+ Ita 1398/2006M/S Asian Hotels Ltd v. Commissioner Of Income Tax-I

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment Pronounced on: 09.10.2023 + ITA 1398/2006M/S ASIAN HOTELS LTD ..... Appellant Through : Mr Tarun Gulati, Sr. Adv. with Ms Aakanksha Kaul, Mr Aman Sahai, Mr Kumar Sambhav and Mr Adit Khorana, Advs. versus COMMISSIONER OF INCOME TAX-I ..... Respondent Through : Mr Zoheb Hossain, Sr. Standing Counsel with Mr Sanjeev Menon, Jr Standing Counsel. CORAM:HON'BLE MR JUSTICE RAJIV SHAKDHER HON'BLE MS JUSTICE TARA VITASTA GANJU [Physical Court hearing/ Hybrid hearing (as per request)] TABLE OF CONTENTS Prefatory Facts…………………………………………..1Backdrop:………………………………………………..3Submissions of the Counsels:…………………………...8Reasons and Analysis:………………………………....13Conclusion:…………………………………………….30 RAJIV SHAKDHER, J.: Prefatory facts: 1. The above-captioned appeal concerns Assessment Year (AY) 1992-93. Via the instant appeal, the appellant/assessee seeks to assail the order dated 28.04.2006 passed by the Income Tax Appellate Tribunal [hereafter referred to as “Tribunal”]. 1.1 The impugned order concerns not only AY 1992-93 but is also common to AY 1991-92 [ITA No.1394/2006], AY 1993-94 [ITA No.1397/2006] and AY 1994-95 [ITA No.1396/2006]. 1.2. The Tribunal has followed the impugned order while passing orders dated 09.02.2007 [concerning AY 1995-96, impugned in ITA 844/2007] and 31.05.2007 [concerning AY 1996-97, impugned in ITA 1342/2007]. 1.3. Apart from the appeals mentioned above, ITA 486/2023 [which also pertains to the appellant/assessee], impugns the order of the Tribunal dated 15.09.2006 concerning AY 1997-98. 2. Insofar as the above-captioned appeal is concerned, i.e., ITA No.1398/2006, the following questions of law were framed by the Court via order dated 18.09.2007: "(1) Whether the finding of the Income Tax Appellate Tribunal that the “renovation and repair” expenses, partly capitalised in the books of account of the Assessee, is not revenue expenditure admissible under Section 37 of the Income Tax Act, 1961, is correct? (2) Whether the Income Tax Appellate Tribunal is correct in law in holding that payment made to Gherzi Eastern Ltd., an interior architect, Rs.23,18,695/- for consultancy and supervision of interior décor of the existing hotel of the Assessee under “renovation and refurbishment” is capital expenditure?" 2.1. The first question of law, as extracted above, arises in all appeals[1]except ITA No.1342/2007. 2.2. Likewise, the second question of law arises in all appeals[2] except ITA No.486/2007 and ITA No.1342/2007. The only difference insofar as the 1 See paras 1.1, 1.2 and 1.3. above 2 See paras 1.1, 1.2., and 1.3 above second question of law is concerned, pertains to the amounts paid to Gherzi Eastern Ltd. [in short, "GEL"], an architect-consultant appointed by the appellant/assessee. 3. Therefore, for convenience, we would advert to the facts that obtain in ITA No.1398/2006 to adjudicate the common questions of law arising in the appeals. Backdrop: 4. The appellant/assessee is in the business of running a five-star hotel named Hyatt Regency [hereafter referred to as "hotel"], which is located in Delhi. 4.1 In and about 1990, when nearly six (6) years had passed since the hotel went into commercial production, the appellant/assessee embarked on repairing, renovating and refurbishing its hotel. 5. For the accomplishment of the tasks at hand, as noticed above, the appellant/assessee had appointed GEL as a consultant via an agreement dated 06.11.1990. 6. In Financial Year (FY) 1991-92 , the appellant/assessee spent in and about Rs.847,91,000/- towards renovation, refurbishment and repairs of its hotel, out of which Rs.600,84,000/- was capitalised, while the remaining amount was claimed as revenue expenditure under the head "repair and maintenance". The appellant/assessee paid GEL Rs.23,18,695/- during this period. 4.1 In and about 1990, when nearly six (6) years had passed since the hotel went into commercial production, the appellant/assessee embarked on repairing, renovating and refurbishing its hotel. 5. For the accomplishment of the tasks at hand, as noticed above, the appellant/assessee had appointed GEL as a consultant via an agreement dated 06.11.1990. 6. In Financial Year (FY) 1991-92 , the appellant/assessee spent in and about Rs.847,91,000/- towards renovation, refurbishment and repairs of its hotel, out of which Rs.600,84,000/- was capitalised, while the remaining amount was claimed as revenue expenditure under the head "repair and maintenance". The appellant/assessee paid GEL Rs.23,18,695/- during this period. 7. The AO, via assessment order dated 13.03.1995, among other things, disallowed the expenditures claimed under the heads “repair and maintenance” and “payment to GEL”. 8. The appellant/assessee, being aggrieved, carried the matter to CIT(A). Via order dated 09.11.1995, CIT(A) deleted, substantially, the disallowance made on account of “repair and maintenance”. The deletion ordered by the CIT(A) was to the extent of Rs.2,44,00,352/-. However, the CIT(A) disallowed expenditure amounting to Rs.3,08,703/- incurred on pressurisation of lift shafts, which, according to him, had resulted in a benefit of enduring nature. 8.1 Furthermore, the CIT(A) also sustained the disallowance ordered by the AO concerning Rs.23,18,695/- paid by the appellant/assessee to GEL. 9. This resulted in the appellant/assessee and the respondent/revenue preferring appeals with the Tribunal. The respondent’s/revenue’s appeal before the Tribunal was, thus, 10. The respondent’s/revenue’s appeal before the Tribunal was, thus, confined to the disallowance of the addition amounting to Rs.2,44,00,352/-, ordered by the CIT(A), with regard to “repair and maintenance”. On the other hand, the appellant/assessee enlarged the scope of its appeal by not only agitating the disallowance of payments made to GEL and the expenditure incurred on pressurisation of lift shafts but also claimed, for the first time, amounts expended on renovation, which were capitalised in its books of accounts. The amounts capitalised previously that were claimed for the first time before the Tribunal as revenue expenditure was, as noticed above, Rs.600,84,000/-. 10.1 The record discloses that the appellant/assessee had moved an application for being permitted to plead additional grounds concerning the expenditure which, according to it, had been erroneously capitalised in its books of accounts, although, it was in the nature of revenue expenditure. Notably, this issue has arisen not only in the AY under consideration, i.e., AY 1992-93, but also in AY 1993-94 and AY 1994-95. 10.2 Evidently, the additional ground concerning capitalised expenditure, which the appellant/assessee wanted to be treated as revenue expenditure, was admitted by the Bench of the Tribunal, which took up the appeal concerning AY 1992-93 via order dated 08.03.2002. 10.3. However, the respondent/revenue, it appears, filed a miscellaneous application for recall of the order admitting the additional ground. The assertion made in the miscellaneous application was that a mistake apparent from the record had occurred, as the admission of the additional ground was pivoted on legal issues, whereas it would require an investigation of facts by the AO. 10.4. The miscellaneous application, however preferred by the respondent/revenue, was dismissed via order dated 22.06.2004 on the ground that no inquiry or investigation concerning facts was required to be made for adjudicating the additional grounds. 11. Against this backdrop, the Tribunal disposed of the cross-appeals filed for AY 1992-93 and other AYs, i.e., AY 1993-94 and AY 1994-95. Qua the remaining AY [i.e., AY 1991-92], only the appellant/assessee had preferred appeal from the order passed by the CIT(A). 10.4. The miscellaneous application, however preferred by the respondent/revenue, was dismissed via order dated 22.06.2004 on the ground that no inquiry or investigation concerning facts was required to be made for adjudicating the additional grounds. 11. Against this backdrop, the Tribunal disposed of the cross-appeals filed for AY 1992-93 and other AYs, i.e., AY 1993-94 and AY 1994-95. Qua the remaining AY [i.e., AY 1991-92], only the appellant/assessee had preferred appeal from the order passed by the CIT(A). 12. The Tribunal, via the impugned order, disallowed the relief granted by the CIT(A) pertaining to the deletion of disallowance ordered by the AO amounting to Rs.2,44,00,352/- concerning expenditure made towards “repair and maintenance”. 12.1 Besides this, the Tribunal also rejected the plea advanced on behalf of the appellant/assessee that Rs.600,84,000/-, capitalised in its accounts books, should be treated as revenue expenditure. 13. In reaching its conclusion, the Tribunal provided, broadly, the following rationale: (i) Firstly, the renovation and refurbishment has been carried out over several years. (ii) Secondly, for conceptualising, undertaking and supervising the renovation and refurbishment of the hotel, GEL had been paid a substantial amount by the appellant/assessee. All told, the amount paid over the AYs in issue was in the vicinity of Rs.1 crore. (iii) Third, the total expenditure incurred in the AYs mentioned above was Rs.35 crores, surpassing the original cost incurred by the appellant/assessee for setting up the hotel before the commencement of its business operations. (iv) Fourth, this was not a case involving “accumulated repairs”, as the appellant/assessee had been running a super-deluxe hotel for several years. (v) Fifth, the appellant/assessee, in its annual audited accounts, has treated a significant part of the deduction claimed as capital expenditure; an aspect which cannot be ignored. In this context, it is concluded that in AY 1991-92 to AY 1994-95 and subsequent AYs, the appellant/assessee has drawn a distinction between "routine repairs" and monies expended on renovation and refurbishment. It was emphasised that the expenditure made on renovation and refurbishment has been further segregated by the appellant/assessee into revenue and capital expenditure not only in the books of accounts but also in the course of assessment proceedings before the AO and CIT(A). It is only for the first time before the Tribunal that a large portion of the capitalised expenditure is claimed as revenue expenditure. (vi) Sixth, the expenditure incurred during each of the AYs, which culminated in an assessment order, would take care of the "special needs" of running a five-star deluxe hotel. However, the expenditure incurred on renovation and refurbishment is “generically different”. The renovation and refurbishment expenditure is not an expense that a five-star deluxe hotel incurs as a “normal incidence” of its business. The expenditure on renovation and refurbishment is a special kind of expenditure motivated by an ambition to place the hotel in a “different league”. This aspect emerges upon perusal of the director’s report of the appellant/assessee