ITO, Kottayam V. M/s Joyees Residency, Kottayam

ITA 108/COCH/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52331 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: M JAMES VARGHESE
• Keywords: Depreciation

Judgement Text

1 ITA NO.51 & 108/COCH/2010 ITA 72 & 73/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S.GANESAN (JM) & SHRI SANJAY ARORA (AM) I.T.A.NO.51&108/COCH/2010 ASSESSMENT YEARS 2006-07 & 2007-08 ITO, WD.2, KOTTAYAM VS. M/S JOYEES RESIDENCY, YMCA ROAD, KOTTAYAM (APPELLANT) (RESPONDENT) I.T.A.NO.72 & 73/COCH/2010 ASSESSMENT YEARS 2006-07 & 2007-08 M/S JOYEES RESIDENCY, YMCA ROAD, KOTTAYAM VS. ITO, WD.2, KOTTAYAM (APPELLANT) (RESPONDENT) REVENUE BY MS VIJAYAPRABHA ASSESSEE BY SHRI M JAMES VARGHESE DATE OF HEARING 22-11-2011 DATE OF PRONOUNCEMENT 22-12-2011 O R D E R PER N.R.S. GANESAN (JM) BOTH REVENUE AND ASSESSEE HAVE FILED THE APPEALS F OR THE ASSESSMENT YEARS 2006-07 AND 2007-08 AGAINST THE ORDERS OF THE COMMI SSIONER OF INCOME-TAX(A)- 2 ITA NO.51 & 108/COCH/2010 ITA 72 & 73/COCH/2010 IV, KOCHI FOR THE ASSESSMENT YEARS 2006-07 AND 2007 -08. WE HEARD ALL THE APPEALS TOGETHER AND DISPOSE OF THE SAME BY THIS CO MMON ORDER. 2. THE ONLY GROUND ARISES FOR CONSIDERATION IN BOTH THE ASSESSEES AND REVENUES APPEAL IS WITH REGARD TO DEPRECIATION ON THE BAR LICENCE. 3. MS VIJAYAPRABHA, THE LD.DR SUBMITTED THAT THE AS SESSEE FIRM IS ENGAGED IN THE BUSINESS OF RUNNING A BAR HOTEL. ACCORDING TO THE ASSESSEE, THE BAR HOTEL WAS PURCHASED AS A GOING CONCERN, M/S KAYCEES TOURIST H OME FOR A TOTAL CONSIDERATION OF RS. 2,40,16,000. THE ASSESSEE CLA IMED THAT AN AMOUNT OF RS.1,10,57,000 WAS PAID TOWARDS INTANGIBLE COMMERCI AL RIGHT. ACCORDING TO THE LD.DR, THE ASSESSEE CLAIMED THAT THE BAR LICENCE IS A COMMERCIAL RIGHT. THEREFORE, THE ASSESSEE HAS PAID A PREMIUM OF RS.1,10,57,000 F OR THE PURPOSE OF GETTING THE BAR LICENCE. ACCORDING TO THE LD.REPRESENTATIVE, T HE BAR LICENCE HAS TO BE RENEWED EVERY YEAR BY PAYING LICENCE FEE. M/S KAYCEES TOUR IST HOME CLAIMED THE EXPENDITURE IN THEIR RETURN OF INCOME FOR THE ASSES SMENT YEAR 2006-07. THE ASSESSEE HAS ALSO PAID RS.18,10,000 FOR THE COMMERC IAL RIGHT OF PURCHASE AND SALE OF FOREIGN LIQUOR. ACCORDING TO THE LD.REPRESENTAT IVE, THE LICENCE FOR RUNNING THE BAR IN THE HOTEL IS NOT AN INTANGIBLE ASSET WITHIN THE MEANING OF SECTION 32(1)(II) OF THE ACT. THEREFORE, THE ASSESSING OFFICER HAS RIGH TLY REJECTED THE CLAIM OF THE ASSESSEE. HOWEVER, ON APPEAL BY THE ASSESSEE, THE COMMISSIONER OF INCOME- TAX(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.50 LAKHS. THEREFORE, THE REVENUE HAS FILED THE APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A). IN RESPECT OF THE REMAINING PORT ION, THE ASSESSEE IS IN APPEAL. 4. ON THE CONTRARY, SHRI M. JAMES VARGHESE, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IN THE STATE OF KERALA, THO UGH THERE IS NO PROHIBITION FOR GRANT OF BAR LICENCE, THE STATE GOVERNMENT DOES NOT USUALLY GRANT LICENCE TO RUN THE BAR. THEREFORE, THE ASSESSEE HAS PAID PREMIUM AND PURCHASED THE HOTEL ALONG WITH THE BAR LICENCE. THE ASSESSEE HAS PAID RS.1,1 0,57,000 TOWARDS THAT. THE 3 ITA NO.51 & 108/COCH/2010 ITA 72 & 73/COCH/2010 COMMISSIONER OF INCOME-TAX(A) WITHOUT ANY JUSTIFICA TION HAS RESTRICTED THE CLAIM OF THE VALUE OF THE BAR ASSET AT RS.50,00,000. THE REFORE, THE ASSESSEE HAS FILED THE APPEAL CLAIMING THE BALANCE AMOUNT OF RS.60,57,000 AS AN AMOUNT PAID FOR ACQUISITION OF INTANGIBLE ASSET, VIZ. THE BAR LICEN CE. ACCORDING TO THE LD.REPRESENTATIVE, THE BAR LICENCE IS AN INTANGIBLE ASSET, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION U/S 32(1)(II) OF THE ACT. THE LD.REPRESENTATIVE PLACED HIS RELIANCE ON THE JUDGMENT OF THE KERALA HIGH COURT I N B RAVEENDRAN PILLAI V COMMISSIONER OF INCOME-TAX (2010) 194 TAXMAN 477 (K ER) AND ON THE JUDGMENT OF THE DELHI HIGH COURT IN CIT VS HINDUSTAN COCA CO LA BEVERAGES (P) LTD (2011) 198 TAXMAN 104 (DEL) AND THE UNREPORTED DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN PIEM HOTELS LTD VS DY.CIT ITA NO.523/MU M/2009 DATED 13-08- 2010, COPY OF WHICH IS AVAILABLE AT PAGE 31 TO 48 O F THE PAPER BOOK. ON A QUERY FROM THE BENCH AS TO WHETHER THERE WAS ANY PROHIBIT ION UNDER THE KERALA AKBARI ACT TO TRANSFER THE BAR LICENCE FROM ONE PERSON TO ANOTHER, THE LD.REPRESENTATIVE SUBMITTED THAT THERE IS NO SUCH PROHIBITION IN THE AKBARI ACT. ACCORDING TO THE LD.REPRESENTATIVE, AFTER THE TRANSFER OF THE LICENC E, THE ASSESSEE IS RUNNING THE BAR. 5. WE HAVE CONSIDERED THE SUBMISSIONS ON EITHER SID E AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMED THAT IT HAS PURCHASED THE BUSINESS OF HOTEL ALONG WITH THE BAR AS A RUNNING C ONCERN. THE ASSESSEE HAS ALSO CLAIMED THAT A SUM OF RS.1,10,57,000 WAS PAID AS PR EMIUM FOR THE BAR LICENCE. THEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, FOR THE ASSESSEE THE BAR LICENCE BEING AN INTANGIBLE ASSET THE ASSESSEE IS ENTITLED FOR DEPRECIATION U/S 32(1)(II) OF THE ACT. IT APPEARS FROM THE KERALA AKBARI ACT, 10 77 AS AMENDED AND THE KERALA AKBARI ESTABLISHMENTS (DISPOSAL) RULES, 1974, THE L ICENCE GRANTED TO RUN THE BAR IS TO INDIVIDUALS AND THERE IS A PROHIBITION FOR TR ANSFER OF THE LICENCE. HOWEVER, THE LD.REPRESENTATIVE FOR THE ASSESSEE CLAIMS THAT THERE WAS NO PROHIBITION UNDER THE KERALA AKBARI ACT FOR TRANSFER OF LICENCE FROM ONE PERSON TO ANOTHER. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD.REPRESENT ATIVE FOR THE ASSESSEE THAT THERE WAS NO PROHIBITION FOR TRANSFER OF LICENCE. IN VI EW OF THE SPECIFIC PROVISION IN THE 4 ITA NO.51 & 108/COCH/2010 ITA 72 & 73/COCH/2010 KERALA AKBARI ACT AND THE RULES MADE THERETO, ONCE THERE IS A PROHIBITION FOR TRANSFER OF BAR LICENCE FROM ONE PERSON TO ANOTHER, IT IS NOT KNOWN HOW THE ASSESSEE WAS ABLE TO RUN THE BUSINESS ON THE BASIS OF THE SO-CALLED TRANSFER OF LICENCE. WHEN THERE WAS A PROHIBITION FOR TRANSFER OF LICENCE FROM ONE PERSON TO ANOTHER, THE SO-CALLED AGREEMENT FOR TRANSFER OF BA R LICENCE MAY NOT BE VALID. THEREFORE, THERE MAY NOT BE ANY TRANSFER OF BAR LIC ENCE AT ALL. HOWEVER, THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTS TO SHOW THA T THE LICENCE WAS TRANSFERRED FROM KAYCEES TOURIST HOME TO ASSEESSEE. THIS VIEW OF OURS IS ALSO SUPPORTED BY THE JUDGMENT OF THE FULL BENCH OF THE KERALA HIGH C OURT IN THE CASE OF NARAYANAN AND CO VS COMMISSIONER OF INCOME-TAX (1997) 223 ITR 209 (KER). SUBSEQUENTLY, THE DIVISION BENCH OF THE HIGH COURT IN COMMISSIONER OF INCOME- TAX VS K.A. SUNDARAM & CO (1998) 230 ITR 686 (KER) BY FOLLOWING THE FULL BENCH JUDGMENT OF THE KERALA HIGH COURT CONCURRED T HAT THE LICENCE GRANTED TO ONE INDIVIDUAL CANNOT BE TRANSFERRED TO ANOTHER. A SIMILAR VIEW WAS TAKEN BY ANOTHER DIVISION BENCH OF THE KERALA HIGH COURT IN COMMISSIONER OF INCOME-TAX VS GRAND ENTERPRISES (1999) 235 ITR 594 (KER). IN VIEW OF THE ABOVE, WE HAVE TO EXAMINE WHETHER THE PAYMENT OF RS.1,10,57,000 WAS F OR THE PURPOSE OF TRANSFER OF BAR LICENCE OR NOT. IF THE TRANSFER IS INVALID THE N THERE IS NO QUESTION OF ANY INTANGIBLE RIGHT BEING TRANSFERRED TO THE ASSESSEE. HOWEVER, THIS ASPECT OF THE MATTER WAS NOT EXAMINED EITHER BY THE ASSESSING OFF ICER OR BY CIT(A). THE COMMISSIONER OF INCOME-TAX(A), WITHOUT ANY BASIS, H AS ESTIMATED THE COST OF LICENCE AT RS.50 LAKHS WITHOUT GOING INTO THE FACT AS TO WHETHER IT WAS VALIDLY TRANSFERRED OR NOT. SINCE THE PROHIBITION CONTAINE D IN KERALA AKBARI ACT FOR TRANSFER OF BAR LICENCE FROM ONE PERSON TO ANOTHER GOES TO THE ROOT OF THE MATTER, THIS TRIBUNAL IS OF THE OPINION THAT THE ASSESSING OFFICER HAS TO RE-CONSIDER WHETHER THERE WAS ANY TRANSFER OF BAR LICENCE FROM KAYCEES TOURIST HOME TO THE ASSESSEE. ACCORDINGLY, THE ORDERS OF THE LOWER AUT HORITIES ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE AS SESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE LEGALITY OF THE SO-CALLED TRANSFER OF BAR LICENCE IN THE LIGHT OF THE JUDGMENT OF THE KERALA HIGH COURT REFE RRED ABOVE AND THEREAFTER 5 ITA NO.51 & 108/COCH/2010 ITA 72 & 73/COCH/2010 DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW AFT ER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT, ALL THE FOUR APPEALS ARE ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2012 SD/- SD/- (SANJAY ARORA) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER ERNAKULAM, DT : 22 ND DECEMBER, 2012 PK/ COPY FORWARDED TO: 1. ITO, WD.2, KOTTAYAM 2. M/S JOYEES RESIDENCY, YMCA ROAD, KOTTAYAM 3. THE COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN