AMERICAN HOTEL & LODGING EDUCATIONAL INSTITUTE, MUMBAI V. ADIT (IT) 1(1), MUMBAI

ITA 1424/MUM/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8909 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) AMERICAN HOTEL & LODGING EDUCATIONAL INSTITUTE, ASHA HOUSE, 28, SUREN ROAD, ANDHERI(E), MUMBAI 400 093 PAN:AAAAE0097J ...... APPELLAN T VS. THE ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 1(1), 1 ST FLOOR, SCINDIA HOUSE, BALLARD PIER, N.M.ROAD, MUMBAI- 400 038 .... RESPONDENT ITA NO. 4932/MUM/2011,(A.Y 2008-09) THE ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 1(1), 1 ST FLOOR, SCINDIA HOUSE, BALLARD PIER, N.M.ROAD, MUMBAI- 400 038 .... APPELLANT VS. AMERICAN HOTEL & LODGING EDUCATIONAL INSTITUTE, ASHA HOUSE, 28, SUREN ROAD, ANDHERI(E), MUMBAI 400 093 PAN:AAAAE0097J ...... RESPONDENT 2 ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) ITA NO. 4932/MUM/2011,(A.Y 2008-09 ) ASSESSEE BY : SHRI MAYUR KISNADWALA REVENUE BY : SHRI RAJESH KUMAR YADAV DATE OF HEARING : 25/10/2017 DATE OF PRONOUNCEMENT : 27/10/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED ARE THREE APPEALS, TWO BY THE ASSESSE E AND ONE BY THE REVENUE, PERTAINING TO ASSESSMENT YEARS 2007-08 AND 2008-09 AND SINCE THEY RELATE TO THE SAME ASSESSEE AND INVOLVES CERTAIN COMMON ISSUES, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER A ND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. 2. IN BOTH THE ASSESSMENT YEARS A SUBSTANTIVE COMMO N ISSUE RELATES TO ASSESSEES CLAIM FOR EXEMPTION UNDER SEC TION 10(23C)(VI) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). WE MAY FIRST TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 , IN ITA NO. 1424/MUM/2011, WHICH IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)- 10 MUMBAI DATED 29/10/2010, WHICH IN TURN ARISES OU T OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143( 3) OF THE ACT DATED 05/11/2009. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESS EE IS A TAX RESIDENT OF UNITED STATES OF AMERICA. THE TAXABLE UNIT BEFO RE US IS A BRANCH OF THE AMERICAN HOTEL & LODGING EDUCATIONAL INSTITUTE, A NON-PROFIT ORGANIZATION SET UP IN THE USA IN THE YEAR 1970. F OR THE ASSESSMENT YEAR UNDER CONSIDERATION IT FILED A RETURN OF INCO ME DECLARING TOTAL INCOME AT NIL, AFTER CLAIMING ITS ENTIRE INCOME AS EXEMPT UNDER 3 ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) ITA NO. 4932/MUM/2011,(A.Y 2008-09 ) SECTION 10(23C)(VI) OF THE ACT. THE ACTIVITIES OF THE BRANCH INCLUDED CONDUCTING VARIOUS COURSES, CERTIFICATION PROGRAMM ES, SEMINARS, WORKSHOPS AND OTHER PROGRAMMES IN HOSPITALITY MANAG EMENT AND OPERATIONS, PROVIDING EDUCATIONAL AND TRAINING MATE RIALS, COURSE MATERIALS, ETC., PROVIDING TRAINING, COURSE MATERIA LS AND INSTRUCTIONAL RESOURCES TO THE IN-HOUSE FACULTY OF VARIOUS INSTIT UTIONS. FOR ALL SUCH ACTIVITIES, ASSESSEE BRANCH CHARGES A FEE AND AFTER DEDUCTING THE EXPENSES THE NET SURPLUS IS REMITTED TO THE HEAD OF FICE. THE ASSESSING OFFICER HAS DENIED THE CLAIM OF EXEMPTION FOR THE R EASONS STATED IN THE ORDER, IN PARTICULAR IT HAS EMPHASIZED THAT IN THE PAST YEARS TOO THE SAID EXEMPTION HAS BEEN DENIED. THE ASSESSING OFFICER R EFERRED TO THE ASSESSMENT YEAR 1999-2000, WHEREIN ON IDENTICAL FAC TS, ASSESSEES CLAIM FOR EXEMPTION WAS DENIED. ANOTHER ASPECT WAS REGAR DING THE CLAIM OF EXPENSES INCURRED BY THE HEAD OFFICE ON BEHALF OF T HE INDIAN BRANCH AMOUNTING TO RS.3,91,43,781/-, WHICH WAS ALSO DENIE D IN LINE WITH THE STAND OF THE ASSESSING AUTHORITY IN THE PAST YEARS. AS A CONSEQUENCE, THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED AT RS .4,68,44,961/- I.E. SURPLUS DEPICTED IN THE INCOME AND EXPENDITURE ACCO UNT. IN COMING TO SUCH CONCLUSION, THE ASSESSING OFFICER NOTED THAT T HE CBDT VIDE ITS ORDER DATED 12/10/2004 HAD REJECTED ASSESSEES APPL ICATION SEEKING APPROVAL FOR EXEMPTION UNDER SECTION 10(23C)(VI) O F THE ACT. THE CIT(A) HAS ALSO AFFIRMED THE STAND OF THE ASSESSING OFFICER, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIB UNAL. 4. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE EXPLAINED THAT FOR THE BLOCK OF ASSESSMENT YEARS 1999-2000 TO 2006 -07, THE CBDT HAD GRANTED APPROVAL TO THE ASSESSEE IN TERMS OF SECTIO N 10(23C)(VI) OF THE 4 ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) ITA NO. 4932/MUM/2011,(A.Y 2008-09 ) ACT. SECONDLY, IT WAS POINTED OUT THAT SO FAR AS T HE CAPTIONED ASSESSMENTS 2007-08 AND 2008-09 ARE CONCERNED, ASSE SSEE HAD FILED AN APPLICATION TO THE CBDT FOR GRANT OF APPROVAL ON 09 /05/2005 AND 27/03/2008 RESPECTIVELY, WHICH ARE STILL PENDING F OR DISPOSAL BY THE CBDT. THIRDLY, IT IS POINTED OUT THAT VIDE ITS ORD ER DATED 09/05/2008, THE HONBLE SUPREME COURT IN ASSESSEES OWN CASE F OR THE EARLIER YEARS WHILE OBSERVING THAT ASSESSEE HAD FULFILLED THE THR ESHOLD CONDITION OF ACTUAL EXISTENCE OF INSTITUTION, REMITTED THE MATTE R TO THE CBDT FOR FRESH CONSIDERATION AS PER LAW. IN PARTICULAR, PAR A 40 OF THE JUDGMENT OF THE HONBLE SUPREME COURT HAS BEEN EMPHASIZED, WHI CH READS AS UNDER:- 40 IN THE LIGHT OF WHAT IS STATED ABOVE, WE SET AS IDE ORDER DATED 12/10/2004 PASSED BY CBDT FOR FRESH CONSIDERATION IN ACCORDANC E WITH LAW. WE MAY CLARIFY THAT, IN THIS CASE, APPELLANT HAS FULFILLED THE THRESHOLD PRE-CONDITION OF ACTUAL EXISTENCE OF AN EDUCATIONAL INSTITUTION UNDE R SECTION 10(23C)(VI) AND, THEREFORE, ON THAT COUNT CBDT WILL NOT REJECT THE A PPROVAL APPLICATION. IT IS POINTED OUT THAT TILL NOW NO ORDER HAS BEEN PASSED BY THE CBDT. IN SO FAR AS ASSESSMENT YEARS 2000-01 TO 2002-03 A RE CONCERNED, IT WAS POINTED OUT THAT THE TRIBUNAL VIDE ITA NOS.2106 TO 2108/MUM/2007 DATED 27/04/2011 HAD SET-ASIDE THE ISSUES TO THE FI LE OF THE ASSESSING OFFICER FOR DENOVO ASSESSMENT AND AS A CONSEQUENCE, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT HOLDING THAT ASSES SEE HAD FULFILLED THE CONDITIONS PRESCRIBED IN SECTION 10(23C)(VI) OF THE ACT AND ASSESSED TOTAL INCOME AT NIL. IT IS FURTHER POINTED OUT T HAT SO FAR AS THE ASSESSMENT YEARS 2003-04 TO 2006-07 ARE CONCERNED, VIDE ITA NOS.151 TO 154/MUM/2008, THE TRIBUNAL HAD SET-ASIDE THE ISSUE AGAIN TO THE FILE OF ASSESSING OFFICER FOR DENOVO ASSESSMENT. I T HAS BEEN CONTENDED THAT THE APPEALS BE KEPT PENDING TILL THE CBDT DISP OSE OFF ASSESSEES 5 ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) ITA NO. 4932/MUM/2011,(A.Y 2008-09 ) APPLICATIONS AS PER DIRECTIONS OF THE HONBLE SUPRE ME COURT DATED 09/05/2008(SUPRA). 