DCIT, Madurai V. Pandyan Hotels Limited, Madurai

ITA 1020/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5948 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS VENI S RAJ JT
• Assessee Lawyers: ARUN KURIAN JOSEPH
• Keywords: Capital asset; Depreciation; Business expenditure; Valuation report; Revenue expenditure; Capital expenditure
• Section: 143(3); 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B, CHENNAI , ! ' #! ' $ . %& , ' () * BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ITA NO.1020/MDS/2016 ' + !,+ / ASSESSMENT YEAR : 2012-13 DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2, MADURAI. VS. PANDYAN HOTELS LTD., RACE COURSE, TALLAKULAM, MADURAI 625 002. [PAN: AABCP 3656K] ( /APPELLANT ) ( / RESPONDENT ) -. 0 1 / APPELLANT BY : MRS. VENI S.RAJ, JT. CIT 23-. 0 1 / RESPONDENT BY : SHRI ARUN KURIAN JOSEPH, ADVOCATE ' ! 0 4 / DATE OF HEARING : 02.08.2017 5, 0 4 / DATE OF PRONOUNCEMENT : 16.10.2017 /ORDER PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE REVENUE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MADURAI (CIT(A) FOR SH ORT) DATED 29.01.2016, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR TH E ASSESSMENT YEAR (AY) 2012-13 VIDE THE ORDER DATED 31.03.2015. 2. THE SOLE ISSUE IN THE INSTANT APPEAL IS WHETHER THE BUILDING RENOVATION EXPENSES, INCURRED BY THE ASSESSEE AT . 143.37 LACS, IS A DEDUCTIBLE BUSINESS EXPENDITURE. THE ASSESSEE COMPANY RUNS A 3-STAR HOT EL AT MADURAI, OPERATING AS 2 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. A FRANCHISEE HOTEL OF ITC GROUP OF HOTELS. THE HOTE L IS HOUSED IN A FIVE STORIED RCC FRAMED BUILDING. THE GROUND FLOOR OF THE BUILDI NG CONSISTS OF A MULTIPURPOSE HALL, KITCHEN, RESTAURANT, BAR, VISITO RS LOUNGE, RECEPTION, ETC., WHILE THE OFFICES ARE LOCATED AT THE SECOND FLOOR. THE GUEST ROOMS, 57 IN TOTAL, ARE AT THE REMAINING THREE FLOORS. THE REPAIR AND R ENOVATION EXPENSES WERE CARRIED OUT QUA 18 OF THESE ROOMS, SIX AT EACH FLOOR, AS PHASE-I OF THE EXERCISE, TO BE CARRIED OUT IN PARTS, AT THE INSTANCE OF THE ITC GROUP, WITH THE DECLARED OBJECT OF UPGRADING IT TO INTERNATIONAL STANDARDS, SO AS TO REMAIN COMPETITIVE AS WELL AS TO MEET THE EXPECTATIONS OF THE PUBLIC, A L ARGE SEGMENT OF ITS CLIENTS BEING FOREIGNERS. THE ASSESSING OFFICER (AO) REFERR ED THE EXPENDITURE FOR VALUATION TO THE VALUATION OFFICER (VO) U/S. 142A O F THE ACT, WHO VALUED IT AT . 151.21 LACS (VIDE VALUATION REPORT (VR) DATED 26. 