicable to the banquet hall in the hotel building. Issue-wise Detailed Analysis: 1. Jurisdiction of the Commissioner under section 263 of the Income-tax Act: The primary issue was whether the Commissioner had jurisdiction under section 263 of the Income-tax Act to revise the assessment orders after they had been appealed and decided by the Commissioner (Appeals). The principle of merger was central to this determination. The court referenced the Supreme Court's decision in CIT v. Amritlal Bhogilal and Co. [1958] 34 ITR 130, which established that an appellate decision supersedes the original order, leading to the merger of the original order with the appellate decision. This principle was reiterated in subsequent Supreme Court cases, such as Collector of Customs v. East India Commercial Company [1963] AIR 1963 SC 1124 and S. S. Rathore v. State of M. P. [1989] 75 FJR 425. However, the court also noted the divergent views among High Courts on whether the entire assessment order merges with the appellate order or only the contested aspects. The Full Bench of the Karnataka High Court in CIT v. Hindustan Aeronautics Ltd. [1986] 157 ITR 315 supported the view that the entire assessment order merges with the appellate order. The court then discussed the legislative amendment through the Finance Act, 1988, which added clause (c) to the Explanation under section 263(1), clarifying that the Commissioner's revisional powers extend to matters not considered and decided in the appeal, effective from June 1, 1988. The court concluded that if an appeal was disposed of before June 1, 1988, the entire original order merges with the appellate order, precluding the Commissioner from revising it under section 263. Conversely, if an appeal was pending on or after June 1, 1988, the Commissioner could revise matters not decided in the appeal. In the present case, since the appeal was disposed of on June 27, 1986, and the Commissioner invoked section 263 on February 17, 1987, the assessment order had already merged with the appellate order before the amendment. Thus, the Commissioner lacked jurisdiction under section 263, and the first question was answered against the Revenue. 2. Rate of depreciation applicable to the banquet hall in the hotel building: The second issue was whether the depreciation on the banquet hall should be allowed at 2.5% (for 1982-83 and 1983-84) and 5% (for 1984-85), as contended by the Commissioner, or at the rates applicable to a "plant," as claimed by the assessee. The court referenced its earlier decision in CIT v. Woodlands Hotel Pvt. Ltd. [1998] 233 ITR 224 (Kar), where it was held that the building in which the hotel business is carried on should be treated as a "plant" for the purpose of granting depreciation. Applying this precedent, the court concluded that the view of the Commissioner regarding the depreciation rates was incorrect. Therefore, the second question was also answered against the Revenue. Conclusion: The court disposed of the reference cases by ruling in favor of the assessee on both issues. The Commissioner lacked jurisdiction under section 263 to revise the assessment orders, and the hotel building, including the banquet hall, should be treated as a "plant" for depreciation purposes. No costs were awarded.
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