Srinivasa Resorts Limited V. The Commissioner of Income Tax, A.P.,

ITTA/87/2008

AI Insights

The case revolves around an appeal by Srinivasa Resorts Limited against the order of the Income Tax Appellate Tribunal, which had reversed the decision of the Commissioner of Income Tax (Appeals) that allowed the deduction of certain expenditures under Section 37(1) of the Income Tax Act. The expenditures in question were for carpets, mattresses, and lamp shades purchased by the appellant for its hotel in Hyderabad. The primary legal contention was whether these expenditures constituted 'current repairs' under Section 31 or were capital expenditures under Section 37(1). The Tribunal had earlier held that the expenditures were not 'current repairs' and thus not deductible under Section 31(i), leading to the appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 768205 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 05-11-2024
• Assessment Year: misc
• Other Referred Cases: Ballimal Naqo-I Kishore and another V. CIT, CIT V. So,ra oana Spinning Mills (P) Ltd., Commissioner of Income-Tax V. Lake Palace Hotels and Motek P. Ltd., Commissioner of Income Tax, Madras V. Maholakshmi Textile Mills Ltd., Commissioner of Income-tax, Madurai V. Sara oana Spg' Mills (n) Ltd., Commissioner of Income-tax, Vicarbha V. Smt. Godavari Devi So,raf6, Ashoka Hotels Ltd. V. Commissioner of Income Tax, New Delhi, Sri Rama Talkies V. Commissioner of Income Tax, Andhra Pradesh, Assam Bengal Cement Co. Ltd V. Commissioner of Income Tax, West Bengal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: J V PRASAD
• Assessee Lawyers: G V S GANESH
• Keywords: Capital expenditure; Current repairs; Deduction under section 37(1); Revenue expenditure
• Section: 37(1); 31; 260-A

Judgement Text

"1341't 1 IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD TUESDAY,THE FIFTH DAY OF NOVEMBER TWO THOUSAND AND TWENTY FOUR PRESENT , THE HONOURABLE SRI JUSTICE SUJOY PAUL AND THE HONOURABLE SRIJUSTICE NAMAVARAPU RAJESHWAR RAO INCOME TAX TRIBUNAL APPEAL NO: 87 OF 2008 4gpqq]-fiteO under Section 260-4 of the lncome Tax Act, 1961 against the order dated 28.09.2002 passed in lrA No. 909tHydl2o04 for Assessment v\"ei, ioor- uz on tne trre ot the rncome Tax Appellate Tribunal, Hyderabad 6ench .B', Hyderabad pl+rleq qq?itg! rhe Appetrate order dated ie.otzoiq pisseo in Appeal No 275lAc-3(2)lctr(A)-tvi20o3-04 on the fite of the commt{sioner or lncome.lax lAppeals) lv, Hyderabad preferred against the order dated 3.1.12.2003 passed in PAN/GIR No. AADCS4190F on the file of the Assistant commissioner of lncome Tax,Circle -3(2), Hyderabad. Between: srinivasa Resorts Limited, a company incorporated under the comoanres Act 1956, having its Registered office at*a-z|lret, Bequmpet, uvJeiiuao - ouu U16, Represented by its Managing Director Mr. Kuldeep Bharteb. ...Appellant AND The Commissioner of lncome Tax, A.p.,, Hyderabad. ...Respondent Counsel for the Appellant : Sri G.V.S. Ganesh Counsel for the Respondent : Sri J.V. prasad, Sr. SC FOR INCOME TAX The Court delivered the following: JUDGMENT THE HCINOURABLE SRI JUSTICE SUJOY PAUL AND THE HONOURABLI' SRI JUSTICE NAMAVARAPU RAJESHWAR RAO INCOME 1IAX TRIBUNAL APPEAL NO,87 OF 2OO8 JUDGMENT: (p<'t Uon bl€t sn .,/uslrr e Narnauarapu Raleslulor Roct) The presenL appcal has been hled under section 260-A of the Income Ta-x Ac t, 196 I (for short the \"Act\") aggrieved by 1fi6 order passcd by ncome Tax Appellate Tribunal, H),derabad Bench B, H),derz bad (for short \"Tribunal\") in I.T.A No.9O9 / Hyd/ 200-1 dated 28.O9.2OO7 lor the Assessment Yt:ar 200r-2002 2. We havc ht--irrd thc learned counsel Sri G.V,S. Ganesh, learned counsel for the appellanr, and Sri J.V. Prasad, learrned Senior Standing Counsel for the respondent. 3. '11-re brief lac,s leading to liling of [he present appeal are as under: 4. The appellan, is running a S-Star Hotel in Hydcrabad. In the relevanL Asr;essmer-rt years, the appellant claimed expenditure of Rs.9,2 I ,O33/- toivards the cost of carpets, mattrcsses and lanrp shades under Section 31 of the Act. The Assessing Officer (for short \"AO\") disallor.r.ed the claim of expenditure under Scction 31 of thc Act on the grour-rd that since the appellant purchased new carpets, mattresses and Iamp shades rvithout repairing the existing assets, the expenditure in question did not constitute \"current repairs,,, applying the decision of the Supreme Court in the case of Ballimal Na oo-I Kishore and q.nother V. CITI. The AO also did not accept [he alternate contention of allorving the amount mentioned above under Section 37(1) of the Act on the ground that the same vas in the nature of capital expenditure. 5. The order of the AO was assailed before the Commissioner of Income Tax (Appeal) (for short, 'the CIT(A). The CIT(A) reversed the order of the AO and allowed deduction for the expenditure incurred under Section 37(1) of the Act on the ground that the Appellant incurred expenditure for replacement o[ damaged items and not for acquisition of an asset for the first time. The CIT (A) accordingly, held that the expenditure was not incurred for bringing into existence an asset of enduring nat u re. 6- On further appeal by the Revenue, the Tribunal reversed the order of the CIT(A) and held that the expenditure in question was not in the nature of current repairs allowable deduction under Section 31(i) of the Act, in view of the Supreme ' 224 ttR 474 Court judgmcnt ir the case of CIT V. So,ra oana Spinning Mills (P) Ltd.,2 7 . Aggrieved b1' he ordcr of thc Tribunal, dated 28.09.2OO7 , the presenl appeal is filed by the appellant. 8. This Court, uhile hcaring the mattcr, framed the follor.r,ing substantial questions of [au, 1. Whether <,n the facts and circumstances of the case, the Triburral erred in [au. in not holding that the expendilu re on the purchase of carpets, mattresses and lamp shacles rnas deductible under Sect.ion 37 (1) of the Act not being in Lhe nature ol capital expenctitu re? 2. Whether (,n the facts and circumstances of the case, the Triburral erred in [ar,v in nol adjuclicating the alternatc :laim lbr deduc[ion under Section 37(1) of the Act?' 9. Learned colrnsel lor the appellant contended that the Tribunal erred in I ,Lrv in not acijudicating the alternate claim lor deduction undcr Scction 37(1) of thc Act. He further submitted that the Tribunal erred in larv by not hoiding that Lhe expenditure on th r purchase o[ carpets, matlresses ancl lamp shades was deduc ible under Scction 37ll) of the Act, not berng in Lhe nature o[ ca riLal expenditure. 10. Learned cc unsel lor the appellant contended that 1-he order passed by tlrc Tribunal declining to admit the ahernatc claim for deducliorr under Section 37(1) of the Act is contrary to ' (zoot zgl fiq zot 1 the judgment in thc casc of Saraaana Spinning Mills (p) Ltd. (supra) applied by the Tribunal against the Appcllant. The Supreme Court, in that case, did not consider the applicability of Section 37(i) ol the Act and did not express any opinion thereon, as is evident from the observations on pages 212_213 of the judgment, which are reproduced hereunder _ 11 \"14. Some of the decisions cited on behalf of the AppeLlants we not being discttssed bg us as theg deal u.ith cases fallirtg under Section 37. That Section is a residuary Section- [Jnder Section 37, a particular item of expenditure may be deductible if the expenditure does not fall utithin Sections 3O to 36; that it should haue been incur-red in tLrc accounting gear; that it should be in respect of a business catried on bg the Appeltant, that it should not be on person-al account of the Appellant, that it shottld not be in the nah.Lre of capitat expend.iture and that it sltould be spent wholly and exclusiuely for business. Whether expenditure is 'reuenue, or 'capital in nature' u.tould d.epend upon seueral factors, namelg, nature of the expenditure, nature of the business actiuity etc. For example, constntction of tLrc building for self use mag be capital in nahtre tuhereas in the hands of tte builder a buitding constitutes his slock-in trade and, therefore, on the sale of the building the expenditure has to be reuenue. Therefore, the builder uould be entitled to deduct such expenditure from the sale proceeds/gross income. Therefore, u.thether an- expenditure is reuenue or capital in nature uould depend on the facts of each case. Learned counsel for rhe appellant further contended that the Tribunal has relerred to the later part of the judgment of the Supreme Court wherein the issue regarding the applicability of Section 37(1) of the Ac[ was not allowed to be 5 raisedinViewoftlieConcurrentlrndingrecorde