DCIT, NEW DELHI vs. M/S. C.J. INTERNATIONAL HOTEL LTD., NEW DELHI

PER BENCH All the three appeals involve identical issues. They were

heard together and are being disposed of through this common

order.

taken on license from NDMC under a License Deed. Part of the

building has been allotted to its Sub Licensees without charging

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 any rent against refundable deposits.

2.1 ITA No 6713/Del/2013

For Assessment Year 2007-08, the assessee had filed its return

showing income of Rs.3,34,974,780/-. The assessment was

completed u/s 143(3) of the Act on a Total Income of

Rs.4,07,085,962/-. The assessee had paid Rs. 12,00,00,000/-

to NDMC for lease of land which was initially allowed in the

assessment. However, the case was reopened by the Assessing

Officer on the ground that as per the notes on accounts of the

audit report, this payment had been classified as contingent

liability. The Assessing Officer noted that no agreement had

been executed between the assessee company and the NDMC

after 31.03.1998 and the payment of Rs. 12 crore by the

assessee company to NDMC was a payment made on ad hoc

basis without there being any ascertainment of actual liability.

The assessee objected to the reopening as well as challenged the

addition on merits. However, the Ld. CIT (A) dismissed the

assessee’s appeal both on the legal ground as well as on merits.

Now, the assessee has approached the ITAT and has filed the

following grounds of appeal.

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 2.1.1 Grounds of ITA No. 6713/Del/2013:

1.1 That on the facts and in law the CIT(A) erred in not appreciating that prerequisites of assumption of valid jurisdiction in term of proviso to section 147 are not met rendering the assessment orders passed thereto as bad in law. 1.2 That on facts and in law the CIT (A) erred in not appreciating that the impugned reassessment proceedings were initiated by the AO as a result of a mere change of opinion on similar set of facts. 1.3 That on facts and in law the CIT (A) erred in holding that during the course of original assessment proceedings the appellant had not disclosed and declared all the material facts.

2.1 That on facts and in law the CIT (A) erred in holding that the above payments were not made to NDMC in terms of any binding agreement and/or directions issued by the Hon’ble Delhi High Court.

2.2 That on facts and in law the CIT (A) erred in holding that the payment of Rs. 12,00,00,000/- were made to NDMC on ad hoc basis and that the same constituted an un-ascertained or un-crystalized liability.

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 3.1 That on facts and circumstances of the case AO erred in withdrawing interest u/s 244A of the Act.

That the appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing.”

2.2 ITA Nos. 6714/Del/2013 & 79/Del/2014

The facts for Assessment Year 2010-11 are also similar in

which a similar disallowance of Rs. 12 crore paid to NDMC was

disallowed by the Assessing Officer in the original assesssment

proceedings itself and the Ld. CIT(A) also dismissed the

assessee’s appeal against such deletion. Further, the Assessing

Officer had observed that the assessee company owned property

adjacent to the hotel building known as West Tower. The

Assessing Officer further observed that this building was located

in the same compound in which the hotel building was located

and this building was not used for the hotel business of the

assessee company. The Assessing Officer further noted that this

building had a different entrance and other infrastructural

services such as lifts, stairs & parking slots etc. As per the

Assessing Officer, the assessee company had sublicensed offices

& apartments in the building to various parties for a period of 9 4

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 years and 11 months, which was renewable on the request of

sub-licensee. The Assessing Officer also observed that the

assessee company was not charging any rent, lease or license fee

from these parties but had received interest free security deposits

in the year of original sub-license which was appearing as

unsecured loan in its Balance Sheet. The assessee was asked to

show cause as to why the income from house property in respect

of West Tower be not computed and added back to the total

income. The assessee contended before the Assessing Officer

that the issue regarding computation of notional income from

house property in respect of area occupied by sub licensees had

been a matter of dispute since Assessment Year 2001-02 and the

matter was decided in favour of the assessee by the Hon'ble Delhi

High Court in Assessment Year 2001-02 which has been followed

in subsequent years as well as also in earlier Assessment Years

reopened on this issue. However, the Assessing Officer observed

that the Revenue has not accepted the findings of the Hon'ble

High Court and has filed an SLP before the Hon'ble Apex Court

which has been admitted and, therefore, the issue had not

attained finality. Therefore, rejecting the assessee’s contentions,

the Assessing Officer proceeded to determine the annual rental

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 income in respect of West Tower at Rs.6,96,49,798/-. On appeal,

