HOTEL ALANKAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) : The following questions have been referred to us for our opinion :

(2.) THESE questions arise on the following facts and circumstances : Shri Ambalal Zaveri, one of the partners of the applicant-firm, owns a building opposite to Ahmedabad Railway Station. On July 1, 1967, the said Shri Ambalal along with his daughter, Ramonaben and one Abdulrahim Suleman Desai formed a partnership-firm for carrying on the business of a boarding and lodging house in the name and style of "Hotel Alankar". According to the partnership deed, which was to be effective from 1st day of July, 1967, the said Shri Ambalal Zaveri agreed to place his aforesaid building, known as "Zaveri Chambers", at the disposal of the firm and to allow the use of the 1st, 2nd, 3rd and 4th floors for the purposes of the business which was to be treated as his capital contribution and was not entitled to any compensation in consideration thereof. The expenses on account of repairs, insurance charges, taxes, etc., incurred and/or to be incurred in connection with the building were to be borne by the firm. The additional sanitary and other facilities were also to be made in the building at the cost and expenses of the firm. The said building was made available for the business of the firm from July 1, 1967, that is, the date of the partnership deed. It appears that the assessee-firm spent in all Rs. 77,120 for putting the building in a new shape for making it more suitable for hotel business. Out of the aforesaid amount of Rs. 77,120 a sum of Rs. 31,412 was treated as capital expenditure by the firm but the balance amount of Rs. 45,708 was claimed as repairs and, consequently, as revenue expenses.

(3.) THE Department carried the matter before the Tribunal, which, on a consideration of the legal position, tried to find out, on the facts and in the circumstances of the case, when the business could be said to have been established and was ready to commence business. Broadly stated, four important facts weighed with the Tribunal in accepting the appeal of the Department and disallowing the claim of the assessee-firm. THE reasons are, (i) that the building in question was previously used for offices, and business establishments and, therefore, by its very nature, could not have been suitable for running a hotel; (ii) that the building had not had certain common facilities like dining room, kitchen, etc. ; (iii) that substantial architect fees were required to be paid to reshape the building ; and (iv) that the staff of manager and bearers was not recruited till February, 1968. THE Tribunal was, therefore, of the opinion that the expenses incurred prior to 24th February, 1968, the day on which the hotel was formally inaugurated cannot be considered as revenue expenses and should, therefore, be disallowed. It is in these circumstances that the questions set out above have been referred to us.