06.2014/COPY ON RECORD), I.E., AT A MINOR DIFFERENCE OF .7.84 LACS. ADOPTING THE SAME, THE AO, REGARDING THE ENTIRE EXPENDITURE AS CAPITAL, ALLOWED DEPRECIA TION THEREON AT THE RATE EXIGIBLE TO A BUILDING. THE LD. CIT(A), IN VIEW OF IT BEING NOMINAL LESS THAN 10 PER CENT., DELETED THE DIFFERENCE, AND ALSO DIRECTE D THE AO TO ALLOW DEDUCTION AS A REVENUE EXPENDITURE; THE OPERATING PART OF HIS OR DER READING AS UNDER: 3.3.1 THE QUESTION IS WHETHER THE EXPENSES INCURRE D BY THE APPELLANT CAN BE CAPITALISED FOR THE PURPOSE OF INCOME TAX AC T. AS SEEN FROM THE VALUATION REPORT, THE APPELLANT HAS NOT DISTURBED T HE SUPER STRUCTURE AND BASIC STRUCTURE OF THE BUILDING. THE APPELLANT HAS CARRIED OUT REPAIRS AND RENOVATION IN 6 ROOMS EACH AT 2 ND , 3 RD , 4 TH FLOOR. THE NATURE OF WORK CARRIED OUT BY THE APPELLANT HAVE BEEN EXPLAINED IN DETAIL BY THE VALUATION OFFICER IN HIS VALUATION REPORT. A PERUSA L OF THE SAME SHOWS THE APPELLANT HAS CHANGED THE FLOORING AND REPLACED WOR N OUT DOORS AND RENOVATED THE BATHROOMS AND BY INCURRING THE ABOVE EXPENDITURE, THE APPELLANT DID NOT INCREASE THE ROOM CAPACITY OR CRE ATE ANY NEW ASSET. THE EXPENSES HAVE BEEN INCURRED ONLY TO PRESERVE TH E EXISTING ASSET AND THE APPELLANT HAD TO RENOVATE THE OLD ROOMS IN ORDE R TO ATTRACT FOREIGN CUSTOMERS AND TO MAINTAIN THE STANDARD OF 3 STAR HO TELS AND THE APPELLANT DID NOT EVEN INCREASE THE STATUS OF THE HOTEL FROM 3 STAR TO 4 STAR OR 5 STAR. THE AO HELD THAT THE APPELLANT DERIVED BENEFIT OF E NDURING NATURE BUT THIS IS NOT THE SOLE TEST TO BE APPLIED. THE TEST O F ENDURING BENEFIT MAY FAIL ON CERTAIN OCCASIONS AND THE CORRECT TEST TO SEE WH ETHER THERE IS CREATION OF ANY NEW ASSET. ADMITTEDLY, THE APPELLANT HAS NOT CREATED ANY NEW ASSET 3 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. AND HAS UNDERTAKEN REPAIRS AND RENOVATION ONLY IN T HE EXISTING ROOMS THAT TOO ONLY IN 18 ROOMS OUT OF 57 ROOMS AVAILABLE IN T HE HOTEL. IN THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE APPELLANT INCURRED CAPITAL EXPENDITURE AND, CONSEQUENTLY, THE AO IS NOT JUSTIFIED IN TREATING IT AS CAPITAL EXPENSES . THE ADDITION MADE BY THE AO IS DELETED. (EMPHASIS, OURS) AGGRIEVED, THE REVENUE IS IN APPEAL AGAINST THE TR EATMENT OF THE EXPENDITURE AS A REVENUE EXPENDITURE. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE MAY, TO BEGIN WITH, DELINEATE THE LAW IN THE M ATTER AS EXPLAINED BY THE HIGHER COURTS OF LAW. IN NEW SHORROCK SPINNING & MANUFACTURING CO. LTD. V. CIT [1956] 30 ITR 338 (BOM), IT WAS HELD AS UNDER: 'THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN M IND IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS AN EX PENDITURE ON REPAIRS WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET . THE OBJECT OF THE EXPENDITURE IS NOT TO BRING A N EW ASSET INTO EXISTENCE, NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE . THIS CAN BE THE ONLY DEFINITION OF REPAIRS BECA USE IT IS ONLY BY REASON OF THIS DEFINITION OF REPAIRS THAT THE EX PENDITURE IS A REVENUE EXPENDITURE . IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOU SLY SUCH AN EXPENDITURE WOULD NOT BE AN EXPENDITURE OF A REVENU E NATURE BUT IT WOULD BE A CAPITAL EXPENDITURE , AND IT IS CLEAR THAT THE DEDUCTION WHICH THE LEGISLATURE HAS PERMITTED UNDER S. 10(2)(V) IS A DE DUCTION WHERE THE EXPENDITURE IS A REVENUE EXPENDITURE AND NOT A CAPI TAL EXPENDITURE.' (EMPHASIS, SUPPLIED) THE AFORE-STATED TEST WAS ENDORSED AND APPLIED BY T HE HON'BLE APEX COURT IN BALLIMAL NAVAL KISHORE V. CIT [1997] 224 ITR 414 (SC), REPRODUCING IT, NOTING THAT THE SAME HAD IN FACT BEEN FOLLOWED BY THE MAJO RITY OF THE HIGH COURTS IN INDIA, AND WAS, RATHER, IN AGREEMENT WITH THE VIEW EXPRESSED EARLIER AS WELL, AS IN CIT V. DARBHANGA SUGAR CO. LTD. [1956] 29 ITR 21 (PATNA) AND CIT V. SRI RAMA SUGAR MILLS LTD. [1952] 21 ITR 191 (MAD). THE HON'BLE COURT HAD, ON CE AGAIN, AN OCCASION TO CONSIDER THE ISSUE QUA REPAIR TO PLANT AND MACHINERY, 4 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. ADMISSIBLE U/S. 31, WHICH IS PARI MATERIA TO S. 30, ALLOWING DEDUCTION, INTER ALIA , ON ACCOUNT OF REPAIRS TO A BUILDING, IN CIT V. SARAVANA SPINNING MILLS (P.) LTD. [2007] 293 ITR 201 (SC). IT, AFFIRMING ITS DECISION IN BALLIMAL NAVAL KISHORE (SUPRA), HELD AS UNDER: (I) (II) THAT TO DECIDE THE APPLICABILITY OF SECT ION 31(I) THE TEST WAS NOT WHETHER THE EXPENDITURE WAS REVENUE OR CAPITAL IN NATURE, B UT WHETHER THE EXPENDITURE WAS 'CURRENT REPAIRS'. THE BASIC TEST WAS TO FIND OUT W HETHER EXPENDITURE WAS INCURRED TO 'PRESERVE AND MAINTAIN' AN ALREADY EXISTING ASSE T, AND THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OB TAIN A NEW ADVANTAGE. (III) THAT EACH MACHINE INCLUDING THE RING FRAME WAS AN I NDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT AND SPECIFI C FUNCTION AND, THEREFORE, THE EXPENDITURE INCURRED FOR REPLACEMENT THEREOF WOULD NOT COME WITHIN THE MEANING OF 'CURRENT REPAIRS'. THE REPLACEMENT OF THE RING FRAME CONSTITUTED SUBSTITUTION OF AN OLD ASSET BY A NEW ASSET AND, TH EREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE DID NOT FALL WITHIN THE ME ANING OF CURRENT REPAIRS' IN SECTION 31(I). UNDER SECTION 31(I) THE DEDUCTION ADMISSIBLE I S ONLY FOR CURRENT REPAIRS. THE AFORE, THE QUESTION AS TO WHETHER THE EXPENDITURE I NCURRED BY THE ASSESSEE