ITO, New Delhi V. M/s. Sachdeva Hospitality, New Delhi

ITA 4083/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4443 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 19-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Business income; TDS; Set aside
• Section: 73; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 4083/DEL/2016 : ASSTT. YEAR : 2012-13 INCOME TAX OFFICER, WARD 41(1), NEW DELHI. VS SACHDEVA HOSPITALITY, 12/57, WEST PUNJABI BAGH, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. ABJFS1413K ASSESSEE BY : DR. RAKESH GUPTA, ADV. REVENUE BY : SH. SARAS KUMAR, SR. DR DATE OF HEARING: 06.01.2020 DATE OF PRONOUNCEMENT: 21.02.2020 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF LD. CIT (A)-14, NEW DELHI DATED 18.05. 2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENU E: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING TH E ADDITION MADE BY THE ASSESSING OFFICER UNDER THE HEAD INCOME FROM HOUSE PROPERTY AMOUNTING TO RS. 3,44,40,000/- WITHOUT APPRECIATING THE FINDINGS OF THE AO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN ALLOWING TH E DEDUCTION CLAIMED U/S 80ID OF THE ACT OF RS. 2,19,94,920/- BY ACCEPTING THE HOTEL INCOME UNDER HEAD BUSINESS AND PROFESSION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN DIRECTING T HE AO TO ASSESS THE HOTEL INCOME UNDER THE HEAD INCOME ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 2 FROM BUSINESS AND PROFESSION INSTEAD OF INCOME FROM HOUSE PROPERTY BY IGNORING THE DEFINITION OF BUSINESS PROVIDES IN SECTION 2(13) OF THE ACT WITHOUT CONSIDERING THE ONE OF THE AGREEMENT CONDITIONS WHEREBY MINIMUM GUARANTEE FEES WOULD BE RECEIVED BY THE ASSESSEE. 3. THE MOOT ISSUE RELATES TO DISALLOWANCE THE DEDUC TION CLAIMED BY THE ASSESSEE U/S 80ID OF THE INCOME TAX ACT, 1961 ON TH E GROUNDS THAT THE RECEIPTS OF THE ASSESSEE AMOUNTS TO RENTAL CHARGES FROM THE HOTEL BUT NOT THE BUSINESS INCOME SINE THE ENTIRE HOTEL OPERATION S ARE CONDUCTED BY M/S PEPPERMINT HOTEL WITH WHOM THE ASSESSEE ENTERED INT O AN AGREEMENT FOR RUNNING OF THE HOTEL. 4. THE FACTS AND ARGUMENTS OF THE CASE IN APPEAL AR E AS UNDER: THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S PEPPERMINT HOTELS INDIA (P) LTD. (PHPL) AS PER WHICH PHPL WAS TO REND ER PROFESSIONAL SERVICES TO THE ASSESSEE FOR RUNNING THE HOTEL AS P ER COPY OF AGREEMENT ENCLOSED IN THE PAPER BOOK. THAT AS PER THE AGREEME NT, THE ASSESSEE WAS TO PAY BASE MANAGEMENT FEE TO PHIPL AND FURTHER INC ENTIVE MANAGEMENT FEE AFTER PHIPL ACHIEVED AN ASSURED BASIC MINIMUM O PERATIVE PROFIT OF RS.41,00,000/- PER MONTH. THE ASSESSEE STARTED HOTE L OPERATION FROM JULY 2010. 