the Ld. CIT (A) deleted the addition which is being challenged

before the ITAT in the departmental appeal and the assessee is

before the ITAT challenging the disallowance of Rs. 12 crore paid

to NDMC. Respective grounds taken by both the parties are as

under:-

2.2.1 Grounds of ITA No. 6714/Del/2013:

1.1 That on facts and in law the CIT (A) erred in holding that the above payments were not made to NDMC in terms of any binding agreement and/or directions issued by the Hon’ble Delhi High Court.

1.2 That on facts and in law the CIT (A) erred in holding that the payment of Rs. 12,00,00,000/- were made to NDMC on an ad hoc basis and that the same constituted an un-ascertained or un-crystalized liability.

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 2.2.2 Grounds of ITA/Del/2014

a) The provisions of taxability of Annual Letting Value or Property consisting of any building or lands appurtenant thereto are dealt in Section 22 to 27 of Income Tax Act, 1961, Annual Value of Property of which the assessee is owner is taxable under the head income from house property except the portion of the property used by the owner of the property for the purposes of its own business or profession, the profit of which are chargeable to income tax.

b) The taxability of the property u/s 22 is that the said property shall not be in use of business of the assessee itself, the profit of which is taxable to income tax. Hence, in this case, the assessee company has sub-licensed the offices and apartments to various persons some of whom have further sub-licensed. The assessee company is not charging any rent, fees, etc., on the sub-licensing of these properties, except interest free security deposits which were taken by the assessee company at the time of sub- license agreement.

c) The assessee company is not providing any services in the nature of hotel business such as catering, laundry, telephone, reception etc., to the occupants of West Tower. Further, furniture and fixture in these offices and apartments pertain to the occupants only and they are the owner of the same.

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13

that as far as I.T.A. No. 6713/Del/13 for Assessment Year 2007-

08 was concerned, the grounds relating to assumption of

jurisdiction u/s 147 of the ITA were not being pressed.

Therefore, ground nos. 1, 1.1, 1.2 and 1.3 are dismissed as not

being pressed.

3.1 Further, the Ld. Authorised Representative submitted that

as far as the issue of license fee paid to NDMC was concerned,

the issue stood covered in favour of the assessee for Assessment

Years 2007-08 and 2010-11 by the order of the ITAT in

assessee’s own case for AYs 2003-04, 2008-09 and 2009-10.

Ld. Authorised Representative filed a copy of the said order and

referred to paragraphs 16 and 22 and submitted that in view of

the findings reported by the ITAT on identical facts, the

assessee’s appeals for Assessment Year 2007-08 and 2010-11

also should be allowed.

3.2 Arguing against the department’s appeal challenging the

deletion of addition of Rs.6,96,49,798/- on account of annual

rental income in respect of West Tower, the Ld. Authorised

Representative submitted that this issue also stood covered by

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 the above referred ITAT order in Para 3.

the authorities below.

perused the relevant records and the order of the ITAT in

assessee’s own case in I.T.A. Nos. 771/Del/2012,

787/Del/2012, 386/Del/2013, 1107/Del/2012, 218/Del/2013

for Assessment Years 2003-04, 2008-09 and 2009-10, we agree

with the contentions of the Ld. Authorised Representative that

the issue stands covered in favour of the assessee in terms of the

order dated 5.2.2016 of the ITAT in the above mentioned

appeals. As far as the issue of payment of Rs. 12 crore to NDMC

is concerned, the relevant paragraphs 16 and 17 are being

reproduced for a ready reference as under:-

“16. We have carefully considered the submissions made by both the parties and perused the material available on record. In our considered opinion looking to the facts of the present case appellant merits to succeed in its claim made for deduction of 12 crores as a legitimate business expense. Coming first to the allegation of Ld. CIT (A) that License Deed dated 14th July 1982 was not in force during the course of ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 year under consideration. We concur with submissions of Shri Syali that Ld. CIT (A) has erred in not taking into consideration events which transpired post issue of show cause notice dated 12th November 1999 by NDMC. Order dated 18th May 2001 9

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 passed by Ld Single Judge of Hon'ble Delhi High Court negates this presumption of Ld CIT(A). Ld Single Judge in its order has held as under: "On 25th September, 1998, however, the NDMC gave another notice to the plaintiffs upon them to pay the arrears of licence fee. It was stated that in case the entire outstanding dues were not deposited, action would be taken under the provisions of the Public Premises (Eviction of Unauthorised Occupants) Act against the plaintiffs. On 28th June, 1999 the NDMC sent a show cause notice to the plaintiffs calling upon them to deposit Rs.109,82,16,368/- allegedly due to the NDMC up to 30th June, 1999. This was naturally disputed by the plaintiffs and it was asserted that licence fee up to the year 2003 stood paid and no amount was payable by them to the NDMC. Thereafter certain meetings took place between the parties; however, no amicable solution was arrived at between them. A notice dated 12th November, 1999 was then issued by the NDMC to the plaintiffs informing the plaintiffs that the re-valuation of the licence fee was neither possible nor warranted. A meeting of the plaintiffs representative also took place with the Chairman of the NDMC on 22nd November, 1999. Plaintiffs allege that in that meeting the Chairperson of the plaintiffs hotel agreed to pay a sum of Rs.3 crores on the clear understanding that an Independent agency / committee would be constituted by the NDMC to determine the fair and equitable quantum/rate of licence fee. However, the chairperson refused to have agreed to the appointment of any such committee and gave one week's time to the plaintiffs to make payment failing which it was threatened that the licence would be cancelled and possession of the hotel would be taken. On this threat being given, the Plaintiffs filed a petition being Civil Writ Petition No.7163/99 in this Court. In the aforesaid Writ Petition filed by the plaintiffs, they prayed for issue of a Writ of Certiorary or any 10

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 other appropriate writ order or direction for quashing the show cause notice dated 28th June, 1999 and 12th November, 1999 and for issue of an appropriate writ order or direction directing the respondents to constitute a committee of independent persons to evaluate the legitimate / fair licence fee payable in respect of the land having regard to the licence fee paid by other hotels which were similarly situate as well as the economic viability of the plaintiffs hotel consistent with the supplementary agreement dated 11th March, 1999. Certain other reliefs were also claimed in this Writ Petition. This petition was dismissed by A.K. Sikri, J. by order dated 7th March, 2000 on the ground that since the matter involved disputed questions of fact, the same cannot be decided in the writ petition. While dismissing the petition, the Court continued the interim order granted earlier till 31st March, 2000. Present suit was thereafter filed by the plaintiffs for an injunction restraining the defendant from taking any action pursuant to the show ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 cause notices mentioned above and from causing any obstruction to the amenities like water and electricity to the premises of the plaintiffs. Plaintiffs also claimed a decree for specific performance of the agreement dated 14th July, 1982 as allegedly modified by the agreements dated 11th March, 1991; 4th August, 1995 and 31st March, 1998. Along with the suit, an application for temporary injunction was also filed by the plaintiffs. By this order, I propose to dispose of this application of the plaintiffs for the grant of an ad-interim injunction. ...... ....... ....... The only question which remains to be considered is as to how this licence fee was to be calculated. While the case of the defendants is that the plaintiffs were required to pay 21% of the annual gross turn over of the hotel as disclosed by the

