1986 (2) TMI 109 - AT - Income Tax

Summary

Issues:
- Determination of depreciation rates for a hotel building treated as a plant.
- Disallowance of expenditures claimed by the assessee as entertainment expenditure.

Analysis:
1. The appeals involved common issues related to depreciation rates for the asst. yr. 1981-82 to 1983-84. The main contention was whether the assessee should be allowed depreciation at a higher rate applicable to a plant for a hotel building. The CIT (A) had rejected the claim, leading to the appeal.

2. The primary issue was whether the hotel building could be considered a plant for depreciation purposes. The Tribunal analyzed the claim and relevant legal precedents. It was established that the hotel building, along with furniture and fittings, constituted a tool of trade for the assessee, essential for running the hotel business profitably.

3. The Tribunal referred to the Supreme Court's interpretation of the term "plant" and highlighted that the adaptability of a building for running a hotel, along with necessary environmental changes, made it a plant. The intention of the legislature was to give "plant" a broad meaning, as emphasized in legal precedents.

4. The Tribunal rejected the Revenue's argument that there was no special provision for hotel buildings in depreciation rules, emphasizing that the rules should not limit higher rates of depreciation for buildings used in specific ways, such as hotels. Legal cases were cited to support the assessee's claim for higher depreciation rates.

5. Regarding the second issue of disallowed expenditures claimed as entertainment expenses, the Tribunal found that the expenses on refreshments and fruits/sweets did not qualify for deduction under the relevant tax provisions. The Explanation (2) to s. 37(2) was applied retrospectively, justifying the disallowance.

6. In conclusion, the Tribunal partially allowed the appeals by accepting the assessee's claim for higher depreciation rates on the hotel building but dismissed the claim for disallowed expenditures. The orders of the authorities below were set aside for the depreciation issue, directing the ITO to allow depreciation at the higher rates on the hotel building.