High Court Of Madras
CIT vs. Adyar Gate Hotel Ltd.
Sections 32(1)(ii), 32(1)(v), 43(3), 43(6)
Asst. Year 1984-85
R. Jayasimha Babu & K. Gnanaprakasam, JJ.
Tax Case No. 584 of 1995
21st June, 2001
Counsel Appeared
J. Naresh Kumar, for the Revenue : Philip George, for the Assessee
JUDGMENT
R. JAYASIMHA BABU, J. :
In s. 32(1)(v) of the IT Act, 1961, as it stood prior to 1st April, 1984, it had been provided that the initial depreciation granted to hotel buildings under that clause shall not be deducted in determining the written down value for the purposes of cl. (ii). That cl. (ii) provided for depreciation at the prescribed percentage of the written down value of the assets on which depreciation was allowable. By the Finance Act 11 of 1983, w.e.f. 1st April, 1984, the words “but any such sum shall not be deductible in determining the written down value for the purposes of cl. (ii)” which words were part of s. 32(1)(v) of the Act, were deleted.
In the assessment of the assessee, which owns and runs a hotel, for the asst. yr. 1984-85, the AO, for the purpose of determining the written down value of the building for that year, deducted the initial depreciation that had been granted in earlier years even though the written down value of the buildings as at the commencement of the asst. yr. 1984-85 was a figure which was not required to take into account the initial depreciation that had been granted earlier. The assessee having disputed the correctness of such an approach on the part of the AO, the appellate authority agreeing with the assessee held that the deduction of the initial depreciation from the value of the asset for the purpose of determining the written down value was required to be made only on and from the asst. yr.
1984-85, and that initial depreciation that had been granted in earlier assessment years which were not required to be taken into account for the purpose of determining the written down value in those years, could not be deducted in the asst. yr. 1984-85, and the written down value of the building as at the commencement of that assessment year could not be revised downward. The Tribunal agreed with that view of the CIT and the Revenue, is now before us having brought a reference in which the correctness of the Tribunal’s view is called into question.
It is well settled that each assessment year is a unit by itself. Depreciation is allowed on the value of the asset progressively as it depreciates over a period of time. The initial rate of depreciation that has been allowed for hotel buildings was, up to the asst. yr. 1984-85, not required to be taken into account for determining the written down value for the purpose of allowing normal depreciation at the prescribed rate. That benefit was taken away w.e.f.
1st April, 1984. However, the depreciation allowable on the asset in the asst. yr. 1984-85 was to be with reference to the written down value as it existed at the commencement of the assessment year. The deletion of the provision permitting exclusion of the initial depreciation for the purpose of determining the written down value w.e.f. 1st April, 1984, cannot be regarded as having retrospective effect of taking away the benefit which had been given in earlier assessment years, and requiring the revision of the written down value which had been calculated by taking note of the benefits that were legally permissible in these earlier assessment years. In the absence of express statutory provisions depriving the assessee of a benefit which had been given in earlier years, the mere fact of deletion of certain words in a statutory provision prospectively cannot be regarded as having been effected with intent to take away the benefits enjoyed by the assessee on the strength of the unamended provision in earlier assessment years.
The assessee had obtained the benefit of initial depreciation in the assessment years prior to 1st April, 1984. That initial depreciation cannot be subtracted from the value of the building for determining the written down value at the commencement of the asst. yr. 1984-85 and the depreciation allowed in that year calculated with reference to the reduced figure. The depreciation to be allowed in that assessment year is to be allowed with reference to the written down value as at the commencement of the year which figure had been calculated by excluding the initial depreciation as that was the mode in which the written down value was required to be determined prior to 1st April, 1984.
The Tribunal is, therefore, right in the view that it took. The question referred to us regarding the correctness of its holding is answered in favour of the assessee and against the Revenue.
5. The other question referred at the instance of the Revenue is as to whether the assessee is entitled to treat the hotel building as a plant and claim depreciation on that basis. On that question, this Court has already held in the case of CIT vs. N. Sathyanathan & Sons (P) Ltd. (2000) 160 CTR (Mad) 269 : (2000) 242 ITR 514 (Mad), that a hotel building cannot be regarded as a plant for the purpose of depreciation. Subsequently, the Supreme Court in the case of CIT vs. Anand Theatres (2000) 160 CTR (SC) 492 : (2000) 244 ITR 192 (SC) held that the hotel building cannot be regarded as a plant. The view of the Tribunal that the assessee’s hotel building should be treated as plant for the purpose of depreciation is plainly erroneous. This question as to whether the hotel building should be considered as a plant for the purpose of allowing depreciation under s. 32 of the Act is answered in favour of the Revenue and against the assessee.
The questions are, therefore, answered accordingly.
[Citation : 252 ITR 129]
