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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANJAY GARG
The captioned appeal is filed by the Revenue and Cross No.217/M/2013 is filed by the assessee for the assessment year 1998-1999. Since, the issues raised in both these appeals are inter-connected, therefore, for the sake of convenience, they are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order.
ITA No.1983/M/2012 (By Revenue)
This appeal filed by the Revenue on 10.3.2011 is against the order of the CIT (A)-5, Mumbai dated 22.12.2010. In this appeal, Revenue raised the following grounds and the same read as under:
“1. The order of the CIT (A) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in holding that interest income Rs. 351.91 lakhs is assessable under the head ‘income from business / profession’ without appreciating that interest earned from the deposits is assessable under section 56 under the head ‘income from other sources’ as such income was not resulted from any business activities of the assessee.
3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) failed to appreciate that interest income cannot be taken into consideration while computing deduction under section 80HHD of the Act as the interest was not derived from the services provided to foreign tourist.
On the facts and in the circumstances of the case and in law, the Ld CIT (A) failed to appreciate that under the provisions of section 80HHD of the Act, it is only the profit derived from services provided to foreign tourists alone is eligible for deduction under section 80HHD and interest was not derived by the assessee from the services provided to foreign tourist.
5. For these and other grounds that may be urged at the time of hearing, the decision of the CIT (A) may be set aside and that of the AO restored.”
Briefly stated relevant facts of the case are that the assessee, who is engaged in the business of hoteliering, catering etc., originally filed the return of income declaring the total income of Rs. 72,93,51,250/-. Subsequently, the said return of income was revised declaring the total income at Rs. 72,88,35,269/-, wherein assessee claimed deduction u/s 80HHD of the Income Tax Act, 1961 (the Act). AO completed the assessment u/s 143(3) of the Act and the assessed income was determined at Rs. 1,05,85,36,899/-, which was subsequently enhanced to Rs. 1,06,27,47,646/- vide order passed u/s 154 of the Act. Meanwhile, notice u/s 148 of the Act was issued and served on the assessee to reopen the impugned assessment. Accordingly, the re-assessment order was passed u/s 143(3) r.w.s 147 of the Act on 25.3.2004 and the assessed income was determined at Rs. 1,07,74,26,410/- after treating the said interest income amounting to Rs. 3,51,91,070/- under the head ‘income from other sources’. Aggrieved with the said decision of the AO, assessee carried the matter in appeal before the first appellate authority.
4. During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) following the orders of his predecessors for the earlier assessment years 1998-99 to 2001-2002, wherein on identical facts the interest income earned on the security deposits kept with the sister concerns are treated as business income and no appeal was filed by the Revenue on such decision of the CIT (A) for the above mentioned earlier AYs, treated the interest income as business income of the assessee. Further, while treating the interest income as business income, CIT (A) also relied on the order of the Tribunal in assessee’s own case in appeal to 5195/M/2006 for the AY 1989-99 to 1993-94, dated 19.2.2009, wherein the Tribunal endorsed the lower rate of interest charged by the assessee on the ground that the amount in question was given to subsidiary companies considering the business expediency. Para 3.3 of the CIT (A)’s order is relevant in this regard. Aggrieved with the said decision of the CIT (A), Revenue is in appeal before the Tribunal by raising the above mentioned grounds.
During the proceedings before us, Ld DR for the Revenue relied on the order of the AO and submitted that the decision taken by the AO is in tune with the judgment of the Hon’ble Bombay High Court in the case of Ravi Ratna Exports Pvt Ltd (246 ITR 443) wherein it has been held that the ‘interest income’ is not a ‘business income’ and the same should be treated as ‘income from other sources’.
On the other hand, Ld Counsel for the assessee heavily relied on the order of the CIT (A) and reiterated the submissions made before the lower authorities. Further, he brought our attention to the order of the Tribunal in the case of ACIT vs. M/s. Piem Hotels Ltd (which is the assessee’s sister concern) in appeal & 7174/M/2003 and others for the AYs 1998-99 and 1999-2000, dated 12.5.2008, a copy of which is placed on record. Bringing our attention to the said Tribunal’s order (supra), Ld Counsel for the assessee mentioned that an identical issue was decided by the Tribunal in favour of the assessee vide para 23 of its order. Before us, it is the prayer of the Ld Counsel that considering the commonality of the issue involved in the present appeal and that of the issue adjudicated by the Tribunal vide its order dated 12.5.2008 (supra), the CIT (A)’s order should be upheld.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decisions of the Tribunal (supra) placed before us. On perusal of the said Tribunal’s order in the case of ACIT vs. M/s. Piem Hotels Ltd (supra), we find para 23 is relevant to the issue under consideration. considering the importance of the said para and for the sake of completeness of this order, the same is extracted as follows:-
“23. We have considered the rival submissions made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. There is no dispute to fact that the assessee has earned interest income of Rs. 5,78,28,972/- on a loan of UD$ 19 million given to Piem H K, which is a 100% subsidiary of the assessee. There is also no dispute to the fact that the assessee has received management fees of Rs. 3,82,03,512/- from Piem (HK). The only dispute is regarding the head under which it is to be taxed. According to the assessee, the same is under the head “business” whereas according to the AO, the same is under “income from other sources”. According to the AO the same is not under “business income” since there is no management agreement between the 2 companies, no expenditure details were produced on operating the hotel, no staff of the assessee was assigned to the hotel, and there was no substantial systematic, organised or continuous activity with the object of making profits or gains there from with control and direction of such activity involving application of labour and skill. However, in our opinion, in the modern days of advanced technology, business can be conducted through phone, fax or email etc. Further, in our opinion it is not necessary that for considering an income as business, substantial, systematic organised and continuous activity involving application of labour and skill is always required. It is also necessary that there shall always be written agreement, in our opinion, is sufficient for giving a transaction the nature of business. From the various details filed by the assessee during the course of assessment proceedings as well as appeal proceedings, we are of the opinion that the assessee has earned the same in the normal course of conduct of business. Similarly, we find the learned DR could not controvert the findings given by the CIT (A) that the AO herself while excluding the management fees and interest income from the profits of the business included the same in the total receipt of business. This, in our opinion, is self contradictory.”
Further, on perusal of the CIT (A)’s order in general and para 3.3 in particular, we find, while deciding the issue under consideration in favour of the assessee, CIT (A) followed the ‘principle of consistency’ and relied the decision taken by his predecessors in earlier AYs. Further, CIT (A) also relied on the decision of the ITAT, Mumbai in to 5195/Mum/2006 for the AYs 1989-90 to 1993-94. In this regard, we find it relevant to extract the said para 3.3 from the CIT (A)’s order which read as under:- “3.3. I have considered the assessment order and the submissions of the appellant. As I find, this has been a recurring issue in the appellant’s assessments. As I see, in this context, vide discussion in para 22 of his order dt. 8.3.2010 for the AY 2001-2002, the CIT (A) had the occasion to hold the same income as ‘business income’ following the earlier orders for the AYs 1998-99, 1999-2000 and 2000-01. Subsequently, the same decision was followed by CIT (A) in his order dated 17.5.2010 for the AY 2002-
2003. Facts remaining the same for this year also, I find no reason to deviate from the decision of the CIT (A). Further, as pointed by the appellant, I also find that the Hon’ble ITAT, Mumbai in to 5195/Mum/2006 for AYs 1989-90; 1990-91; 1992-93 and 1993-94 in appellant’s own case has endorsed lower rate of interest charged by the appellant on the ground that the amount in question given to subsidiary companies was for the purpose of business expediency. I also find that this proposition is in sync with the formula and the method of computation of deduction spelt out in sec. 80HHD. In line with the foregoing, the action of the Assessing Officer in taxing the receipts as income from other sources is not justified and the same has to be taxed under the head ‘business income’. Accordingly, the ground of appeal is allowed.”
9. From the above settled position of the issue and also respectfully following the decision of the Tribunal in the assessee’s sister concerns case ie in the case of M/s. Piem Hotels Ltd (supra), we have no hesitation to come to a conclusion that the ‘interest income’ earned on business advances kept with the sister concerns should be treated as ‘business income’ instead of ‘income from other sources’. Considering the same, we find no infirmity in the order of the CIT (A) and upheld the decision taken by him. Accordingly, grounds raised by the Revenue are dismissed.
10. Now, we shall take up the Cross Objection No.217/M/2013 filed by the assessee. Considering our decision in the Revenue’s appeal in the above paragraphs of this order, wherein we have upheld the decision of the CIT (A) and decided the issues in favour of the assessee, the instant Cross Objection raised by the assessee becomes infructuous and accordingly dismissed.
11. In the result, appeal of the Revenue and the Cross Objection raised by the assessee are dismissed.
Order pronounced in the open court on 30 October, 2015.