5. THE REVENUE HELD THAT THE ASSESSEE IS NOT OPERAT ING THE BUSINESS OF RUNNING OF THE HOTEL BUT IT HAS GIVEN THE PREMISES FOR LEASE TO PHPL AND HENCE THE AMOUNT RECEIVED BY THE ASSESSEE IS NOT EL IGIBLE FOR DEDUCTION U/S 80ID OF THE ACT. THE REVENUE HAS GONE THROUGH T HE AGREEMENTS ENTERED BY THE ASSESSEE AND CAME TO CONCLUSION THAT THE HOTEL, IN FACT, IS BEING RUN BY THE AGREEMENT HOLDER. 6. THE LD. CIT (A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 3 7. BEFORE US, DURING THE ARGUMENTS, THE LD. DR RELI ED ON THE CLAUSES OF THE AGREEMENT BETWEEN THE ASSESSEE AND PHPL WHICH A RE AS UNDER: THE EXTRACTS OF HOTEL OPERATION AGREEMENT ARE REPR ODUCED AS UNDER; (I.E. PEPPERMINT HOSPITALITY INDIA LTD.) FOR YOUR REFERENCE. 1. THE OWNER WISHES TO ENGAGE THE OPERATOR TO MANAG E AND OPERATE THE HOTEL UNDER THE OPERATORS BRAND NAME/ TRADE MARK/ LOGO PEPPERMINT HOTEL GURGOAN AND THE OPERATOR AGREES TO MANAGE AND OPERATE THE HOTEL. 2. THE OPERATOR SHALL SUPERVISE AND DIRECT THE OPER ATIONS OF THE HOTEL AND SHALL HAVE, WITHIN THE LIMITS STIPULA TED IN THE AGREEMENT, COMPLETE AND EXCLUSIVE CONTROL AN DISCRE TION OVER THE OPERATION OF THE HOTEL AND ALL OPERATING PLANS INCLUDING USE OF SPACE AND FACILITIES, PRICES, ENTERTAINMENT AND AMUSEMENT POLICIES, LABOURS POLICIES, WAGE RATES, H IRE AND DISCHARGE OF EMPLOYEES AND ALL PHASES OF PROMOTION, PUBLICITY AND ADVERTISING. 3. THE OPERATOR SHALL OPERATE THE HOTEL AND ALL ITS FACILITIES AND ACTIVITIES IN THE SAME MANNER AS IS CUSTOMARY A ND USUAL IN THE OPERATION OF OTHER SIMILAR HOTELS INCLUDING SUPERVISORY SERVICES PROVIDED BY OPERATORS OF HOTELS OF COMPARA BLE CLASS AND STANDING CONSISTENT WITH THE HOTELS FACILITIES . 4. THE OWNER AGREES TO COOPERATE TO THE FULLEST EXT ENT WITH THE OPERATOR IN APPLYING FOR, OBTAINING AND MAINTAI NING SUCH LICENSES AND PERMITS. 5. THE OPERATOR SHALL HAVE FULL DISCRETION AND CONT ROL IN THE OPERATION OF THE HOTEL. 6. THE OPERATOR SHALL MAINTAIN OR CAUSE TO BE MAINT AINED ALL RECORDS AND REGISTERS AND SHALL SUBMIT OR CAUSE TO BE APPROPRIATE AUTHORITIES ALL INFORMATION, REPORTS, E TC. AS ARE LEGALLY OBLIGATORY ON THE OPERATOR, AND/OR THE OWNE R. 7. THE OPERATOR SHALL PROCURE AND APPROPRIATE EXPER T ON OR BEFORE THE OPENING DATE, A DISASTER MANAGEMENT PLAN /SAFETY MANUALS WHICH INCLUDE DETAILS OF THE PLANS AND PROC EDURES TO BE EXERCISED IN EMERGENCY SITUATIONS AIMED AT REDUC ING THE LOSS OF LIFE AND PROPERTY. THE DETAILS OF THE DISAS TER ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 4 MANAGEMENT PLAN SHALL BE SPECIFICALLY DESIGNED TO A DAPT AND COMPLY WITH THE REQUIREMENTS OF THE HOTEL IN AN EME RGENCY SITUATION AND THE OPERATOR SHALL PUT IN PLACE POLIC IES AIMED AT ENSURING THAT THE EMPLOYEES OF THE HOTEL ARE FULLY TRAINED IN ACCORDANCE WITH THE DISASTER MANAGEMENT