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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI JASON P BOAZ
O R D E R
Per Jason P. Boaz, Accountant Member:
These appeals by the assessee are directed against the orders of CIT(A)-2, Bangalore, dated 31.10.2018 for Assessment Years 2013-14 to 2014-15.
Briefly stated, the facts of the case are as under:-
2.1 The assessee is a public limited company incorporated on 23.05.1969 having its registered office in Bangalore. By way of ‘Licence Agreement’ dated 01.06.1987 with ‘The Indian Hotels Company Ltd.,’ (‘IHC’ in short), a Taj Group company, the assessee granted ‘IHC’, the licence to run, operate, renovate, . 3405 and 3406/Bang/2018 Page 2 of 12 expand, develop and manage the hotel together with all the related facilities and business appurtenant thereto; including the land on which the said hotel stood. In terms of clause vi of supplemental Licence Agreement, ‘IHC’ was permitted to assign this agreement to Gateway Hotels and Gateway Resorts Ltd.,; a company also from the Taj Group of Hotels. The licence to the ‘IHC’ was initially granted for a period of 33 years and such tenure could be further renewed for a further period of 66 years; in two periods of 33 years each. In lieu of granting of Licence to ‘IHC’, the assessee was entitled to a licence fee computed on the basis of profits of the business of hotel operation.
2.2 For Assessment Year 2013-14, the assessee filed its return of income on 27.09.2013 declaring income of Rs.1,24,18,760/- which consisted of income under the head ‘Income from house property’, Business Income and Income from Other Sources’. In the previous year relevant to Assessment Year 2013-14, the assessee received Licence Fees amounting to Rs.3,41,38,532/- from M/s. Taj Group of Hotels; treated the same as Income from Other Sources and claimed deduction therefrom for various expenses such as staff renumeration and welfare expenses, power, fuel and water charges, administrative expenses, depreciation, etc. The Assessing Officer (AO) examined the allowability of the expenditure claimed on ‘Income from Other Sources’. According to the AO, the expenses claimed by the assessee were similar to those as may be admissible for earning of ‘Income from Business and Profession’; but was of the view that the scope of allowance of expenditure when computing the income under ‘Other Sources’ was narrower than that under the head ‘Income from Business’. Deduction admissible under section 30 to 38 of the Income Tax Act, 1961 (in short ‘the Act’) from ‘Business Income’ cannot be imported wholesale into section 57 of the Act and consequently the AO held that the scope of section 57 of the Act is narrower than that of section 37(1) of the Act, because unless an expenditure has been expended wholly and exclusively for the purpose of making or earning ‘Income from Other . 3405 and 3406/Bang/2018 Page 3 of 12 Sources’, it cannot allowed as a deduction. The AO was of the view that the expression “for the purpose of business or profession” used in section 37(1) of the Act had a much wider implication than the expression “for the purposes of making or earning income” used in section 57(iii) of the Act; which was more specific in nature in as much as it points to a precise and specific object of making or earning income. In that view of the matter, the AO held that since the assessee has earned income under the head ‘Other Sources’, the normal expenditure allowable under the head ‘Business’ cannot be allowed and therefore expenditure allowable was restricted only to such payments which are separately binding on the company which is a legal entity; such as Salaries, PF, ESI and other expenses which must necessarily be incurred to maintain its legal status under the Companies Act. The AO accordingly disallowed expenditure amounting to Rs.1,15,61,952/- (items listed at i to xv) on pages 5 and 6 of the order of assessment and computed the net ‘Income from Other Sources’ at Rs.3,56,44,444/-. The assessment was accordingly concluded under section 143(3) of the Act vide order dated 31.03.2016.
2.3 For Assessment Year 2014-15, the assessee filed its return of income on 30.09.2014 declaring total income of Rs.1,31,06,000/-. The case was taken up for scrutiny for this Assessment Year and the assessment was concluded under section 143(3) of the Act vide order dated 25.10.2016 wherein the AO held, as in Assessment Year 2013-14, that the Licence Fees received by the assessee was exigible to tax under the head ‘Income from Other Sources’ and not as ‘Income from House Property’ as declared by the assessee. Similar treatment was meted out to the assessee in this year on this issue, as was held in the immediately preceding Assessment Year 2013-14.
Aggrieved by the orders of assessment dated 31.03.2016 for Assessment Year 2013-14 and dated 25.10.2016 for Assessment Year 2014-15, the assessee . 3405 and 3406/Bang/2018 Page 4 of 12 preferred appeals before CIT(A)-2, Bangalore. The CIT(A) disposed off these two appeals by way of a combined order dated 31.10.2018 allowing the assessee partial relief. In this order, the CIT(A) came to the finding that the licence fee received by the assessee is exigible to tax under the head ‘Income from Other Sources’ and not ‘Income from House Property’ as claimed by the assessee by following the decisions, inter alia, of the Hon’ble Karnataka High Court and of the Co-ordinate Bench of this Tribunal in the assessee’s own case in to 328/Bang/2014 dated 03.11.2016 for Assessment Years 2005-06 to 2010-11; accordingly directed the AO to allow the direct expenditure incurred by the assessee, if any, incurred wholly and exclusively for earning the licence fee.