CONCEPTUALLY IS THE REVENUE OR CAPITAL IN NATURE IS NOT RELEVANT FOR DECIDING QUESTION, WHETHER SUCH EXPENDITURE COMES WITHIN THE ETYMOLOGICAL MEANING OF THE EXPRESSION CURRENT REPAIRS. IN OTHER WORDS, E VEN IF THE EXPENDITURE IS REVENUE IN NATURE, IT MAY NOT FALL IN THE CONNOTATI ON OF CURRENT REPAIRS. IT DISTINGUISHED ITS EARLIER DECISION IN CIT V. MAHALAKSHMI TEXTILE MILLS LTD. [1967] 66 ITR 710 (SC), EXPLAINING THAT IF CURRENT REPAIRS WAS TO BE UNDERSTOOD AS INCLUDING REPLACEMENT, S. 31(I) WILL BECOME COMPLETELY REDUNDANT AND ABSURDITY WILL CREEP IN BECAUSE REPAIR IMPLIES EXISTENCE OF A PART OF A MACHINE WHICH HAS MALFUNCTIONED, WHICH IS IMPOSSIBL E IN CASE OF SUCH REPLACEMENT (PG. 209). THE SAME STOOD AFFIRMED IN CIT V. SRI MANGAYARKARASI MILLS (P.) LTD. [2009] 315 ITR 114 (SC), EXPLAINING THAT REPLACEME NT OF AN OLD MACHINE PART WITH A NEW ONE WOULD CONSTITUTE THE BR INGING INTO EXISTENCE OF A NEW ASSET IN PLACE OF AN OLD ONE AND NOT REPAIR OF THE OLD EXISTING MACHINE (PG. 122). FURTHER, CONSIDERATION OF THE DEFINITION OF A N ASSET OR BLOCK OF ASSETS WAS NOT REQUIRED TO BE CONSIDERED TO DECIDE AS TO W HETHER THE EXPENDITURE 5 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. INCURRED BY THE ASSESSEE IS A DEDUCTIBLE EXPENDITUR E OR NOT, FURTHER SUGGESTING THAT THE EXPENDITURE COULD BE REGARDED AS AN ADDITI ON TO THE EXISTING ASSETS FOR CLAIM OF DEPRECIATION, AS IN FACT TREATED IN THE AC COUNTS (PG. 124). AS SHALL BE APPARENT FROM THE FOREGOING, THERE HAS BEEN NO DEVIATION IN THE LAW AS LAID DOWN IN BALLIMAL NAVAL KISHORE (SUPRA), WHICH CONTINUOUS TO HOLD THE FIELD OVER THE YEARS. IN THE FACTS OF THAT CASE , EXTENSIVE REPAIRS TO THE STRUCTURE OF A BUILDING, A THEATRE, WAS HELD AS NOT DEDUCTIBLE; THE HON'BLE COURT EXPLAINING THE SCOPE OF THE TERM CURRENT REPAIRS U/S. 10(2)(V) (OF THE 1922 ACT), WHICH EXPRESSION OCCURS BOTH IN S. 30(A)(II) AS WEL L AS S. 31 OF THE ACT, WITH THE HON'BLE COURT DRAWING ATTENTION TO THE FACT THAT TH E EXPRESSION USED IS CURRENT REPAIRS AND NOT REPAIRS. THE SCOPE OF THE TERM H AVING BEEN WELL CLARIFIED, IT REDUCES THE DEBATE/CONTROVERSY OF REVENUE VERSUS CA PITAL EXPENDITURE TO LARGELY IT BEING CURRENT REPAIRS OR NOT, AS EXPLAINED IN SARAVANA SPINNING MILLS (P.) LTD. (SUPRA). AT THIS STAGE, IT MAY BE NOTED THAT THE TE ST ADOPTED AND APPLIED IN NEW SHORROCK SPINNING & MANUFACTURING CO. LTD. (SUPRA), AND WHICH HAS SINCE FOUND ADOPTION BY THE HON'BLE APEX COURT TIME AND A GAIN, WAS QUA REPAIRS AND NOT QUA CURRENT REPAIRS , SO THAT, IRRESPECTIVE OF THE LANGUAGE, THE APPLICABLE TEST IS ESSENTIALLY THE SAME. FURTHER, S . 