DCIT CIR 2(2), MUMBAI V. THE INDIAN HOTELS CO. LTD, MUMBAI

ITA 1983/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2551 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 24-11-2014
• Assessment Year: 1998-1999
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: DHARMESH BAFNA; ANUSHA SINGH
• Keywords: Business income; Rule of consistency; Wholly owned subsidiary
• Section: 143(3); 148; 56; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER I.T.A. NO. 1983/M/2011 (AY 1998-1999 ) DCIT-2(2), AAYAKAR BHAVAN, R.NO.545, 5 TH FLOOR, M.K. ROAD, MUMBAI-20. / VS. THE INDIAN HOTELS CO. PVT LTD, MANDLIK HOUSE, MANDLIK ROAD, MUMBAI 400 001. ./PAN : AAACT3957G ( /APPELLANT) .. ( / RESPONDENT) C.O.NO.217/M/2013 (ARISING OUT OF I.T.A. NO. 1983/M/2011) (AY 1998-1999 ) THE INDIAN HOTELS CO. PVT LTD, MANDLIK HOUSE, MANDLIK ROAD, MUMBAI 400 001. / VS. DCIT-2(2), AAYAKAR BHAVAN, R.NO.545, 5 TH FLOOR, M.K. ROAD, MUMBAI-20. ./PAN : AAACT3957G ( /APPELLANT) .. ( / RESPONDENT) / ASSESSEE BY : SHRI DHARMESH BAFNA & MS. ANUSHA SINGH / REVENUE BY : SHRI AKHILENDRA YADAV, DR /DATE OF HEARING : 03.08.2015 /DATE OF PRONOUNCEMENT : 30.10.2015 !' !' !' !' / O R D E R PER SANJAY GARG, JM: THE CAPTIONED APPEAL ITA NO.1983/M/2011 IS FILED BY THE REVENUE AND CROSS NO.217/M/2013 IS FILED BY THE ASSESSEE FOR THE ASSE SSMENT YEAR 1998-1999. SINCE, THE ISSUES RAISED IN BOTH THESE APPEALS ARE INTER-C ONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD TOGETHER AN D DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GI VEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. 2 ITA NO.1983/M/2012 (BY REVENUE) 2. 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, RE VENUE RAISED THE FOLLOWING GROUNDS AND THE SAME READ AS UNDER: 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT INTEREST INCOME RS. 351.91 LA KHS IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS / PROFESSION WITHOUT APPRECI ATING THAT INTEREST EARNED FROM THE DEPOSITS IS ASSESSABLE UNDER SECTION 56 UNDER T HE HEAD INCOME FROM OTHER SOURCES AS SUCH INCOME WAS NOT RESULTED FROM ANY B USINESS ACTIVITIES OF THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E 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 TOURI ST. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) FAILED TO APPRECIATE THAT UNDER THE PROVISIONS OF S ECTION 80HHD OF THE ACT, IT IS ONLY THE PROFIT DERIVED FROM SERVICES PROVIDED TO FOREIG N 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 O F THE AO RESTORED. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF HOTELIERING, CATERING ETC., ORIG INALLY 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 T AX 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 SUBSE QUENTLY ENHANCED TO RS. 1,06,27,47,646/- VIDE ORDER PASSED U/S 154 OF THE A CT. MEANWHILE, NOTICE U/S 148 OF THE ACT WAS ISSUED AND SERVED ON THE ASSESSEE TO RE OPEN 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 SA ID DECISION OF THE AO, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY. 3 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E 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 KEP T 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 TRE ATING THE INTEREST INCOME AS BUSINESS INCOME, CIT (A) ALSO RELIED ON THE ORDER O F THE TRIBUNAL IN ASSESSEES OWN CASE IN APPEAL ITA NOS. 5192 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. PAR A 3.3 OF THE CIT (A)S ORDER IS RELEVANT IN THIS REGARD. AGGRIEVED WITH THE SAID D ECISION OF THE CIT (A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5. 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 HONBLE BOMBAY HIGH COURT IN THE CA SE 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. 6. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE H EAVILY RELIED ON THE ORDER OF THE CIT (A) AND REITERATED THE SUBMISSIONS MADE BEF ORE THE LOWER AUTHORITIES. FURTHER, HE BROUGHT OUR ATTENTION TO THE ORDER OF T HE TRIBUNAL IN THE CASE OF ACIT VS. M/S. PIEM HOTELS LTD (WHICH IS THE ASSESSEES SISTE R CONCERN) IN APPEAL ITA NOS.7173 & 7174/M/2003 AND OTHERS FOR THE AYS 1998-99 AND 19 99-2000, DATED 12.5.2008, A COPY OF WHICH IS PLACED ON RECORD. BRINGING OUR AT TENTION TO THE SAID TRIBUNALS 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 C OMMONALITY OF THE ISSUE INVOLVED IN THE PRESENT APPEAL AND THAT OF THE ISSUE ADJUDIC ATED BY THE TRIBUNAL VIDE ITS ORDER DATED 12.5.2008 (SUPRA), THE CIT (A)S ORDER SHOULD BE UPHELD. 4 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED DECISIONS OF THE T RIBUNAL (SUPRA) PLACED BEFORE US. ON PERUSAL OF THE SAID TRIBUNALS ORDER IN THE CASE OF ACIT VS. M/S. PIEM HOTELS LTD (SUPRA), WE FIND PARA 23 IS RELEVANT TO THE ISSUE U NDER CONSIDERATION. CONSIDERING THE IMPORTANCE OF THE SAID PARA AND FOR THE SAKE OF COM PLETENESS OF THIS ORDER, THE SAME IS EXTRACTED AS FOLLOWS:- 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER B OOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO FACT THAT THE ASS ESSEE 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 DISPUT E 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 T HE SAME IS NOT UNDER BUSINESS INCOME SINCE THERE IS NO MANAGEMENT AGREEMENT BETW EEN 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 SUBSTAN TIAL SYSTEMATIC, ORGANISED OR CONTINUOUS ACTIVITY WITH THE OBJECT OF MAKING PROFI TS OR GAINS THERE FROM WITH CONTROL AND DIRECTION OF SUCH ACTIVITY INVOLVING APPLICATIO N 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 OP INION IT IS NOT NECESSARY THAT FOR CONSIDERING AN INCOME AS BUSINESS, SUBSTANTIAL, SYS TEMATIC 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 OU R OPINION, IS SUFFICIENT FOR GIVING A TRANSACTION THE NATURE OF BUSINESS. FROM THE VARIO US 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 I N 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 TH E SAME IN THE TOTAL RECEIPT OF BUSINESS. THIS, IN OUR OPINION, IS SELF CONTRADICT ORY. 8. FURTHER, ON PERUSAL OF THE CIT (A)S ORDER IN GE NERAL AND PARA 3.3 IN PARTICULAR, WE FIND, WHILE DECIDING THE ISSUE UNDER CONSIDERATI ON IN FAVOUR OF THE ASSESSEE, CIT (A) FOLLOWED THE PRINCIPLE OF CONSISTENCY AND REL IED THE DECISION TAKEN BY HIS PREDECESSORS IN EARLIER AYS. FURTHER, CIT (A) ALSO RELIED ON THE DECISION OF THE ITAT, MUMBAI IN ITA NOS. 5192 TO 5195/MUM/2006 FOR THE AY S 1989-90 TO 1993-94. IN THIS REGARD, WE FIND IT RELEVANT TO EXTRACT THE SAI D 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 A PPELLANTS ASSESSMENTS. AS I SEE, IN THIS CONTEXT, VIDE DISCUSSION IN PARA 22 OF HIS ORD ER DT. 8.3.2010 FOR THE AY 2001-2002, THE CIT (A) HAD THE OCCASION TO HOLD THE SAME INCOM E AS BUSINESS INCOME FOLLOWING THE EARLIER ORDERS FOR THE AYS 1998-99, 1999-2000 A ND 2000-01. SUBSEQUENTLY, THE SAME DECISION WAS FOLLOWED BY CIT (A) IN HIS ORDER DATED 17.5.2010 FOR THE AY 2002- 5 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 TH E APPELLANT, I ALSO FIND THAT THE HONBLE ITAT, MUMBAI IN ITA NO.5192 TO 5195/MUM/2006 FOR AYS 1989-90; 1990-91; 1992-93 AND 1993-94 IN APPELLANTS OWN CASE HAS END ORSED LOWER RATE OF INTEREST CHARGED BY THE APPELLANT ON THE GROUND THAT THE AMO UNT IN QUESTION GIVEN TO SUBSIDIARY COMPANIES WAS FOR THE PURPOSE OF BUSINESS EXPEDIENC Y. I ALSO FIND THAT THIS PROPOSITION IS IN SYNC WITH THE FORMULA AND THE METHOD OF COMPU TATION 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 JUSTIF IED 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 ASSESSEES SIST ER 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 R EVENUE 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, 2 015. SD/- SD/- (G.S. PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMB ER MUMBAI; #! 30.10.2015 . $ . ./ OKK , SR. PS !' !' !' !' $%& $%& $%& $%& '& '& '& '& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ( ) / THE CIT(A)- 4. ( / CIT 6 5. &)* $$+, , +, , / DR, ITAT, MUMBAI 6. *-. / / GUARD FILE. & $ //TRUE COPY// !' !' !' !' / BY ORDER, 0 00 0 / 1 1 1 1 2 2 2 2 (DY./ASSTT. REGISTRAR) +, +, +, +, , / ITAT, MUMBAI