DCIT 10(3)(2), MUMBAI V. PLAZA HOTELS P.LTD, MUMBAI

ITA 3405/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5580 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N SINGH; MANOJ KUMAR SING
• Assessee Lawyers: ARUN G VERMA
• Keywords: Business income; Rule of consistency
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 3405/MUM/2017 (ASSESSMENT YEAR : 2012-13) DCIT, 10(3)(2), MUMBAI VS PLAZA HOTELS PVT LTD 70-C, NEHRU ROAD VILE PARLE (E), MUMBAI-99 PAN : AAACP2117N APPELLANT RESPONDEDNT APPELLANT BY SH. H.N.SINGH CIT-DR AND SH. MANOJ KUMAR SING SR DR RESPONDENT BY SH. ARUN G. VERMA DATE OF HEARING 05.09.2019 DATE OF PRONOUNCEMENT 05 -09-2019 O R D E R PER PAWAN SINGH, JUDICIAL MEMBER : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER OF CIT(A)-17, MUMBAI DATED 28-02-2017 FOR ASSESSMENT YEAR 2012-1 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSEE OF TREATING THE RECEIPTS RECEIVED FROM THE HOTEL BUSINESS AS BUSINE SS INCOME WITHOUT APPRECIATING THAT THE ASSESSEE HAS GIVEN HOTEL PROP ERTY OWNED BY IT TO KAMAT HOTELS(INDIA) LTD. ON A BUSINESS CONTRACT AGREEMENT WHEREBY THE ASSESSEE IS TO RECEIVE 1% OF THE TOTAL REVENUE AND ALSO THE INTERE ST FREE DEPOSIT, WHICH IS NOTHING BUT A RENT ON THE PROPERTY AND THE SAME IS TAXABLE U/S. 22 OF THE INCOME-TAX ACT,1961?' 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSEE OF TREATING THE RECEIPTS RECEIVED FROM THE HOTEL BUSINESS AS BUSINE SS INCOME AND THEREBY NOT 2 ITA 3405/MUM/2017 DETERMINING THE ALV AS PER THE PROVISIONS OF SECTIO N 23(L)(A) OF THE INCOME-TAX ACT, 1961 WITHOUT APPRECIATING THAT IF THE RATEABLE VALUE UNDER NORMAL MUNICIPAL LAWS DOES NOT REPRESENT THE CORRECT FAIR RENT, THEN AS PER SECTION 23(L)(A) OF THE INCOME-TAX ACT,1961, THE ASSESSING OFFICER MAY DETE RMINE THE SAME ON THE BASIS OF MATERIAL EVIDENCE ON RECORD, WHICH THE ASSESSING OFFICER HAS CORRECTLY DONE,?' 2. AT THE OUTSET OF HEARING, THE LD.AR OF THE ASSES SEE SUBMITS THAT GROUND OF APPEAL RAISED IN THE PRESENT APPEAL IS COVERED I N FAVOUR OF ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEE S OWN CASE FOR AYS 2006-07 TO 20-11-12. THE LD.CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE , FOLLOWED THE ORDER OF HIS PREDECESSOR, WHICH HAS BEEN AFFIRMED BY THE TRIBUNA L. THE LD.AR FURTHER SUBMITS THAT THE DEPARTMENT FILED APPEAL BEFORE HON BLE BOMBAY HIGH COURT IN INCOME-TAX APPEAL NO.235 OF 2015 AND 203 O F 2015, WHERE THE HON BLE HIGH COURT DISMISSED THE APPEALS VIDE ORDER DAT ED 25-07-2017 AND FURTHER SLP BEFORE HON BLE SUPREME COURT HAS BEEN DISMISSED. 