37(1), THE RESIDUARY CLAUSE ALLOWING REVENUE EXPENDITURE, INCURRED WHOLLY AND E XCLUSIVELY FOR BUSINESS PURPOSES, SPECIFICALLY EXCLUDES EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36, AS ALSO NOTED IN SARAVANA SPINNING MILLS (P.) LTD. (SUPRA). SECTION 37(1), IN ANY CASE, PROHIBITS CAPITAL EXPENDITURE. THE TRUE TEST THAT THEREFORE EMERGES, WHERE AN EXP ENDITURE IS CLAIMED AS REPAIRS, TO FIND WHETHER THE SAME FALLS WITHIN THE SCOPE OF THE PROVISION, IS WHETHER, AS A RESULT OF THE SAID EXPENDITURE, WHAT IS BEING REALLY DONE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET OR WHETHER THE OBJECT OF SUCH EXPENDITURE WAS TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN A NEW OR FRESH ADVANTAGE. IF IT IS THE FORMER, IT IS REPAIR. IF IT IS THE LATTER, IT SHOULD BE 6 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. CONSIDERED AS A REPLACEMENT OR RENEWAL. FURTHER, AS EXPLAINED IN C.R.CORERA & BROS. V. CIT [1963] 49 ITR 188 (MAD), THE NATURE OF THE EXPENDI TURE CLAIMED ON REPAIRS IS TO BE VIEWED AS A WHOLE AND IN PROPER PE RSPECTIVE IN ORDER TO DETERMINE WHETHER SUCH REPAIRS HAVE ONLY HAD THE EF FECT OF REPAIRING THE MACHINERY TO ITS ORIGINAL CONDITION OR WHETHER THEY HAVE INTRODUCED ANY ADDITIONAL ADVANTAGES OR FEATURES WHICH HAVE IMPROV ED ITS INCOME EARNING CAPACITY, THAT IS TO SAY, BROUGHT A NEW ASSET INTO EXISTENCE. NEEDLESS TO ADD, THE NEW ASSET OR ADVANTAGE WOULD BE A CAPITAL ASSET, EL IGIBLE FOR CLAIM OF DEPRECIATION ON BEING PUT-TO-USE, WHICH WOULD BE SO EVEN IN CASE OF A BUILDING ON A LEASE HOLD LAND ( EXPLANATION 1 BELOW S. 32(1)(II)). IN SRI RAMA SUGAR MILLS LTD. (SUPRA), IT WAS HELD THAT THE TEST WHETHER A THING IS REPAIR OR NOT IS TO SEE WHETHER THE ACT ACTUALLY DONE IS ONE WHICH IN SUBST ANCE IS A REPLACEMENT OF DEFECTIVE PARTS OR A REPLACEMENT OF THE ENTIRETY OR A SUBSTANTIAL PART OF THE SUBJECT MATTER. THIS, THEN, PROVIDES THE FRAMEWORK WHEREUNDER THE EXPENDITURE BEING CLAIMED DEDUCTIBLE IN THE COMPUTATION OF BUSI NESS INCOME U/S. 28 IS TO BE EXAMINED. COMING TO THE FACTS OF THE CASE, THE VR DATED 26.0 6.2014, WHICH COVERS PHASE-I OF THE WORK, INCURRED DURING THE PERIOD 07/ 2011 TO 03/2013, I.E., CARRIED OVER 21 MONTHS, PROFILES THE EXPENDITURE AT ANNEXUR E 1 THERETO. ITS PERUSAL REVEALS IT TO CONSIST OF 58 ITEMS UNDER THE HEAD R ENOVATION WORKS (FOR . 140.79 LACS), AND ANOTHER . 3.29 LACS UNDER SECTION II, TITLED DISMANTLING ITEMS, WHILE SECTION III IS QUA SUPERVISION CHARGES, AT . 7.13 LACS, AGGREGATING THUS TO . 