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 balance sheets, the plaintiffs' case is that even assuming that the plaintiffs are required to pay the licence fee @ 21% of the gross turnover of the hotel, it has to be 21% of the gross turn over as certified by the certified auditors of the plaintiffs. The question is as to what is the gross turn over as certified by the certified auditors of the plaintiffs. A chart has been placed on record by the defendant- NDMC showing the annual gross turnover of the hotel from 1988-89 to 1998-99 and the amount of licence fee payable by the plaintiffs has been calculated in terms of the said annual gross turn over. ...... ....... ....... Though, it is mentioned in the agreement that it is the gross turnover of the hotel as certified by the certified auditors of the hotel on which the licence fee is payable by the plaintiffs, however, prima facie, in my view, plaintiffs may not be entitled to all the appropriations mentioned by the auditors in their certificates. Prima facie, it appears to the Court that only that income which is compulsorily payable by the plaintiffs in terms of an agreement which it might have arrived at with the third party or statutory liability necessarily payable may only have be deducted for the purpose of arriving at the gross turn over to the hotel. The franchisee fee payable is 3% by the NDMC to the franchisee and it is only the 97% of the receipts which are received by the hotel. Prima facie, this 3% may have to be deducted from the room tariff. Luxury tax on behalf of the Government is also received by the hotel at the time of providing its services to the guests and since this tax does not come in the hands of the hotel, this may also have to be deducted from the gross turn over of the hotel. The other amount which may have to be deducted from out of the gross turn over of the hotel as shown in the balance sheets is the credit card commission as the amount which is received by the hotel on payments received through

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 credit cards is net of commission charged by the credit card companies. Other component which may have to be deducted from the gross turn over is the interest income on the deposits with banks. The only other receipt to which the plaintiffs may be entitled to deduction is the telephone receipts. The plaintiffs may be said to be acting as agents for the Mahanagar Telephone Nigam Limited while the telecommunication services are provided to the guests. The payment, therefore, which is actually made to the Mahanagar Telephone Nigam Limited may have to be deducted form out of the gross amount which is received by the plaintiff for providing telecommunication services so that the balance amount received by the hotel is ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 taken as its income. Besides these deductions which, prima facie, may be permissible from the gross turnover of the hotel, in my view, the plaintiffs are not entitled to any other deduction from out of the gross turn over of the hotel. The cost of food and beverages is a part of running of the hotel and cannot, in my opinion, be deducted from out of the gross turn over of the hotel. If this is deducted from the gross turn over, what will be arrived at is the gross income and not the gross turn over. At this stage of decided this application the Court is not deciding finally as to what would be the gross turn over of the hotel on which it is liable to pay the licence fee and it is only a prima facie view of the Court that the aforesaid outgoings may have to be deducted from the gross turnover as reflected in the balance sheets. Since, in my opinion, none of the supplementary agreements modified the terms of the agreement of 14th July, 1982, providing for payment of licence fee @ 21% of the gross turn over of the hotel, plaintiffs are, prima facie, liable to pay licence fee @ 21% of the gross turn over to be calculated on the basis of the gross turn over as mentioned in the balance sheets filed on record by the plaintiffs and 13

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 deducting from this turn over the amount to be calculated in terms of the aforesaid paragraph. The plaintiff being prima-facie liable to pay licence fee at the rate of 21% of the gross turnover of the hotel, in my opinion, there is no question of the plaintiff suffering irreparable loss in case it has to pay the licence fee in terms of the agreement. Defendant- NDMC is a civic authority and for purposes of providing service to the people it requires funds. Public benefit in the present case outweighs the case of the plaintiffs in withholding the amount legitimately due to the NDMC. Balance of convenience clearly lies in favour of the larger public interest rather than in favour of the plaintiffs. The only indulgence to which the plaintiffs may be entitled is to pay the arrears of licence fee in installments. Since the amount which may be calculated on the basis of the above formula may be quite heavy, the plaintiffs will be at liberty to deposit the said amount in four equal quarterly installments, first of which will be paid within three weeks from the date of this order. I, accordingly, restrain dependent-NDMC, its agents and employees from interfering with the possession of the plaintiffs over the land and building situate at 1, Windsor Place, Janpath, New Delhi in any manner whatsoever and from disconnecting, withholding or causing to be withheld any amenities including water and / or electricity to the plaintiffs hotel, subject to the plaintiffs depositing the entire licence fee in the matter directed in this Order calculated @ 21% of the gross turnover of the hotel arrived at on the basis on the observations made in this order. Prima facie, I am also of the opinion that the plaintiff will also have to pay interest on this amount calculated for the time being at the rate of 10% p.a." With these observations, the application of the plaintiffs stands disposed of. Any observation made in this order will

