The Principal Commissioner Of Income Tax, Panaji v. Goa Tourism Development Ltd

1 txa72-18-07-01-19 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.72 OF 2018 The Principal Commissioner of Income Tax, Panaji. ..… Appellant. Versus Goa Tourism Development Ltd....... Respondent. Ms. Susan Linhares, Standing Counsel for the Appellant. Coram : M.S. Sonak & Prithviraj K. Chavan, JJ. Date : 7 January 2019. P.C.: Heard Ms. Susan Linhares for the Appellant. 2.The challenge in this Appeal is to the order dated 13April 2018 made by the Income Tax Appellate Tribunal, (ITAT)Panaji, dismissing the appeal filed by the Appellant-Revenue againstthe Order dated 30 May 2017, made by the Commissioner ofIncome Tax (CIT) (Appeals) relevant to the Assessment Year 2008-09. The CIT Appeals, as well as the ITAT, have concurrently heldthat the expenditures towards repairs and renovations of theRespondent-Assessee's hotel properties must be treated as a revenueexpenditure and not as a capital expenditure. 2 txa72-18-07-01-19 3.Ms. Linhares submits that in the present case, theRespondent-Assessee has brought into existence a new asset or in anycase, has secured new advantage of a enduring nature. She submitsthat in such circumstances, the expenditure incurred on repairs andmaintenance which, ultimately, resulted in renewal and upgradationof hotels was required to be treated as a capital expenditure and notrevenue expenditure. She submits that this is the ratio of the ApexCourt decision in Ballimal Naval Kishore vs. Commissioner ofIncome Tax1. She submits that, therefore, the substantial questions oflaw, as framed, arise in the present appeal which are required to beconsidered. 4.Ms. Linhares also submits that the ITAT clearly erred inallowing depreciation on UPS purchases at the rate of 60 %, insteadof 15 % allotted by the Assessing Officer. She, therefore, submitsthat the substantial question of law as formulated in paragraph 8(4)of the Memo of Appeal also arises and is required to be considered. 5.We have considered the aforesaid submissions of Ms.Linhares. We have also perused the impugned orders, as well as thematerial on record. Taking into consideration the material on record,concurrent findings recorded by the two Authorities, as well as the1 (1997) 224 ITR 414 3 txa72-18-07-01-19 settled legal position, we are of the opinion that no substantialquestions of law arise in this Appeal. Therefore, this Appeal is notrequired to be entertained for the reasons set out here after. 6.In the present case, the CIT Appeals, and the ITAT haveexamined the factual aspects of the matter in some details. Theexpenditure, in the present case, was towards dismantling Mangaloretiles, and laying laterite stones, laying plaster, plaster of paris andpainting, waterproofing, replacement of tiles and plumbing. There isno infirmity in the view taken by the two Authorities that suchexpenditure be treated as revenue expenditure. 7.In the present case, taking into consideration the natureof the repairs and renovations, it can hardly be said that theRespondent-Assessee has gained some substantial advantage ofenduring nature. In any case, as held by the Hon'ble Apex Court inEmpire Jute Co. Ltd. vs. CIT[2] that every advantage of enduringnature acquired by an assessee cannot be routinely treated as a capitalexpenditure. In such a case, it is necessary to consider the nature ofthe advantage in the commercial sense and it was only where theadvantage was in the capital field that the expenditure would bedisallowable on the ground that it was capital, but if the advantageconsists in merely facilitating the assessee's trading operations or 2 (1980) 124 ITR 1, 4 txa72-18-07-01-19 enabling the management and conduct of the assessee's businessleaving the fixed capital untouched, the expenditure would be onrevenue account, even though the advantage may endure for anindefinite future. 2 (1980) 124 ITR 1, 4 txa72-18-07-01-19 enabling the management and conduct of the assessee's businessleaving the fixed capital untouched, the expenditure would be onrevenue account, even though the advantage may endure for anindefinite future. 8. In the particular context of repairs and renovations tohotel properties, reference can usefully be made to a decision ofMadras High Court in Commissioner of Income-Tax vs. Ooty3. DasaprakashIn this case, the assessee was running a hotel and hadincurred substantial expenditure, spread over three years on repairsand on modernising the hotel and replacing the existing componentsof the building, furniture and fittings with a view to create aconducive and beautiful atmosphere for the purpose of running thebusiness of the hotel. This expenditure was held as revenueexpenditure since it was considered to be not of enduring benefit tothe assessee. Similarly, in Commissioner of Income-Tax vs. LakePalace Hotels and Motels P. Ltd.4the Rajasthan High Court held thatthe expenditure on renovation of the hotel to meet the requirementof the Commonwealth Foreign Ministers' Conference was not of anyenduring benefit and, therefore, deductible as revenue expenditure. 9.In the CIT vs. Cama Hotels Ltd.5 the Karnataka High 3 237 ITR 902 4 258 ITR 562 5 (2015) 63 Taxmann.com 27 5 txa72-18-07-01-19 Court has held that merely because the income of the hotel may haveincreased on account of repairs, renovation and modification, it doesnot necessarily follow that the repairs and renovation amount toreplacing the existing assets with new capital assets. The existing assetis the hotel and merely because the same can be used in a bettermanner or more profitably on account of repairs and renovation, itcannot be said that the expenditure incurred towards such repairs orrenovation was capital expenditure and not the revenue expenditure. 10.The decision in Ballimal Naval Kishore (supra), isdistinguishable in the context of the facts in the present case. InBallimal Naval Kishore (supra), the Hon'ble Apex Court approvedthe ruling in New Shorrock Spinning and Manufacturing Co. Ltd.Vs. Commissioner of Income Tax, (1956 ) 30 ITR 338 in which thisCourt had held that if the amount spent was for the purpose ofbringing into existence a new asset or obtaining a new advantage,then, obviously, such an expenditure would not be an expenditure ofa revenue nature, but would be a capital expenditure. 11.The aforesaid decision is not applicable to the facts of thepresent case because, here it cannot be said that the expenditureincurred was for the purpose of bringing into existence a new asset orobtaining a new advantage. This was as simple case where theexisting assets were repaired, or to some extent renovated. The CIT 6 txa72-18-07-01-19 Appeals, as well as the ITAT, on facts, have held that this was not acase where some new asset was brought into existence or newadvantage of enduring nature was obtained. Such concurrent findings of fact do not suffer from any perversity, so as to give rise to any substantial question of law. 12.In so far as the second issue is concerned, both, the CITAppeals, as well as the ITAT have relied upon the decisions in thecase of CIT vs. BSES Yamuna Powers Ltd. 6 Pentair Water India (P)Ltd. vs. ACIT 7and Macawber Engineering System (I) P. Ltd. vs.ACIT8 in which it is clearly held that the UPS is the component/equipment connected with the computers and is, therefore, entitledfor the depreciation @ 60%. Again, the contention, as raised, doesnot give rise to any substantial question of law. 13.For the aforesaid reasons, this Appeal which gives rise tono substantial questions of law, is required to be dismissed and is,hereby, dismissed. There shall be, however, no order as to costs. (Prithviraj K. Chavan, J.) (M.S. Sonak, J.) 6 (2010) 8 TMI 58 7 (2014) 5 TMI 1068 8 (2012) 19 ITR (Trib) 302