151.21 LACS. IT MAY BE NOTED THAT THE DIFFERENCE IN VALUE, AS CLAIMED TO BE INCURRED AND AS EVALUATED BY THE VO, CORRESPONDS WITH THE COST ESTIMATED FOR SUPERVISION EXPENSES. EXCLUDING THE SUPERVISION COS T, THE VOS ESTIMATION OF THE COST IS THUS IN COMPLETE AGREEMENT WITH THAT CL AIMED, VALIDATING BOTH, FURTHER ENDORSING THE RELIABILITY OF THE SAID REPORT. WITH REGARD TO THE NATURE OF THE REPAIRS CARRIED OUT, EVERY SINGLE ASPECT OF THE C IVIL WORK AS WELL AS ELECTRICAL 7 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. AND SANITARY FITTINGS, I.E., OTHER THAN THE FOUNDAT ION AND THE EXISTING SUPERSTRUCTURE, I.E., THE RCC FRAMEWORK AND MASONAR Y (BRICK) WORK, WAS DISMANTLED AND REDONE, WITH OF COURSE NEW MATERIALS . NO WONDER THE SAME WORKS TO . 8 LACS PER ROOM. THIS, IT IS FURTHER NOTED, IS ON OTHER THAN THE EXPENDITURE ON REFURBISHING THE ROOMS, INCURRING EX PENDITURE ON FURNITURE, TELEVISION AND CABLE, CARPETS, AIR CONDITIONING, TE LEPHONE, ELECTRICAL LAMPS, CURTAINS, LINEN, ETC., FOR WHICH ANOTHER SUBSTANTIA L SUM HAS BEEN EXPENDED, WORKING TO . 3 TO 4 LACS PER ROOM (PARA 2.5 OF THE VR). NOW, I T COULD NOT POSSIBLY BE THAT ALL THE ROOMS SUDDENLY DEVELOPED T HE NEED FOR REPAIRS AND REFURBISHING, WHICH IS, IN ANY CASE, CLEARLY A CASE OF SUBSTANTIAL REPLACEMENT, I.E., OF ALL THEIR COMPONENTS A TOTAL RENOVATION. THE EXPENDITURE IS CERTAINLY AND, IN FACT ADMITTEDLY, NOTWITHSTANDING THAT A PAR T OF A PARTICULAR ROOM OR A PARTICULAR ROOM MAY REQUIRE SOME REPLACEMENT, INCUR RED NOT FOR PRESERVATION AND MAINTENANCE, BUT CARRYING IMPROVEMENT TO ALL TH E ROOMS IN PHASES, WITH A VIEW TO UPGRADE THE HOTEL AT PAR WITH INTERNATIONAL STANDARDS. THERE IS IN FACT NO CLAIM AS TO PRESERVATION OR MAINTENANCE AT ANY STAG E . IT IS A CLEAR CASE OF RENOVATION; OF SUBSTANTIAL (IF NOT TOTAL) REPLACEME NT, SO THAT IT IS NOT REPAIRS AS EXPLAINED IN SRI RAMA SUGAR MILLS LTD. (SUPRA). THE ACCOUNT HEAD BUILDING RENOVATION EXPENSES, UNDER WHICH THE EXPENDITURE S TANDS BOOKED IN ACCOUNTS, THUS, CORRECTLY DESCRIBES THE SAME, I.E., ITS NATUR E. PHASE-II OF THE MODERNIZATION PROGRAM, AS PLANNED, FOLLOWED PHASE-I, BEING IN FAC T UNDER PROGRESS AT THE TIME OF INSPECTION (FOR VALUATION) ON 08.01.2014. THE SA ME MAY NOT HAVE TRANSLATED INTO HIGHER REVENUE OR YIELD, AS SOUGHT TO BE EMPHA SIZED BY THE LD. COUNSEL DURING HEARING, WHICH DEPENDS ON A VARIETY OF FACTO RS. RETAINING THE FRANCHISE; RETAINING OR IMPROVING THE MARKET SHARE (WHICH WOUL D ACCRUE ONLY IN FUTURE AS THE EXPENDITURE ITSELF CONTINUES UP TO MARCH, 2013 THE REPAIR BEING FOLLOWED BY REFURBISHING); UPGRADATION/IMPROVEMENT IN FACILI TIES, ARE, IN OUR VIEW, DEFINITE