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TMI Blog2020 (2) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... venue expenditure or not, is a pure question of fact. In this case though the expenses incurred cannot be allowed as deduction as current repairs certainly expenses would not be a capital expenditure and all conditions being satisfied u/s. 37 expenses are to be allowed under the said section. The expenses incurred in a hotel industry may be current repairs which expenses are incurred on yearly basis and expenditure incurred on periodical basis. As mentioned earlier, assessee s hotel was already having three star facility from the year 2006 and for renewal of three star facility, the assessee had to incur the impugned expenses on periodical basis. On basis of these expenses incurred, the assessee did not derive a new asset and there was no increase in the total rooms nor there was an increase in total area of the hotel. The expenditure incurred by assessee such as painting of the hotel, replacement of floor tiles, glazing works etc. are nothing but periodical expenditure which a hotel has to necessarily incur for its upkeep and cannot be termed as capital expenditure. Assessee is entitled to deduction u/s. 37(1) - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ork, painting, interior furnishing had to be renovated. Entire furniture and furnishing had to be refurnished. The entire hotel had to look like a new one during the visit of the committee for revaluation of allotting three star classification. For executing all the work, we had incurred ₹ 60,25,240/. The Tourism Department also awarded three star rating for us from 12.04.2011 to 11.04.2016" 4.1 The Assessing Officer rejected the objections raised by the assessee and disallowed the sum of ₹ 60,25,240/- by treating it as capital expenditure. The relevant finding of the Assessing Officer reads as follows: Hence what transpires from assessee's statement is that the expenditure that was booked under Repairs and Maintenance- Bldg is nothing but the cost incurred in obtaining Three Star certification. By incurring this expenditure the assessee had made sure that the value of the asset does not diminish from a three star hotel to an ordinary one, which otherwise would have, had the assessee not renovate the hotel in due time. Thus by incurring this expense, assessee has given an enduring benefit to the asset by another five years. This is nothing but a capital e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... labour expenses on painting (₹ 4.06 lakhs), glazing (₹ 3.9 lakhs) etc. The nature of these expenses clearly show that the expenditure is not a routine renovation expenditure but an expenditure towards creating assets in the form of furniture and furnishings, new floor, new tiles etc. Moreover premises are owned by the appellant itself. The facts of the case cited by appellant are quite different in which the expenditure consisted of fabric, cutlery, rubber mats civil work, shower mirror etc. 9. The appellant submitted that the expenditure towards repair and maintenance of building in financial year 2007-08 is ₹ 6.24 lakhs. Expenditure in financial year 2008-09 is ₹ 5.88 lakhs and in financial year 2009-10 it is ₹ 1.85 lakhs. Thus it can be seen that routine repair is a miniscule amount when compared to expenditure incurred by appellant in the relevant assessment year. The nature of expenses leave no doubt that it was incurred in order to get enduring benefit in the nature of reclassification of hotel and creation of new assets and assets substantially improved from previous one. 10. In view of the above facts and circumstances, I hold that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other grounds that may be urged at the time of hearing it is prayed that, the entire sum of ₹ 60,25,240/- may kindly be allowed as Revenue Expenditure. 6.1 The Ld. AR has filed a paper book enclosing details of the expenses claimed as revenue expenditure amounting to ₹ 60,25,240/-. The assessee has filed a brief written submission reiterating the submissions made before the Income Tax authorities. 6.2 The Ld. DR apart from supporting the orders of passed by the Income Tax authorities has relied on the judgment of the Hon'ble Delhi High Court in the case of Bharat Gears Limited vs. CIT in ITA No.14/2005, 1600 & 1670/2019 dated 30/06/2011 and the order of the Cochin Bench of the Tribunal in the case of DCIT vs. Indus Motor Company Pvt. Ltd. in ITA Nos. 212, 213 & 214/Coch/2014 dated 25/07/2014. 7. I have heard the rival submissions and perused the record. The assessee is running a 3 star hotel. The assessee is also having a bar. Three Star classification was originally granted to the assessee in the year 2006. The Three Star classification which was granted in the year 2006, was to be renewed every five years. During the relevant assessment year, the assessee had to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt repairs. (ii) "Current repairs" means repairs undertaken in the normal course of user for the purpose of preservation, maintenance or proper utilization or for restoring it to its original condition. (iii) "Current repairs" do not mean only petty repairs or repairs necessitated by wear and tear during the particular year. (iv) Such repairs should not bring into existence nor obtain a new or different advantage. (v) Neither the quantum of expenditure nor the fact that in the process of repairs, there was substantial replacement of the parts of the machine or ship, is decisive of the true nature of the expenditure. (vi) The original cost of the asset is not at all relevant for ascertainment of the true nature of the expenditure on repairs. (vii) The replacement cost of the asset may, however, at times be used as an indicator of the true character of the expenditure. If the expenditure on repairs added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption is possible that it is not a revenue expenditure but expenditure of capital nature. Such a presumption, of course, would be rebuttable. (viii) The expression "current" p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar classification. The assessee was already having Three Star facility from the year 2006 and the same was to be renewed for a period of five years. In order to continue the same business in the same way, the assessee had to incur these expenses. By no stretch of imagination can it be said that painting and other incidental expenses are capital expenses. In a Hotel industry huge expenditure has to be incurred with a view to keep the place fit and beautiful, so that guests can enjoy good atmosphere and ambience of the place. Without good ambience and atmosphere, it would not be possible to attract customers for running the hotel business carried on by the assessee. In this case though the expenses incurred cannot be allowed as deduction as current repairs certainly expenses would not be a capital expenditure and all conditions being satisfied u/s. 37 of the I.T. Act, expenses are to be allowed under the said section. The expenses incurred in a hotel industry may be current repairs which expenses are incurred on yearly basis and expenditure incurred on periodical basis. As mentioned earlier, assessee's hotel was already having three star facility from the year 2006 and for renewal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of expenditure were incurred with a view to beautify the premises obviously with a view to keep the place fit for the purpose for which persons assembled in the place, namely, for taking food and other edibles, as, without the proper atmosphere, it would not be possible to attract necessary customers for running the hotel business carried on by the assessee. The expenses cannot be said to be of an enduring nature as the items for which they were used would be of no use with reference to any other place and they cannot also be removed and used. They are just fixed in the walls so that they will present an inviting appearance to the customers assembled there. Accordingly the Tribunal was right in its conclusion that the expenses were allowable as a deduction u/s. 37 of the Act". ii) The Hon'ble Karnataka High Court in the case of CIT vs. Rex Talkies (148 ITR 560) has held that expenditure incurred to run its business more efficiently or more profitable without touching the fixed asset/capital is an allowable revenue expenditure. The Hon'ble High Court held as follows: "That from the nature of the expenditure that the assessee had to incur towards effecting repairs to the ceili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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