2017 (12) TMI 1608 - HC - Income Tax

Disallowance of expenses claimed towards repairs and maintenance - CIT(Appeals) set aside the additions holding that the expenditure fell entirely in the Revenue stream even by upholding part of the expenditure in respect of the Assessment Year 2006-2007 - ITAT set aside even the amounts that were brought to tax by the CIT (A) - Held that - This Court is of the opinion that the ITAT s finding on this aspect cannot be faulted. The Supreme Court in Alembic Chemical Works Company Limited CIT 1989 (3) TMI 5 - SUPREME COURT enunciates the principles that having regard to the very similitude of the business and commercial activities it is difficult to characterize a pigeon hole expenditure as either capital or Revenue merely on the basis of the broad description. This Court is of the opinion that the ITAT conducted a proper analysis of the case law including the facts in the case and arrived at the correct conclusion that the expenditure is essentially within and not capital in nature. As far as the question of law on the other two heads is sought the Court noticed that it is entirely based on the factual analysis. The findings of the Lower Appellate Authorities are consistent and do not call for interference.

Summary

Issues:
1. Disallowance of expenses claimed towards repairs and maintenance for Assessment Years 2006-2007 and 2009-2010.
2. Interpretation of expenditure as capital or revenue in nature.
3. Applicability of judgments related to repairs and maintenance in the case of Hotel Properties.

Issue 1: Disallowance of expenses claimed towards repairs and maintenance
The Revenue raised three questions of law concerning the disallowance of expenses claimed for repairs and maintenance by an Assessee managing a hotel in Jaipur. The Assessee argued that the expenditure was for the commercial activity of hospitality, specifically for maintaining the hotel rooms. The Assessing Officer considered the expenses as capital additions due to their enduring nature. The CIT(Appeals) partially upheld the expenditure for the Assessment Year 2006-2007. However, the ITAT overturned even the upheld amounts, relying on judgments of various High Courts related to repairs and maintenance in hotel properties.

Issue 2: Interpretation of expenditure as capital or revenue in nature
Referring to the Supreme Court's decision in Alembic Chemical Works Company Limited v. CIT, the Court highlighted the difficulty in categorizing expenditure as either capital or revenue solely based on a broad description. The Court supported the ITAT's conclusion that the expenditure in question was revenue in nature, emphasizing the similarity between business and commercial activities.

Issue 3: Applicability of judgments related to repairs and maintenance in the case of Hotel Properties
The Court endorsed the ITAT's analysis of case law and factual circumstances, affirming that the expenditure was revenue in nature and not capital. The Court found no fault in the ITAT's findings and concluded that the Lower Appellate Authorities' consistent decisions did not warrant interference. Consequently, the Court dismissed the appeals, stating that no question of law arose in the case.

In summary, the High Court upheld the ITAT's decision regarding the revenue nature of the expenditure claimed for repairs and maintenance in a hotel property, emphasizing the difficulty in distinguishing between capital and revenue expenditure based on broad descriptions. The Court dismissed the appeals, concluding that the Lower Appellate Authorities' findings were consistent and did not require any legal intervention.