M/s. AMERICAN HOTEL & LODGING EDUCATIONAL INSTITUTE, MUMBAI V. DDIT (I.T)-1(1), MUMBAI

ITA 2108/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48719 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 06-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 13-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: J D MISTRI SHRI JAYESH DESAI
• Keywords: Wholly owned subsidiary
• Section: 148

Judgement Text

1 ITA NOS.2106,2107&2108/MUM/2007 ASSTT.YEARS:2000-01,2001-02&2002-03. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER. S.NO. I.T.A. NO. ASSESSMENT YEAR 1. 2106/MUM/2007 2000-01 2. 2107/MUM/2007 2001-02. 3. 2108/MUM/2007 2002-03 . AMERICAN HOTEL & LODGING DY. DIRECTOR OF INCOME-TAX, EDUCATIONAL INSTITUTE, VS. (INTERNATIONAL TAXATION)-1(1), (EARLIER KNOWN AS EDUCATIONAL MUMBAI. INSTITUTE OF AMERICAN HOTEL & MOTEL ASSOCIATION), ASHA HOUSE, 28, SUREN ROAD, MUMBAI-400093. PAN : AAAAE0097J APPELLANT. RESPONDENT. APPELLANT BY : SHRI J.D.MISTRI, SHRI JAYESH DESAI. RESPONDENT BY: SHRI SATBIR SINGH. O R D E R PER J. SUDHAKAR REDDY : THESE ARE THE APPEALS FILED BY THE ASSESSEE DIRECT ED AGAINST THE ORDERS OF THE CIT(APPEALS)-XXXI, MUMBAI DATED 26-12-2006. AS THE ISSUES ARISING IN ALL THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE, TH EY ARE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER. 2 ITA NOS.2106,2107&2108/MUM/2007 ASSTT.YEARS:2000-01,2001-02&2002-03. 2. THE FACTS OF THE CASE ARE GIVEN AT PARA 1.1AND 1 .2 OF THE CIT(APPEALS) ORDER FOR ASSTT.YEAR 2000-01 WHICH ARE EXTRACTED BELOW FO R READY REFERENCE: 1.1 THE AMERICAL HOTEL & LODGING EDUCATIONAL INSTI TUTE (APPELLANT) IS A WHOLLY OWNED SUBSIDIARY OF THE AMERICAL HOTEL & MOT EL ASSOCIATION SET UP IN THE YEAR 1970. THE APPELLANT IS ENJOYING TAX EXE MPTION U/S 501(C)(3) AS AN EDUCATIONAL INSTITUTION UNDER THE INTERNAL REVENUE CODE OF 1954 IN USA. IN 1993, THE NATIONAL COUNCIL OF HOTEL MANAGEMENT & CA TERING TECHNOLOGY, THE APEX INDIAN BODY OVERSEEING HOTEL MANAGEMENT AN D CATERING EDUCATION UNDER THE MINISTRY OF TOURISM SIGNED A MEMORANDUM O F UNDERSTANDING WITH THE ASSESSEE, WITH GOVT. APPROVAL, TO USE ITS COURSES AND EXPERTISE WITH A VIEW TO IMPROVE THE QUALITY OF HOSPITALITY EDUCATIO N AND TRAINING IN INDIA. THE ASSESSEE THEREFORE, OPENED A LIAISON OFFICE IN MUMBAI IN JULY, 1994 WITH THE APPROVAL OF RBI. THEREAFTER, THE LIAISON O FFICE HAD BEEN UPGRADED TO A BRANCH OFFICE WITH THE APPROVAL OF THE FINANCE MINISTRY AND RBI IN FEBRUARY, 1995. 1.2 THE APPELLANT HAD FILED RETURN DISCLOSING TOTAL RECEIPT OF RS.1,88,38,674/- AND AFTER SET OFF OF THE EXPENDITU RE OF THE BRANCH IN INDIA OF RS.26,08,918/-, NET SURPLUS AS PER THE INCOME AND E XPENDITURE ACCOUNT OF RS.1,62,29,756/- WAS DISCLOSED IN THE RETURN. THE A PPELLANT HAD CLAIMED THAT THIS INCOME IS EXEMPT AS PER SECTION 10(23C)(VI). A PPLICATION SEEKING APPROVAL OF THE CBDT WAS FILED WAS FILED FOR A.YS. 1999-2000 & 2000-01 AND THE APPROVAL WAS AWAITED. THE AO FOUND THAT IN A.Y. 1999-2000, A SIMILAR CLAIM OF EXEMPTION U/S 10(23C)(VI) WAS MADE BEFORE THE AO WHICH WAS REJECTED BY THE AO. THE MATTER WENT BEFORE THE CIT(A) AND THE CIT(A) VIDE HIS ORDER DATED 10.02.2003 IN A.Y. 1999-2000 I N APPEAL NO. CIT(A)XXIX/ITO, WD.12(2)(3)/IT-249/02-03 HAD UPHELD THE FINDINGS OF AO. THE AO HAD EXAMINED THE RETURN OF A.Y. 2000-01 AND WAS OF THE OPINION, BASED ON THE FINDINGS IN A.Y. 1999-2000, T HAT THE APPELLANT WAS NOT ENTITLED TO EXEMPTION. THE AO ACCORDINGLY ISSUED NO TICE U/S 148 AFTER RECORDING THE REASONS IN WRITING. ASSESSMENT HAS B EEN SUBSEQUENTLY MADE DISALLOWING THE CLAIM OF EXEMPTION AND ASSESSING TH E TOTAL INCOME AT NET INCOME DISCLOSED IN THE RETURN. 3. THE FIRST GROUND, REGARDING THE CLAIM OF EXEMPTI ON U/S 10(23C)(VI), WAS DECIDED AGAINST THE ASSESSEE BY THE CIT(APPEALS) BY OBSERVING AS FOLLOWS : 3 ITA NOS.2106,2107&2108/MUM/2007 ASSTT.YEARS:2000-01,2001-02&2002-03. 3.3 I HAVE EXAMINED THE CLAIM OF APPELLANT AND I H AVE PERUSED THE ORDER OF HONBLE DELHI HIGH COURT AND I HAVE ALSO PERUSED TH E ORDER OF CIT(A)- XXIX IN A.Y. 1999-2000. THE FACTS NEED NOT BE REITE RATED. FOLLOWING THE ORDER OF HONBLE DELHI HIGH COURT, THE CLAIM OF APP ELLANT OF BEING ENTITLED TO EXEMPTION U/S 10(23C) IS REJECTED. APPEAL ON GRO UND OF APPEAL NO.2 IS DISMISSED. THE OTHER ISSUES WERE ALSO DECIDED AGAINST THE ASSE SSEE. AGGRIEVED, THE ASSESSEE FILED APPEALS BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE MR. J.D. MI STRI, SUBMITTED THAT THE HONBLE SUPREME COURT BY ORDER DATED 9-5-2008 SET A SIDE THE ORDER OF THE CBDT DATED 12-10-2004 WHEREIN THE CBDT REJECTED THE APPL ICATION OF THE ASSESSEE U/S 10(23C)(VI), ON THE GROUND THAT THE ASSESSEE WAS NO T AN EDUCATIONAL INSTITUTION ESTABLISHED IN INDIA AND THAT IT HAD A SURPLUS IN I TS BALANCE SHEET AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31-3-1999 AND REMITTED THE CASE BACK TO THE CBDT FOR A FRESH CONSIDERATION, CLARIFYING THAT THE ASSESSEE HAD FULFILLED THE THRESHOLD CONDITION OF ACTUAL EXISTENCE OF AN EDUCATIONAL INS TITUTE U/S 10(23C)(VI) AND CONSEQUENTLY DIRECTED THE CBDT NOT TO REJECT THE AP PLICATION FOR APPROVAL ON THAT GROUND. HE SUBMITTED THAT THE CBDT GRANTED APPROVAL ON 3-11-2009, IN WHICH IT IMPOSED A CONDITION THAT THE ASSESSEE SHOULD APPLY 75% OF ITS TOTAL INCOME FOR EDUCATIONAL PURPOSES IN INDIA. THE ASSESSEE CHALLEN GED THE ORDER OF THE CBDT IN A WRIT PETITION BEFORE THE HONBLE BOMBAY HIGH COURT CONTENDING THAT I) THE CONDITION IMPOSED WHILE GRANTING APPROVAL U/S 10(23 C)(VI) WAS IMPOSSIBLE OF COMPLIANCE AS THE ASSESSMENT YEARS 1999-2000 TO 200 1-02 HAD ELAPSED; II) THAT NO OPPORTUNITY WAS GRANTED TO THE ASSESSEE TO COMPLY W ITH THE MONITORING CONDITIONS WHICH HAVE BEEN STIPULATED FOR THE FIRST TIME BY TH E THIRD PROVISO TO SECTION 10(23C); AND III) DESPITE THE DIRECTIONS ISSUED B Y THE SUPREME COURT, NO ORDER HAS BEEN PASSED FOR THE ASSESSMENT YEARS 2002-03 TO 20 06-07 AND, THUS, THE DEMAND FOR TAXES IN THE CIRCUMSTANCES WAS ARBITRARY. HE SU BMITTED THAT THE HIGH COURT HAS 4 ITA NOS.2106,2107&2108/MUM/2007 ASSTT.YEARS:2000-01,2001-02&2002-03. PASSED AN ORDER IN THE WRIT PETITION ON 30 TH JUNE, 2010 WHICH IS REPORTED IN 192 TAXMAN 275 (BOM.) WHEREIN AT PAGE 286 IT READ AS FO LLOWS : HENCE, FOLLOWING ORDER : (I) THE PRESCRIBED AUTHORITY IS DIRECTED TO PASS ORDERS ON THE APPLICATIONS FOR APPROVAL MADE BY THE PETITIONER FOR ASSESSMENT YEARS 2002-03 TO 2006-07 EXPEDITIOUSLY AND IN ANY EVENT WITHIN A PER IOD OF TWO MONTHS FROM TODAY; (II) THE CONDITIONS IMPOSED BY THE CENTRAL BOARD OF DIRE CT TAXES IN ITS ORDER DATED 3-11-2009, WHILE GRANTING APPROVAL TO T HE PETITIONER UNDER SECTION 10(23C)(VI) INCLUDING THE CONDITION THAT TH E PETITIONER MUST APPLY SEVENTY FIVE PER CENT OF ITS TOTAL INCOME FOR EDUCATIONAL PURPOSES IN INDIA ARE UPHELD AS VALID; (III) THE PRESCRIBED AUTHORITY IS DIRECTED, IN TERMS OF T HE OBSERVATIONS CONTAINED IN PARA 33 OF THE JUDGMENT OF THE SUPREME COURT DATED 9-5- 2008 (SUPRA), TO FURNISH TO THE PETITIONER AN OPPOR TUNITY TO COMPLY WITH THE MONITORING CONDITIONS AND TO ALLOW A REASO NABLE PERIOD TO DO SO IN THE EVENT OF THE ASSESSING OFFICER COMING TO THE CONCLUSION THAT THERE IS ANY SHORTFALL IN COMPLIANCE AFTER CONSIDER ING THE EXPENDITURE ALLOWABLE UNDER THE ACT; (IV) DURING THE PERIOD THAT MAY BE ALLOWED BY THE PRESCR IBED AUTHORITY IN TERMS OF THE DIRECTIONS CONTAINED HEREINABOVE, THER E SHALL BE A STAY ON THE RECOVERY OF THE OUTSTANDING DEMANDS FOR ASSESSM ENT YEARS 1999- 2000 TO 2001-02 AND 2002-03 TO 2006-07. MR. MISTRI FILED AN ORDER DATED 19-1-2011 PASSED BY THE DY. DIRECTOR OF INCOME- TAX (INTERNATIONAL TAXATION), MUMBAI WHICH IS TITLE D ORDER GIVING EFFECT TO CBDTS ORDER U/S 10(23C)(VI) OF THE I.T. ACT AND SUBMITTED THAT IN THIS ORDER THE HONBLE HIGH COURTS DECISION TO DETERMINE THE SURP LUS AND TO ALLOW REASONABLE PERIOD TO APPLY 75% OF ITS TOTAL INCOME HAS NOT BEE N FOLLOWED BY THE AO. HE SUBMITTED THAT THE ORDER OF THE HONBLE HIGH COURT HAS NOT BEEN FOLLOWED BY THE DDIT WHILE PASSING HIS ORDER ON 19-01-2011. HE PRAY ED THAT THE AO BE DIRECTED TO FOLLOW THE ORDER OF THE HIGH COURT. 5 ITA NOS.2106,2107&2108/MUM/2007 ASSTT.YEARS:2000-01,2001-02&2002-03. 5. THE LEARNED DR, MR. SATBIR SINGH, SUBMITTED THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS THERE ARE NUMBER OF DEVELOPMENTS SUBSEQUENT TO THE PASSING OF THE ASSES SMENT ORDER. HE AGREED THAT THE AO SHOULD DETERMINE THE SURPLUS AND ALSO GRANT TIME TO THE ASSESSEE TO APPLY 75% OF ITS TOTAL INCOME FOR EDUCATIONAL PURPOSES IN IND IA. 6. AFTER HEARING RIVAL CONTENTIONS, WE AGREE WITH T HE RIVAL SUBMISSIONS THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN TERMS OF THE DIRECTIONS OF THE HONBLE BOMBAY HIGH COURT VIDE IT S ORDER DATED 30 TH JUNE, 2010. THE AO IS DIRECTED TO DETERMINE THE SURPLUS, AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE AND ALSO TO PROVIDE, REASONABLE PERIOD TO THE ASSESSEE FOR COMPLIANCE OF MONITORING CONDITIONS. THE AO IN HIS ORDER DATED 19-01-2011, HAS NOT FOLLOWED THE DIRECTIONS OF THE JURISDICTIONAL HIGH COURT, WH EREIN THE AO WAS DIRECTED TO GRANT REASONABLE TIME TO FULFILL THE CONDITION TH AT THE ASSESSEE MUST APPLY 75% OF THE TOTAL INCOME FOR EDUCATIONAL PURPOSES IN INDIA. IN VIEW OF OUR ABOVE OBSERVATIONS, WE DIRECT THE AO TO PASS DENOVO ORDER S IN ACCORDANCE WITH LAW AND IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE JURI SDICTIONAL HIGH COURT AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 7. IN THE RESULT, ALL THE THREE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2011. SD/- SD/- (VIJAY PAL RAO) (J. SUDHAKAR RED DY) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI, DATED: 27 TH APRIL, 2011. WAKODE 6 ITA NOS.2106,2107&2108/MUM/2007 ASSTT.YEARS:2000-01,2001-02&2002-03. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH (TRUE COPY) BY ORDE R ASSTT. REGIST RAR, ITAT, MUMBAI BEN CHES DATE INITIALS DRAFT DICTATED ON 06- 04-2011 SR. P.S. DRAFT PLACED BEFORE THE AUTHOR 07-04-2011 SR. P.S. DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER AM/JM DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM APPROVED DRAFT COMES TO THE SR. PS SR. P.S. KEPT FOR PRONOUNCEMENT ON SR. P.S. FILE SENT TO THE BENCH CLERK SR. P.S. DATE ON WHICH FILE GOES TO THE HEAD CLERK DATE OF DISPATCH