2007 (4) TMI 120 - HC - Income Tax

Deduction - Assessee having two hotels treating both hotels as separate units and claim deduction u/s 80HHD - Held that assessee not entitle for deduction by treating each unit separately

Summary

Issues Involved:

1. Whether the profits for the purpose of section 80HHD are to be computed in respect of each hotel unit separately or the entire business of the assessee as a whole.

Issue-wise Detailed Analysis:

1. Computation of Profits under Section 80HHD:

The appellant-company, running two hotels, claimed deductions under section 80HHD of the Income-tax Act, 1961, treating each hotel as a separate unit. The Commissioner of Income-tax scrutinized the assessments and found the computation erroneous, initiating proceedings under section 263. The Commissioner directed that the benefits under section 80HHD should be computed for the business as a whole, a decision confirmed by the Income-tax Appellate Tribunal. The appellant contested this, arguing that each hotel unit should be treated separately for deductions under section 80HHD.

Relevant Statutory Provision:

Section 80HHD allows deductions for earnings in convertible foreign exchange for businesses engaged in hotel or tour operator services. The profits derived from services to foreign tourists should be computed as a proportion of the total business receipts.

Appellant's Argument:

The appellant argued that the assessments should be unit-wise, citing several judicial precedents to support a beneficial interpretation of tax incentive provisions. They referenced decisions such as Bajaj Tempo Ltd. v. CIT, CIT v. Canara Workshops P. Ltd., and others, emphasizing that tax incentive provisions should be construed liberally to promote economic growth.

Judicial Precedents:

- Bajaj Tempo Ltd. v. CIT: The Supreme Court held that provisions granting tax incentives should be interpreted liberally, and restrictions should be construed to advance the objective of the provision.
- CIT v. Canara Workshops P. Ltd.: The Supreme Court ruled that profits for tax deductions should be considered for each industry separately, not by offsetting losses from other industries.
- CIT v. Kamani Engineering Corporation Ltd.: The Bombay High Court emphasized that new units set up with new machinery and buildings should be treated independently for tax benefits.
- State Level Committee v. Morgardshammar India Ltd.: The Supreme Court highlighted that exemption provisions should be construed strictly against the subject but liberally once applicability is established.
- CIT v. Siddaganga Oil Extractions P. Ltd.: The Karnataka High Court ruled that profits from one unit should not be offset by losses from another unit when computing benefits under section 80HH.
- CIT v. Buildwell Assam P. Ltd.: The Gauhati High Court held that deductions under section 80HH are available only for profits derived from the industrial undertaking, not from other businesses.

Court's Analysis:

The court analyzed the statutory language of section 80HHD, which refers to "profits and gains of the business" as a whole, not unit-wise. The court noted that the legislative intent was to compute deductions based on the entire business income of the assessee.

Conclusion:

The court found no merit in the appellant's argument for unit-wise computation of deductions under section 80HHD. The appeal was dismissed, upholding the Tribunal's decision that the profits for deductions should be computed for the business as a whole.