ITAT allows Deduction of Expenses incurred for Beautification and Maintenance of Hotel to preserve Three-Star Classification [Read Order]

The Cochin bench of the Income Tax Appellate Tribunal (ITAT), Cochin bench has held that the expenses incurred by a hotel for its beautification and maintenance are allowable as business expenditure.

The assessee, a three-Star Hotel incurred certain expenses towards the repair and maintenance of the existing building to keep it fit to get renewal of the three-star classification and claimed deduction of such amount in their income tax return. The assessee claimed that they were already having Three Star facility from the year 2006 and the same was to be renewed for a period of five years. In order to continue the same business in the same way, the assessee had to incur these expenses.

The Assessing Officer rejected the claim for expenditure by treating the same as capital in nature.

Citing a catena of decisions, the Tribunal bench observed that by no stretch of imagination can it be said that painting and other incidental expenses are capital expenses.

“In the Hotel industry, huge expenditure has to be incurred with a view to keep the place fit and beautiful so that guests can enjoy the good atmosphere and ambience of the place. Without a good ambience and atmosphere, it would not be possible to attract customers for running the hotel business carried on by the assessee. In this case, though the expenses incurred cannot be allowed as deduction as current repairs certainly expenses would not be a The Cochin bench of the Income Tax Appellate Tribunal (ITAT), Cochin bench has held that the expenses incurred by a hotel for its beautification and maintenance are allowable as business expenditure. and all conditions being satisfied u/s. 37 of the I.T. Act, expenses are to be allowed under the said section. The expenses incurred in a hotel industry may be current repairs which expenses are incurred on a yearly basis and expenditure incurred on a periodical basis,” the Tribunal said.

“On the basis of these expenses incurred, the assessee did not derive a new asset and there was no increase in the total rooms nor there was an increase in the total area of the hotel. The expenditure incurred by assessee such as the painting of the hotel, replacement of floor tiles, glazing works, etc. are nothing but periodical expenditure which a hotel has to necessarily incur for its upkeep and cannot be termed as capital expenditure,” the Tribunal added.