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TMI Blog2010 (3) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is the owner of a hotel at Gwalior called Usha Kiran Palace Hotel. The assessee also owned an immovable property at Pune consisting of an area of 48,480 sq. mtrs. A structure by the name of Padma Vilas Palace was constructed on the property. The dispute in the present case relates to the assessment year 1999-2000. Following an agreement to sell dated June 30, 1998, the assessee by a registered deed of conveyance dated November 9, 2008 conveyed to the Indian Hotels Company Limited 42.13 per cent. of the undivided share in the land more particularly described in the first schedule together with the structure of Padma Vilas Palace for a consideration of Rs. 11.50 crores. A portion of the property had been developed earlier by the construction of bungalows and row houses for which agreements for sale had been entered into by the assessee. By the terms of the deed of conveyance, the assessee conveyed to the purchaser 42.13 per cent. of the undivided share in the land, the structure of Padma Vilas Palace and the right to use and enjoy the property described in the second schedule (admeasuring 16,105 sq. mtrs) which was delineated on a plan annexed thereto. The total sale considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Palace at Pune had not been used as a hotel. The Com- missioner of Income-tax (Appeals) held that though the assessee had in the past classified both Padma Vilas Palace at Pune and Usha Kiran Palace at Gwalior as buildings which were used as hotels, as a matter of fact depreciation had been claimed only at the rate of 10 per cent. and not at the rate of 20 per cent. which was allowable in respect of a building used as a hotel. On the basis of an evaluation of all the facts and circumstances, to which a reference would be made in greater detail in a subsequent part of this judgment, the appellate authority held that Padma Vilas Palace was not a building which was used as a hotel. Consequently, that immovable property as well as the premises which were acquired in Mumbai fell within the same block of assets entitling the assessee to the benefit of a set off under section 50(2). This finding of fact has been affirmed by the Tribunal. 6. Counsel appearing on behalf of the Revenue has assailed the findings which have been arrived at by the Tribunal and has urged, on the basis of the observations contained in the order of the Assessing Officer, that the property at Pune was a hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been allowed under the Act, the provisions of sections 48 and 49 shall be subject to certain modifications. 9. The essential question upon which the resolution of the issue in the appeal depends is as to whether the property at Pune fell within the same block of assets as the property which was acquired by the assessee at Mumbai. In order to determine this question, the issue is whether the property belonged to a group of assets falling within a class of tangible assets in respect of which the same percentage of depreciation is prescribed. Appendix I to the Income-tax Rules, 1962, as it was applicable for the assessment years 1988-89 to 2002-03, contained a table of rates at which depreciation is admissible. Part A dealt with tangible assets and item I which is entitled as "building" was to the following effect: Block of assets Depreciation allowance as percentage of written down value 1 2 PART A TANGIBLE ASSETS I. Building (1) Buildings other than those covered by sub-item (3) below which are used mainly for residential purposes 5 (2) Buildings which are not used mainly for residential purposes and which are not covered by sub-item (3) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty, the assessee had not spent any money on renovation or otherwise for converting the palace into a hotel ; (ii) The assessee had never acquired any assets which were necessary for running a hotel and no such assets were reflected in the balance-sheet ; (iii) The assessee had not employed any hospitality staff for running a hotel ; (iv) The palace did not have necessary adjuncts for running a hotel such as a restaurant or a coffee shop ; (v) For converting a palace structure into a hotel the assessee had been required to deploy electrical, sanitary and other fittings of a special nature which were never installed ; (vi) All that the assessee had been doing was to rent out the palace for film shooting, marriages and other functions. 92.27 per cent. of the income for the assessment year 1996-97 originated in such activity and for the assessment year 1999-2000 the entire income was from the said activity; (vii) The total income received between the assessment year 1996-97 and the assessment year 1999-2000 is Rs. 4.60 lakhs, Rs. 5.71 lakhs, Rs.2.96 lakhs and Rs. 5,000 only ; (viii) The only staff engaged at the premises of the Palace consisted of a manager, a clerk, two ..... 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