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 not be taken as expression of opinion on the merits of the case." As can be seen from the interim directions issued by the Ld Single Judge parties were bound by the terms and conditions stipulated in License Deed dated 14th July 1982. The dispute solely rested on the interpretation of term "Gross Turnover as certified by the statutory auditors". To this the Ld Single Judge allowed certain exclusions. However assesse was not satisfied from this interim order since in its view it was entitled to further exclusions from Gross Turnover like sums collected for food and beverages, etc. It therefore preferred an appeal against this interim order before Division bench of High Court which vide order dated 06th February 2002 directed assesse to make payment of Rs 1 cr per month pending final disposal of the Civil Suit. Shri Syali rightly pointed out that there is no direction issued by the High Court in order dated 06th February 2002 that if assesse succeeds against its claims from NDMC then it shall be entitled to a refund of Rs 1 cr. This is very crucial. In absence of such a direction the payment of Rs 1 cr per month made by the assessee virtually partakes the character of a confirmed liability discharge of which (i.e to the extend of Rs 1 cr per month) is accepted by NDMC. In support of this Ld Senior Counsel has appropriately relied upon the decision of Hon'ble Apex Court in case of KCP Limited (supra) wherein it is held as under: "11. The learned senior counsel for the assessee- appellant relied on three decisions by different High Courts and submitted that in identical fact and circumstances, the price of the sugar realised in excess of the levy price was held not to be a trading receipt of the assessee and, hence, not liable to tax. The decisions so relied on are : CIT v. Mysore Sugar Co. Ltd. [1990] 183 ITR 113 / 51 Taxman 208 (Kar.), CIT v. Seksaria Biswan Sugar Factory (P.) Ltd. [1992] 195 ITR 778 /[1991] 59 Taxman 453 (Bom.) and CIT v. Chodavaram Co-operative Sugars Ltd. [1987] 163 ITR 420/ 30 Taxman 615 (AP). We have carefully perused the decisions. It is clear from the facts stated by the High Courts that in each of the

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 cases, the assessee's right to ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 realise the excess price was the subject-matter of dispute pending in the High Court and the High Courts had passed different interim orders pursuant to which the respective assessees were collecting the excess price. Though the interim orders of the High Courts are differently worded in the three cases, one common feature of all the orders is that the realisation of the excess price by the respective assessees was hedged by several conditions, one of which was that the assessee shall refund the amount received in excess of the price fixed in the event of the pending dispute being decided adversely to the assessee by the Court. Thus, the receipt of the amount by the assessee was clearly associated with a liability to refund the amount which liability was ascertainable and quantified. Such is not the case at hand......." 17. We further observe that in past the tax department itself had allowed the claim made by the appellant. Baring reassessment proceedings for AY 2003-04, which too are premised upon a change of opinion (as held by us later in this order) the claim made by the appellant has been allowed in AYs 2004-05, 2005-06, 2006-07 and 2012-13. In fact in AY 2004-05 liability of Rs 12 crores being actually paid was held allowable as a deduction by the Ld AO himself and a dispute arose vis a vis additional Rs 2.41 crores paid to NDMC in that year. On this Hon'ble Delhi High Court for AY 2004-05 vide order dated 04th September 2009 in ITA No. 450/2011 has held as under: "8. The assessing officer had disallowed expenditure of Rs.2.41 crores out of expenditure of Rs.14.41 crores on the ground that it was contingent liability as there were disputes between the NDMC, the Licensor and the respondent relating to the licence fee. This was subject matter of litigation pending in Delhi high Court. The assessing officer has mentioned that Rs.2.41 crores was not paid by the assessee and he had made reference to two orders passed by the Delhi High Court dated 18.5.2001 and 6.2.2002. The

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 respondent has stated in its letter dated 21.04.2003 that a cheque of Rs.2.41 crores drawn on Citi Bank dated 21st April, 2003 had been enclosed. CIT(A) held that the Assessing Officer was not justified in treating Rs.2.41 crores as unascertained / disputed liability and the disallowance of Rs.2.41 crores by the assessee officer was not justified. The Tribunal noted that by consequence of the letter dated 17th April, 2003 issued by NDMC the amount of Rs.2.41 crores came to be quantified and the amount paid had been in compliance of the said demand. The Tribunal upheld the order of CIT(A) and stated that the demand had specifically come into existence during the Assessment Year 2004-05 and consequently the same was allowed for the year 2004-05. Thus, the amount of ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 Rs.2.41 crores was paid by the respondent on 21.4.2003 and hence, was not a contingent liability Learned counsel for the appellant has not been able to controvert that the said finding is incorrect. In view of the aforesaid position, we are not inclined to entertain the present appeal on this ground." Even as per the above decision of Hon'ble Jurisdictional High Court once liability is paid and accepted by NDMC then it cannot be termed as contingent. Appeal of revenue was dismissed at admission stage itself as no question of law arose.” 5.1 The assessee’s appeals were allowed by the ITAT in terms of

the above mentioned observations and following the same, we

allow the assessee’s grounds in these two appeals as well.

5.2 As far as the department’s ground challenging the

deletion of addition of annual rental value in respect of West

Tower is concerned, we find that the issue is again covered in 17

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 favour of the assessee and against the department and the issue

has been discussed at length in Para 3 of the order of the ITAT as

referred to above. The relevant paragraph is being reproduced for

a ready reference:-

“3. In Ground No. 1 revenue is aggrieved by the action of Ld. CIT(A) in deleting the addition of Rs.6,96,49,795/- made by the AO on account of notional income under the head "Income from House Property". This issue is discussed at length by the AO at pages 1-8 of the assessment order. It is observed by the Ld. AO at page 6 of his order that identical addition was made by the tax department in assessee's own ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 case for A.Y. 2001-02 to A.Y. 2003-04. Ld. CIT(A) on the other hand notes that the similar addition made by the AO in case of assessee for earlier assessment years has been deleted by Tribunal vide order dated 24th July, 2007 which has subsequently been upheld by the jurisdictional High Court vide order dated 18th November, 2010. The addition has been deleted by the ld. CIT(A) following orders passed by jurisdictional high court in assessee's own case. During the course of hearing before us Ld. CIT(DR) stated that since the tax department has preferred an SLP before Hon'ble Apex Court against High Court order dated 18th November 2010 additions are being made by the Ld. AO in assessments for subsequent years in order to keep the matter alive. On the other hand Ld. AR for the assessee invited our attention to order passed by Tribunal in assessee's own case for A.Y. 2001-02 in ITA Nos.1519 & 1698/Del/2005 order dated 24th July, 2007 copy of which is enclosed at pages 175 to 199 of the paper book wherein this addition has been deleted by the Tribunal. Ld. AR also invited our attention to pages 200-203 of the paper book wherein the jurisdictional high court vide order reported in 197 Taxmann 230 (Del) has upheld the order of Tribunal deleting the addition. It is admitted before us that fact and circumstances of the issue involved is identical to earlier years. A perusal of order passed by the jurisdictional high court revels that the 18

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 notional addition has been deleted by their Lordships observing as under:- "4. With the consent of the learned counsel for the parties, we have heard the matter finally at this stage itself. The facts in brief leading to the aforesaid question of law may be recapitulated first. The assessee-company is running a five star hotel known as Hotel Le-Meridian Windsor Place, New Delhi. The lawn on which the ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 hotel is constructed belongs to NDMC and NDMC has executed a license deed in favour of the assessee granting licence for a period of 99 years for the running of the aforesaid hotel. After taking the said lawn on licence on the terms executed in the licence deed, the assessee had constructed the said hotel. Adjacent to the hotel, there is another building constructed on this very lawn, which is known as West Tower. This building is located in the same compound in which the Hotel building is located. Admittedly, this building is not used for hotel business of the assessee, but the apartments of this building were given on sub-licence basis to different parties for carrying on business as specified on the sub-licence agreements. The licence agreement which was entered into between the assessee and the NDMC permits the assessee to sub-licence the portion of the premises. It is on the basis of this authorization given in the licence deed that the assessee has sub-licenced offices and apartments in the West Tower to the various parties. The sub- licences given to these parties are for a period of 9 years and 11 months, which is renewable at the request for the sub-licensees. The assessee is not charging any rent lease or licence fee from these parties instead, the assessee has received interest free security deposits in the year of original sub- licence, which receipt was shown by the assessee- company as unsecured loan in its balance sheet. The sub-licence deeds, which are executed by the assessee with the sub-licensees also permit the sub- 19

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 licensees to transfer the same to any other person on payment of transfer charges to the assessee- company. Thus, the sub-licensee is entitled to transfer the said sub-licence to third party as well. However, at the time of transfer of the said sub- licence, certain transfer charges are payable to the assessee-company. It is not in dispute that whenever these transfer charges are received by the assessee on transfer of sub-licence by the sub-licensee in favour of the third party, the assessee is showing these transfer charges as its income and is offering the same for tax. 5. The Assessing Officer (AO) found that almost all the sub-licensees had transferred their sub-licenses and various other persons were, thus, occupying these premises. Those persons have entered into the agreement with the sub-licensees as per which they were paying rents to the sub-licensees. It is also an admitted fact that the rents/licence fees received by the sub-licensees on these transfers to the occupiers has been shown as rental income and taxed at the hands of sub-licensees under the head 'income from house property'. 6. The Assessing Officer, however, asked the assessee to explain why property known as West Tower be not fixed on its annual letting value as per which section 23 of the Income-tax Act (hereinafter referred to as 'the Act'). To put it otherwise, the Assessing Officer wanted to fix annual letting value in respect of the said West Tower sub-licensed by the assessee by fixing its notional value and charging the tax thereupon under the head 'income from house property'. It is for this reason that the aforesaid show- cause notice was issued. The assessee in reply to the said notice raised various objections to the aforesaid proposed move of the Assessing Officer. Some of these objections included: (a) The assessee was only a licensee in respect of the aforesaid premises and the actual owner was NDMC. Thus, the assessee was not the 'owner' of the premises. Therefore, provisions of section 23 of the Act are not applicable.

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 (b) It was also highlighted that in the previous years, the aforesaid arrangement as disclosed by the assessee was accepted by the Assessing Officer and therefore, ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 on the principle of consistency, such a move on the part of the Assessing Officer in fixing the annual letting value of the West Tower, when no actual rent/licence fee was received by the assessee, was not proper. (c) The assessee had entered into sub-licence deeds in respect of those portions and it could not be deemed as 'letting' of the property and for this reason also provisions of section 22 of the Act would not be applicable, as the assessee continued to be in the legal occupation and possession. (d) The use of the premises by the sub-licensees was to assist the assessee- company in getting hotel accommodation booked for the guests, delegates of the sub-licensees, apart from the increase in catering and restaurants' activities used by the sub-licensees. Therefore, the use of certain portion by the sub-licensees was not for the purpose of or for the benefit of the business of the assessee-company. 7. The Assessing Officer, however, did not accept the aforesaid explanation furnished by the assessee. He was of the view that the license agreement with the NDMC was for a period of 99 years with the right of constructing and developing the property which makes the assessee-company owner of the property. He also opined that the assessee- company had sub-licensed the offices and apartments to various persons, some of whom had further sub-licensed the same; the assessee was not charging any rent, fees etc. on the sub-licensing of these properties, except interest free security deposits which were taken by the assessee at the time of sub- licence agreement. Therefore, it was proper, in such circumstances, to fix notional annual letting value of the premises and to charge tax thereupon insofar as the assessee is concerned. 8. We may also point out that in ITA No. 1254 of 2010, which pertains to the assessment year 1999-2000 originally no such addition was made. However, reassessment proceedings

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 were started by issuance of notice under section 143(2) read with section 147 of the Act and the Tribunal quashed those reassessment proceedings. It is not necessary to go into the question as to whether reassessment proceedings were initiated or not inasmuch as on merit itself we have decided that such an addition was not proper. 9. The Assessing Officer thereafter took into consideration the rent/licence fee, which was paid by the occupiers to the sub- licensees to whom the assessee had sub- licensed the premises. The Assessing Officer on that basis calculated first care fee average and treated the same as annual letting value of the said West Tower and added the same under the head "income from house property". 10. The assessee preferred appeal against this order before the CIT(A). In this appeal, the assessee took an additional ground predicated on the provisions of section 27(iii) read with section 269UA(f)( ii) of the Act and submitted that under those provisions, it would be a sub-licensee as deemed owner would be charged to tax in his hands. The CIT(A) considered this argument, which was purely a legal argument based on the interpretation of the aforesaid sections on admitted facts on record, but did not accept the aforesaid pleading. After considering other submissions of the appellant, which were raised before the Assessing Officer, the CIT(A) upheld the order of the Assessing Officer on this ground. In this scenario, the assessee preferred further appeal before the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'). This time, before the Tribunal, the assessee succeeded in its attempt to demonstrate that the assessee could not be ITA No.771, 787 & 1107/Del./2012 ITA No.218 & 386/Del./2013 liable to pay any such tax fixing letting value on notional basis when, in fact, no such amount of rent/licence fee was received by the assessee. The Tribunal examined the licence agreement entered into between the NDMC and the assessee on the basis of which it has come to the conclusion that it is the NDMC, which is the "owner of the premises and remains to be the owner of the premises in question". The Tribunal has further accepted the submissions of the assessee that in view of the provisions of section 27(iii) of the Act, it is the sub- licensee who would be "deemed owner" of those premises

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13 which the sub-licensees whereof transferred to the present occupiers and those occupiers are paying rent/licence fee to the sub- licensees. On that basis, the Tribunal has set aside the addition made by the Assessing Officer and deleted this component of income holding that the same would not be chargeable to tax. 11. This is how the Department has filed the appeals pertaining to different assessment years. As pointed out above, though the issues before the Assessing Officer, CIT(A) as well as the Tribunal were numerous, in these appeals primarily one question of law which is formulated and reproduced above has been pressed by the Department. 12. For the aforesaid reasons, we are of the view that the approach of the Tribunal in deciding the aforesaid issue is perfectly justified. There is no reason to interfere with the same. We clarify that the assessee would not be entitled to depreciation on this purpose. We, thus, answer the question of law in favour of the assessee and against the Revenue, as a result thereof all these appeals are dismissed." Respectfully following the decision of jurisdictional high court above ground No.1 of the Revenue appeal is dismissed.” 5.2.1 Respectfully following the same, we dismiss the

department’s grounds in this appeal also.

stands partly allowed, I.T.A.No.6714/Del/2013 by the assessee

stands allowed and I.T.A. No. 79/Del/2014 of the department

stands dismissed.

Order pronounced in the open court on 31.03.2017.

Sd/- Sd/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER 23

I.T.A. Nos. 79/D/2014 I.T.A. Nos. 6713 & 6714/D/13

DT. 31st March 2017 ‘GS’