concerning FY 1991-92. Per the director's report, the appellant/assessee had undertaken a “comprehensive renovation project of the entire property”. The director’s report provides the object behind the expenditure incurred by the appellant/assessee which was that after renovation, the hotel would attain the number one position in the country and bring into existence a “New Hyatt”. (vii) Seventh, having regard to the kind of business the appellant/assessee was carrying on, the area covered by the building alone would not matter. What would also have to be considered would be the quality of construction, the building layout, the décor and ambience and other functionalities. The fact that the hotel did not have a single room added to it overlooks the hike in room tariff and the increase in occupancy. (vii) Seventh, having regard to the kind of business the appellant/assessee was carrying on, the area covered by the building alone would not matter. What would also have to be considered would be the quality of construction, the building layout, the décor and ambience and other functionalities. The fact that the hotel did not have a single room added to it overlooks the hike in room tariff and the increase in occupancy. (viii) Eighth, the appellant/assessee had failed to provide comparative details to establish that there was no significant improvement in the profit-making structure after it had carried out renovation and refurbishment. (ix) Nineth, since fees paid to GEL is inextricably linked to the overall work concerning renovation and refurbishment, which has been treated as capital expenditure, the expense incurred on this account by the appellant/assessee would have to be treated as capital expenditure. (x) Tenth, the CIT(A) allowed a substantial portion of the expenses incurred on renovation and refurbishment by overlooking that the AO had allowed huge expenditure claimed towards routine repairs and replacements in each of the AYs in issue. The expenditure claimed on renovation and refurbishment, allowed by the CIT(A), was not independent of expenses claimed towards repairs, replacement and renewals but was an integral part of the overall object of creating a “New Hyatt”. The CIT(A) lost sight of this aspect of the matter. The courts in the country have yet to accept that luxury renovation of property not borne from a need but springing from the owner's fancy is revenue expenditure. 14. It is in this background that the appellant/assessee has preferred the instant appeal, i.e., ITA No.1398/2006 and connected appeals against the impugned order dated 28.04.2006 passed by the Tribunal. Submissions of Counsels: 15. On behalf of the appellant/assessee, arguments were advanced by Mr Tarun Gulati, Senior Advocate, while Mr Zoheb Hossain, Senior Standing Counsel, put forth submissions on behalf of the respondent/revenue. 16. The submissions of Mr Tarun Gulati can be broadly paraphrased as follows: (i) The appellant/assessee provided a detailed breakdown of the expenditure incurred towards renovation, refurbishment and repairs, which included the expenses that were part of the additional claims made for the first time before the Tribunal. The expenditure incurred neither resulted in acquiring a new asset nor an advantage of enduring nature. (ii) The appellant/assessee had only replaced worn-out and old doors, tiles, hinges and other accessories. Besides this, the appellant/assessee had also incurred expenditure on repairing damaged roofs, walls, ceilings, air ducts attached to the air-conditioners, lights, grills and flush valves. These expenses were incurred to repair, replace and refurbish the existing utilities to provide efficiency and add to the profitable functionality of the appellant's/assessee's hospitality business. (iii) Importantly, the expenditure incurred by the appellant/assessee was to maintain and preserve the capital assets embedded in its hotel premises. The exercise was motivated by business interest to keep its competitive edge in the hospitality sector. (iv) Replacement and repair of items referred to above were undertaken only to restore the hotel to its original state of efficiency. (v) The Tribunal has not found that any new asset was created and/or acquired due to the exercise carried out by the appellant/assessee. No finding is returned by any of the other authorities concerning this aspect of the matter. (vi) The AO has drawn a false and erroneous distinction by segregating the repairs into ordinary and luxury repairs or repairs, which are incurred based on the choice of the appellant/assessee. The law does not draw any distinction between ordinary and luxury repairs. (iv) Replacement and repair of items referred to above were undertaken only to restore the hotel to its original state of efficiency. (v) The Tribunal has not found that any new asset was created and/or acquired due to the exercise carried out by the appellant/assessee. No finding is returned by any of the other authorities concerning this aspect of the matter. (vi) The AO has drawn a false and erroneous distinction by segregating the repairs into ordinary and luxury repairs or repairs, which are incurred based on the choice of the appellant/assessee. The law does not draw any distinction between ordinary and luxury repairs. (vii) The repairs undertaken by the appellant/assessee required the statutory authorities to take a holistic view. They could not have treated each room, washroom, lounge, carpet, door, and hinge as independent units or items. The categorisation of any expenditure as revenue or capital should also bear in mind the premises and the business in which the expense has been incurred. (viii) The respondent/revenue has issued Circular No.69 dated 27.11.1951, which inter alia, provides that after the initial installation of fluorescent lights, the replacement of the same should be treated as revenue expenditure. The respondent/revenue is bound by its circulars concerning the treatment of expenditure. [See KP Verghese v. Income Tax Officer (1981) 4 SCC 173 AIR 1981 SC 1992 and UCO Bank v CIT (1999) 4 SCC 599]. (ix) It is well-established that the expression provided in Section 37 of the Act for the “purposes of the business” includes expenditure incurred for the preservation and protection of assets and property. [See CIT v. Malayalam Plantations, AIR 1964 SC 1722]. (x) The statutory authorities have wrongly applied the test of enduring benefit to categorise the expenses incurred by the appellant/assessee as capital expenditure. [See Empire Jute Co. Ltd. V. CIT, (1980) 4 SCC 25] (xi) The statutory authorities have failed to appreciate the correct ratio of the judgment of the Supreme Court rendered in Ballimal Naval Kishore v. CIT, (1997) 224 ITR 414 SC. In Ballimal’s case, expenses were incurred to convert a ginning factory into a cinema theatre. In contrast, in the instant case, the appellant/assessee has incurred expenditure on repair, renovation and refurbishment of the existing hotel. The distinction in this behalf has been noticed by the Bombay High Court in PCIT, Panaji v. Goa Tourism Development Ltd., (2019) 261 Taxman 500 (Bombay). For the same reasons, the judgment in New Shorrock Spg. & Mfg would not be applicable in the instant case as no new asset has been created. (xii) Lastly, the money expended by the appellant/assessee towards the consultancy fee paid to GEL is revenue expenditure. Since the expenditure incurred on renovation, refurbishment, and repairs is on the revenue account, the consultancy fee paid to GEL should also be treated as such. 17. Mr Zoheb Hossain, while refuting the submissions made on behalf of the appellant/assessee, primarily relied upon the impugned order passed by the Tribunal. In rebuttal, Mr Zoheb Hossain made the following broad submissions: (i) The appellant/assessee for the period captured by the AYs in issue had incurred an expenditure which was much more than the cost that was incurred by it to bring the hotel property into existence before the commencement of its business operations, an aspect exemplified in the director’s report for FY 1991-92. The report categorically alluded to the fact that comprehensive renovation had taken place to bring into existence a “New Hyatt”. The appellant/assessee had, thus, in the guise of repair work, claimed a deduction on expenditure incurred to replace equipment used in the hotel premises. the Tribunal. In rebuttal, Mr Zoheb Hossain made the following broad submissions: (i) The appellant/assessee for the period captured by the AYs in issue had incurred an expenditure which was much more than the cost that was incurred by it to bring the hotel property into existence before the commencement of its business operations, an aspect exemplified in the director’s report for FY 1991-92. The report categorically alluded to the fact that comprehensive renovation had taken place to bring into existence a “New Hyatt”. The appellant/assessee had, thus, in the guise of repair work, claimed a deduction on expenditure incurred to replace equipment used in the hotel premises. (ii) The expenses incurred by the appellant/assessee were not aligned with the object of maintaining and preserving existing assets or even restoring them to their original condition. The appellant/assessee had itself distinguished between routine repairs and monies expended on renovation and refurbishment. In this context, the AO allowed everyday expenditure amounting to Rs.4.34 crores and Rs.4.12 crores for AY 1993-94 and AY 1994-95. (iii) The test for determining whether the advantage of enduring benefit has accrued to the appellant/assessee is whether the asset or right acquired due to the expense incurred has generated enough durability to justify the same being treated as a capital asset. [See Hotel Diplomat v. CIT, (1980) 125 ITR 781 (Delhi)]. This principle is required to be examined in the background of the facts obtaining in the instant appeals. The appellant/assessee had taken up the work of renovation, refurbishment and repairs, which covered all 590 rooms, including the lobby, restaurants, business centre, health club, conference halls and other facilities. Since the scope of the work was expansive, the appellant/assessee had to engage consultants. Therefore, from a commercial point of view, it can only be stated that the appellant/assessee incurred the said expense to obtain durability. (iv) The expense incurred by the appellant/assessee created an enduring advantage, inasmuch as the appellant/assessee would have been able to collect a higher room tariff and register a greater occupancy rate. (v) The aim and object of expenditure would determine its character, i.e., whether it is in the nature of capital or revenue expenditure. Since the aim and object was to bring a "New Hyatt" into existence, the expenditure could only be characterised as capital expenditure. [See Assam Bengal Cement Co. Ltd. V. CIT, 1955 1 SCR 972; Ashoka Hotel v. CIT, 1969 72 ITR 306 (Delhi) and the judgment of the Supreme Court rendered in the Ballimal Naval Kishore case]. (vi) The fees paid to GEL by the appellant/assessee should be treated as capital expenditure owing to the enduring benefit provided by the services rendered. The services provided by GEL to the appellant/assessee have to be looked at in the context of what the project sought to achieve- renovating and replacing various capital assets, which brought the advantage of enduring benefit to the appellant/assessee. The CIT(A) has noticed that payments made to other consultants, save and except for GEL, were capitalised by the appellant/assessee. The appellant/assessee has been unable to provide any reason for deviating from the said practice while dealing with expenses incurred on payment of fees to GEL. (vii) Since GEL’s engagement required conceptualising, planning and supervision of the execution of the work at hand, the treatment to be (vii) Since GEL’s engagement required conceptualising, planning and supervision of the execution of the work at hand, the treatment to be accorded to the fee paid to GEL is inextricably linked to the manner in which the expenses incurred on renovation and refurbishment are treated. (viii) The expenses incurred by the appellant/assessee are capital in nature, given that they led to the creation of a new capital asset. This is evident from the finding returned by the Tribunal that the appellant/assessee had purchased five hundred thirty-four (534) guest-room door shutters and five hundred forty (540) toilet doors. It is inconceivable that door shutters would have worn out in such large numbers. Clearly, the old articles were replaced with new and improved articles of superior quality, thereby providing the appellant/assessee with a new and better-quality asset. In this context, illustratively, reference was made to the installation of bus bars for the safe distribution of electricity from automatic circuit breakers, fixation of a mild-steel frame for affixing a false ceiling in the laundry department and replacement of the basin of the cooling tower. [See ITA 486/2007.] (ix) The expenditure incurred by the appellant/assessee travelled beyond repairs or renovation and brought into existence new assets. Reasons and Analysis: 18. As is evident from the narration of the facts and submissions made before us, the broad issue which came up for consideration before the statutory authorities was the manner in which the expenses incurred by the appellant/assessee had to be treated. 19. However, before we proceed to rule on the nature of the expenditure incurred by the appellant/assessee, it would be of some help to advert to the tests enunciated by the courts in the past. (i) The expenditure incurred by an assessee initially towards setting up the business would ordinarily be construed as capital expenditure. However, if the assessee incurs expenditure in an ongoing business, one would have to ascertain whether the expense was incurred for acquiring or bringing into existence an asset or resulted in creating an advantage of enduring benefit for the business. (ii) It is not the source and manner in which payment is made but the aim and object of expenditure which would determine its character. (iii) Any expense incurred for acquiring a source of profit or income, in the absence of any contrary circumstance, would be construed as expenditure on capital account. In contradistinction, an expenditure which enables the profit-making structure to work more efficiently, leaving the source or the profit-making structure untouched, would be in the nature of revenue expenditure. In other words, expenditure incurred by the management to run its business effectively, efficiently and profitably, leaving the fixed assets or other capital structure untouched, would be an expenditure of a revenue nature, even though the advantage obtained may last for an extended period. In such a situation, the test of enduring benefit or advantage could be considered as having broken down. (iv) Given the evolved and complicated nature of modern business, in determining the nature of expenditure, the courts' test would have to be applied from the business point of view, after fairly appreciating the entire fact situation. 20. In the instant case, the record discloses that the expenditure qua which deduction was claimed fell under the following broad heads: (i) Expenditure which the appellant/assessee had capitalised in its books of accounts: Rs.5,73,54,285/-. (ii) Expenditure which the appellant/assessee had straightaway claimed as revenue expenditure: Rs.2,47,09,055/-. 21. The bifurcation of the amount claimed as revenue expenditure, i.e., Rs.2,47,09,055/- as per the record placed before us, is as follows: (i) Expenditure incurred on building: Rs.1,68,61,730/-. 20. In the instant case, the record discloses that the expenditure qua which deduction was claimed fell under the following broad heads: (i) Expenditure which the appellant/assessee had capitalised in its books of accounts: Rs.5,73,54,285/-. (ii) Expenditure which the appellant/assessee had straightaway claimed as revenue expenditure: Rs.2,47,09,055/-. 21. The bifurcation of the amount claimed as revenue expenditure, i.e., Rs.2,47,09,055/- as per the record placed before us, is as follows: (i) Expenditure incurred on building: Rs.1,68,61,730/-. (ii) Expenditure incurred on plant and machinery: Rs.73,55,847/- (iii) Expenditure on other items: Rs.4,91,479/- (iii) Expenditure on other items: Rs.4,91,479/- 22. The CIT(A), after perusing the material on record, has returned the following findings of fact in respect of each limb of expenditure noted in paragraph 21 above: 22.1 The expenditure incurred on building was mainly incurred on the following items: providing roof tiles for waterproofing, door hinges, replacement of floor tiles, fixing granite in toilets, replacement of sanitary appliances, replacing false-ceiling in the bathrooms, expenses incurred in painting the rooms, refixing the doors after they were polished, providing wooden skirting, replacement of wall panelling, replacing false ceilings in the rooms, providing skirting in corridors, painting and waterproofing. 22.2 The expenditure incurred for the abovementioned purposes involved replacing old articles with new articles without bringing any new asset into existence. By way of illustration, reference was made to the fact that since waterproofing of the roof was found to be ineffective, new tiles were provided to prevent water leakage. Likewise, marble in the toilets was replaced with granite. Similarly, the existing skirting along the walls was replaced with wooden skirting. In this context, reference was also made to the fact that existing sanitary appliances, false ceilings in bathrooms and corridors and wall panelling were replaced. None of these expenditures created a new asset. 22.3 As regards Rs.73,55,847/-, which was shown under the head expenses incurred on “plant and machinery", was expenditure incurred in respect of the following: improvement in the filtration, renewal of electric wiring and appliances, repair of the ducting for air-conditioners, provision of transformers for lights, replacement of A.C. Grills, replacement of sanitary fittings like flush valves etcetera. 22.4. Once again, the CIT(A) concluded that expenses incurred on the items mentioned above did not involve the acquisition of a new asset or replacing the whole or a substantial part of the asset. More particularly, the CIT(A) noted that the cost of articles such as transformers, A.C. Grills and flush valves was less than Rs.5,000/-, which, in any event, if treated as a capital asset, would be entitled to depreciation at the rate of 100%. According to CIT(A), the expenditure on such articles was in the nature of current repairs and not on capital account. 22.5. The only expense qua which deduction was not allowed by the CIT(A) was the expense amounting to Rs.3,08,703/- incurred by the appellant/assessee on pressurisation of lift shafts. According to the CIT(A), this expenditure has resulted in additional benefits of an enduring nature, as the safety of lifts was enhanced for a considerable period. Thus, out of Rs.73,55,847/- shown under the head “plant and machinery”, only Rs.3,08,703/- was disallowed. 22.5. The only expense qua which deduction was not allowed by the CIT(A) was the expense amounting to Rs.3,08,703/- incurred by the appellant/assessee on pressurisation of lift shafts. According to the CIT(A), this expenditure has resulted in additional benefits of an enduring nature, as the safety of lifts was enhanced for a considerable period. Thus, out of Rs.73,55,847/- shown under the head “plant and machinery”, only Rs.3,08,703/- was disallowed. 23. Insofar as other expenditure amounting to Rs.4,91,479/- was concerned, the CIT(A) concluded that the expenses incurred were of a miscellaneous nature on articles like teak mouldings, replacement of coils and lamp-shades, mirror light fittings, repairs to the chimney, painting etcetera. Qua these expenses as well, the CIT(A) noted that no new articles had been purchased and that the costs had been incurred essentially on repairing and replacing old articles. 24. In sum, the CIT(A) concluded that except for the costs incurred on pressurisation of lift shafts, none of the above expenses enhanced the earning capacity of the appellant/assessee since neither any additional space had been created nor any new plant and machinery was installed. 24.1. In CIT(A)’s opinion, all that the appellant/assessee had done was to repair old and worn-out articles or replace specific articles with new ones to give the hotel a modern and attractive look. These expenses, as per the view of the CIT(A), had facilitated the hotel operations and in running the business more profitably and efficiently. 25. As regards the disallowance of Rs.23,18,695/- was concerned, which was the fees paid to GEL, the CIT(A) relied upon the view taken by his predecessor for AY 1991-92, who had sustained the disallowance. It was observed by CIT(A) that since facts had remained the same, there was no justification for taking a different view. 26. Furthermore, the CIT(A) noticed that the appellant/assessee had capitalised the expenses incurred on payments to consultants involved with interior design, lighting and illumination. Given this position, the CIT(A) concluded that fees paid to GEL had to be treated as capital expenditure. In this regard, the CIT(A) observed that it was unclear whether the expenditure incurred towards fees paid to GEL related to the design and replacement of furniture and fittings that fell in the capital field. 27. As noticed hereinabove, the Tribunal reversed the view of the CIT(A) for the reasons broadly alluded to in paragraph 13 above. 28. In our view, the Tribunal misdirected itself in law by not applying the correct principles enunciated by the courts while ascertaining whether a particular expense should be treated as revenue or capital expenditure. 28.1. The Tribunal, in our view, was wrongly burdened by the fact that the renovation, refurbishment and repairs were carried out over several years and that the total amount incurred was Rs.35 crores, which was much more than the cost at which the hotel had been constructed. 28.2. In coming to its conclusion, the Tribunal, in our opinion, gave undue weight to the director's report, which, inter alia, alluded to the fact that they were carrying out a comprehensive renovation which would ultimately result in the hotel attaining the first rank in the country by bringing into existence a “”New Hyatt. 29. In our opinion, the Tribunal committed an error in disregarding the following undisputed facts: (i) Firstly, the expenses were incurred concerning an ongoing hospitality business. (ii) Secondly, none of the statutory authorities returned a finding that the expenses incurred by the appellant/assessee had resulted in the acquisition or bringing into existence an asset. 28.2. In coming to its conclusion, the Tribunal, in our opinion, gave undue weight to the director's report, which, inter alia, alluded to the fact that they were carrying out a comprehensive renovation which would ultimately result in the hotel attaining the first rank in the country by bringing into existence a “”New Hyatt. 29. In our opinion, the Tribunal committed an error in disregarding the following undisputed facts: (i) Firstly, the expenses were incurred concerning an ongoing hospitality business. (ii) Secondly, none of the statutory authorities returned a finding that the expenses incurred by the appellant/assessee had resulted in the acquisition or bringing into existence an asset. (iii) Thirdly, the expenses incurred by the appellant/assessee did not result in conferring upon it an advantage of enduring benefit. The advantage of enduring benefit has to be considered from the point of view of business expediency. The appellant/assessee operates in the hospitality sector and therefore, its commercial needs should have been taken into account in determining both the character and nature of the expenditure and not necessarily, the period for which the advantage would last. The only exception to this finding was CIT(A)'s conclusion about expenses incurred by the appellant/assessee on the pressurisation of lift shafts. That this conclusion of the CIT(A) was erroneous is apparent because he appears to have run astray of the principles noticed above, which resonates in the following observations made by the Supreme Court in Empire Jute Company v. CIT, (1980) 4 SCC (SC) 1: “(ii) There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in ’facilitating the assessees trading operations or enabling the management and conduct of the assessee's business to be carried on mere efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future.The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. (iii) What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency." [Emphasis is ours] (iii)(a) Clearly, the principle mentioned above applies to the expenses incurred regarding the pressurisation of lift shafts. As the CIT(A) noticed, the lifts were already in place. The fact that the pressurisation of lift shafts resulted in the “safety of the lifts” being enhanced could not have led to the expenses being incurred in that behalf being characterised as capital expenditure. [Emphasis is ours] (iii)(a) Clearly, the principle mentioned above applies to the expenses incurred regarding the pressurisation of lift shafts. As the CIT(A) noticed, the lifts were already in place. The fact that the pressurisation of lift shafts resulted in the “safety of the lifts” being enhanced could not have led to the expenses being incurred in that behalf being characterised as capital expenditure. (iv) Fourthly, the expenses incurred were for preserving and protecting existing assets. The categorisation of expenses under various heads, such as renovation, refurbishment or repair, are not necessarily determinative of the nature of the expenditure i.e., whether or not it is on capital or revenue account. The segregation can be carried out by applying the principles enunciated in that behalf to the facts obtaining in each case. The broad-brush approach adopted by the Tribunal concerning expenses which had been capitalised in the books of account and were sought to be claimed as revenue expenditure for the first time before the Tribunal was, undoubtedly, not the right approach, as is evident from the following observation made in the impugned order: “36…In the books of accounts of the assessee as well as audited annual accounts of the assessee company approved by the Board of Directors, a major part of this expenditure has been treated as capital expenditure. We are fully alive to the fact that entries made in the books of accounts of an assessee or the view taken by an assessee of the nature of his transaction cannot be decisive of the tax liability of an assessee that has to be determined in accordance with law…”annual accounts of the assessee company approved by the Board of Directors, a major part of this expenditure has been treated as capital expenditure. We are fully alive to the fact that entries made in the books of accounts of an assessee or the view taken by an assessee of the nature of his transaction cannot be decisive of the tax liability of an assessee that has to be determined in accordance with law…” After having made the observation mentioned above, the Tribunal veered, in our opinion, on the wrong path and, in this context, made the following observation: “At the same time, the view taken by the present assessee in its annual accounts cannot be ignored…”. (v) Fifthly, the reference to the appellant/assessee earning a higher room tariff or registering a higher occupancy rate, with the view to providing a rationale for concluding that the appellant/assessee had secured an advantage by virtue of the exercise undertaken by it was wholly misconceived. The Tribunal overlooked the principle that when an expenditure is incurred to make the profit-earning structure work more efficiently, leaving the structure of the source of profit or income intact, it can only be treated as revenue expenditure, although its impact may last for an extended period. Concededly, the appellant/assessee had not added a single room to the hotel property. The renovation and refurbishment of the rooms, including washrooms and other facilities in the hotel, only improved, if at all, the efficiency of the source of profit or income and hence, in our opinion, the expenses incurred for that purpose could not be categorised as capital expenditure. 30. Therefore, for the aforesaid reasons, we are inclined to sustain the view taken by the CIT(A) that Rs.2,44,00,352/- spent on renovation, refurbishment and repairs had to be treated as revenue expenditure. The contrary view taken by the Tribunal cannot be sustained and, hence, is overruled. 31. This brings us to the treatment of fees paid to GEL. The Tribunal has linked its conclusion regarding the treatment of fees paid to GEL with its conclusion arrived at qua categorisation of expenses incurred on renovation, refurbishment and repairs. This aspect is evident from the following observations made in paragraph 40 of the impugned order passed by the Tribunal: 30. Therefore, for the aforesaid reasons, we are inclined to sustain the view taken by the CIT(A) that Rs.2,44,00,352/- spent on renovation, refurbishment and repairs had to be treated as revenue expenditure. The contrary view taken by the Tribunal cannot be sustained and, hence, is overruled. 31. This brings us to the treatment of fees paid to GEL. The Tribunal has linked its conclusion regarding the treatment of fees paid to GEL with its conclusion arrived at qua categorisation of expenses incurred on renovation, refurbishment and repairs. This aspect is evident from the following observations made in paragraph 40 of the impugned order passed by the Tribunal: “…40. We now take up the assessee's appeal relating to the disallowance of fee paid by the assessee to M/s GEL. It is seen that over the years the assessee has paid the fee approximately of Rs. one· crore to M/s GEL to conceptualize, plan and supervise the assessee's Renovation & Refurbishment Project. M/s GEL has been associated with it right from the very beginning. Fees paid to M/s GEL is inextricably linked with the overall project, which we have already found to be in the capital field, in view of the discussions in the fore going paragraphs. We, therefore, have no hesitation to uphold the disallowance of fee paid to M/s GEL by the authorities ”below in all the four assessment years… [Emphasis is ours] 31.1. According to us, this view, on the same logic, cannot be sustained for the reason that if GEL was called upon to plan and supervise the execution of the work involving renovation, refurbishment and repairs (which, as noticed above, should be treated as revenue expenditure), the fees paid in that behalf should also be treated as revenue expenditure. The nature of the expenses incurred, as noticed by the CIT(A), is not suggestive of the fact that they were incurred on the capital account. 32. While disallowing the deduction, the CIT(A) has applied the parity principle. In his order, the CIT(A) notes that expenses incurred by the appellant/assessee towards payment of monies to other consultants involved in interior design, lighting and illumination had been capitalised. 33. In our opinion, the fact that the appellant/assessee had capitalised the expenditure, which, in law, it could claim as revenue expenditure, would not be determinative of what should be the correct conclusion in the matter. 34. It is well-established that the manner in which the expense/income is reflected in the books of accounts of the appellant/assessee or in some cases omitted, is not determinative of its true nature, although it may provide a clue. The safest and the surest way to arrive at the true nature of the expense/income in issue is by having regard to the provisions enunciated either in the statute and/or the principles enunciated by the courts. The following observations of the Supreme Court in the judgement rendered in Kedarnath Jute Mfg. Co. Ltd. v Commissioner of Income Tax, (Central), Calcutta (1972) 3 SCC 252, being apposite, are extracted below: 34. It is well-established that the manner in which the expense/income is reflected in the books of accounts of the appellant/assessee or in some cases omitted, is not determinative of its true nature, although it may provide a clue. The safest and the surest way to arrive at the true nature of the expense/income in issue is by having regard to the provisions enunciated either in the statute and/or the principles enunciated by the courts. The following observations of the Supreme Court in the judgement rendered in Kedarnath Jute Mfg. Co. Ltd. v Commissioner of Income Tax, (Central), Calcutta (1972) 3 SCC 252, being apposite, are extracted below: “8. The main contention of the learned Solicitor-General is t