DCIT, New Delhi V. M/s. United Hotels Ltd., New Delhi

ITA 296/DEL/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5753 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 18-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K TIWARI
• Assessee Lawyers: NIDHI SARIN; RUPESH J AIN
• Keywords: Business income; Depreciation; Commercial expediency

Judgement Text

ITA NO. 296/DEL/2010 A.Y. 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 296/DEL/2010 A.Y. 2006-07 DY. COMMISSIONER OF INCOME TAX, VS. M/S UNI TED HOTELS LTD. CIRCLE 18(1), R.NO. 211A, CR BLDG., THE AMBASSADO R HOTEL, NEW DELHI SUJAN SINGH PARK, NEW DELHI (PAN: AAACU0031C) [APPELLANT] (RESPONDENT) ASSESSEE BY : SH. RUPESH JAIN & MS. NIDHI SARIN, ADV. DEPARTMENT BY : SH. V.K. TIWARI, CIT(DR) ORDER PER SHAMIM YAHYA, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE CIT(A) DATED 23.10.2008 FOR THE A.Y. 2006-07. 2. THE FIRST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE DISALLOWANCE OF RS. 91,70,962/- MADE BY THE AO ON ACCOUNT OF PAY MENTS MADE TO MEGAPODE AIRLINES LTD. AS ANNUAL ENTITLEMENT FEE 3. ON THIS ISSUE THE AO NOTED THAT IDENTICAL ISSUE IN THE EARLIER YEARS HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT AND THE SAME DECISION HAD TRAVELLED UPTO THE HIGH COURT AND THE HIGH COURT HAS NOT INTE RFERED WITH THE FINDING OF THE ITAT. HOWEVER, AO OPINED THAT FACTS BROUGHT OUT IN HIS ORDER HAD NOT BEEN BROUGHT TO THE NOTICE OF THE ITAT. HENCE AO DISALL OWED THE EXPENDITURE ON ITA NO. 296/DEL/2010 A.Y. 2006-07 2 ANNUAL ENTITLEMENT FEE HOLDING THAT THE SAME WAS NO T WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSE OF BUSINESS.. 4. UPON ASSESSEES APPEAL THE LD. CIT(A) CONSIDERED THE ISSUE AND DECIDED AS UNDER:- I HAVE CONSIDERED THE CONTENTIONS OF BOTH THE AO A ND THE APPELLANT. I HAVE ALSO PERUSED THE ORDER OF THE HONBLE ITAT, DELHI BENCH IN ITA NO. 996/DEL/05 FOR A.Y.R. 2001-02 IN APPELLANTS OW N CASE. IT IS SEEN FROM THE ORDER THAT THE FACT THAT NO FLYING HOURS W ERE ACTUALLY UTILIZED BY THE APPELLANT WAS IN THE KNOWLEDGE OF T HE HONBLE ITAT. IN ITS ORDER THE HONBLE ITAT CONCLUDED THAT THE AG REEMENT ENTERED INTO BY THE APPELLANT WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND THAT NO MATERIAL WAS BROUGHT ON RECORD BY THE ASSE SSING OFFICER FOR MAKING ANY DISALLOWANCE UNDER SECTION 40A(2), EVEN THOUGH THE PAYMENT WAS MADE TO THE ASSOCIATE CONCERNS. HONBLE ITAT FURTHER HELD THAT THE BURDEN LIES ON THE REVENUE TO PROVE THE EXPENDITURE SO INCURRED WAS EXCESSIVE OR UNREASONABLE, AND IN THE INSTANT CASE NO FINDING HAS BEEN RECORDED BY THE AO TO SHOW THAT SI MILAR FACILITIES WERE AVAILABLE TO THE APPELLANT AT A LOWER PRICE O R THAT THE APPELLANT HAD MADE ANY EXCESSIVE PAYMENTS. THIS ORDER OF ITA T IS ALSO NOT INTERFERED BY THE HONBLE DELHI HIGH COURT IN ITA N O. 1147/2008 DATED 3.10.2008. KEEPING IN VIEW THE ABOVE FACTS, I AM NOT IN AGREEMENT WITH THE AO THAT THE ORDER OF THE ITAT FO R A.Y. 2001-02 HAS BEEN DISTINGUISHED AND THE INSTANT CASE HAS BEE N DECIDED ON NEW ISSUES. THE AO HAS ALSO IGNORED THE WORD OTHERS I N THE AGREEMENT WHICH CAN HAVE WIDERANGING IMPORT AND RAMIFICATIONS . LASTLY, THE AO HAS NOT QUANTIFIED WHAT WAS EXCESSIVE AND UNREASONA BLE AND IN LIGHT OF THE FACT THE APPELLANT WAS INFACT, OFFERED DISCO UNTED RATES, THE DISALLOWANCE OF ANNUAL ENTITLEMENT FEE OF RS. 91,70 ,862 IS DELETED. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT IDENTICAL ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE AND THE ITA NO. 296/DEL/2010 A.Y. 2006-07 3 SAID ORDER HAD BEEN CONFIRMED BY THE HONBLE HIGH C OURT ALSO. THE AO HAS NOT FOLLOWED THE SAME BY HOLDING THAT HE HAS BROUGHT OUT NEW FACTS. ON CAREFUL CONSIDERATION WE DO NOT FIND ANY NEW FACT BROUGHT O UT BY THE AO. THE PAYMENT HAS BEEN MADE UNDER THE SAME AGREEMENT UNDER WHICH EARLIER PAYMENT WERE MADE. THE FACTS REMAIN THE SAME. HENCE ON THE SAME ISSUE THE TRIBUNAL AS WELL THE HONBLE HIGH COURT HAS DECIDED IN FAVOUR OF THE ASSESSEE. SINCE LD. CIT(A) HAS FOLLOWED THESE ORDERS. WE DO NOT FIND ANY REAS ON TO INTERFERE WITH HIS ORDER. ACCORDINGLY, WE UPHOLD THE SAME. 7. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE DISALLOWANCE OF RS. 83017/- MADE ON ACCOUNT OF EXC ESSIVE DEPRECIATION CLAIMED ON CARPETS, TREATING THE SAME AS PLANT AND MACHINER Y INSTEAD OF FURNITURE AND FIXTURES. 8. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. IT TRANSPIRES THAT THE SAME ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1297 AND 1298/DEL/2009 VIDE ORDER DATED 28.8.2 009. THE TRIBUNAL HAD REFERRED TO THE DECISION CITED BEFORE IT I.E. SCIE NTIFIC ENGINEERING HOUSE P. LTD. VS. CIT 157 ITR 86 (SC) AND CIT VS. TAJMAHAL HOTEL 82 IT R 44 (SC) AND TRIBUNAL HAD HELD THAT IN VIEW OF THE DECISIONS CITED BY THE LD . COUNSEL OF THE ASSESSEE THE CARPET IN HOTEL INDUSTRY SHOULD BE TAKEN AS PLANT AND CLAIM OF DEPRECIATION OF THE ASSESSEE IS ADMISSIBLE. FOLLOWING THE AFORESAID PRECEDENT, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DECIDE THE ISSU E AGAINST THE REVENUE. 9. THE LAST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE DISALLOWANCE OF RS. 1,32,86,281/- MADE BY THE AO TREATING THE T ECHNICAL CONSULTANCY FEE PAID. ITA NO. 296/DEL/2010 A.Y. 2006-07 4 9.1 ON THIS ISSUE THE AO NOTED THAT ASSESSEE HAD DE BITED A SUM OF RS. 1,32,86,281/- UNDER THE HEAD TECHNICAL CONSULTANCY WHICH WAS WORKED OUT @5% OF THE BUSINESS INCOME AND WAS PAID TO INDIAN HOTEL COMPANY AS PER AGREEMENT. AO OBSERVED THAT ASSESSEE HAS TAKEN TEC HNICAL CONSULTANCY FROM M/S INDIAN HOTELS CO. LTD. FOR VARIOUS FUNCTIONS OF HOTEL SUCH AS SELECTION, RECRUITMENT, TRAINING, ASSIGNING OF DUTY TO ALL PER SONNEL, FIXATION OF EMOLUMENT FOR ALL STAFF, FORMULATION AND ADMINISTRATION OF PERSON NEL POLICIES, INSTITUTION, POLICIES, PRINCIPLES, PROCEDURES ETC. INSTITUTION OF REPORTIN G AND CONTROL SYSTEMS AND PROCEDURE OF ALL THE DEPARTMENTS, THE ESTABLISHMEN T OF ALL PRICE, PRICE SCHEDULE, RATES AND RATES SCHEDULES, THE NEGOTIATION AND EXEC UTION IN THE NORMAL COURSE OF BUSINESS LICENSES, INSTALLATION OF SUITABLE CONTROL AND BOOKS OF A/C ETC. ETC. THE PAYMENT MADE AS PER AO WAS FALLING UNDER THE CAPITA L FUND. HENCE HE DISALLOWED THE SAME. 10. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT H E HAD GONE THROUGH THE AGREEMENT AND HE FURTHER HELD AS UNDER:- IT IS SEEN THAT THE NATURE OF THE SERVICES TO BE P ROVIDED AS PER AGREEMENT PERTAIN TO OPERATIONS OF THE HOTEL ON DAY TO DAY B ASIS LIKE SELECTION, RECRUITMENT, TRAINING, FIXATION OF EMOLUMENTS ETC. THIS IN AN ONGOING PROCESS AND NO WAY CAN BE TREATED AS OF ENDURING BE NEFITS TO THE ASSESSEE. THE OTHER SERVICES TO BE PERFORMED BY THE INDIAN HO TELS CO. LTD. ARE ALSO OF ON GOING PROCESSES AND NOT CAPITAL IN NATURE. THE A PPELLANT HAS QUOTED VARIOUS CASE LAWS FOR DIFFERENTIATING THE NATURE OF EXPENDITURE BETWEEN CAPITAL AND REVENUE. THE APPELLANTS FURTHER CONT ENTION IS THAT NO NEW ITA NO. 296/DEL/2010 A.Y. 2006-07 5 ASSET HAS BEEN CREATED. IN VIEW OF THE FOREGOING FA CTS AND CIRCUMSTANCES, I DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. 11. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 12. LD. DR REITERATED THAT TECHNICAL CONSULTANCY FE E WAS NOT TO BE ALLOWED AS REVENUE EXPENSES. IN THIS REGARD, HE PLACED RELIA NCE UPON THE CASE OF JYOTI ELECTRIC MOTOR LTD. VS. CIT (GUJRAT) 237 ITR 280 AND IN THE CASE OF W.S. INSULATION OF INDIA LTD. (MAD) 243 ITR 348. LD. COUNSEL OF TH E ASSESSEE ON OTHER HAND SUBMITTED THAT AS PER THE AGREEMENT, ASSESSEE HAS O NLY OBTAINED CONSULTANCY IN THE RUNNING OF THE HOTEL BUSINESS AND NO ENDURING B ENEFITS HAS BEEN OBTAINED. HE SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE DR RELATED TO ACQUISITION OF SOME TECHNICAL KNOW-HOW AND IN THE PRESENT CASE HE CLAI MED THAT THERE IS NO ACQUISITION OF TECHNICAL KNOW-HOW FOR ENDURING BENE FIT. IN THIS REGARD, LD. COUNSEL REFERRED TO THE DECISION OF THE ITAT IN ITA NO. 3173/DEL/07 IN THE CASE OF HONDA SIEL CARS INDIA LIMITED VS. CIT, VIDE ORDER D ATED 16.5.2008. 13. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. IT IS CLEAR THAT THE FEE PAID BY THE ASSESSEE IS FOR DAY TO DAY RUNN ING OF THE HOTEL. ASSESSEE HAD NOT ACQUIRED ANY BENEFIT OF ENDURING NATURE. THE SERVICES OBTAINED BY THE ASSESSEE WERE ONGOING PROCESS AND ACCORDINGLY, WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). THE CASE LAWS REFERRE D BY LD. DEPARTMENTAL REPRESENTATIVE PERTAINED TO ACQUISITION OF TECHNICA L KNOW-HOW IN THE SHAPE OF TECHNICAL DRAWING, DESIGN AND KNOW HOW AND FOR SETT ING UP NEW PLANT. HENCE THESE ARE NOT APPLICABLE ON THE FACTS OF THE CASE. HENCE WE UPHOLD ORDER OF THE LD. CIT(A). ITA NO. 296/DEL/2010 A.Y. 2006-07 6 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/03/201 0. SD/- SD/- [A.D. JAIN] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 26/03/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES