Commissioner of Income Tax vs Hotels (Andhra) P. Ltd.

Seetharama Reddy, J.—It is unfortunate that the question referred to us by the Appellate Tribunal at the instance of the Revenue ought not to have arisen at all, because the circumstances that led to this reference are both amusing as well as amazing. The question referred for our answer is :

"Whether, on the fact and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee is entitled to the benefit of the allowances under sections 32(1)(v) and 33(1)(b) of the Income Tax Act, 1961 ?"

The question to be answered becomes very easy if the correspondence that ensued between the assessee and the Department of Tourism is carefully gone through and thus a reference could have been avoided. The assessee is a hotel, "Sun-n-Sea", established at Visakhapatnam for which approval was sought for from the Department of Tourism, which was accorded on November 6, 1965, stating "your hotel project is approved by the Government". It is further clarified by the Department of Tourism, by its letter dated March 10/12,1975, as under :

"Sub : - Approval for the purpose of sections 32(1)(v) and 33(1)(b)(B)(ii), 80B and 80J(6)(d) of the Income Tax Act, 1961 - Hotel Sun-n-Sea, Visakhapatnam.

Dear Sir,

I am to refer to your letter dated the 25the February, 1975, on the above subject and to clarify that Hotel Sun-n-Sea, Visakhapatnam, has been on the approved list of the Government of India for the purpose of sections 32(1)(v) and 33(1)(b)(B)(ii), 80J(7)(d) of the Income Tax Act, 1961, since the 2nd August, 1969."

This was further confirmed by the Department of Tourism on March 9, 1978, as under :

"Please refer to your letter No. DG/71/78 dated 9th March, 1978. This is to clarify that approval granted to your hotel in this Department''s letter No. 5-IT. II(88)/63, dated 4th/6th November, 1965, was, inter alia, intended to cover the benefits u/s 32(1)(v)/33(1)(b)(B)(ii)/80B(7), 80J(6)(d) of the Income Tax Act, 1961."

Under these circumstances, the relief to the hotel, which was initially an assessee and also was given due relief in respect of additional depreciation as well as rebate, was sought to be modified by reopening u/s 147(a) of the Income Tax. The Income Tax Officer, by his order dated March 27,1978, holds :

"Primarily, the hotel was not approved by the Central Government for purposes of sections 80J, 32(1)(v) and 33(1)(b) of the Income Tax Act, Secondly, there was no corresponding decision given by the Andhra Pradesh High Court. Since the hotel is not approved, the assessee is not entitled to any section 80J allowance, initial depreciation u/s 32(1)(v) and development rebate u/s 33(1)(b)."

On appeal, however, very rightly, the Appellate Assistant Commissioner reversed the order of the Income Tax Officer and granted the necessary relief in view of the position as it obtained under the letters dated March 12, 1975, and March 9, 1978, of the Department of Tourism not only under sections 80J and 32(1)(v) but also u/s 33(1)(b)(B)(ii) as well. On further appeal, this was confirmed by the Appellate Tribunal and thereafter at the instance of the Revenue, the question is referred for our opinion.

Before adjudicating, the letter dated October 17,1978, addressed to the managing director of the hotel concerned by the Income Tax Officer may be noticed :

"I am to refer to this Department''s letter of even number dated 9th March,1978,on the subject mentioned above and to say that the approval granted to your hotel in this Department''s letter No. 5-IT. II(88)/63, dated 4th/6th November,1965, was, inter alia, intended to cover the benefit under sections 80B(7)/80J(6) of the Income Tax Act, 1961.

Hence, the letter of even number dated 9th March, 1978, may please be treated as cancelled."

The letter dated October 26,1978, addressed by the Department of Tourism to the hotel concerned reads :

"I am to refer to this Department''s letter of even number dated the 17th October,1978, on the subject mentioned above and to say that the word ''cancelled'' appearing in the second para of the above letter may please be read as modified to that extent. Inconvenience caused, if any, is regretted."

Apparently, it is these two letters that appear to have encouraged the argument to be advanced on behalf of the Revenue. But, in our undoubted view, these letters were not in existence at all when the case was sought to be reopened and it is incomprehensible as to how the Income Tax Officer, in his order, overlooked the position as it obtained on the day when he passed the order. Indeed, such order could not have been passed at all. The reasons were more imaginary than being real. The same was very rightly denounced by the Appellante Assistant commissioner which was eventually confirmed by the Appellat Assistant Commissioner which was eventually confirmed by the Appellate Tribunal as well.

So far as the subsequent two letters as aforesaid are concerned, it is not known as to how and under what powers the Department or Tourism sought to issue such letters at all. The benefit of approval conferred on the assessee-hotel as early as in the year 1975 being reinforced after three years in 1978, by a stroke of pen and that too on an imaginary basis that the said benefit was said to have been conferred by oversight, is sought to be modified. When originally the benefit had been expressly conferred on the assessee and the same was followed three years thereafter ,later, in the name of so-called clarification, the same position is sought to be given a go-by by merely stating that it was by oversight. The question of oversight obviously does not arise because advertently something has been done. It is not a case of any omission. That apart, the Department of Tourism is estopped from seeking to rescind the benefit conferred earlier by its two letters and, therefore, viewed from any angle, the modified orders, as they were, must be treated as non est and the benefit conferred earlier must be acted upon, and was so very rightly acted upon by both the Appellate Assistant Commissioner as well as the Appellate Tribunal.

Hence, we have no hesitation in answering the question posed in the affirmative and in favour of the assessee and against the Revenue. No costs.