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IN THE HIGH COURT OF DELHI AT NEW DELHI

+

ITA 160/2022 & CM APPL.24125/2022

PCIT MUMBAI 1

..... Appellant

Through:

Mr. Sunil Agarwal, Advocate with

Mr. Tushar Gupta and Mr. Utkarsh

Tiwari, Advocates.

versus

ELEL HOTELS AND INVESTMENTS LTD

..... Respondent

Through:

Mr. Gaurav Jain with

Ms. Akshita Goyal and Mr. Shubham

Gupta, Advocates.

%

Date of Decision: 31^st May, 2022

CORAM:

HON'BLE MR. JUSTICE MANMOHAN

HON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA

J U D G M E N T

MANMOHAN, J (Oral)

1.

Present appeal has been filed challenging the order dated 16

:

th

2.

Learned counsel for the Appellant states that the Tribunal erred in

holding that the payment of Rs.30.86 crores made to ITC Ltd. was revenue

in nature without considering the fact that the assessee itself declared the

same as capital expenditure in its return of income. He further states that the

Tribunal erred in holding that the improvement in lease rights was not a

capital expenditure in the hands of the assessee when in fact the payment to

February, 2021 passed by the ITAT in ITA No. 918/DEL/2010.

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/002413

ITC Ltd. was made to clear the defects in title of the hotel and hence the

expenditure should be capitalized.

3.

Learned counsel for the Appellant states that if the amount is a

depreciable capital expenditure, depreciation cannot be given on the entire

amount of capital expenditure of Rs.30.86 crores, when in fact, the payment

so made is not only for the purpose of acquiring the building but also to

acquire the land on which the hotel is located along with all the furniture and

fixtures which are the part of the hotel.

4.

A perusal of the paper book reveals that the petitioner is the owner of

a hotel known as ‘Hotel Sea Rock’ in Mumbai which was initially being

managed by ITC Ltd. under the Hotel Operator Agreement effective from

1986. In 1993 the hotel was severely damaged as a result of bomb blast

during the riots in Mumbai. Thereafter, disputes and differences arose

between the assessee and ITC Ltd., with respect to responsibility to repair

and restore the damaged portion and other consequential issues.

Subsequently, the assessee was in litigation with ITC Ltd.

5.

Ultimately, the assessee company out of commercial expediency

terminated the operator-cum-management agreement with ITC Ltd. and paid

a sum of Rs.43.10 crores during the Assessment Year 2006-07 to ITC Ltd.

who in turn handed over vacant and peaceful possession of the hotel

property.

6.

Accordingly, the issue that arises for consideration in the present

appeal is whether a sum of Rs.30.86 crores paid by the respondent towards

termination of Hotel Operator Agreement out of a total sum of Rs.43.10

crores is capital or revenue expenditure?

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/002413

7.

In the opinion of this Court, there has been no addition of capital asset

of enduring nature in the hands of the respondent-assessee. In fact, after

payment of Rs.30.86 crores there has been no change in the capital structure

of the respondent-assessee.

8.

It had paid Rs.30.86 crores to get back the possession of its own asset

which had been given on license basis under the Hotel Operator Agreement.

The Assessee has not acquired something that it did not already own or

possess. This Court is of the view that the respondent-assessee spent

Rs.30.86 crores to facilitate its business and trading operations. Accordingly,

the test of capital expenditure as stipulated in Empire Jute Co. Ltd. vs. CIT,

(1980) 4 SCC 25, Commissioner of Income Tax vs. Madras Auto Service

(P.) Ltd., (1998) 233 ITR 468, Commissioner of Income Tax, Bombay

City-I vs. Associated Cement Companies Ltd., (1988) 172 ITR 257,

Hindustan Times Ltd. vs. Commissioner of Income Tax, New Delhi,

(1980) 122 ITR 977,