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TMI Blog2020 (3) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... rary to 'Ceebros' (supra), which is directly on the issue and on exactly similar facts as those doing the rounds in the case before us, has been cited before us. The specified business has also not been disputed to be that of building and operating a new hotel of a two-star or above category, in keeping with the provisions of section 35AD(5)(aa) [which was the provision under consideration in 'Ceebros' (supra) too]. Then, the incurrence of expenditure for the construction of The Gateway Hotel by the assessee has also not been disputed as having been done prior io the commencement of the operations of the business. Further, neither of the authorities below has made out that the amount was not capitalized in the books of account of the assessee. Rather, the taxing authorities have accepted the income offered to tax by the assessee, it is the deduction claimed under section 35AD, which has been disallowed. It is, thus, seen that none of the conditions of the provisions of section 35AD of the Act has been violated at the hands of the assessee. The provisions of this section stand explained in the Memorandum explaining the provisions of Finance Bill, 2010, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Jafar, Advs. for the Appellant. S.K. Madhuk, CIT (DR) for the Respondent. ORDER A.D. Jain, Vice-President This is assessee's appeal against the order of the ld. CIT (A), Varanasi, dated 31/8/2018, for assessment year 2015-16, taking the following grounds: 1. On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) - Varanasi has legally erred in not granting deduction of ₹ 18,57,34,050 claimed by the Appellant Company under section 35AD of the Income-tax Act, 1961 ('the Act'). 2. On the facts and in the circumstances of the case, and in law, the learned Commissioner of Income-tax (Appeals) - Varanasi has legally erred in not deleting interest under section 234A of the Act of ₹ 54,336 being interest for alleged late filing of Return of Income by the Appellant Company without appreciating the fact that the Return of Income was filed within the due date prescribed under the Act. 2. The assessee is a Private Limited Company, duly incorporated and registered in the year 1971 under the provisions of the Companies Act, 1956 and is a subsidiary of the Indian Hotels Company Limited, inter alia, op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government [Section 35AD (l)(iv)(aa) of the IT Act, 1961]. It is pertinent to mention that during the assessment proceedings, the assessee has never claimed to have been fulfilled the above mandatory condition laid down u/s. section 35AD (l)(iv)(aa) of the IT Act, 1961. The above observations were brought in the notice of the assessee vide order-sheet entries dated 12.07.2017 26.05.2017, which replied by the assessee vide letters dated 20.11.2017 28.12.2017. The contents of which are reproduced as under :- Reply dated: 20.11.2017 With reference to your aforesaid notice and the order-sheet entries dated 12/071/2017, it is respectfully submitted as under :- That, the claim u/s. 35AD has been made on the basis of commencement of new hotel business unit started in Gondia, Maharahtra.\ In order to encourage the setting up of the specified business project there is a provision in the Income-tax Act in section 35AD which prescribes that the deduction of whole of the capital expenditure shall be allowed in the year of commencement of business. The computation of claim u/s. 35AD has been made on the basis of capital expenditure incurred in \the Gateway Hotel, Gondia which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry of Tourism, Govt. of India and our new hotel property at Gondia equipped with centrally air conditioned building, swimming pool, Bar, Banquet Hall, Shopping Arcade, Business Centre, 24 hours Restaurant etc. satisfying all the requirements of 4-star hotel. That, the completion certificate authorizing Occupancy in the property issued by the Chief Officer, Municipal Council, Gondia is enclosed herewith at page 16. That, the all the audited books of account, bills and vouchers are open to verification. Hope the submission above meet your favourable satisfaction. In case any further details or explanation on any point is required we shall furnish the same on hearing from your end . Reply dated: 28.12.2017 With reference to your query as to why the deduction u/s. 35AD may not be denied, it is respectfully submitted as under: - That, the Company has incurred expenditure of ₹ 18.57 crore (excluding the cost of land, goodwill and cost of financial instruments) wholly and exclusively for the new hotel at Gondia, Maharahtra and such expenditure have been capitalized in the books of account of the Company. This fact has been fully demonstrated. Section 35AD wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the company has started a Hotel at Gondia but without any formal media launch. This observation does not specify the category of the Hotel. Formal Media launch was pending for want of relevant certificate of category of Hotel, without which no publicity could be made for the Hotel. (iii) The Classification Committee, constituted by the Govt. of India, for this purpose, has not only issued the relevant certificate to the company, not up to the end of the relevant year but even today the certificate is still awaited. (iv) The reply given by the assessee is evasive as it does not specify as to when the application for categorization was moved, when the committee visited the premises, what were the findings of the committee, how could the committee found the property eligible for 4-star, as claimed, what were the 'Menu' requirements as stated in the reply. Non-furnishing of all these crucial information indicates that assessee was not entitled for this deduction in the year under consideration. (v) As per reply dated 28.12.2017, the Inspection Committee is scheduled to revisit the premises. This fact itself proves that till today, it has not peen given the specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove category as classified by the Central Government: 10. A perusal of the above makes it clear that in order to claim, deduction u/s. 35AD in respect of a specified business, the commencement of operation of a new hotel of two-star or above category as classified by the Central Govt is mandatory. The details filed during course of appellate proceedings indicate that the appellant has for the first time made an application to Ministry of Tourism requesting for grant of four-star category hotel status on 04.07.2014 (Page-15 of the written submission dated 27.08.2018). There were deficiencies in the proposal of the appellant, and accordingly a letter was issued from Ministry of Tourism on 22.07.2014 to the assessee to remove the discrepancy. Particularly, the copy of feasibility report was mentioned as incomplete. Further, the affidavit as well as demand draft was pointed out as not sent through the application of the assessee requesting for grant of star status. (Page-16 of the written submission dated 27.08.2018). The appellant took time to remove the deficiency and has submitted its reply on 23.03.2015 i.e. at the fag end of relevant financial year. (Page-18 of the Written subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its letter dated 27.08.2018) at the fag end of financial year. The deduction u/s. 35AD of the IT Act is an exemption provision which allows the assessee to claim certain deduction/exemption from payment of income tax and the issue to be decided in this appellate proceeding is whether such an exemption provision should be interpreted strictly or liberally. The undisputed fact is star rating certificate was not available to the appellant till the close of F.Y. 2014-15 and if the exemption provision are to be interpreted strictly, the benefit of the same cannot be allowed to the appellant. The Constitution Bench of Hon'ble Supreme Court have had an occasion to examine the interpretation of exemption provisions in Civil Appeal No. 3327 of 2007 in the case of Commissioner of Customs (Import) Mumbai v. Dilip Kumar and Company (TS-336-SC-2018-CUST) and vide their order dated 30.07.2018 have held that exemption provisions are to be interpreted strictly. The Hon'ble Court have clearly brought out the issue for consideration before the constitution bench in para-28 of the order as under :- 28. With the above understanding the stage is now set to consider the core issue. In the ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon 'ble Supreme Court have also held that the ratio in Sun Export Case v. Collector of Customs 6 SCC 564 is not correct and stands overruled. 13. The reliance placed on various judicial pronouncements by the appellant needs to be considered in the light of Hon'ble Supreme decision as discussed above. The reliance placed on the case of River View Hotel (supra) by the appellant cannot help it in the light of the above decision since in the case of present appellant the certificate granting four-star category has been issued w.e.f 29.01.2018 and the certificate only for a limited period of five years. The reliance by the appellant in the cases of Epsom Shipping (I) (P.) Ltd, Claris Lifesciences Ltd, Banco Products India Ltd, Shrikar Hotels, English Indian Clays Ltd and Rajasthan Co-operative Dairy Federation Ltd are not applicable to the facts of the present case as the exemption provisions relating to deduction u/s. 35AD are to be interpreted strictly in accordance with the decision of Hon'ble Supreme Court. Similarly the reliance placed on case laws by the appellant relating to procedural delays (para-3.35 of the submission dated 16.08.2018 referred to above) ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2011 that the date of completion of project on 27.02.2008. Relying on said clarification, the assessee contended that project was in fact completed on 27.02.2008 i.e. before the cut-off date and as per the assessee, it was entitled for deduction u/s. 80-IB(10)(a). The Hon 'ble High Court have in para-26 of the order held that issuance of completion certificate after the cut off date by the local authority but mentioning the date of completion of project before the cut-off date, does not fulfil the condition specified in clause (a) section 80-IB (10) read with Explanation (ii) thereunder. The decision of Hon'ble Court is as under: - 26. We accordingly hold that issuance of completion certificate, after the cut-off date by the Local Authority but, mentioning the date of completion of project before the cut-off date, does not fulfil the-condition specified in clause (a) of section 80-IB (10) read with Explanation (ii) thereunder. We reject the argument of the assessee that the effect of amended clause (a) of sub-section 10 of Section 80-IB, which has come into force with effect from 1st April, 2005, has retrospective effect or that it is unjust in any manner or incapable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Heard. Both the authorities below have concurrently refused deduction to the assessee under section 35AD of the Act. In the assessment order, the Assessing Officer has held that The Gateway Hotel, Gondia, qua which, the deduction was claimed, was not of the specified category; that though the assessee had started operating The Gateway Hotel, there was no formal media launch; and that the Government had not issued any classification certificate certifying the Hotel as a four-star hotel. The ld. CIT (A), concurring with the assessment order, has held to the effect that the certificate approving the four-star hotel category issued by the Ministry of Tourism, in respect of The Gateway Hotel, was issued post the passing of the assessment order dated 30/12/2017, on 30/1/2018, w.e.f. 29/1/2018, valid till 28/1/2023; that section 35AD of the Act is an exemption provision, which has to be strictly interpreted; and that since the assessee did not have the requisite classification certification in the year under consideration, the benefit of deduction could not be provided to the assessee, as rightly held by the Assessing Officer. 7. The ld. CIT (A),'in the order under appeal, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rations and in the case of business like that of the assessee, on or after 01.4.2010, where specified business is in the nature of building and operating new hotel of two-star or above category as classified by the Central Government. We find nowhere in Clause (aa) to sub-section (5) of section 35AD of the Act mandating that the date of certificate should be with effect from a particular date. Therefore, the provision, which is obviously to encourage establishment of hotels of a particular category, should be read as a beneficial provision and therefore, the interpretation given by the Tribunal considering the facts of the case is perfectly valid and justified. For the above reasons, we find no grounds to interfere with the order passed by the Tribunal. 11. Therefore, the Hon'ble Madras High Court, in 'Ceebros' (supra), has held that section 35AD(5)(aa) of the Act does not mandate that the date of the certificate should be with effect from a particular date; that therefore, the provision, i.e., section 35AD, which is obviously to encourage establishment of hotels of a particular category, should be read as a beneficial provision. 12. No decision contrary to ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the clear provisions of section 35AD of the Income-tax Act. Would that there did exist any such ambiguity therein! Then, obviously, the Revenue would have had a case. Minus that, it is not so. 15. Therefore, evidently, Dilip Kumar (supra) was concerned with an exemption notification and it was the interpretation thereof which their Lordships held was to be done strictly, and that when there is an ambiguity in an exemption notification, which is subject to such strict interpretation, the benefit of such ambiguity must go in favour of the Revenue rather than that of the assessee. Sun Export v. Collector of Customs 1997 taxmann.com 696 (SC), rendered earlier by the Hon'ble Supreme Court, was held not to have expounded the correct law in this regard and was, accordingly, overruled, on the aforesaid proposition. 16. These, however, are not the facts of the present case. Here, the pure and simple question is as to whether the assessee is entitled to deduction under section 35AD of the Act, when the relevant certificate has been granted in accordance with the Guidelines issued by the Ministry of Tourism, on the assessee, obviously, having fulfilled the requisite conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee on the ground that the completion certificate was not produced before 31.3.2008. The Court examined as to whether the issuance of completion certificate after the cut-off date by the Local Authority, but mentioning the date of completion of the project before the cut-off date did not fulfill the condition specified in clause (a) of section 80-IB(10) of the Act read with Explanation (ii) thereunder. Taking note of the facts of the case, the Court held that securing of the completion certificate before the cut-off date is not directory in view of the express provision in section 80-IB(10)(a) of the Act and Explanation (ii) thereunder. We have perused the said provision. Explanation (ii) has specifically stated that the date of completion of construction of housing project shall be taken to be the date, on which, the completion certificate in respect of such housing project is issued by the Local Authority. Thus, interpreting the said provision, the Court held that it was directory. 18. A reading of the above would show that the provisions of section 80-IB are entirely different and do not impinge at all on the deduction claimed under section 35AD of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be that of building and operating a new hotel of a two-star or above category, in keeping with the provisions of section 35AD(5)(aa) of the Act [which was the provision under consideration in 'Ceebros' (supra) too]. Then, the incurrence of expenditure for the construction of The Gateway Hotel by the assessee has also not been disputed as having been done prior io the commencement of the operations of the business. Further, neither of the authorities below has made out that the amount was not capitalized in the books of account of the assessee. Rather, the taxing authorities have accepted the income offered to tax by the assessee, it is the deduction claimed under section 35AD, which has been disallowed. 21. It is, thus, seen that none of the conditions of the provisions of section 35AD of the Act has been violated at the hands of the assessee. 22. The provisions of this section stand explained in the Memorandum explaining the provisions of Finance Bill, 2010, wherein, it has been noted that In view of the high employment potential of this sector, it is proposed to provide investment linked incentive to the hotel sector, irrespective of location, under section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f issuance of this certificate/the period for which the classification has been granted, is irrelevant for the grant of deduction under section 35AD of the Act. (iv) 'Ceebros' (supra) is categorical in this regard. (v) No decision contrary to 'Ceebros' (supra) has been cited before us. (vi) The ld. CIT (A) did not have the benefit of 'Ceebros' (supra) while passing the order under consideration, 'Ceebros' (supra) having been rendered post-the passing of the ld. CIT (A)'s order. (vii) The facts with regard to the certificate having been granted in the year subsequent to the year under consideration, are not of any detriment to the assessee, in keeping with 'Ceebros' (supra). (viii) Even if, arguendo, these facts were to be accepted, they do not detract from the settled position [as per 'Ceebros' (supra)], that once the conditions of section 35AD are fulfilled, the section, per se, not requiring any specific date of operation, the deduction thereunder cannot be disallowed. 25. In view of the above, finding the grievance of the assessee by way of Ground No.1, to be justified, we accept the same. The disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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