3. ON THE OTHER HAND, THE LD.DR FOR THE REVENUE, AF TER GOING THROUGH THE GROUNDS OF APPEAL AND THE DECISION OF TRIBUNAL RELI ED UPON THE ORDER OF ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTED TH AT ON SIMILAR SET OF FACTS IN ASSESSEE S OWN CASE FOR AY 2011-12 IN ITA NO.5313/MUM/2014 B Y 3 ITA 3405/MUM/2017 FOLLOWING THE DECISION OF EARLIER YEARS, I.E. FOR A YS 2006-07, 2007-08 & 2008-09, 2009-10 & 2010-11 PASSED THE FOLLOWING ORD ER:- AT THE OUTSET, THE LD. A.R. OF THE ASSESSEE HAS ST ATED THAT THE ISSUE RAISED VIDE GROUND NO.L IN REVENUE'S APPEAL IS COVERED IN FAVOU R OF THE ASSESSEE BY THE EARLIER DECISIONS OF THE TRIBUNAL FOR A.Y. 2006-07, 2007-08 , 2008-09, 2009-10 AND 2010- 11. HE HAS FILED THE COPY OF THE ORDERS OF THE TRIB UNAL FOR THE EARLIER ASSESSMENT YEARS. HE HAS FURTHER SUBMITTED THAT IF THE GROUND NO.L IS DECIDED IN FAVOUR OF THE ASSESSEE, THE ISSUE RAISED VIDE GROUND NO.2 WILL BE COME INFRUCTUOUS. 4. THE LD. D.R. HAS ALSO ADMITTED THAT THE ISSUE IN VOLVED IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN EAR LIER ASSESSMENT YEARS IN THE OWN CASE OF THE ASSESSEE RIGHT FROM A.Y. 2006-07. 5. AFTER GOING THROUGH THE IMPUGNED ORDER OF THE LD . CIT(A) AS WELL AS OF THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR EA RLIER ASSESSMENT YEARS, WE FIND THAT WHETHER THE ASSESSEE'S RECEIPT FROM HOTEL BUSI NESS IS TO BE ASSESSED AS BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY HAS B EEN SETTLED IN FAVOUR OF THE ASSESSEE BY CONSISTING FINDING OF THE TRIBUNAL IN T HE EARLIER ASSESSMENT YEARS. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PART OF THE ORDER OF THE TRIBUNAL DATED J3.09.13 PASSED IN ITA NUS.6676/M/20JL AND ITA NO.6 636/M/20J I (A.Y. 2006- 07) IS REPRODUCED AS UNDER: '14, AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THERE IS NO DISPUTE THAT THE ASSESSEE WAS RUNNING THE HOTEL ITSELF BEFORE GIVING TO KHIL UNDER AGREEMENT ENTERED IN THE YEAR OF 1994. THE ENTIRE ACTIVITIES OF HOTEL CARRIED OUT BY THE ASSESSEE ITSELF BEFORE ENTERING THE AGREEMEN T WAS GIVEN TO KHIL AN INTEREST FREE SECURITY WAS ALSO OBTAINED FR OM KHIL, WHICH WAS REFUNDABLE AFTER COMPLETION OF PERIOD ENTERED I NTO BETWEEN THE PARTIES. THE ASSESSEE WAS SHARING A REVENUE AT THE RATE OF 1% OF THE REVENUE EARNED BY THE KHIL ON ACCOUNT OF RUNNING OF HOTEL OWNED BY THE ASSESSEE. THOUGH THE CIT(A) HAS RECORDED THE FA CTS IN HIS ORDER THAT M/S KHIL WAS ALLOWED TO RENOVATE THE HOTEL OR RECONSTRUCT THE SAME FROM HIS OWN FUNDS, BUT IT DOES NOT MEAN THAT THE CHARACTER OF ASSET OWNED BY THE ASSESSEE HAS BEEN CHANGED. THE F ACT IS THAT THE ASSESSEE OWNED HOTEL, WHICH WAS RUN BY THE ASSESSEE BEFORE ENTERING INTO THE AGREEMENT. WHATEVER THE REQUIREME NT OF THE HOTEL WAS THERE, THE SAME WAS MADE BY KHIL WITH ITS OWN F UND AS AGREED 4 ITA 3405/MUM/2017 UPON. THE CHARACTER OF