Commissioner of Income Tax vs Adyar Gate Hotel Ltd.

R. Jayasimha Babu, J.—In Section 32(1)(v) of the Income Tax Act, 1961, as it stood prior to April 1, 1984, it had been provided that the

initial depre- ciation granted to hotel buildings under that clause shall not be deducted in determining the written down value for the purposes of

Clause (ii). That Clause (ii) provided for depreciation at the prescribed percentage of the written down value of the assets on which depreciation

was allowable. By the Finance Act 11 of 1983, with effect from April 1, 1984, the words ""but any such sum shall not be deductible in determining

the written down value for the purposes of Clause (ii)"" which words were part of Section 32(1)(v) of the Act, were deleted.

In the assessment of the assessee, which owns and runs a hotel, for the assessment year 1984-85, the Assessing Officer, for the purpose of

determining the written down value of the building for that year, deducted the initial depreciation that had been granted in earlier years even though

the written down value of the buildings as at the commencement of the assessment year 1984-85 was a figure which was not required to take into

account the initial depreciation that had been granted earlier. The assessee having disputed the correctness of such an approach on the part of the

Assessing Officer, the appellate authority agreeing with the assessee held that the deduction of the initial depreciation from the value of the asset for

the purpose of determining the written down value was required to be made only on and from the assessment year 1984-85, and that initial

depreciation that had been granted in earlier assessment years which were not required to be taken into account for the purpose of determining the

written down value in those years, could not be deducted in the assessment year 1984-85, and the written down value of the building as at the

commencement of that assessment year could not be revised downward. '' The Tribunal agreed with that view of the Commissioner and the

Revenue, is now before us having brought a reference in which the correctness of the Tribunal''s view is called into question.

It is well settled that each assessment year is a unit by itself. Depreciation is allowed on the value of the asset progressively as it depreciates over

a period of time. The initial rate of depreciation that has been allowed for hotel buildings was, up to the assessment year 1984-85, not required to

be taken into account for determining the written down value for the purpose of allowing normal depreciation at the prescribed rate. . That benefit

was taken away with effect from April 1, 1984. However, the depreciation allowable on the asset in the assessment year 1984-85 was to be with

reference to the written down value as it existed at the commencement of the assessment year. The deletion of the provision permitting exclusion of

the initial depreciation for the purpose of determining the written down value with effect from April 1, 1984, cannot be regarded as having

retrospective effect of taking away the benefit which had been given in earlier assessment years, and requiring the revision of the written down

value which had been calculated by taking note of the benefits that were legally permissible in these earlier assessment years. In the absence of

express statutory provisions depriving the assessee of a benefit which had been given in earlier years, the mere fact of deletion of certain words in a

statutory provision prospectively cannot be regarded as having been effected with intent to take away the benefits enjoyed by the assessee on the

strength of the unamended provision in earlier assessment years.

The assessee had obtained the benefit of initial depreciation in the assessment years prior to April 1, 1984. That initial depreciation cannot be

subtracted from the value of the building for determining the written down value at the commencement of the assessment year 1984-85 and the

depreciation allowed in that year calculated with reference to the reduced figure. The depreciation to be allowed in that assessment year is to be

allowed with reference to the written down value as at the commencement of the year which figure had been calculated by excluding the initial

depreciation as that was the mode in which the written down value was required to be determined prior to April 1, 1984.

The Tribunal is, therefore, right in the view that it took. The question referred to us regarding the correctness of its holding is answered in favour

of the assessee and against the Revenue.

The other question referred at the instance of the Revenue is as to whether the assessee is entitled to treat the hotel building as a plant and claim

depreciation on that basis. On that question, this court has already held in the case of Commissioner of Income Tax Vs. N. Sathyanathan and Sons

P. Ltd. and Hotel Srilekha (P.) Ltd., , that a hotel building cannot be regarded as a plant for the purpose of depreciation. Subsequently, the

Supreme Court in the case of Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, held that the hotel building cannot be regarded

as a plant. The view of the Tribunal that the assessee''s hotel building should be treated as plant for the purpose of depreciation is plainly

erroneous. This question as to whether the hotel building should be considered as a plant for the purpose of allowing depreciation u/s 32 of the Act

is answered in favour of the Revenue and against the assessee.

The questions are, therefore, answered accordingly.