2019 (8) TMI 1132 - HC - Income Tax

Assessment u/s 153A - whether the amount paid by assessee to ITC Limited at the time of termination of the agreement to manage the hotel, ought to be allowed, as a revenue expenditure ? - entitlement to depreciation @10 % as building - whether it was for acquisition of an intangible asset - HELD THAT - The Court finds merit in the contention that this aspect of the matter, viz., if the expenditure is not to be treated as capital expenditure , then it will have to be treated as revenue expenditure was perhaps not addressed in the manner it should have been treated by the ITAT. On this aspect, therefore, the Court considers it appropriate to remit the matter to the ITAT for decision afresh on the treatment to be accorded to the expenditure incurred by the Assessee of the aforementioned sum of ₹ 30.86 crores and whether in particular, it should be treated as a revenue expenditure or as capital expenditure . The Court makes it clear that it has not expressed any view one way or the other on the respective contentions of the Revenue or the Assessee on the issue, and, it will be open to the ITAT, after examining the entire records, including the original return filed by the Assessee to come to a fresh decision independent of its earlier decisions and any observations in the instant order. Characterization of income - income shown by the assessee as business income should be taxed as income from house property or as income from other sources? - HELD THAT - The Court is of the view that the findings both of the CIT (A) as well as the ITAT are consistent that the only business of the Assessee was its hotel business and, therefore, the income shown by the Assessee should be treated as income from house property and not as income from other sources. Consequently, Question (ii) is answered in the affirmative i.e. in favour of the Assessee and against the Revenue.

Summary

Issues Involved:
1. Entitlement to depreciation on a specific amount as building.
2. Treatment of income as business income, income from house property, or income from other sources.

Issue 1: Entitlement to Depreciation
The case involved an appeal by the Revenue against an ITAT order regarding the Assessee's entitlement to depreciation on a specific amount as building. The Assessee owned a hotel managed by different entities under Hotel Operator Agreements. The dispute arose when the Assessee filed returns with varying depreciation claims due to a notice issued under Section 153-A of the Income Tax Act. The CIT (A) concluded that the hotel building was used for business purposes, allowing depreciation. However, the claim for payment made to ITC Ltd as revenue expenditure was denied. The ITAT considered arguments related to the nature of the payment, determining it as capital expenditure due to enhancing the business's life. The ITAT rejected the claim that the payment led to acquiring an intangible asset. The Court observed that the ITAT did not address whether the expenditure should be treated as revenue or capital expenditure. Consequently, the Court remitted the matter to the ITAT for a fresh decision on the treatment of the expenditure.

Issue 2: Treatment of Income
Regarding the treatment of income, both the CIT (A) and the ITAT agreed that the Assessee's income should be considered as income from house property due to the nature of the Assessee's business being solely hotel-related. The Court affirmed this position, ruling in favor of the Assessee against the Revenue. The Court directed the ITAT to reconsider the specific issue related to the treatment of the expenditure, as mentioned in the order. The appeal was restored to the ITAT for fresh consideration within a specified timeframe to ensure expeditious resolution.

In conclusion, the judgment addressed the issues of entitlement to depreciation and the treatment of income, providing detailed analysis and directions for further consideration by the ITAT.