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TMI Blog2021 (12) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act vide order dated 31/3/2015 wherein the Ld. AO disallowed the claim of deduction U/s 35AD of the Act for Rs. 101,98,52,291/-. The contention of the assessee was that the assessee had incurred expenditure of Rs. 101,98,52,291/- towards construction of new Five Star Hotel "Vivanta by Taj - Begumpet, Hyderabad". It was further submitted that this expenditure was incurred by the assessee prior to commencement of operation of hotel on12/11/2011 and was shown as addition to fixed assets under various heads. However, on perusal of the expenditure incurred by the assessee it was observed by the Ld.AO that the assessee had disclosed the expenditure incurred in its statement of accounts as under: - Sl No Description Amount In Rs. 1. Land & Landscaping 0 2. Buildings 63,25,56,677 3. Plant & Machinery 31,34,54,193 4. Furniture & Fixtures 5,79,58,544 5. Vehicles 0 6. Office Equipment 1,34,93,363 7. Intangibles 23,89,515 Total 1,01,98,52,291 4. It was further observed by the Ld.AO from Note-5 of the Balances Sheet that the expenditure incurred towards building pertained to improvements to leasehold building during the FY 2011-12. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating equipment which was claimed as deduction U/s. 35AD. Bare shell constructed by the lessor on the land would not constitute a building suitable to operate a hotel of two star or above category. Such bare shell can be put to use for any purpose, such as offices, shops etc. further there are also certain minimum criteria required by Ministry of Tourism, Government of India to grant star status and such status will be granted depending on the facilities provided in the hotel.We emphasize that the standards in star category hotel are high and the capital expenditure needs to be done to meet the specifications required for setting up a star hotel. Thus, it is the facilities provided in the Hotel Building which makes it a star hotel but not just building. It is unlike other commercial construction (eg software companies, shopping malls, multiplexes etc) where in just a shell with pillars and slabs with the basic plastering is sufficient to commence operations. Hence, we submit that owner of the land had constructed only core shell for part of the building and leased out the same to our company and it is the expenditure of capital nature incurred by our company amounting to Rs. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural produce and laying and operating a cross-country natural gas or crude or petroleum oil pipeline network. 9.1.2 The benefit of investment linked tax incentive under section 35AD has now been extended to the following specified businesses in addition to the existing businesses: - (i) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government and commencing operations on or after the 1st day of April, 2010; (ii) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients and commences operation on or after the 1st April, 2010; (iii) developing and building a housing project under a scheme for slum re-development or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed and commences operation on or after the 1st day of April, 2010. 9.2.1 Sub-section (3) of section 35AD has been substituted so as to provide that where a deduction under this section is claimed and allowed in respect of the specified business for any assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the AO's view that the assessee is not eligible for deduction U/s. 35AD (sic) of the Act, as the assessee did not build the hotel building and has been operating the same on the leasehold land and building and the intention of section 35AD (sic) of the Act is to promote fresh investment but not to accommodate the old investments and give tax benefits. Therefore, the AO's action in not allowing the claim made by the assessee for deduction U/s. 35AD of the Act, is upheld. As a result, the grounds in this regard are dismissed." 7. Before us, the Ld. AR vehemently argued reiterating the submissions made before the Ld. Revenue Authorities and prayed for the grant of deduction U/s. 35AD of the Act. The Ld. DR on the other hand relied on the orders of the Ld. Revenue Authorities. 8. We have heard the rival submissions and carefully perused the material available on record. From the above it is apparent, that the Ld. Revenue Authorities had denied deduction U/s. 35AD of the Act to the assessee because of the following reasons: - (i) The assessee had not constructed the main structure of the 'building'. (ii) The intention of section 35AD is for the purpose of promoting fresh in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d restriction placed on it by way of exception should be construed in a reasonable and purposive manner so as to advance the object of the provision. The Hon'ble Apex Court further observed that the objects of an exemption provision should not be frustrated by a language or expression which may defeat the purpose. 10. Further, from the lease deed dated 14/12/2006 produced before us by the assessee the concise gist of certain clauses is stated herein below for reference: - * Clause-3 (Page No.6) specifies that the lessee(assessee) undertake to execute the following work at its own expense (Page No.21, Annexure-II): 1) Interior of the Guest Rooms and Public Arears. 2) All Movable Assets. 3) Complete Plant & Machinery 4) All equipment for operation of the hotel. 5) Elevators (2). 6) Sewerage Treatment Plant (STP). 7) Operating Supplies. 8) Air Conditioning Systems. 9) Fire Fighting Equipment. 10) All Electrical Works. 11) All Plumbing works with Fixtures and Fittings. 12) Any other works, item/equipment required to complete the hotel for the commencement of the operation and not included in the Annexure-1 hereto. * Clause-5, Page No.7 specifies that the le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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