PLAN TO HAN DLE EMERGENCY SITUATIONS. OPERATOR SHALL CAUSE THE HOTE L TO PARTICIPATE IN AND COMPLY WITH ALL RISK MANAGEMENT, COMPLIANCE AND AUDIT PROGRAMS AND PROCEDURES AS APP LICABLE TO THE HOTEL AND GENERALLY SIMILAR TO THE ONES ADOP TED IN OTHER HOTELS OWNED OR MANAGED BY THE OPERATOR. OPER ATOR SHALL ALWAYS KEEP OWNER INDEMNIFIED FROM ALL RISKS AND CONSEQUENCES INCLUDING THIRD PARTY CLAIMS, ALL LIAB ILITIES, CIVIL, CRIMINAL OR FINANCIAL INCLUDING ALL PROSECUTIONS AR ISING OUT OF ANY ACT OF OMISSION AND COMMISSION BY THE OPERATOR IN EXECUTION, OPERATION, MANAGEMENT OR SUPERVISION OF THE HOTEL. 8. THE OPERATOR WOULD ENSURE THAT AT ALL TIMES THE ACTUAL EXPENSES DO NOT CROSS THE LIMIT SET IN BUDGETED EXPENSES(MONTH WISE) AND THE HOTEL MAY FUNCTION EFF ICIENTLY, AND SMOOTHLY IN THE MANNER THEREIN CONTEMPLATED, AN D THE OPERATOR SHALL ENSURE THAT ALL PAYMENTS TO BE MADE BY THE OPERATOR HEREUNDER ARE PROMPTLY MADE AS AND WHEN TH EY FALL DUE. 9. THE OPERATOR SHALL ARRANGE AND CONTRACT FOR ALL ADVERTISING AND PROMOTION, WHICH OPERATOR MAY DEEM NECESSARY FO R SUCCESSFUL OPERATION OF THE HOSTEL. 10. THE OPERATOR SHALL PROVIDE TECHNICAL SERVICES A ND RELATED KNOW- HOW TO THE OWNER AT EVERY PRE-OPENING STAGE A ND THEREAFTER OPERATE, MANAGE, SUPERVISE AND RUN THE H OTEL DILIGENTLY AND PROFESSIONALLY IN COMMENSURATION WIT H NATIONAL/ INTERNATIONAL STANDARDS OF SIMILAR ESTABLISHMENT AN D HOTELS. OPERATOR, BESIDES OTHER SHALL PROVIDE FOLLOWING SER VICES. (I) MEET WITH OPERATOR AND CONSULTANTS, AND REVIEW DESIGN BRIEF, OPERATING CRITERIA, DESIGNS STANDARDS AND RE VIEW CONSULTANTS RESPONSIBILITIES, SOURCES OF DIRECTION , BUDGET CONTROL REPORTING FUNCTIONS, ETC. (II) PROVIDE DETAILED ASSISTANCE AND GUIDANCE TO SP ECIALISTS CONSULTANTS, I.E. KITCHEN AND LAUNDRY DESIGNERS FOR THE ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 5 DEVELOPMENT OF THE HOUSE AREAS, INCLUDING OFFICES, MAINTENANCE, HOUSEKEEPING ETC. (III) REVIEW AND GUIDE ON DETAILED LAYOUT DRAWINGS OF ALL HOTEL BACK OF THE HOUSES AREAS, INCLUDING OFFICES, MAINTENANCE, HOUSEKEEPING ETC. (IV) ATTEND ALL DESIGN DEVELOPMENT MEETING AS REQUI RED TO DEVELOP THE DOCUMENTS IN A CONCISE AND ORDERLY MANN ER. 11. OPERATOR HAS NET MINIMUM GUARANTEE MG GROSS OPERATING PROFIT AT RS.4100000/-, SHOULD THE ACHIEV ED GROSS OPERATING PROFIT FOR THE MONTH BE BELOW RS 4100000/ -, THE OPERATOR SHALL REIMBURSE THE SHORTFALL TO THE OWNER . ON GOING THROUGH THE AGREEMENT AND MORE SPECIFICALL Y AS APPARENT FROM THE CLAUSES OF AGREEMENT MENTIONED AB OVE. I HAVE OBSERVED THAT THE ESSENCE OF THE AGREEMENT I S THAT YOU WILL RECEIVE A MINIMUM SUM OF RS 41.00 LACS P.M . TOWARDS UTILIZATION OF YOUR PROPERTY BY PEPPERMINT THROUGHOUT THE YEAR. THE ENTIRE OPERATIONS ARE CONTROLLED BY P EPPERMINT AND YOU BASICALLY RECEIVE AMOUNT TOWARDS RENT/LEASE CHARGES. FURTHER , AS PER RECORDS SUBMITTED BEFORE ME YOU HA VE RECEIVED A SUM OF RS. 270,163,06/- TOWARDS SHORTFAL L IN GROSS OPERATING PROFIT ALSO WHICH FURTHER PROVES THAT THE BASIC CHARACTER OF YOUR NET RECEIPTS IS RENT/LEASE CHARGE S WHICH ARE RECEIVED THROUGH THE COMPLEX METHOD OF CALCULATION OF THE SAME WHICH HAS BEEN CAMOUFLAGED TO SHOW AS BUSINESS RECEIPT. 8. THE LD. DR CONCLUDED THAT WHAT THE ASSESSEE RECE IVED WAS ONLY THE RENTAL AMOUNTS FOR UTILIZATION OF THE PROPERTY AND COMPENSATION TOWARDS SHORT FALL IN THE GROSS OPERATING PROFIT. 9. ON THE OTHER HAND, THE LD. AR ARGUED THAT WHAT P HPL PROVIDING IS PRIMARILY IN THE NATURE OF CONSULTANCY AND PROFESSI ONAL SERVICES AND IT CANNOT BE DEEMED THAT THE ENTIRE OPERATIONS HAVE BE EN RELEGATED TO PHPL. IT WAS ARGUED THAT ALL THE RECEIPTS OF THE HOTEL FR OM GUESTS ARE CREDITED TO THE BANK ACCOUNT OF THE ASSESSEE, THE CHEQUES, CRED IT CARDS AND OTHER ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 6 RECEIPTS. ALL EXPENSES ARE PAID FROM THE BANK ACCOU NT IN THE NAME OF THE ASSESSEE. ALL SALE INVOICES ALSO REFLECT THE NAME O F THE ASSESSEE. HE RELIED ON THE ARTICLE 12 OF THE AGREEMENT WHICH STATE THAT DURING THE TERM OF THE AGREEMENT THE HOTEL SHALL ..BE KNOWN AND DESIGNATE D AS PEPPERMINT HOTEL, GURGAON OR SUCH NAME SELECTED BY THE OWNER F ROM TIME TO TIME IT WAS ARGUED THAT THE SERVICE TAX REGISTRATION, VA T REGISTRATION, LABOUR DEPARTMENT REGISTRATION, PF REGISTRATION AND ESIC R EGISTRATION ARE ALL IN THE NAME OF THE ASSESSEE. THE VAT RETURNS, THE LUXURY T AX RETURN, SERVICE TAX RETURN HAVE BEEN FILED IN THE NAME OF THE ASSESSEE. 10. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 11. IN ADDITION TO THE FACTS NARRATED ABOVE, WE ALS O FIND THAT THE LIQUOR LICENSE ISSUED BY THE COLLECTOR-CUM-EXCISE & TAXATI ON COMMISSIONER IS IN THE NAME OF THE ASSESSEE AND SO AS THE NOC FOR BAR LICENSE, SANITARY CERTIFICATE AND PUBLIC PERFORMANCE LICENSE. THE COP Y OF THE BANK STATEMENT REFLECTS THE RECEIPTS AND PAYMENTS OUT OF THE ASSES SEE ACCOUNT. THE LABOUR DEPARTMENT REGISTRATION IS IN THE NAME OF THE ASSES SEE AND ALL THE EMPLOYEES ARE ON THE ROLE OF THE ASSESSEE FIRM AND PF LIABLE TO IS ALSO TAGGED TO THE ASSESSEE BEING THE EMPLOYEE. ALL THE TDS CERTIFICATES ARE RECEIVED IN THE NAME OF THE ASSESSEE FIRM WHEREVER APPLICABLE. WE HAVE ALSO GIVEN OUR ATTENTION TO THE JUDGMENT OF CO-ORDI NATE BENCH IN THE CASE OF JAI MAHAL HOTEL PVT. LTD. 65 ITD 362 (DEL.). THE RELEVANT ANALYSIS IS AT PARA 13 TO 19 OF THE ORDER WHICH IS AS UNDER: 13(A) THAT THE TERM 'BUSINESS' AS DEFINED IN S. 2( 13) ARE OF VERY WIDE IMPORT AND IT MUST BE CONSTRUED IN A BROA D RATHER THAN IN A RESTRICTIVE SENSE. SUCH A VIEW IS CLEARLY FORTIFIED BY THE PROVISIONS CONTAINED IN S. 2(13) AS WELL AS THE JUDGMENTS REPORTED IN MAZAGAON DOCK LTD. VS. CIT (SUPRA), CIT VS. A. DHARMA REDDY (DECD) (1969) 73 ITR 751 (SC), CIT VS. CALCUTTA NATIONAL BANK LTD. (SUPRA) AND CEPT VS. SH RI LAKSHMI SILK MILL LTD. (SUPRA). ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 7 (B) THE DISTINCT HEADS OF INCOME SPECIFIED IN S. 14 OF THE ACT ARE MUTUALLY EXCLUSIVE. THE INCOME DERIVED FROM DIF FERENT SOURCES FALLING UNDER SPECIFIC HEADS HAS TO BE COMP UTED FOR THE PURPOSE OF TAXATION IN THE MANNER PROVIDED BY T HE APPROPRIATE SECTION. IF THE INCOME FROM A SOURCE FA LLS WITHIN THE SPECIFIC HEAD SET OUT IN S. 14, THE FACT THAT I T MAY INDIRECTLY BE COVERED BY ANOTHER HEAD WILL NOT MAKE THE INCOME CHARGEABLE UNDER THE LATTER HEAD. (C) A COMMERCIAL ASSET CAN BE EXPLOITED IN MANY WAY S. SO LONG AS A COMMERCIAL ASSET IS EXPLOITED AS SUCH AND PROFITS AND GAINS EARNED FROM IT, THE SAME ARE PROFITS AND GAINS OF A BUSINESS. IN ORDER TO DECIDE WHETHER INCOME ARISING DUE TO EXPLOITATION OF COMMERCIAL ASSETS WOULD BE ASSESSAB LE AS INCOME FROM BUSINESS OR AS INCOME FROM OTHER SOURCE S ONE WILL HAVE TO EXAMINE THE TERMS OF AGREEMENT BY WHIC H THE COMMERCIAL ASSET WAS EXPLOITED BY LETTING OUT THE S AME TO OTHERS. FOR THIS PURPOSE IT WILL HAVE TO BE ASCERTA INED WHETHER THE BUSINESS OF THE ASSESSEE WAS ENTIRELY CLOSED OR THE LETTING OUT OF THE COMMERCIAL ASSET FOR A TEMPORARY PERIOD WAS MADE FOR PROFITABLE MODE OF EXPLOITATION OF THE SAID COM MERCIAL ASSETS. THE INTENTION OF THE PARTIES, EITHER EXPRES SED OR GATHERED FROM THE CIRCUMSTANCES MAY PROVIDE A GUIDI NG TEST IN THE MATTER. IF IN GIVING COMMERCIAL ASSETS OF A BUSINESS BY WAY OF A LICENCE TO OTHER PARTY, THE INTENTION OF T HE LICENSOR- OWNER IS TO GO OUT OF THE BUSINESS ALTOGETHER, IT W ILL NOT BE ASSESSABLE AS INCOME FROM BUSINESS. BUT IF THE INTE NTION OF THE LICENSOR-OWNER IS TO CONTINUE IN THE SAID BUSIN ESS, THE INCOME WOULD BE ASSESSABLE AS INCOME FROM BUSINESS. WHETHER A PARTICULAR LETTING IS BUSINESS HAS TO BE DECIDED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. EACH CASE HAS TO BE LOOKED AT FROM THE BUSINESSMAN'S POINT OF VIEW TO F IND OUT WHETHER THE LETTING WAS THE EXPLOITATION OF COMMERC IAL ASSETS IN A MORE PROFITABLE MANNER OR SUCH A LETTING OUT O F THE COMMERCIAL ASSETS RESULTED IN A PERMANENT CLOSURE O F ASSESSEE'S BUSINESS. 14. WE WILL, THEREFORE, HAVE TO EXAMINE THE FACT OF TH E PRESENT CASE IN THE LIGHT OF THE AFORESAID LEGAL PR INCIPLES DEDUCED FROM THE VARIOUS JUDGMENT CITED BY THE LEAR NED REPRESENTATIVES OF BOTH SIDES. ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 8 15. IT IS AN UNDISPUTED FACT THAT THE ERSTWHILE FIRM W AS CARRYING ON THE BUSINESS AS HOTELIER IN THE SAME PR EMISES. THE APPELLANT-COMPANY WAS INCORPORATED IN THE YEAR 1981 WITH THE MAIN OBJECTS OF CARRYING ON BUSINESS OF HO TEL AND RESTAURANT. THE COMPANY INITIALLY STARTED THE BUSIN ESS IN THE PARTNERSHIP WITH TWO OTHER PARTNERS UNDER THE NAME AND STYLE OF M/S JAI MAHAL HOTEL. COPIES OF ASSESSMENT ORDERS OF THE SAID FIRM SUBMITTED IN THE COMPILATION SHOWS THAT T HE SAID FIRM HAD SUFFERED A LOSS OF RS. 18,000 IN ASST. YR. 1982-83 AND LOSS OF RS. 38,250 IN ASST. YR. 1983-84. THE PR EAMBLE OF THE AGREEMENT EXECUTED BETWEEN THE APPELLANT-COMPAN Y AND IHC REVEALS THAT IHC POSSESSED EXPERTISED RESOURCES AND INFRASTRUCTURE, COVERING, INTER ALIA, HIGHLY DEVELO PED TECHNOLOGY IN THE FIELD OF HOTEL-TOURISTS UNDERSTAN DING, THE NEED OF INDIAN AND FOREIGN TOURIST AND TRAVELLERS A ND MEETING THEM THROUGH SPECIALISED TECHNIQUES PARTICULARLY IN THE CONTEXT OF HOTEL BUSINESS AND OTHER HOTEL RELATED S ERVICES. 16. A CAREFUL SCRUTINY OF VARIOUS CLAUSES OF THE SAID AGREEMENT EXECUTED BETWEEN THE APPELLANT-COMPANY AN D IHC REVEALS THAT THE SAID AGREEMENT WAS EXECUTED WITH T HE PREDOMINANT MOTIVE OF EXPLOITING THE HOTEL BUILDING AND ITS FIXTURES IN A MORE PROFITABLE, ORGANISED AND A SYST EMATIC MANNER. IT IS WELL-KNOWN THAT IHC IS A COMPANY OWNI NG ALL THE TAJ GROUPS OF HOTELS AND THEY HAVE A LONG EXPER IENCE AND EXPERTISE IN CARRYING ON THE BUSINESS OF HOTELS. TH EY ARE FULLY CONVERSANT WITH THE MODERN TECHNOLOGY AND SPECIALIS ED SKILL REQUIRED FOR RUNNING AND MANAGING FIVE STAR HOTELS. THE AGREEMENT IN QUESTION WAS MADE EFFECTIVE FROM JUNE, 1984. THE PERIOD OF THIS AGREEMENT WAS 60 YEARS COMMENCIN G FROM THE APPOINTED DATE WHICH WAS 2ND JUNE, 1984. FOR TH E FIRST 5 YEARS THE APPELLANT-COMPANY WAS ENTITLED TO MINIMUM GUARANTEED BUSINESS PROFITS OF RS. 35 LAKHS I.E. RS . 7 LAKHS PER ANNUM. THEREAFTER THE MINIMUM GUARANTEED BUSINE SS PROFITS WAS AGREED TO THE INCREASED PERIODICALLY FR OM RS. 10 LAKHS PER ANNUM TO RS. 55 LAKHS PER ANNUM AS STIPUL ATED IN CL. 3.4 OF THE SAID AGREEMENT. THE ASSESSEE WAS ENT ITLED TO 1 PER CENT SHARE IN THE GROSS OPERATING PROFITS OF TH E AFORESTATED MINIMUM GUARANTEED BUSINESS PROFITS WHI CHEVER IS HIGHER AS PER THE AFORESAID CLAUSE. IT IS EVIDEN T FROM THE AFORESAID CLAUSE THAT THE APPELLANT-COMPANY WHILE E NSURING MINIMUM GUARANTEED BUSINESS PROFITS HAD ALSO RETAIN ED THE RIGHT TO RECEIVE 1 PER CENT SHARE IN THE GROSS OPER ATING PROFIT, IF IT IS MORE THAN THE MINIMUM GUARANTEED BUSINESS PROFIT. ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 9 THE TERMINATION CLAUSES AUTHORISES THE APPELLANT-CO MPANY TO TERMINATE THIS AGREEMENT BY GIVING 30 DAYS NOTICE O F TERMINATION IN A SITUATION PRESCRIBED UNDER CL. 14. 1. THE SAID AGREEMENT ALSO PROVIDES THAT ON THE EXPIRY OF THIS AGREEMENT BY EFFLUX OF TIME, THE ENTIRE PROPERTY INCLUDING TH E IMMOVABLE ASSETS, FIXED ASSETS INCLUDING ELECTRICAL WIRING, W ATER SERVICES, SANITARY FITTINGS, ALL FITTINGS ATTACHED TO THE BUI LDING ETC. INTRODUCED BY THE IHC WILL REVERT BACK TO JMHL AUTO MATICALLY WITHOUT PAYMENT OF ANY COMPENSATION WHATSOEVER TO I HC. THESE CLAUSES INDICATE THAT THE APPELLANT COMPANY E NTERED INTO A LONG-TERM BUSINESS AGREEMENT WITH IHC TO ENS URE THAT THEIR HOTEL IS MANAGED AND RUN IN A PROFITABLE MANN ER BY A COMPANY WHICH POSSESSES RICH EXPERIENCE IN THIS LIN E AND WHICH HAS AN ESTABLISHED NAME IN THE FIELD OF RUNNI NG FIVE STAR HOTEL IN THE COUNTRY. THE COMPANY ALSO ENSURED MINI MUM GUARANTEED BUSINESS PROFITS AS A RESULT OF EXPLOITA TION OF THEIR COMMERCIAL ASSETS BY ENTERING INTO SUCH AN AGREEMEN T WITH IHC. THE SAID AGREEMENT ALSO CLEARLY REVEALS THAT T HE COMPANY DID NOT GIVE UP ITS INTENTION TO CARRY ON T HE HOTEL BUSINESS AT ITS OWN. IN THE EVENT OF FAILURE ON THE PART OF IHC TO ACT IN ACCORDANCE WITH THE TERMS OF THE AGREEMEN T, THE APPELLANT-COMPANY HAD THE LIBERTY TO TERMINATE THE SAID AGREEMENT BY GIVING 30 DAYS NOTICE AND IN THAT EVEN T THE ENTIRE ASSETS BROUGHT INTO EXISTENCE BY IHC BY WAY OF FITTINGS IN THE SAID HOTEL BUILDING WILL REVERT BACK TO THE APPELLANT- COMPANY. THIS CLEARLY SHOWS THAT THE APPELLANT-COMP ANY HAD ALL INTENTIONS TO RUN THE HOTEL AT ITS OWN IN THE E VENT OF TERMINATION OF THE SAID AGREEMENT FOR ANY REASON WH ATSOEVER. 17. THE MEMORANDUM OF ASSOCIATION OF THE COMPANY ALSO PERMIT EXPLOITATION OF COMMERCIAL ASSETS BELONGING TO THE ASSESSEE IN SUCH A MANNER. A REFERENCE OF VARIOUS C LAUSES OF MEMORANDUM OF ASSOCIATION HAS ALREADY BEEN GIVEN IN EARLIER PARTS OF THIS ORDER WHICH SHOWS THAT THE COMPANY WA S ENTITLED TO CARRY ON THE BUSINESS OF RUNNING A HOTEL IN ANY MANNER INCLUDING BY ENTERING INTO ANY KIND OF ARRANGEMENT OR AGREEMENT WITH ANY OTHER FIRM OR COMPANY ENGAGED IN THIS LINE OF BUSINESS. 18. IT IS EVIDENT FROM THE AFORESAID DISCUSSIONS THAT IN THE INSTANT CASE, THE INTENTION OF THE ASSESSEE WAS NEV ER TO GO OUT OF HOTEL BUSINESS BUT THE COMPANY HAD ALL THE I NTENTIONS TO VERY MUCH CONTINUE THE BUSINESS. THE INTENTION O F ENTERING INTO THE CONTRACT WITH IHC WAS THAT THE OFFER GIVEN BY IHC WAS ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 10 FOUND TO BE MORE LUCRATIVE AND PROFITABLE. THE COMP ANY AS A PRUDENT BUSINESSMAN THOUGHT THAT BY ENTERING INTO S UCH AN AGREEMENT WITH IHC FOR A LONG TERM, IT WILL ENSURE MINIMUM GUARANTEED BUSINESS PROFITS AS WELL AS IT WILL BE E NTITLED TO RETAIN 1 PER CENT SHARE IN THE OPERATING GROSS PROF IT, WHICHEVER IS HIGHER. THE PAST EXPERIENCE OF RUNNING A HOTEL BY THE ERSTWHILE FIRM WAS NOT A HAPPY EXPERIENCE. T HE FIRM INCURRED LOSS BY RUNNING THE HOTEL IN THOSE VERY PR EMISES. THE COMPANY BY ENTERING INTO THE SAID AGREEMENT NOT ONL Y OBVIATED THE POSSIBILITY SUSTAINING LOSS IN THE FUT URE BUT IT ENSURED THE MINIMUM GUARANTEED BUSINESS PROFIT FOR THE ENTIRE DURATION OF THE SAID AGREEMENT. APART FROM T HIS THE IHC HAD UNDERTAKEN TO MAKE VARIOUS IMPROVEMENTS, ADD FU RNITURE AND FIXTURES, INCUR SUBSTANTIAL EXPENDITURE FOR BEA UTIFYING THE HOTEL KEEPING IN VIEW THE NEED OF THE TOURISTS. ALL SUCH FITTINGS AND FIXTURES MADE IN THE HOTEL BUILDING WILL REVERT BACK TO THE APPELLANT-COMPANY AT THE TIME OF TERMINATION OF THE CONTRACT. THIS ASPECT WAS ALSO ONE OF THE CONSIDERATIONS ON A CCOUNT OF WHICH A LONG-TERM LICENCE WAS GRANTED TO IHC. SUCH CLAUSES IN THE AFORESAID AGREEMENT AND THE MATERIAL BROUGHT ON RECORD CLEARLY SHOW THAT THE ASSESSEE NEVER ABANDON ED THE WHOLE IDEA OF CONDUCTING THE HOTEL BUSINESS ON ITS OWN. ON THE OTHER HAND, THE TERMINATION CLAUSE CLEARLY INDI CATE THAT IN CASE IHC DOES NOT IMPLEMENT THE VARIOUS TERMS OF TH E AGREEMENT, THE APPELLANT-COMPANY WILL BE ENTITLED T O TERMINATE THE SAID AGREEMENT AND WILL BE ABLE TO RU N THE HOTEL AT ITS OWN. 19. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMST ANCES WE ARE CLEARLY OF THE OPINION THAT THE INCOME DERIVED BY THE ASSESSEE BY WAY OF LICENCE-FEE RECEIVED FROM IHC IS ASSESSABLE TO TAX UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS' AND NOT UNDER THE HEAD `INCOME FROM OTHER SOURCES'. THE ORDER PASSED BY THE CIT(A) AS WELL AS BY THE ITO TAKING SUCH A VIEW ARE, THEREFORE, SET ASIDE. T HE AO IS DIRECTED TO COMPUTE THE SAID INCOME AS ASSESSABLE U NDER THE HEAD `PROFITS AND GAINS OF BUSINESS' AND NOT UNDER THE HEAD `INCOME FROM OTHER SOURCES'. 12. THE FACTS WERE AKIN TO THE ISSUE BEFORE US. KEE PING IN VIEW, THE FACTS OF THE INSTANT CASE THAT THE ENTIRE MATERIAL OPERAT IONS ARE BEING UNDERTAKEN BY THE ASSESSEE AND ALL THE STATUTORY RE QUIREMENTS OR COMPLIED BY THE ASSESSEE. ALL THE RECEIPTS AND PAYM ENTS PERTAINING TO THE ITA NO. 4083/DEL/2016 SACHDEVA HOSPITALITY 11 OPERATIONS OF THE HOTEL ARE BEING MANAGED THROUGH T HE BANK ACCOUNT OF THE ASSESSEE, WE HEREBY HOLD THAT THE ASSESSEE IS I N THE BUSINESS OF RUNNING OF HOTEL AND ACCORDINGLY, THE PROVISIONS U/ S 80ID OF THE ACT ARE APPLICABLE TO THE CASE OF THE ASSESSEE IN THE INSTA NT YEAR. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/02/2020. SD/- SD/- (SUSHMA CHOWLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED: 21/02/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR