M/S HOTEL SAMODE PALACE JAIPUR V. THE COMMISSIONER OF INCOME TAX

ITA/105/2006

AI Insights

The case involves M/S Hotel Samode Palace Jaipur, represented by its partner Shri Reghvendra Singh, appealing against the Commissioner of Income Tax-II, Jaipur. The core issue was the interpretation of Section 80HHD of the Income Tax Act concerning the utilization of reserve funds for specific purposes related to tourism and hospitality. The Tribunal had partly allowed the department's appeal, reversing the CIT(A)'s decision, which led to this appeal. The High Court examined whether the Tribunal was justified in its interpretation and application of the law regarding the timing and conditions under which the reserve funds could be utilized or taxed.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 750962 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 02-05-2017
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs. Hans Marble Industries(P) Ltd., Shri. Guru Ram Dass Ji Educational Trust vs. Chief Commissioner of Income Tax, Amritsar
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: R B MATHUR
• Assessee Lawyers: MAHENDRA GARGIEYA
• Keywords: Deduction; Income Tax; Tax appeal; Reserve Utilization
• Section: 143(2); 143(1); 80HHD(1); 80HHD(4); 80HHD(5)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 105 / 2006 M/S Hotel Samode Palace Jaipur through its partner Shri Reghvendra Singh, R/o Samode Haveli, Gangapole, Jaipur. ----Appellant Versus The Commissioner Of Income Tax-II, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Mahendra Gargieya For Respondent(s) : Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment Per Hon’ble Jhaveri, J. 02/05/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the department reversing the view taken by the CIT(A). 2. This Court while admitting the appeal on 11.12.2007 has framed the following substantial questions of law: “(i) Whether on facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that there was a preemptive utilization of the reverse and, therefore, the appellant was not eligible to claim deduction under Section 80HHD(1)? (ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that no disallowance could be made to the assessee in the year under consideration, (2 of 9) [ITA-105/2006] even if if assumed that there was no utilization of reserve and thereby not properly applying Section 80HHDD(4) & (5) of the Income Tax Act?” 3. The brief facts of this case are that the assessee filed the return of income on 23.10.2000 declaring income of Rs.21,77,124/-. The case was processed u/s 143(1) on 19.12.2000 at total income of Rs.21,77,130/-. Since this was selected for scrutiny, Notice u/s 143(2) was issued on 31.10.2001 to present before the A.O. on 19.11.2001. On the date 19.11.2001 the case was adjourned for sine die. Further notice u/s 143(2) was issued on 2.1.2002 fixing the case for 9.1.2002. Fresh notice u/s 143(2) was issued on 1.11.2002 to present before the AO on 13.11.2002. On the said date adjournment was given for 19.11.2002. On 9.12.2002. Books of accounts comprising cash book, ledger, journal, cash vouchers, bank reconciliation’s statement etc. as and when required for verification. 4. Counsel for the appellant has taken us to sub-clause (4) of Section 80HHD which reads as under: “(4) The amount credited to the reserve account under clause (b) of sub-section (1), shall be utilised by the assessee before the expiry of a period of five years next following the previous year in which the amount was credited for the following purposes, namely :— (a) construction of new hotels approved by the prescribed authority in this behalf or expansion of facilities in existing hotels already so approved; (b) purchase of new cars and new coaches by tour operators already so approved or by travel agents; (3 of 9) [ITA-105/2006] (c) purchase of sports' equipment for mountaineering, trekking, golf, river-rafting and other sports in or on water; (d) construction of conference or convention centres; (e) provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification in the Official Gazette, specify in this behalf; (f) subscription to equity shares forming part of any eligible issue of capital made by a public company: Provided that where any of the activities referred to in clauses (a) to (f) would result in creation of any asset owned by the assessee outside India, such asset should be created only after obtaining prior approval of the prescribed authority.” 5. He has contended that the Tribunal has seriously committed an error in interpreting sub-clause (4) which has been wrongly interpreted by the Tribunal. 5.1 He has taken us to the provisions of section 32A where identical language is used. Section 32A(4) reads as under: “(4) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :— (i) the particulars prescribed in this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant; (ii) an amount equal to seventy-five per cent of the investment allowance to be actually allowed is debited to the profit and loss account of any previous year in respect of which the deduction is to be allowed under sub-section (3) or any earlier previous year (being a previous year not earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, aircraft, machinery or plant was first put to use) and credited to a reserve account (to be called the \"Investment Allowance Reserve Account\") to be utilised— (4 of 9) [ITA-105/2006] (a) for the purposes of acquiring, before the expiry of a period of ten years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the second proviso to sub-section (1)] for the purposes of the business of the undertaking; and (b) until the acquisition of a new ship or a new aircraft or new machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India: Provided that this clause shall have effect in respect of a ship as if for the word \"seventy-five\", the word \"fifty\" had been substituted. Explanation.—Where the amount debited to the profit and loss account and credited to the Investment Allowance Reserve Account under this sub-section is not less than the amount required to be so credited on the basis of the amount of deduction in respect of investment allowance claimed in the return made by the assessee under section 139, but a higher deduction in respect of the investment allowance is admissible on the basis of the total income as proposed to be computed by the Assessing Officer under section 143, the Assessing Officer shall, by notice in writing in this behalf, allow the assessee an opportunity to credit within the time specified in the notice or within such further time as the Assessing Officer may allow, a further amount to the Investment Allowance Reserve Account out of the profits and gains of the previous year in which such notice is served on the assessee or of the immediately preceding previous year, if the accounts for that year have not been made up; and, if the assessee credits any further amount to such account within the time aforesaid, the amount so credited shall be deemed to have been credited to the Investment Allowance Reserve Account of the previous year in which the deduction is admissible and such amount shall not be taken into account in determining the (5 of 9) [ITA-105/2006] adequacy of the reserve required to be created by the assessee in respect of the previous year in which such further credit is made: Provided that such opportunity shall not be allowed by the Assessing Officer in a case where the difference in the total income as proposed to be computed by him and the total income as returned by the assessee arises out of the application of the proviso to sub-section (1) of section 145 or sub- section (2) of that section or the omission by the assessee to disclose his income fully and truly.” 6. He has also relied upon the decision of this Court in the case of Commissioner of Income Tax vs. Hans Marble Industries(P) Ltd. (2009) 18 DTR 0250 and the decision of Punjab and Haryana High Court in the case of Shri. Guru Ram Dass Ji Educational Trust vs. Chief Commissioner of Income Tax, Amritsar, the relevant portion of which reads as under: “Sections 10(23C)(iiiab), 10(23C)(iiiad), 10(23C)(vi) along with its 1st and 14th proviso, which are relevant for adjudicating upon the present petition, are reproduced below for reference :- \"Section 10(23C) - any income received by any person on behalf of - xx xx xx xx (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government ; or xx xx xx xx (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed ; or xx xx xx xx (6 of 9) [ITA-105/2006] (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority, or xx xx xx xx Provided that the fund or trust or institution [or any university or other educational institution or any hospital or other medical institution] referred to in sub-clause (iv) or sub-clause (v) [or sub- clause (vi) or sub- clause (via) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) [or sub-clause (vi) or sub-clause (via)] : xx xx xx xx Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be [made on or before the 30th day of September of the relevant assessment year] from which the exemption is sought: Under Section 10(23C)(iiiad) read with Section 10(23C)(vi) and the 1st proviso to Section 10(23C), an institution, which is not wholly or substantially funded by the Government, solely set up for the purpose of education and not for the purpose of profit, whose receipts exceed ` 1 crore, to claim exemption under Section 10(23C), is required to make an application in the prescribed manner to the prescribed Authority. Thus, as soon as the receipts of such institution exceed ` 1 crore, an application for grant of exemption can be made. A plain reading of the 14th proviso to Section 10(23C), as reproduced above, leaves no doubt in our minds that an application under the same can be filed on or before 30th September of the relevant Assessment Year, from which the exemption is sought. The said proviso simply gives an outer date for making the application, which (7 of 9) [ITA-105/2006] is 30th September of the Assessment Year, for which the exemption is sought. The proviso does not say that the application is to be made between 1st April and 30th September of the Assessment Year, for which the exemption is sought. The plain and simple meaning, as made out on reading the proviso, is unambiguous. No external aid is necessary. If the stand of the respondent is to be accepted, then we would have to necessarily add to the 14th proviso a condition that the application shall be made after 1st April and before 30th September of the relevant Assessment Year, from which the exemption is sought. We find no necessity to do so.” 7. He has also contended that sub-clause (5) provides charging of the amounts which was utilised even during the same year in which the amount was credited to the reserves account and under clause (b) of sub-section (1) even the amount of Rs.42,00,000/- has been disallowed can be taxed after six years and not for the year it has been taxed. 8. Counsel for the respondent Mr. Mathur has taken us to the order of the Tribunal and more particularly paras 24 & 31 which reads as under: “24. The ld. CIT(A) after considering the facts of the case and taking into consideration the arguments of counsel of the assessee and remand report of AO have held as per para 7 and 7.1 of his order as under: “I have perused the assessment records, papers and the submission made before me and have also referred the Remand Report and have found that the contention raised by the ld. Counsel is having force that out of the reserve created u/s 80HHD if, any amount is to be put to tax than the same is governed by the provisions of Section 80HHD(5) and that section does not provide charging of the amount which was utilised (8 of 9) [ITA-105/2006] even during the same year in which the amount was credited to the reserve account. The accounting entries of creation & utilization are only the transfer entries passed in the boos of accounts on 31st March of which the first entry was to transfer of amount out of the profits to the reserve account and the subsequent entry was of transfer by debiting the reserve account to the extent utilised for the purposes as per section 80HHD(4). Considering the submission made by ld. AR, I have found that the AO had made wrong interpretation of the provisions of section 80HHD(4) & (5) which is further against the intention and the objects of that section when it has been admitted that the assessee had utilised the money for the purposes as referred in subsection-4 of section 80HHD. The only dispute is as to the amount utilised during the same year as against within the period of 5 years. The contention raised by the learned Counsel that the words “before” used in subsection- 4 is to be constructed “upto” and “Next” as “Form” is logically and legally appears to be correct. These words have also been given the same meaning in the notes on clauses referred to by the learned counsel. It is also noticed on the plain reading of subsection-4 that it put emphasis on utilization of amount for the purposes as referred therein within the time limit of 5 years/ The chargeability of the reserve amount to tax is as per provisions of subsection-5 of sectrion 80HHD and none of the conditions as specified in sub clause (a) & (b) of that section 80HHD(5) were found to be present in the case of the appellant and accordingly the amount of Rs.365910/- treated as chargeable to tax as income for the Asst. Year under appeal is totally unjust and unreasonable and for away from the legal pronouncements of the Hon’Ble Apex Court relied upon by the counsel as to interpretation and construction of the legal provisions and therefore is directed to be deleted. 31. Therefore, in the present case the assessee is allowed to utilize the reserve the extent of Rs.71,23,244/- and not to the extent of Rs.1,07,82,347/- u/s 80HHD(1) (b) read with sub section (4) of section (9 of 9) [ITA-105/2006] 80HHD of the Act. Therefore, we reverse the decision taken by the Ld. CIT(A) and sustain the order of the Assessing officer who has rightly allowed the deduction u/s 80HHD(1)(b) of the Act read with sub- section (4) to section 80HHD of the Act to the extent of Rs.71,23,244/-. Thus this ground of the revenue is allowed.” 9. He has contended that the Tribunal has rightly reserved the fund of the previous year and as per sub-clause (4) Rs.21,00,000/- and 42,00,000/- was reserved for the current year. 10. We have heard counsel for both the sides. 11. The sub-clause (4) is very clearly. The reserve of the previous year as shown on 31st March 1999 can be utilised for the benefit of Section 80HHD and reserved amount for the current year cannot be utilised for the same year. It has to be utilised in the subsequent year and before the expiry of the period of five years and sub-clause (4) contemplates for non utilization of reserve fund which can be taxed only on completion of five years of the assessment year. 12. Therefore, the view taken by the Tribunal is just and proper. 13. In that view of the matter, the issues are answered in favour of the department and against the assessee. 14. The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/09 "