5. CONSIDERING THE AFORESAID BACKGROUND AND IN VIEW OF THE FACT THAT THE FACTS AND CIRCUMSTANCES IN THE INSTANT YEAR ST AND ON SIMILAR FOOTING TO THOSE OF THE EARLIER YEARS, IT WAS PUT ACROSS TO THE PARTIES AS TO WHY NOT THE MATTER BE RESTORED BACK TO THE FILE OF ASSE SSING OFFICER AS NO USEFUL PURPOSE WOULD BE SERVED BY KEEPING THE APPEA LS PENDING IN THE ITAT. THE LD. REPRESENTATIVE FOR THE ASSESSEE HAD NO OBJECTION TO THE SAME BUT POINTED OUT THAT IN SPITE OF REGULAR FOLLO W UP WITH CBDT FOR GIVING EFFECT TO THE ORDER OF THE HON'BLE SUPREME C OURT, THE APPLICATION FOR APPROVAL HAS NOT BEEN DISPOSED OFF. 6. IN OUR CONSIDERED OPINION, IT WOULD BE IN THE FI TNESS OF THINGS, THE MATTER IS RESTORED BACK TO THE FILE ASSESSING OFFIC ER TO MAKE THE ASSESSMENT AFRESH, OF COURSE AFTER AWAITING THE ORD ER OF THE CBDT ON ASSESSEES APPLICATION FOR GRANT OF APPROVAL UNDER SECTION 10(23C)(VI) OF THE ACT, AS HAS BEEN DIRECTED BY THE HON'BLE SUPREM E COURT IN ITS ORDER DATED 09/05/2008(SUPRA). THE ASSESSING OFFICER IS FURTHER DIRECTED TO ASCERTAIN, AT THE EARLIEST, THE STATUS OF ASSESSEE S APPLICATION PENDING BEFORE THE CBDT AND IN THE COURSE OF SUCH AN EXERCI SE HE OUGHT TO BRING IT TO THE NOTICE OF THE CBDT THE STATUTORY TIME L IMIT, IF ANY, APPLICABLE TO MAKE THE ENSUING ASSESSMENT, SO THAT THE DISPOSA L OF THE APPLICATION PENDING WITH THE CBDT IS CARRIED OUT EXPEDITIOUSL Y. NEEDLESS TO MENTION, THE ASSESSEE IS EXPECTED TO RENDER APPROPR IATE CO-OPERATION TO THE INCOME-TAX AUTHORITIES IN THE MATTER. 6.1 EVEN ON THE CLAIM OF EXPENSES INCURRED BY THE H EAD OFFICE ON BEHALF OF ITS INDIAN BRANCH, THE MATTER IS SENT BAC K TO THE ASSESSING 6 ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) ITA NO. 4932/MUM/2011,(A.Y 2008-09 ) OFFICER TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW ONLY AFTER AWAITING THE OUTCOME OF THE ASSESSEES APPLICATION PENDING WITH THE CBDT. THUS, WE HEREBY SET-ASIDE THE ORDER OF THE C IT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO MAKE A DENOVO ASSESSMENT IN ACCORDANCE WITH LAW, AFTER AFFORDING THE ASSESSE E A REASONABLE OPPORTUNITY OF BEING HEARD. THUS, FOR ASSESSMENT Y EAR 2007-08, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 7. IN SO FAR AS ASSESSMENT YEAR 2008-09 IS CONCERN ED, ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US BY WAY OF C ROSS-APPEALS AGAINST THE ORDER OF THE CIT(A)-10, MUMBAI DATED 23/03/201 1,WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFF ICER UNDER SECTION 143(3) OF THE ACT DATED 23/12/2010. 8. IN SO FAR AS THE APPEAL OF THE ASSESSEE IS CONCE RNED, THE FACTS AND CIRCUMSTANCES AND THE DISPUTES ARE IDENTICAL TO THO SE CONSIDERED BY US IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2007-08 I N THE EARLIER PARAS AND, THEREFORE, OUR DECISION IN ITA NO.1424/MUM/201 1 SHALL APPLY MUTATIS MUTANDIS IN THE APPEAL FOR ASSESSMENT YEAR 2007-08 ALSO. 9. IN SO FAR AS THE APPEAL OF THE REVENUE IS CONCER NED, THE SOLITARY GROUND OF APPEAL RAISED READS AS UNDER:- ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN HOLDING THAT PAYMENT MADE TOW ARDS BOOKS CANNOT BE TREATED AS ROYALTY IGNORING THE FACTS THAT THE BOOK S WERE EXCLUSIVELY DESIGNED FOR THE ASSESSEE AND, THEREFORE, THE PAYMENTS WERE IN THE NATURE OF ROYALTY/FEES FOR TECHNICAL SERVICES. 9.1 THE FACTS RELEVANT WITH REGARD TO THE IMPUGNED DISPUTE ARE THAT IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSES SEE HAD REMITTED A 7 ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) ITA NO. 4932/MUM/2011,(A.Y 2008-09 ) SUM OF RS.2,30,60,283/- TO HEAD OFFICE AS COST OF BOOKS AND SERVICES LIKE PRINTING OF BOOKS. THE ASSESSING OFFICER FURT HER NOTICED THAT ASSESSEE DID NOT FURNISH ANY EVIDENCE TO SUBSTANTIA TE ITS CLAIM IN RESPECT OF COST OF BOOKS. INSTEAD, THE CLAIM OF TH E ASSESSEE WAS THAT COST OF SUCH BOOKS AND PRINTING MATERIAL BE CONSIDE RED FOR THE CLAIM UNDER SECTION 10(23C)(VI) OF THE ACT. THE ASSESSIN G OFFICER CONCLUDED THAT THE BOOKS IN QUESTION WERE PROPRIETARY MATERIA LS OF THE ASSESSEE AND THAT THEY ARE NOT OFF-THE-SHELF BOOKS READILY A VAILABLE IN THE MARKET. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT SUCH B OOKS/MATERIAL ARE PREPARED SOLELY FOR DISTRIBUTION TO THE STUDENTS AN D, THEREFORE, THE COST INCURRED THEREOF WOULD CONSTITUTE PAYMENTS IN THE N ATURE OF ROYALTY/FEE FOR TECHNICAL SERVICES TO THE HEAD OFFICE. SINCE ASSESSEE HAD NOT DEDUCTED ANY TAX AT SOURCE, THE ASSESSING OFFICER D ISALLOWED THE EXPENDITURE. ON THIS ASPECT, THE CIT(A) HAS DIFFER ED WITH THE ASSESSING OFFICER AND NOTED THAT THE BOOKS BELONG TO THE HEAD OFFICE, WHO HAD SUPPLIED IT TO THE BRANCH FOR DISTRIBUTION AMONG THE STUDENTS IN INDIA. THE CIT(A) FURTHER CONCLUDED THAT THE BOOKS SENT BY THE HEAD OFFICE TO THE BRANCH DOES NOT MAKE AVAILABLE OR SUPPLY O R TRANSFER OF ANY TECHNICAL SERVICES TO THE BRANCH AND, THEREFORE, THE SAME COULD NOT BE CONSIDERED AS A FEE FOR TECHNICAL SERVICES WITHIN T HE MEANING OF ARTICLE 12(4) OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWE EN INDIA AND USA. THE FINDINGS OF THE CIT(A) ARE AS UNDER:- 6.3. I FIND THAT THE HO HAS SUPPLIED THE BOOKS TO T HE APPELLANT BRANCH FOR DISTRIBUTION AMONG STUDENTS IN INDIA. THE BOOKS BELONGS HO ON WHICH EXPENDITURE IS INCURRED BY THE HEAD OFFICE. HOWEVER THE COST OF BOOKS IS APPORTIONED TO BRANCH IN PROPORTIONATE OF COST FOR WHICH THE CPA HAS GIVEN THE COST OF MATERIAL SUPPLIED. FURTHER, I FIN D THAT THE AO HIMSELF ALLOWED DEDUCTION OF COST OF BOOKS AMOUNTING TO RS. 3,56,567 TOWARDS COST OF BOOKS ON THE BASIS OF EVIDENCE SUBMITTED BY THE APPELLANT. IT IS ALSO SEEN THAT BOOKS MADE AVAILABLE TO BRANCH BY HO DOES NOT MAKE 8 ITA NO. 1424/MUM/2011,(A.Y 2007-08) ITA NO. 4336/MUM/2011,(A.Y 2008-09) ITA NO. 4932/MUM/2011,(A.Y 2008-09 ) AVAILABLE THE TECHNOLOGY HENCE, IT CANNOT BE CONSID ERED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF ARTICLE 12 (4) OF DOUBLE TAXATION AVOIDANCE AGREEMENT IN THE LIGHT OF ABOVE THE OBSER VATION OF THE AO IS WITHOUT ANY BASIS . HENCE THE PAYMENT MADE TOWARDS BOOKS CANNOT BE TREATED AS ROYALTY /FEES FOR TECHNICAL SERVICES. TH IS GROUND IS THEREFORE ALLOWED. 9.2 AGAINST THE AFORESAID, THE REVENUE IS IN APPEAL BEFORE US. SO HOWEVER, THERE IS NO COGENT REASONING OR MATERIAL B ROUGHT OUT BY THE REVENUE, WHICH WOULD REQUIRE US TO INTERFERE WITH O RDER OF THE CIT(A). THUS, ON THIS ASPECT THE ORDER OF THE CIT(A) IS AFF IRMED. 9.3 THUS, IN SO FAR AS THE APPEAL OF THE REVENUE IS CONCERNED, THE SAME IS DISMISSED. 10. IN THE RESULT, SO FAR AS THE APPEALS OF THE ASS ESSEE ARE CONCERNED, THEY ARE ALLOWED FOR STATISTICAL PURPOSES AND THE A PPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/10/2017. SD/- SD/- (RAM LAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 27/10/2017 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI