Case Law Details
Pandian Hotels Ltd. Vs DCIT (Madras High Court)
The issue under consideration is whether the expenditure incurred in renovation and redecoration of rooms in a hotel is a revenue expenditure or capital expenditure?
In the present case, the assessee contended before the Assessing Officer that the expenses were incurred for repairs and renovation of 18 rooms out of 57 rooms in the hotel and that there was no capital expenditure incurred by the assessee. It was further contended that there was no increase in the room capacity nor creation of any new asset, but the expenses were incurred only to preserve an existing asset and that the assessee was required to renovate the old rooms in order to attract customers and to maintain the standard of a three star hotel. However, the Assessing Officer did not accept the explanation given by the assessee and treated the sum as capital expenditure after allowing depreciation at the rate of 10%.
High Court states that, there can be a no straight jacket formula, which can be applied while deciding the issue as to whether the expenditure is in the revenue field or in the capital field and facts are very relevant to be taken note of. This would be the approach while deciding such cases. Furthermore, the assessee specifically contended that the renovation and repairs neither increases their capacity nor does it empower to revise the basic room tariff because it can be done only after considering further facts such as market condition remaining in Madurai City and with the concurrence of M/s.ITC Limited, as they only have a franchisee agreement with the assessee. In the light of the above discussion, HC hold that the expenditure incurred by the assessee is a revenue expenditure and not a capital expenditure.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
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