The assessee, being aggrieved by the orders of CIT(A)-2, Bangalore, dated 31.10.2018 for Assessment Years 2013-14 and 2014-15, has preferred these appeals wherein it has raised the following grounds:-
4.1 Assessment Year 2013-14 . 3405 and 3406/Bang/2018 Page 5 of 12 . 3405 and 3406/Bang/2018 Page 6 of 12 4.2 Assessment Year 2014-15 . 3405 and 3406/Bang/2018 Page 7 of 12
These two appeals for Assessment Years 2013-14 and 2014-15 will be disposed hereunder:-
Ground No.1(Assessment Years 2013-14 and 2014-15)
5.1 This ground (supra), being general in nature, no adjudication is called for thereon and the same is therefore dismissed as infructuous.
Ground No.5 (Assessment Year 2013-14) - Charge of interest under Ground No.4 (Assessment Year 2014-15) section 234B of the Act.
6.1 In this ground (supra), the assessee denies himself liable to be charged interest u/s 234B of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I, therefore, uphold the action of the AO in charging the assessee the aforesaid interest u/s 234B of the Act. The AO is, however, directed to re- compute the interest chargeable u/s 234B of the Act, if any, while giving effect of this order.
Ground No.4 (Assessment Year 2013-14) – Disallowance of donation . 3405 and 3406/Bang/2018 Page 8 of 12 7.1 In this ground (supra), the assessee assails the action of the CIT(A) in not adjudicating the ground relating to double disallowance of donation of Rs.1,80,000/- which was raised by the assessee as ground No.8 of Form 35 filed before the CIT(A).
7.2 After having heard both parties in the matter and carefully perusing the impugned order, we find that the CIT(A) has not adjudicated the ground No.8 raised by the assessee in the appeal before him for Assessment Year 2013-14. In these circumstances, we restore this issue of disallowance of donation to the file of the CIT(A) with a direction to examine and adjudicate the issue raised in ground No.8 of assessee’s appeal in Form No.35 filed before him. Needless to add, the assessee shall be afforded adequate opportunity of being heard and to file details / submissions required, which shall be considered before deciding the issue. We hold and direct accordingly. Consequently, ground No.4 of assessee’s appeal for Assessment Year 2013-14 is allowed for statistical purposes.
Ground No.2 - Treatment of Licence Fees as Income (Assessment Years from House Property or Income from 2013-14 & 2014-15) Other Sources Ground No.3 - Disallowance of Expenses (Assessment Years 2013-14 & 2014-15)
8.1 At the outset of the hearing, it was brought to notice of the Bench that the identical issue had come up for consideration in the assessee’s own case for Assessment Years 2005-06 t0 2010-11 and was decided by a Co-ordinate Bench of the Tribunal in its order in to 328/Bang/2014 dated 03.11.2016. We find that the aforesaid decision (supra) has been followed by another bench of this Tribunal in the assessee’s own case for Assessment Year 2011-12 in ITA No.87/Bang/2017 dated 04.06.2018 wherein at paras 9 to 11 it has held as under:- . 3405 and 3406/Bang/2018 Page 9 of 12 . 3405 and 3406/Bang/2018 Page 10 of 12 . 3405 and 3406/Bang/2018 Page 11 of 12 8.2 Respectfully following the decision of the Co-ordinate Benches of this Tribunal in the assessee’s own case for Assessment Years 2005-06 to 2010-11 in to 328/Bang/2014 dated 03.11.2016 and for Assessment Year 2011- 12 in ITA No.87/Bang/2017 dated 10.04.2018, we are of the view that since the facts and circumstances and the issue involved in the present appeals are identical to the issue decided by the Co-ordinate Benches of this Tribunal in the orders referred to above, the orders of the CIT(A) on this issue for Assessment Years 2013-14 and 2014-15 are to be set aside and restored to his file for fresh consideration; as directed in the Tribunal’s orders in the assessee’s own case . 3405 and 3406/Bang/2018 Page 12 of 12 (supra). Consequently, grounds 2 and 3 of assessee’s appeal are partly allowed for statistical purposes.
In the result, the assessee’s appeals for Assessment Years 2013-14 and 2014-15 are allowed for statistical purposes.
Order pronounced in the open court on this 23rd day of July, 2019.