RITZ CONTINENTAL HOTELS LTD Vs. COMMISSIONER OF INCOME TAX CENTRAL II

JUDGEMENT

(1.) The assessee is a limited company. The reference relates to the assessment years 1968-69 and 1969-70. The assessee-company was incorporated on 18th May, 1961, with the object of carrying on the business of hotels, restaurants, cafes, holiday camps, etc. Later on, by an order of the High Court at Calcutta passed on 21st November, 1963, M/s. A. Firpos Ltd. was amalgamated with the assessee-company and in this way the assessee-company took over the hotel business of M/s. A. Firpos Ltd. with effect from 1st November, 1963. There was a building belonging to the Life Insurance Corporation of India at No. 12, Chowringhee Road, and No. 1 Chowringhee Place, which was formerly leased out to M/s. Ritz Pvt. Ltd. for a period of 15 years with effect from 1st December, 1958. There was an agreement between the Life Insurance Corporation of India and the Ritz Pvt. Ltd. whereby the Life Insurance Corporation of India had agreed to effect additions and alterations to the building at the cost of Rs. 30,00,000 in return from Ritz Pvt. Ltd. for giving vacant possession of the premises with effect from 1st August, 1960, and the Life Insurance Corporation of India not charging any rent from the date of vacation of the premises by an agreement dated 6th March, 1961. Later on, this agreement was cancelled and the assessee-company simultaneously entered into an agreement with the Life Insurance Corporation of India on 30th May, 1963, whereby the Life Insurance Corporation of India agreed to reconstruct, remodel and enlarge the existing building at the cost of approximately Rs. 52,00,000 which was to be given on lease to the assessee-company on completion on the terms and conditions mentioned in the agreement. The recital of the agreement, inter alia, provided as follows :

(2.) The agreement further provided, inter alia, as follows :

(3.) It appears that one of the terms of the agreement was that the assessee-company had to pay to the Life Insurance Corporation of India interest at the rate of 3% on all amounts spent or deemed to have been spent by the Life Insurance Corporation of India from 1st August, 1960, in respect of and on such construction at the end of every quarter until a new and remodelled building was complete in all respects when it was to be given to the assessee-company on lease for a period of 15 years commencing from the date the building was certified fit for occupation and possession was given to the assessee-company. The building was completed early in 1971 and was given on lease to the assessee-company some time in March, 1971. The interestat 3% which came to Rs. 88,910for the assessment year 1968-69 and Rs. 1,08,648 for the assessment year 1969-70 were described by the assessee-company as rent in the profit and loss account and the amounts were claimed as such as deduction in the computation of business income.