1986 (4) TMI 356 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of hotel building as a plant for depreciation purposes.
2. Disallowance of traveling expenses under Rule 6-D of the IT Rules.
3. Disallowance of Rs. 10,022 in the assessment year 1978-79.
4. Classification of the assessee-company as an industrial company for concessional tax rates.
5. Grant of investment allowance under Section 32A of the IT Act.
6. Disallowance of telephone expenses.
7. Disallowance of bad debts.
8. Charge of interest under Section 215.

Detailed Analysis:

1. Treatment of Hotel Building as a Plant for Depreciation Purposes:
The Tribunal considered whether the hotel building could be treated as a plant for the purpose of granting a higher rate of depreciation. The Tribunal referenced the decision in the case of Hotel Srelekha (P) Ltd. vs. Third ITO, where it was held that a hotel building could be treated as a plant. The Tribunal stated, "The building was thus the assessee's tool of trade, without which the assessee could not carry on its business." The Tribunal agreed with this principle and directed the authorities to treat the buildings used by the hotel as a plant and allow the appropriate rate of depreciation. However, buildings used as offices or residences of officers should not be treated as a plant.

2. Disallowance of Traveling Expenses Under Rule 6-D:
The Tribunal addressed the disallowance of traveling expenses by applying Rule 6-D of the IT Rules. The Tribunal noted that the Special Bench of the Tribunal in Sundaram Finance Ltd. vs. IAC had observed that the expression "including hotel expenses" in Section 37(3) of the IT Act is limited to the daily allowance stipulated in Rule 6-D and does not cover other expenditures. The Tribunal directed the ITO to re-examine the claim in light of the Special Bench's directions and arrive at the correct sums to be disallowed.

3. Disallowance of Rs. 10,022 in the Assessment Year 1978-79:
The assessee contested the disallowance of Rs. 10,022, which was given up at the time of the hearing. The Tribunal confirmed this disallowance.

4. Classification of the Assessee-Company as an Industrial Company for Concessional Tax Rates:
The Tribunal considered whether the assessee-company could be treated as an industrial company engaged in the manufacture or processing of goods, thus entitled to concessional tax rates. The Tribunal noted that the CIT(A) had relied on the Kerala High Court decision in CIT vs. Casino (P) Ltd., which held that a hotel is mainly a trading concern and not an industrial company. The Tribunal upheld the CIT(A)'s view, stating, "We are, therefore, of the opinion that the view taken by the authorities below has to be upheld."

5. Grant of Investment Allowance Under Section 32A of the IT Act:
The Tribunal considered whether the assessee was entitled to investment allowance under Section 32A. The Tribunal referenced the decision in the case of Orient Express Co. (P) Ltd. vs. IAC, where it was held that a hotel is an industrial undertaking within the meaning of Section 32A and is entitled to investment allowance. The Tribunal directed the ITO to examine whether the other conditions laid down in Section 32A are satisfied and, if so, to grant the investment allowance to the assessee.

6. Disallowance of Telephone Expenses:
The Tribunal addressed the disallowance of Rs. 10,000 out of telephone expenses, which was reduced to Rs. 5,000 by the CIT(A). The Tribunal found force in the assessee's submission that the directors had personal telephones, and the expenses claimed were only for the hotel-installed telephones. The Tribunal concluded that no disallowance was justified.

7. Disallowance of Bad Debts:
The Tribunal considered the disallowance of Rs. 17,894, out of which Rs. 10,463 and Rs. 4,135 were not pressed by the assessee. The remaining amount of Rs. 3,296 was contested as a remission granted to a party. The Tribunal directed that this amount should be treated as a deduction on the ground that it was a remission granted in rates, not a bad debt.

8. Charge of Interest Under Section 215:
The Tribunal noted that the interest levied under Section 215 would be consequential and directed the ITO to recompute the interest based on the income finally determined after giving effect to the Tribunal's order.

Conclusion:
The appeals were allowed in part, with specific directions provided for each issue. The Tribunal's detailed analysis and directions ensured that the matters were addressed comprehensively and in accordance with the relevant legal principles and precedents.