ADVANTAGES IN THE CAPITAL FIELD. IT IS CLE AR THAT BUT FOR THE EXPENDITURE, 8 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. THE ASSESSEE WOULD NOT BE ABLE TO RETAIN EITHER THE FRANCHISE OR A COMPETITIVE EDGE IN THE MARKET, WHICH IT WISHES OR INTENDS TO, AND THE EXPENDITURE IS INCURRED WITH A LONG TERM PERSPECTIVE, OBJECTIVE AND GOAL. I T RATHER ADVANCES THE ARGUMENT OF THE EXPENDITURE BEING INCURRED AT THE B EHEST OF THE ITC GROUP, TO CONTEND OF THE SAME BEING REPAIRS OR REVENUE IN N ATURE. THE ARGUMENT IS MISCONCEIVED IN-AS-MUCH AS BOTH THE REVENUE AND CAP ITAL EXPENDITURE ARE INCURRED ONLY IN RESPONSE TO BUSINESS DECISIONS, SO THAT THAT BY ITSELF WOULD NOT DETERMINE THE NATURE OF THE EXPENDITURE. IT IS THEN SAID THAT IN-AS-MUCH AS THE FLOOR AREA OF THE ROOM/S REMAINS THE SAME, I.E., HA S NOT INCREASED, NO NEW ASSET HAS COME INTO EXISTENCE. AS EXPLAINED IN SRI MANGAYARKARASI MILLS (P.) LTD. (SUPRA), DEDUCTIBILITY OF EXPENDITURE ON REPAIRS DO ES NOT NECESSARILY ENTAIL NEGATING THE BRINGING INTO EXISTENCE OF A NEW ASSET . WE HAVE IN FACT ALREADY FOUND AS A FACT THE IMPUGNED EXPENDITURE TO RESULT IN AN ADVANTAGE IN THE CAPITAL FIELD, WHICH SCOTCHES THIS ARGUMENT, WHICH IS IN FA CT WITHOUT MERIT. THIS IS AS AN ASSET AS BOTH QUANTITATIVE AND QUALITATIVE ASPECTS/ ATTRIBUTES TO IT. TWO MACHINES WITH THE SAME PRODUCTION CAPACITY MAY VARY SIGNIFIC ANTLY IN COST AND/OR PRICE IN VIEW OF THE QUALITY OF THEIR OUTPUT. AS COMMON EXPE RIENCE BEARS OUT, TWO PIECES OF LAND OF THE SAME AREA AND, FURTHER, EVEN SAME DI MENSIONS, COST (VALUED BY MARKET) DIFFERENTLY DEPENDING UPON THEIR LOCATION, EVEN IF SUBJECT TO THE SAME CONSTRUCTION REGULATIONS. COULD ONE POSSIBLY COMPAR E A ROOM (OF A PARTICULAR SIZE) IN A DOWNTOWN LODGE WITH A ROOM (OF THE SAME SIZE) IN AN UPMARKET HOTEL, MUCH LESS IN A STAR HOTEL? WHY, TWO ROOMS OF THE SA ME SIZE IN THE SAME HOTEL MAY BE PRICED DIFFERENTLY DEPENDING ON THEIR FURNIS HING; LOCATIONAL ADVANTAGE, AS (SAY) SEA FACING, ETC., OR EVEN IF PRICED EQUALL Y, ATTRACT DIFFERENT OCCUPANCY RATES, INDICATING BEING DIFFERENTLY VALUED ASSETS O F THE BUSINESS. AS EXPLAINED IN C.R.CORERA & BROS. (SUPRA), INTRODUCTION OF ADDITIONAL FEATURES MAY RE SULT IN BRINGING A NEW ASSET OR ADVANTAGE INTO EXISTENCE. I N FACT, TO EVEN SO SUGGEST, I.E., THAT NO NEW ADVANTAGE HAS COME INTO EXISTENCE, PLAC ES A SERIOUS QUESTION ON THE 9 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. WISDOM (OR THE BUSINESS PURPOSE BEING NOT FOR PRE SERVATION OR MAINTENANCE) OF INCURRING THE EXPENDITURE. IT IS IN FACT CONTRADICT ORY IN-AS-MUCH AS IT IS ADMITTEDLY INCURRED TO UPGRADE THE ACCOMMODATION FA CILITIES TO INTERNATIONAL STANDARDS, SO THAT IT IS, BY IMPLICATION, PRESENTLY , I.E., PRIOR TO INCURRING THE EXPENDITURE, NOT. BOTH THE PARTIES HAVE RELIED ON CASE LAW BY THE TR IBUNAL AND THE HON'BLE HIGH COURTS. WE HAVE, AS WOULD BE APPARENT, RELIED ON DECISIONS BY THE APEX COURT LAYING DOWN THE LAW IN THE MATTER, AS WELL AS BY THE SAID COURT AND THE HON'BLE JURISDICTIONAL HIGH COURT APPLYING THE SAME IN DIFFERENT FACT SETTINGS, TO DECIDE THE QUESTION ARISING IN THE PRESENT CASE, BA SED ON OUR FACTUAL FINDINGS, I.E., OF THE IMPUGNED EXPENDITURE AS NOT ANSWERING THE DEFINITIVE TEST LAID DOWN FOR THE PURPOSE AND, IN FACT, REPRESENTING AN IMPRO VEMENT TO THE EXISTING ASSET. WE, ACCORDINGLY, DO NOT CONSIDER IT NECESSARY TO DI STINGUISH INDIVIDUALLY THE CASE LAW FURNISHED, EACH OF WHICH WE HAVE THOUGH PE RUSED. FOR INSTANCE, IN CIT V. OOTY DASAPRAKASH [1999] 237 ITR 902 (MAD), BEING BY THE HON'BLE JURISDICTIONAL HIGH COURT, THERE IS, WITH RESPECT, NO FINDING AS TO THE EXPENDITURE UNDER REFERENCE ANSWERING THE DESCRIPTION OF CURRE NT REPAIRS AS LAID DOWN IN BALLIMAL NAVAL KISHORE (SUPRA) (WHICH, AS AFORE-NOTED, IS THE SAME AS FOR REPAIRS, AS EXPOUNDED IN NEW SHORROCK SPG. & MFG. CO. LTD. (SUPRA)) OR EVEN TO THE EARLIER PRECEDENTS BY THE HON'BLE JURISDICTIONA L HIGH COURT REFERRED TO IN THIS ORDER. IT IS, IT MAY BE APPRECIATED, ONLY THE RATIO DECENDI OR THE PRINCIPLE OF LAW LAID DOWN WHICH IS BINDING. THERE IS FURTHER NO GAI NSAYING THAT THE SUBSEQUENT DECISIONS BY THE HONBLE APEX COURT, REFERRED TO IN THIS ORDER, HAVE AFFIRMED THE DECISION IN BALLIMAL NAVAL KISHORE (SUPRA) AS WELL AS FURTHER DILATED ON THE LAW IN THE MATTER. AS CLARIFIED IN SARAVANA SPINNING MILLS (P.) LTD. (SUPRA), CAUSING A PARADIGM SHIFT, THAT THE ISSUE TO BE CONSIDERED I S FROM THE STAND-POINT OF THE DEDUCTIBILITY OF THE EXPENDITURE INCURRED IN TERMS OF THE RELEVANT PROVISION AND 10 ITA NO.1020/MDS/2016 (AY 2012-13) DY. CIT V. PANDYAN HOTELS LTD. NOT AS CAPITAL VERSUS REVENUE. THE SAID DECISION WO ULD THUS BE OF LITTLE ASSISTANCE TO THE ASSESSEE. WE, THEREFORE, FOR THE REASONS AFOREMENTIONED, SET ASIDE THE IMPUGNED ORDER ON THIS GROUND, AND RESTORE THAT BY THE AO. W E DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED ON OCTOBER 16, 2017 AT CHENNAI . SD/- SD/- ( ' #! ' $ . %& ) (DUVVURU RL REDDY) ' /JUDICIAL MEMBER ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED, OCTOBER 16, 2017 EDN 7 0 2'489 :9,4 /COPY TO: 1. -. /APPELLANT 2. 23-. /RESPONDENT 3. ' ;4 ( )/CIT(A) 4. ' ;4 /CIT 5. 9!<= 2'4' /DR 6. =&+ > /GF