THE ASSET WAS THAT THE ENTIRE HOTEL WHICH WAS RUN BY THE ASSESSEE ITSELF EARLIER WAS GIVEN UNDER THE AGREEMENT TO M/S KHIL TO RUN THE HOTEL. THEREFORE, IN OUR CONSID ERED VIEW, THIS WAS AN EXPLOITATION OF COMMERCIAL ASSET FOR BUSINESS PU RPOSE AND WHATEVER THE RECEIPTS ARE RECEIVED FROM EXPLOITING OF COMMERCIAL ASSET FOR BUSINESS USE ARE TO BE TREATED AS BUSINES S RECEIPTS. WHEN THE ASSESSEE WAS RUNNING THIS HOTEL, THE RECEIPTS F ROM THE HOTEL WERE SHOWN AS BUSINESS RECEIPTS AND THEY WERE ACCEPTED. AFTER GIVING TO KHIL I.E. IN THE YEAR 1994, THE RETURN WAS FILED FO R ASSESSMENT YEAR 1995-96 SHOWING THE REVENUE RECEIPT FROM KHIL AS BU SINESS INCOME AND THE SAME WAS ACCEPTED. THE ASSESSMENT WAS COMPL ETED UNDER SECTION 143(3). UP TO ASSESSMENT YEAR 2005-06, THE ASSESSMENT HAS BEEN COMPLETED BY THE AO AND THE CONTENTION OF THE ASSESSEE THAT THE REVENUE RECEIVED FROM KHIL ARE BUSINESS ASSET, WERE ACCEPTED. FOR ASSESSMENT YEAR 2005-06 & 2003-04 THE ASSESSMEN T WAS COMPLETED UNDER SECTION 143(3). THE MATTER REACHED TO THE STAGE OF THE TRIBUNAL, HOWEVER, THIS ISSUE WAS NEVER DISPUTE D BY THE AO THAT THE REVENUE RECEIPT RECEIVED FROM M/S KHIL UNDER TH E AGREEMENT ARE BUSINESS RECEIPT AS THEY WERE ACCEPTED. THEREFORE, IT CANNOT BE SAID THAT ANY CHARACTER OF THE REVENUE RECEIPT HAS BEEN CHANGED IN THE YEAR UNDER CONSIDERATION. IN OUR CONSIDERED VIEW, T HE PRINCIPLE OF CONSISTENCY IN THE CASE IN HAND IS APPLICABLE. ACCO RDINGLY, THE AO SHOULD HAVE ACCEPTED THE RECEIPT UNDER THE HEAD BUS INESS INCOME SHOWN BY THE ASSESSEE. 14,1 THE AO HAS PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS (S UPRA), WHICH HAS BEEN CONSIDERED BY THE LEARNED CIT(A) ALSO. HOW EVER, WE NOTED THAT IN THE CASE OF SHAMBHU INVESTMENTS (SUPRA), TH E HON'BLE APEX COURT HAS OBSERVED THAT, IF THE ASSESSEE HAS GIVEN ANY ASSET EXPLORING THE PROPERTY FOR COMMERCIAL PURPOSE, THEN THE SAME HAS TO BE TREATED AS BUSINESS INCOME. THE FOLLOWING OBSERV ATIONS HAVE BEEN MADE BY THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS (SUPRA):- 'TAKING A SUM TOTAL OF AFORESAID DISCUSSIONS, IT CL EARLY APPEARS THAT MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOV ABLE PROPERTY CANNOT BE THE SOLE FACTOR FOR ASSESSMENT O F SUCH INCOME AS INCOME FROM PROPERTY; WHAT HAS TO BE SEEN IS WHA T WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT IS FOUND, APPLYING SUCH TEST, THAT MAIN INTENTION IS F OR LETTING OUT THE PROPERTY, OR ANY PART THEREOF, THE SAME MUST BE CON SIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. IN CASE, IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF 5 ITA 3405/MUM/2017 COMPLEX COMMERCIAL ACTIVITIES, IN THAT EVENT, IT MU ST BE HELD AS BUSINESS INCOME.' IN