ACIT 18(1), MUMBAI V. JEWEL OF INDIA, MUMBAI

ITA 2229/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8690 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 08-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K G KUTTY
• Assessee Lawyers: ARUN G VERMA
• Keywords: Business income; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER.. I.T.A. NO.2228 & 2229/MUM/2011. ASSESSMENT YEARS : 2005-06 & 2006-07. ASSTT. COMMISSIONER OF INCOME-TAX, M/S JEWEL OF INDIA, 18(1), MUMBAI. VS. DISCOVERY OF INDIA, DR. ANNIE BESAN T ROAD, WORLI, MUMBAI-1 8. PAN AAAFJ0334N APPELLANT. RESPONDENT . APPELLANT BY : SHRI K.G. KUTTY RESPONDENT BY : SHRI ARUN G. VERMA. DATE OF HEARING : 08-10-2012 DATE OF PRONOUNCEMENT : 12-10-2012. O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS ARE PREFERRED BY THE REVENUE AGA INST TWO SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-29, MUMBAI BOTH DATED 29-12-2010 FOR ASSESSMENT YEARS 2005-06 AND 2006-07 AND SINCE A CO MMON ISSUE IS INVOLVED THEREIN, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER. 2. THE SOLITARY GROUND RAISED BY THE REVENUE, WHICH IS IDENTICAL IN BOTH THESE APPEALS READS AS UNDER : 2 ITA NO. 2228/MUM/2011 & ITA NO. 2229/MUM/2011 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE COMPENSATION/GOODWILL OF RS.1 ,14,00,000/- AS A REVENUE EXPENDITURE INSTEAD OF TREATING IT AS CAPIT AL IN NATURE AS THE SAME WAS PAID FOR PROTECTING AND TO SAFEGUARD THE BUSINESS O F THE ASSESSEES GOODWILL. 2. IN THE PRESENT CASE, THE ASSESSEE IS A PARTNERSH IP FIRM WHICH IS ENGAGED IN THE BUSINESS OF RUNNING A RESTAURANT AT NEHRU CENTRE AN D PROVIDING CATERING SERVICES AND REFRESHMENT TO THE TOURIST AND CUSTOMERS VISITI NG THE PREMISES OF NEHRU CENTRE AND DISCOVERY OF INDIA AT WORLI, MUMBAI. THE RETURN S OF INCOME FOR THE YEARS UNDER CONSIDERATION WERE FILED BY IT ON 28-10-2005 AND 31-10-2006 DECLARING TOTAL INCOME OF RS.1,43,96,421/- AND RS.1,80,45,570/- FOR ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. IN THE PROFIT & LOSS ACCOUNTS FILED WITH THE SAID RETURNS, A SUM OF RS.1,14,00,000/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF COMPENSATION PAID FOR PREMISES IN NAHRU CENTRE. IN THE EARLIER Y EARS, SIMILAR EXPENDITURE ON ACCOUNT OF COMPENSATION PAID FOR PREMISES IN NEHRU CENTRE WAS CLAIMED BY THE ASSESSEE AND THE SAME WAS DISALLOWED IN THE ASSESSM ENTS TREATING THE SAME AS CAPITAL IN NATURE HOLDING THAT IT WAS IN THE NATURE OF THE PAYMENT FOR GOODWILL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE IN ADDITION TO REITERATING THE SUBMISSIONS MADE IN THE EARLIER YEARS IN SUPPORT OF ITS CLAIM FOR DEDUCTION ON ACCOUNT OF CO MPENSATION PAID FOR PREMISES IN NEHRU CENTRE ON MERIT, THAT A NEW AGREEMENT WAS ENT ERED INTO IN THE YEAR UNDER CONSIDERATION FOR THE USE OF PREMISES WHEREIN THE W ORD COMPENSATION ONLY WAS USED AND NOT THE WORDS ROYALTY, LICENSE FEES AN D GOODWILL. THE AO DID NOT FIND THIS CHANGE MADE IN THE RELEVANT AGREEMENT TO BE MATERIAL. ACCORDING TO HIM, THE NATURE OF PAYMENT STILL REMAINED THE SAME AS IT WAS IN THE EARLIER YEARS WHEREIN IT WAS HELD THAT THE COMPENSATION PAID BY THE ASSES SEE WAS IN THE NATURE OF CAPITAL EXPENDITURE BEING GOODWILL AS THE SAME WAS PAID FO R PROTECTING AND SAFEGUARDING THE BUSINESS OF THE ASSESSEE. HE HELD THAT THE ASSE SSEE FIRM WAS CONDUCTING HOTEL 3 ITA NO. 2228/MUM/2011 & ITA NO. 2229/MUM/2011 BUSINESS IN THE PREMISES OF NEHRU CENTRE FOR THE LA ST 19 YEARS AND WAS PAYING COMPENSATION IN THE NATURE OF GOODWILL AND ROYALTY TO NEHRU CENTRE ALTHOUGH IN THE NEW AGREEMENT ENTERED INTO DURING THE YEAR UNDER CO NSIDERATION, THE WORD COMPENSATION ONLY WAS MENTIONED. FOLLOWING THE ST AND TAKEN IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, THE AO, THEREFORE, DISA LLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF COMPENSATION PAID FOR PR EMISES TO NEHRU CENTRE TREATING THE SAME AS CAPITAL EXPENDITURE IN BOTH TH E YEARS UNDER CONSIDERATION IN THE ASSESSMENTS COMPLETED U/S 143(3). 3. AGAINST THE ORDERS PASSED BY THE AO U/S 143(3) F OR BOTH THE YEARS UNDER CONSIDERATION, APPEALS WERE PREFERRED BY THE ASSESS EE BEFORE THE LEARNED CIT(APPEALS) WHO ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF COMPENSATION PAID FOR PREMISES TO NEHRU CENTRE FOLL OWING THE ORDER OF THE TRIBUNAL DATED 29-12-2009 IN ASSESSEES OWN CASE FO R ASSESSMENT YEARS 1997-98, 1999-2000, 2001-02, 2003-04 AND 2004-05 WHEREIN IT WAS HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO NEHRU CENTRE WAS NOT FOR AC QUISITION OF GOODWILL BUT THE SAME WAS FOR THE RIGHT TO USE THE PREMISES OWNED BY NEHRU CENTRE. IT WAS HELD BY THE TRIBUNAL THAT ALTHOUGH THE PAYMENT MADE BY THE ASSESSEE TO NEHRU CENTRE WAS CLASSIFIED AS ROYALTY, LICENSE FEES AND GOODWILL, T HE SAME WAS PAID AS COMPENSATION ONLY FOR THE USER OF THE PREMISES FOR THE RUNNING O F RESTAURANT. IT WAS HELD BY THE TRIBUNAL THAT THE ENTIRE AMOUNT PAID BY THE ASSESSE E AS COMPENSATION FOR PREMISES TO NEHRU CENTRE THUS WAS REVENUE EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF ITS BUSINESS AND THE SAME WAS ALLOWA BLE AS DEDUCTION IN COMPUTING ITS BUSINESS INCOME. AGGRIEVED BY THE RELIEF ALLOWE D BY THE LEARNED CIT(APPEALS) TO THE ASSESSEE ON THIS ISSUE FOR BOTH THE YEARS UN DER CONSIDERATION, THE REVENUE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL. 4 ITA NO. 2228/MUM/2011 & ITA NO. 2229/MUM/2011 4. WE HAVE HEARD THE A RGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR I SSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR THE EARLIER YEARS AND THE TRIBUNAL VID E ITS COMMON ORDER DATED 17-12- 2009 PASSED FOR ASSESSMENT YEARS 1997-98, 1999-2000 , 2001-02, 2003-04 AND 2004-05 IN ITA NO.2017/MUM/2004, 3188/MUM/2004, 555 1/MUM/2004, 5374/MUM/2005 AND 3079/MUM/2008 HAS DECIDED THE SAM E IN FAVOUR OF THE ASSESSEE HOLDING THAT IRRESPECTIVE OF THE NOMENCLAT URE USED IN THE RELEVANT AGREEMENT, THE ENTIRE AMOUNT PAID BY THE ASSESSEE T O NEHRU CENTRE WAS TOWARDS COMPENSATION FOR THE USE OF THE PREMISES FOR RUNNIN G ITS RESTAURANT AND THE SAME BEING REVENUE EXPENDITURE INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS WAS ALLOWABLE AS DEDUCTION IN C OMPUTING THE BUSINESS INCOME OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAID DE CISION OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE UPHOLD THE IMPUGNED ORDERS OF THE LEARNED CIT(APPEALS) ALLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE ON A CCOUNT OF COMPENSATION PAID TO NEHRU CENTRE FOR USE OF PREMISES FOR THE PURPOSE OF ITS BUSINESS AND DISMISS THESE APPEALS FILED BY THE REVENUE. 5. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED ON THIS 12 TH DAY OF OCT. , 2012. SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 12 TH OCT., 2012. 5 ITA NO. 2228/MUM/2011 & ITA NO. 2229/MUM/2011 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, I-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENCHES , MUMBAI. WAKODE.