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TMI Blog2010 (3) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... : "Whether on the facts and in the circumstances and in law the Tribunal was right in holding that Padma Vilas Palace was not a building used as a hotel ?" 2. Since the question as framed above comprehensively covers all the issues which were sought to be raised in the several questions which have been formulated in the memo of appeal, counsel appearing on behalf of the Revenue has stated before the court that the challenge is being addressed before the court to the order of the Tribunal in terms of the for-mulation set out above. 3. The assessee is the owner of a hotel at Gwalior called Usha Kiran Palace Hotel. The assessee also owned an immovable property at Pune consisting of an area of 48,480 sq. mtrs. A structure by the name of Padma Vilas Palace was constructed on the property. The dispute in the present case relates to the assessment year 1999-2000. Following an agreement to sell dated June 30, 1998, the assessee by a registered deed of conveyance dated November 9, 2008 conveyed to the Indian Hotels Company Limited 42.13 per cent. of the undivided share in the land more particularly described in the first schedule together with the structure of Padma Vilas Palace for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, the intention of the assessee was to treat the building known as Padma Vilas Palace as a hotel building. Consequently, this was held to fall under a separate block of assets, distinct from the block in which the office premises at Mumbai would fall for classification. It was on this basis that the claim of the assessee for a set off under section 50(2) was disallowed. 5. In appeal, the Commissioner of Income-tax (Appeals) accepted the contention of the assessee and entered a finding of fact that the building known as Padma Vilas Palace at Pune had not been used as a hotel. The Com- missioner of Income-tax (Appeals) held that though the assessee had in the past classified both Padma Vilas Palace at Pune and Usha Kiran Palace at Gwalior as buildings which were used as hotels, as a matter of fact depreciation had been claimed only at the rate of 10 per cent. and not at the rate of 20 per cent. which was allowable in respect of a building used as a hotel. On the basis of an evaluation of all the facts and circumstances, to which a reference would be made in greater detail in a subsequent part of this judgment, the appellate authority held that Padma Vilas Palac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase by the actual cost of any asset falling within the block, acquired during the previous year ; and (ii) by the reduction of the moneys payable in respect of any asset falling within the block, which is sold or discarded or demolished or destroyed during the previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased. Section 50(2) postulates that where a capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under the Act, the provisions of sections 48 and 49 shall be subject to certain modifications. 9. The essential question upon which the resolution of the issue in the appeal depends is as to whether the property at Pune fell within the same block of assets as the property which was acquired by the assessee at Mumbai. In order to determine this question, the issue is whether the property belonged to a group of assets falling within a class of tangible assets in respect of which the same percentage of depreciation is prescribed. Appendix I to the Income-tax Rules, 1962, as it was applicable for the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computed. The appellate authority noted that the Assessing Officer had wrongly come to the conclusion that the rate of depreciation claimed by the assessee was at 15 per cent. During the assessment year 1997-98, the rate of depreciation claimed by the assessee was 10 per cent. and not 15 per cent. Similarly, for the assessment year 1998-99 depreciation at the rate of 10 per cent. was claimed on the Palace. How- ever, the Palace at Pune was shown in the block of assets along with Usha Kiran Palace Hotel at Gwalior. The fact that the property at Pune was not used as a hotel has been inferred on the basis of the following circumstances: (i) Since the acquisition of the property, the assessee had not spent any money on renovation or otherwise for converting the palace into a hotel ; (ii) The assessee had never acquired any assets which were necessary for running a hotel and no such assets were reflected in the balance-sheet ; (iii) The assessee had not employed any hospitality staff for running a hotel ; (iv) The palace did not have necessary adjuncts for running a hotel such as a restaurant or a coffee shop ; (v) For converting a palace structure into a hotel the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable rate for buildings used as hotels. The assessee evidently had a licence to utilize the premises at Pune as a hotel, but the question which fell for determination was whether the premises had been actually used as a hotel. The circumstances which have weighed with the Commissioner of Income-tax (Appeals) and the Tribunal are relevant and germane to the question as to whether the property was as a matter of fact used as a hotel. The circumstances upon which reliance has been placed by the Revenue have been duly taken into account by the appellate authority and by the Tribunal and therefore it can- not be said that there was a failure on the part of the appellate authorities to take into consideration relevant and germane material. The balance which has been drawn on the basis of all the circumstances which have been adverted to in the earlier part of this judgment must primarily rest in the finding of fact which has been recorded by the fact finding authorities. No substantial question of law would arise especially in a situation where a finding of fact is not demonstrated to be contrary to the evidence on the record. Nor has it been established before the court that ther ..... 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