THIS CASE THE HON'BLE SUPREME COURT HAS HELD THA T IF IT IS FOUND THAT THE MAIN INTENTION IS FOR LETTING OUT THE PROPERTY OR A NY PART THEREOF, THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. IN THIS CASE IT IS OBSERVED THAT IF THE MAIN INTENTION IS TO EXP LOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IT MUST BE HELD AS BUSINESS INCOME. THE RATIO OF THIS DECISION, IN OUR CONSIDER ED VIEW, IS APPLICABLE IN THE PRESENT FACTS OF THE CASE AS THE ASSESSEE HAS G IVEN THE PROPERTY FOR EXPLOITING BY WAY OF COMPLEX COMMERCIAL ACTIVITIES IN THE YEAR OF 1994 AND FROM ASSESSMENT YEAR 1995-96 TO 2005-06, THE DEPART MENT HAS ACCEPTED THE CONTENTION OF THE ASSESSEE HOLDING THAT THE REC EIPT ON ACCOUNT OF LEASING TO KHIL ARE BUSINESS RECEIPT. 14.2 THIS IS ALSO A MATTER OF FACT THAT THERE WAS N O FIXED RATE AS THE ASSESSEE WAS EARNING/RECEIVING ONLY 1% OF THE GROSS REVENUE RECEIPTS. FROM THIS FACT, IT IS AMPLY PROVED THAT THE COMMERC IAL ASSET WAS USED BY THE ASSESSEE, AND, THEREFORE, ANY COMMERCIAL RECEIP T HAS TO BE TREATED AS BUSINESS RECEIPT. IT IS FURTHER SEEN THAT AS PER AG REEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S KHIL, THE HOTEL PREMIS ES WILL BE HANDED OVER TO THE ASSESSEE AND THE ASSESSEE IS LIABLE TO PAY ALL THE EXPENDITURES INCURRED BY M/S KHIL ON ITS CONSTRUCTION AND RENOVA TION AS PER FORMULA AGREED UPON. IT IS ALSO A MATTER OF FACT THAT THE A SSESSEE WAS RUNNING THIS HOTEL ITSELF AND THE ASSESSEE IS ALSO RUNNING VARIO US OTHER HOTELS AT PRESENT. 14.3 IN CASE OF CIT VS. MOHIDDIN HOTELS P. LTD., RE PORTED IN 284 ITR 229, SIMILAR FACTS WERE INVOLVED. IN THIS CASE ALSO THE HOTEL WAS GIVEN ON LEASE TO A THIRD PARTY. THE AO TREATED THE LEASE INCOME A S INCOME FROM HOUSE PROPERTY AGAINST SHOWN BY THE ASSESSEE AS BUSINESS RECEIPT. THE TRIBUNAL ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. ON APP EAL BEFORE THE HIGH COURT, THE HON'BLE HIGH COURT IN THE AFORESAID CASE CONFIRMED THE ORDER OF THE TRIBUNAL BY HOLDING AS UNDER ;- 'HELD, THAT FROM THE FACTS FOUND BY THE TRIBUNAL AS WELL AS THE AGREEMENT DATED FEBRUARY 1, 1987, IT WAS MORE THAN CLEAR THAT THE AGREEMENT BETWEEN THE ASSESSEE AND S RELATED TO THE BUILDING THAT WAS READY FOR THE PURPOSES OF COMMENC ING THE HOTEL BUSINESS. THE AGREEMENT DID NOT RELATE TO A B ARE TENEMENT BUT WAS IN RESPECT OF THE HOTEL. THAT THE SAID HOTEL WAS COMPLETE WITH FITTINGS AND FIXTURES AND READY F OR COMMENCING THE BUSINESS WAS APPARENT FROM THE AGREE MENT. THE FACT THAT ALL LICENCES, PERMISSIONS AND NO OBJE CTION CERTIFICATES REQUIRED FOR RUNNING HOTEL WERE TO BE OBTAINED IN THE NAME OF THE ASSESSEE WAS A POINTER TO THE ASPECT TH AT THE ASSESSEE INTENDED TO EXPLOIT THE BUSINESS ASSET (TH E HOTEL). THE 6 ITA 3405/MUM/2017 INCOME OF RS. 7,80,000 RECEIVED FROM S IN THE HANDS OF THE ASSESSEE WAS INCOME FROM BUSINESS UNDER SECTION 28 OF THE INCOME-TAX ACT, 1961.' WHILE HOLDING SO THE HON'BLE HIGH COURT HAS REFERRE D TO THE CASES VIZ,, CEPT VS. SHRI LAKSHMI SILK MILLS LTD., 20 ITR 451 (SC), CIT VS. CALCUTTA NATIONAL BANK LTD., 37 ITR 171 (SC), CIT V S. VIKRAM COTTON MILLS LTD., 169 ITR 597 (SC), SULTAN BROTHERS P, LT D. VS. CIT, REPORTED IN 51 ITR 353 (SCJ AND IN CASE OF UNIVERSA L PLAST LTD, VS. CIT, 237 ITR 454 (SC). AFTER CONSIDERING VARIOUS DE CISIONS AS MENTIONED ABOVE, THE HON'BLE HIGH COURT HAS HELD TH AT THE ASSESSEE HAS GIVEN HOTEL ON LEASE FOR EXPLOITING BUSINESS AS SET AND, THEREFORE, THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE INCOME FROM LEASING THE HOTEL WAS INCOME FROM BUSINESS. FACTS OF THE CASE I N HAND ARE SIMILAR TO THE FACTS BEFORE THE HON'BLE HIGH COURT IN CASE OF MOHIDDIN HOTELS PVT. LTD. (SUPRA). THEREFORE, FOR THIS REASO N ALSO, WE ARE OF THE VIEW THAT THE RECEIPT FROM M/S KHIL ON ACCOUNT OF L EASING THE HOTEL WAS BUSINESS RECEIPT. THERE IS NO DISPUTE THAT THE ASSESSEE IS OWNER OF THE HOTEL GIVEN ON LEASE TO M/S KHIL. ALL THE LI CENSES AND PERMISSIONS ARE IN THE NAME OF ASSESSEE. THIS IS AL SO A FACT THAT THE ASSESSEE WAS RUNNING ITS HOTEL ITSELF BEFORE GIVING TO M/S KHIL. ACCORDINGLY, IN OUR CONSIDERED VIEW, THE RECEIPTS R ECEIVED FROM KHIL ARE BUSINESS RECEIPT. THEREFORE, WE ALLOW THIS GROU ND OF THE ASSESSEE AND DIRECT THE AO TO TREAT THE BUSINESS RE CEIPT AGAINST INCOME FROM PROPERTY TREATED BY HIM.' THE ABOVE FINDING OF THE TRIBUNAL HAS BEEN SUBSEQUE NTLY FOLLOWED VIDE ORDER DATED 25.07.14 IN ITA NOS.2828 & 2829/M/2012 FOR A. Y. 2007-08 AND ITA NOS.3I91 & 3I92/M/2012 FOR A.Y. 2008-09 AND FURTHER IN ASSESSMENT YEAR 2009- JO IN ITA NOS.5855/M/2013 AND 5950/M/2013 VIDE ORDE R DATED 31.08.15 AND THEREAFTER IN THE A.Y. 2010-11 VIDE ITA NO.4606/M/2 014 VIDE ORDER DATED 12.01,16. 6. AS REGARDS GROUND NO.2, IN VIEW OF OUR FINDINGS GIVEN ABOVE IN GROUND NO.L, GROUND NO.2 WOULD BECOME INFRUCTUOUS AND THE SAME I S ACCORDINGLY DISMISSED. 5. CONSIDERING THE DECISION OF TRIBUNAL ON IDENTICAL S ET OF FACTS, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPEAL RAISED BY R EVENUE. MOREOVER, WE HAVE SEEN THAT THE LD.CIT(A) WHILE PASSING THE ORDER, FO LLOWED THE ORDER OF TRIBUNAL FOR AYS 2006-07 TO 2011-12 WHICH HAVE BEEN AFFIRMED BY THE TRIBUNAL, AS REFERRED TO ABOVE. 7 ITA 3405/MUM/2017 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 05.09.2019. SD/- SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIALMEMBER MUMBAI, DT : 05.09.2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI