A two-member bench of Income Tax Appellate Tribunal ( ITAT ) in the case M/s Sirmour Hotels Pvt Ltd vs. The DCIT held that Eco-Tourism unit including Hotels specified under Schedule XIV of the Income Tax Act, 1961 is entitled to the deduction under Section 80IC of the Income Tax Act.
The Assessee, M/s Sirmour Hotels Pvt Ltd, engaged in the business of hotels in District of Simour, State of Himachal Pradesh. A claim for deduction at 100% of the net profits under section 80IC on account of the substantial expansion of the hotel unit was raised by the assessee. The claim was on two grounds. Firstly, that the enterprise run by the assessee is an Eco-tourism project as mentioned in XIV schedule, Part C of the Income Tax, 1961 and secondly, that it had made substantial expansion in its hotel which was included in the definition of ‘Eco-tourism’ as provided in the XIV Schedule.
The Assessing Officer held that the assessee’s hotel did not qualify as an Eco-tourism unit. According to him, mere establishing of a hotel does not itself constitute an Eco-tourism unit. He observed that the hotel was not located in the area of operation of the Eco-tourism policy of the State Government of Himachal Pradesh, rather the same was situated in the most urbanized, industrialized and polluted zone of district Sirmour of Himachal Pradesh. That the hotel was not involved in the conservation of ecology while carrying out its business operation. He, therefore, held that the hotel of the assessee did not qualify for deduction u/s 80IC of the Act being not an Eco-tourism Unit.
The A.O further observed that the expansion of the Hotel building, furniture and equipment did not constitute expansion in the plant and machinery. As per section 43(3) of the Act, “plant” excluded building, furniture and fittings. Various decisions of the Hon’ble Supreme Court were also referred in support of his order.
On the first appeal, the CIT (A) held that the assessee would qualify as an Eco-tourism project within the meaning of item 15 in Schedule XIV of the I.T Act. However, the findings of the Assessing Officer that the substantial expansion had to be looked into only after excluding the building, furniture and fittings, was upheld.
Being aggrieved by the decision by CIT (A) the assessee appealed before ITAT. As the Revenue did not appeal against the findings of the CIT (A) holding that the assessee was an eco-tourism project, the only issue before the ITAT was whether in a hotel business the investment made in building, furniture and fixture can be said to constitute substantial expansion as per the provisions of section 80IC of the Income Tax Act.
The Bench of ITAT humbly departed from the relevant Supreme Court decisions regarding substantial expansion. According to the honourable ITAT bench, the claim of depreciation on hotel or building cannot be imported while deciding the claim of an assessee for deduction on account of substantial expansion in “hotel’, if such hotel undertaking otherwise falls in the list of eligible undertakings for deduction under the provisions of section 80IC of the Act.
The bench observed that “Admittedly, carrying of hotel business does not involve the setting up or installation of plant and machinery as is usually done in case of an industrial undertaking involved in manufacturing/production of things or articles. Despite the fact that in the project of a hotel, the setting up / installation of plant and machinery is not required, the benefit of deduction u/s 80IC of the Act has been given to such units provided they start/commence their operation within the stipulated dates or undertake substantial expansion during the said stipulated period if set up in the special category of States including state of Himachal Pradesh. Any other or strict definition of word ‘substantial expansion’ in our view would defeat the purpose for which the special provisions under the section 80IC of the Act have been made. We, therefore, hold that the restrictive meaning given by the lower authorities to deny the deduction u/s 80IC of the Act to the assessee on account of substantial expansion cannot be held to be justified.”
Relying on the above decision of the Hon’ble Supreme Court in CIT Vs. Karnataka Power Corporation, the ITAT set aside the order of the CIT (A) and held that the assessee will be entitled to deduction u/s 80IC of the Act on account of the substantial expansion of the unit.
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