ACIT, New Delhi V. M/s Elel Hotel & Investment Ltd., New Delhi

ITA 4542/DEL/2009

• Counselvise Citation: 454220114 RSA 2009
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Search and seizure; Opportunity of being heard; Principle of natural justice; Peak credit; Diversion of income; Source of fund; Retrospective amendment; Cost of acquisition; Wholly owned subsidiary; Capital receipt; Commercial expediency; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 153A; 32; 147; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 4542(DEL)/2009 ASSESSMENT YEAR: 2005-06 & ITA NO. 1047(DEL)/2010 ASSESSMENT YEAR: 2006-07 ASSTT. COMMISSIONER OF INCOME E L EL HOTELS & INVESTMENT TAX, CENTRAL CIRCLE 13, NEW DELHI. VS. LTD. , C/O CLARIDGES HOTEL PVT. LTD.,12, AURANGZEB ROAD, NEW DELHI. PAN-AAACE2846D ITA NO. 4601(DEL)/2009 ASSESSMENT YEAR: 2005-06 & ITA NO. 918(DEL)/2010 ASSESSMENT YEAR: 2006-07 EL EL HOTELS & INVESTMENT A SSTT. COMMISSIONER OF INCOME LTD., C/O CLARIDGES HOTEL PVT. VS. TAX, CENTRAL CIRCLE 13, LTD., NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI KRISHNA, CIT, DR ASSESSEE BY : SHRI AJAY WADHWA, A.R. ORDER PER K.G. BANSAL : AM THESE CROSS APPEALS FOR TWO DIFFERENT YEARS HAVE BEEN ARGUED IN A CONSOLIDATED MANNER BY THE LD. CIT, DR AND THE LD . COUNSEL FOR THE ASSESSEE. THEREFORE, A CONSOLIDATED ORDER IS PAS SED. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 2 ASSESSMENT YEAR: 2005-06 2. THE FACTS OF THE CASE ARE THAT THE ASSESSE E WAS EARLIER ASSESSED TO TAX BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRC LE 9(1), MUMBAI. ORIGINAL RETURN OF INCOME WAS FILED BEFORE HIM AND ASSESSMENT U/S 143(3) WAS COMPLETED ON 22.11.2007 AT TOTAL INCOME OF RS . 2,45,87,480/-. THE ASSESSEE PREFERRED APPEAL AND THE MATTER IS NOW PENDING BEFORE THE TRIBUNAL. 2.1 SEARCH AND SEIZURE OPERATIONS WERE CONDUCTED UNDER SECTION 132 OF THE INCOME-TAX ACT, 1961, IN SURESH NANDA GROUP OF CASES ON 28.02.2007. THE PREMISES OF THE ASSESSEE-HOTEL KNOWN AS HO TEL SEA ROCK, SITUATED AT BAND STAND, BANDRA (W), MUMBAI, AND OTHER RELAT ED PREMISES WERE ALSO COVERED UNDER SEARCH. CONSEQUENT UPON THE SEARCH AND SEIZURE OPERATIONS, ALL THE CASES WERE BROUGHT UNDER THE JURISDICTION OF THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 13, NEW DELHI (HEREINAFTER CALLED THE AO). THEREAFTER, NOTICE U/S 153A D ATED 09.08.2008, WAS SERVED ON THE ASSESSEE. THE ASSESSEE FILED ITS RE TURN ON 18.11.2008, DECLARING TOTAL INCOME OF RS. 2,11,73,904/-. SUB SEQUENTLY, STATUTORY NOTICE U/S 143(2) WAS SERVED ON THE ASSESSEE FIXING THE HEARING OF THE CASE ON 08.12.2008. THEREAFTER, NOTICES U/S 1 42(1) WERE ALSO ISSUED. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 3 2.2 ON PERUSAL OF THE RETURN, IT WAS FOUND THAT TH E ASSESSEE DID NOT DECLARE INCOME OF RS. 50,74,700/- RECEIVABLE FROM ITC LTD. AS LICENSE FEE. IN VIEW THEREOF, THE ASSESSEE WAS REQUIRE D TO STATE AS TO WHY THIS INCOME SHOULD NOT BE INCLUDED IN THE TOTAL INCOME . IT WAS SUBMITTED THAT IN THE PAST ALSO, THE INCOME RECEIVABLE FROM TH E ITC WAS ASSESSED AND DEPRECIATION WAS GRANTED. THIS MATTER HAS BEEN A SUBJECT MATTER OF DISPUTE, WHICH HAS BEEN SETTLED BY F BENCH OF MUMBAI TR IBUNAL IN ITA NOS. 2369A AND 3806 DATED 23.07.2007, RELATING TO AS SESSMENT YEARS 1995-96 AND 1997-98. IN THIS ORDER, IT HAS BEEN HELD THAT THE RIGHT OF THE ASSESSEE TO RECEIVE LICENSE FEE FROM ITC LTD. HAD BEEN UNDER DISPUTE, WHICH HAS NOW BEEN FINALLY SETTLED. THE RIGHT WA S ITSELF A SUBJECT MATTER OF DISPUTE DUE TO UNFORESEEN CIRCUMSTANCES, BEI NG SERIAL BOMB BLASTS IN MUMBAI. THEREAFTER, ITC LTD. HAD NOT PAID THE LICENSE FEE TO THE ASSESSEE AND IT HAS BEEN DISPUTING THE PAYMENT T HEREOF. IN THESE CIRCUMSTANCES, IT HAS BEEN HELD THAT NO INCOME ACCRUED TO THE ASSESSEE IN THE FORM OF LICENSE FEE FOR THESE YEARS. THE S UBMISSIONS WERE CONSIDERED. IT WAS MENTIONED THAT THE ASSESSEE-COMPANY ENTER ED INTO OPERATING LICENSE AGREEMENT WITH ITC LTD., WITH EFFECT FROM 01.0 7.1986. UNDER THE AGREEMENT, ITC LTD. IS REQUIRED TO PAY LICENSE FEE TO THE ASSESSEE CALCULATED @23% OF THE GROSS TURNOVER OF SEA RO CK HOTEL IN EACH ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 4 FINANCIAL YEAR. THE TURNOVER IS TO BE CERTIFIED BY THE AUDITORS AND SUCH CERTIFICATE IS BINDING. IT HAS BEEN FURTHER AGRE ED THAT ITC LTD. IS BOUND TO PAY THE ARREARS OF LICENSE FEE AS IT BECOMES DU E AND PAYABLE WHEN IT ACCUMULATES TO RS. 1.00 CRORE. SINCE THE ASSESSE E HAS A VESTED RIGHT IN RECEIVING THE LICENSE FEE, THE SAME IS INCLUDIB LE IN THE TOTAL INCOME. IT WAS FURTHER MENTIONED THAT THE ASSESSEE HAS NOT F URNISHED THE DETAILS ABOUT AGREED LICENSE FEE RECEIVABLE BY IT. THEREFORE, ITC LTD. WAS APPROACHED FOR FURNISHING THE TURNOVER AND THE LICENSE FEE PAYABLE. IT HAS BEEN FOUND THAT THE TURNOVER AMOUNTS TO RS. 2,20,63,914/- ON WHICH THE LICENSE FEE WORKS OUT TO RS. 50,74,700/-. THIS AMOUNT HAS BEE N INCLUDED IN THE TOTAL INCOME. 2.3 THE ASSESSEE HAD CLAIMED DEPRECIATION AMOUNTIN G TO RS. 3,90,359/- ON ASSETS LEASED TO ITC LTD. IT HAD SHOWN A GGREGATE INCOME OF RS. 2,45,32,886/- BY WAY OF INTEREST FROM BANK AND I NCOME-TAX DEPARTMENT, DIVIDEND FROM MUTUAL FUNDS AND PROFIT ON DISPOSAL OF INVESTMENTS. AGAINST THIS, THE ASSESSEE HAD CLAIMED DEPRECIATI ON AND OTHER EXPENSES AGGREGATING TO RS. 28,21,088/-. THE CLAIM OF THE ASSESSEE HAS BEEN THAT ALTHOUGH NO LICENSE FEE HAS ACCRUED, THE LEASE D ASSETS HAVE BEEN DEPLOYED IN THE BUSINESS. EXPENSES HAVE BEEN IN CURRED FOR EARNING ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 5 BUSINESS INCOME AS WELL AS OTHER INCOME. HOWEVE R, THE AO DID NOT AGREE WITH THE AFORESAID SUBMISSIONS. IT IS MENT IONED THAT THE ASSESSEE HAS NOT USED THE ASSETS FOR THE PURPOSE OF BUSINES S EITHER ACTUALLY OR CONSTRUCTIVELY. ACCORDINGLY, THE CLAIM OF DEPRECIA TION HAS BEEN DISALLOWED. FURTHER, SINCE THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS, ONLY A FEW EXPENSES REQUIRED FOR KEEPING THE COMPANY GOING W ERE ALLOWED. FINALLY, THE TOTAL INCOME WAS COMPUTED AT RS. 2,90,24,2 90/- AS UNDER:- SL. NO. PARTICULARS AMOUNT(RS.) AMOUNT(RS.) OTHER INCOME (I) INTEREST ON FD FROM BANKS 1,03,438 (II) PROFIT ON DISPOSAL OF INVESTMENTS (ICICI MF) 31,150 (III) INTEREST ON INCOME-TAX REFUND 2,38,60,506 (IV) INCOME ALLEGEDLY ACCRUED TO THE ASSESSEE AS LICENSE FEES FROM ITC LTD. 50,74,700 TOTAL: 2,90,69,794 LESS : (I) AUDITORS REMUNERATION 11,000 (II) BANK CHARGES 9,461 (III) INSURANCE EXPENSES 12,445 (IV) PROFESSIONAL TAX 12,600 TOTAL: 45,506 TAXABLE INCOME 2,90,24,288 ROUNDED OFF AT 2,90,24,290 3 AGGRIEVED BY THIS ORDER, THE ASSESSEE FILED AP PEAL BEFORE THE CIT(APPEALS)-II, DELHI, WHO DISPOSED IT OFF ON 2 3.09.2009 IN ITA NO. 300/08-09, IN WHICH THE APPEAL HAS BEEN PARTLY A LLOWED. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 6 3.1 THE LD. CIT(APPEALS) FURNISHED THE BASIC FAC TS THAT THE ORIGINAL RETURN OF INCOME WAS FILED ON 30.10.2005 DECLARI NG LOSS OF RS. 6,83,55,960/-. ASSESSMENT U/S 143(3) WAS COMPLET ED ON 22.11.2007 AT TOTAL INCOME OF RS. 2,45,87,480/-. IN THIS ASSESS MENT, GROSS RECEIPTS OF RS. 2,46,32,886/- WERE TAXED UNDER THE RESIDUARY HE AD. AGAINST THESE RECEIPTS, EXPENSES OF RS. 45,506/- ONLY WERE ALL OWED, WHICH WERE IN RESPECT OF AUDITORS REMUNERATION, BANK CHARGES, INSURANCE EXPENSES AND PROFESSIONAL TAX. SEARCH AND SEIZURE OPERATIONS WERE CONDUCTED ON 28.02.2007. ACCORDINGLY, NOTICE U/S 153A WAS ISS UED. THE ASSESSEE FILED RETURN DECLARING LOSS OF RS. 2,11,73,895/-. THE AO COMPLETED THE ASSESSMENT ON 31.12.2008 AT TOTAL INCOME OF RS . 2,90,24,290/-. THE MAJOR DIFFERENCE IN ORIGINAL ASSESSMENT AND ASSE SSMENT U/S 153A IS IN RESPECT OF LICENSE FEE RECEIVABLE FROM ITC LTD . AMOUNTING TO RS. 50,74,700/-. THIS AMOUNT HAS BEEN INCLUDED IN THE TOTAL INCOME ALTHOUGH THE ASSESSEE HAD BROUGHT TO THE NOTICE OF THE AO THAT FOR ASSESSMENT YEARS 1995-96 AND 1997-98 THIS MATTER WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. FURTHER, THE ASSESSEE RAISED A CLAIM REGARDING GRANT OF DEPRECIATION OF RS. 3,90,359/- ON THE ASSETS LEAS ED TO ITC LTD. THIS CLAIM WAS NOT MADE IN THE ORIGINAL RETURN. WHILE THE AO BROUGHT TO TAX THE LEASE RENTALS FROM ITC LTD., HE DID NOT ALLOW THE DEDUCTION OF DEPRECIATION. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 7 ACCORDING TO THE LD. CIT(APPEALS), THESE ACTION S REQUIRE CONSIDERATION AS PER LAW. HE DELETED THE INCLUSION OF LEASE R ENT BY FOLLOWING EARLIER DECISION OF THE TRIBUNAL. FURTHER, HE DID NOT A LLOW THE DEDUCTION OF DEPRECIATION ON THE LEASED ASSETS BY FOLLOWING H IS OWN ORDERS FOR ASSESSMENT YEARS 2003-04 AND 2004-05. THERE WERE SOME OTHER GROUNDS BEFORE HIM WHICH INVOLVED SMALLER AMOUNTS. WE SHA LL REVERT TO THESE POINTS LATER WHILE DEALING WITH THE GROUNDS O F THE ASSESSEE. SUFFICE IT TO SAY THAT THE LD. CIT(APPEALS) SUMMARIZED THE POINTS OF DIFFERENCE IN ORIGINAL ASSESSMENT MADE U/S 143(3) AND THE AS SESSMENT MADE U/S 153A AS UNDER:- (I) IN THE ORIGINAL ORDER LICENSE FEE OF RS. 50,74,7 00/- RECEIVABLE FROM ITC LTD., ON ACCRUAL BASIS, WAS NOT INCLUD ED. (II) IN THE ORIGINAL ORDER INTEREST FROM BANK FD WAS TAKEN AT RS. 1,93,437/- (WHICH IS FACTUALLY INCORRECT) WHEREAS IN ORDER U/S 153A IT HAS BEEN CORRECTLY TAKEN BY THE AO AT RS. 1,03,438/-. (III) IN ORIGINAL ORDER PASSED U/S 143(3) DIVIDEND FR OM MUTUAL FUND WAS TAKEN AT RS. 5,37,793/-. THIS INCOME WAS WRON GLY INCLUDED AS TAXABLE INCOME AS THE DIVIDEND FROM MUTUAL FUN D WAS EXEMPT IN THAT YEAR. IN ORDER PASSED U/S 143(3) R.W .S. 153A, THE AO HAS RIGHTLY NOT INCLUDED THIS INCOME AS TAXABLE . 3.2 WITH THIS BACKGROUND FACTS AND FINDINGS OF LO WER AUTHORITIES, WE PROCEED TO DECIDE THE APPEALS FILED BY THE RIVAL P ARTIES. FOR THIS PURPOSE, WE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 8 START WITH THE APPEAL OF THE REVENUE FOR ASSESSM ENT YEAR 2005-06 IN ITA NO. 4542(DEL)/2009. 4. THE ONLY SUBSTANTIVE GROUND RAISED IN THE AFO RESAID APPEAL IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 50,74,700/- MADE B Y THE AO ON ACCOUNT OF ACCRUED INCOME FROM ITC LTD. IT IS THE COMMON CASE OF BOTH THE PARTIES THAT THE ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE FOR ASSESSMENT YEARS 2003-04 AND 2004-0 5 IN ITA NOS. 4513 AND 4514(DEL)/2009 DATED 16.4.2010, A COPY OF W HICH HAS BEEN PLACED BEFORE US. HOWEVER, THE LD. DR SUBMITTED THAT THIS AND EARLIER DECISIONS OF THE TRIBUNAL HAVE NOT BEEN ACCEPTED BY THE RE VENUE AND APPEALS HAVE BEEN FILED BEFORE THE HIGH COURT. IT IS HIS C ASE THAT THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING UNDER WHICH ACCRUED LICENSE FEE HAS TO BE TAKEN INTO ACCOUNT. THE AGREEMENT WITH ITC WAS VALID UP TO 11.05.2005 AND, THEREFORE, THE LICENSE FEE DUE FOR THIS YEAR HAS TO BE CONSIDERED AS THE INCOME OF THE ASSESSEE ON THE BA SIS OF THE AGREEMENT BETWEEN THE RIVAL PARTIES. AS AGAINST THE A FORESAID, THE CASE OF THE LD. COUNSEL IS THAT NO INCOME HAS ACCRUED TO THE ASS ESSEE AS NO AMOUNT HAS BEEN FORTH COMING FROM ITC LTD. WHO HAS BEEN D ISPUTING THE LIABILITY TO ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 9 PAY THE LEASE RENT. THE DISPUTES HAVE BEEN RES OLVED THROUGH ARBITRATION PROCEEDS. THE TRIBUNAL HAS DECIDED THE MATTER I N FAVOUR OF THE ASSESSEE. THE GIST OF THE DECISION IS THAT DISPUTES AROSE BETWEEN THE ASSESSEE AND ITC LTD. ON ACCOUNT OF BOMB BLASTS IN THE HOTEL PREMISES. THE DISPUTES WERE RESOLVED BY WAY OF THE ARBITRATION AWAR D. THE TRIBUNAL ALSO REFERRED TO THE FINDINGS GIVEN IN ASSESSMENT YE ARS 1995-96 AND 1997-98 THAT DUE TO UNFORESEEN CIRCUMSTANCES WHICH OCCURRED BECAUSE OF SERIAL BOMB BLASTS IN MUMBAI, ITC LTD. HAD NOT PAID TH E LICENSE FEE TO THE ASSESSEE AND THE PAYMENT HAS BEEN DISPUTED. IN THE ARBITRATION AWARD, NO AMOUNT WAS FOUND DUE TO THE ASSESSEE FROM ITC LTD. ON THIS ISSUE. THEREFORE, THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. FOLLOWING THIS DECISION, THIS ISSUE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. HOWEVER, FOR THE SAKE OF READY REFERENCE, PARAGRAPH NOS. 13 TO 15 OF THE AFORESA ID DECISION ARE REPRODUCED BELOW:- 13 .THESE ADDITIONS HAVE BEEN MADE BY THE AO ON T HE BASIS OF LICENSE FEES RECEIVABLE BY THE ASSESSEE FROM THE IT C. LD. CIT(A) HAS DELETED THE ADDITION ON THE GROUND THAT ARBITRA TOR HAS GIVEN HIS AWARD WHILE SETTLING THE DISPUTE BETWEEN THE AS SESSEE AND ITC ON 24 TH MAY, 2005. ACCORDING TO THIS AWARD ASSESSEE WAS NOT TO RECEIVE ANY LICENSE FEE FROM THE ITC. THUS N O AMOUNT WAS DUE TO THE ASSESSEE. LD. COUNSEL FOR THE ASSESS EE POINTED OUT THAT IN ASSTT. YEAR 1997-98 A SIMILAR ADDITION WAS MADE WHICH HAS BEEN DELETED BY THE TRIBUNAL IN ITA NO. 3806/MUMBAI/2001. HE PLACED ON RECORD THE COPY OF T HE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 10 TRIBUNALS ORDER. ON THE OTHER HAND LD. DR RELIED U PON THE ORDER OF AO. 14.WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. IN ASSTT. YEARS 1995- 96 AND 1997- 98 TRIBUNAL HAS HELD THAT IN VIEW OF THE ARBITRATIO NS AWARD NO AMOUNT WAS DUE TO THE ASSESSEE FROM THE ITC ON ACCO UNT OF LICENSE FEE AND THEREFORE NO ADDITION CAN BE MADE O N ACCOUNT OF LICENSE FEE RECEIVABLE. THE FINDING OF THE TRIBUNAL RECORDED IN PARA 9 READ AS UNDER :- 9. FROM THE ABOVE FACTS, IT IS CLEAR THAT THE A SSESEES RIGHT TO RECEIVE LICENSE FEE FROM M/S. ITC LTD. IN TERMS OF THE AGREEMENT, WHICH WAS IN DISPUTE, WAS ULTIMATELY SET TLED. THE AGREEMENT WHICH GAVE RISE TO SUCH RIGHT WAS ITSELF A SUBJECT MATER OF DISPUTE, DUE TO UNFORESEEN CIRCUMSTANCES T HAT HAS OCCURRED IN THIS CASE I.E. SERIAL BOMB BLASTS. THE ITC LTD. HAS NOT PAID THE ASSESSEE SUCH LICENSE FEES AND HAS BEE N DISPUTING THE PAYMENT OF THE SAME,. IN THESE CIRCUMSTANCES, W E ARE OF THE CONSIDERED OPINION THAT NO INCOME ACCRUED TO THE AS SESSEE IN THE FORM OF LICENSE FEE FOR THESE IMPUGNED ASSESSME NT YEARS. THUS, WE ALLOW THE GROUNDS OF APPEAL OF THE ASSESSE E FOR BOTH THE ASSESSMENT YEARS ON THIS ISSUE AND DELETE THE A DDITION OF LICENSE FEE IN QUESTION. 15. THE ASSESSEE WAS TO RECEIVE LICENSE FEE IN VI EW OF HOTEL OPERATOR AGREEMENT EFFECTIVE FROM 1 ST JULY, 1986, ON ACCOUNT OF BOMB BLAST IN THE HOTEL, A DISPUTE AROSE BETWEEN TH E PARTIES AND THIS RIGHT TO RECEIVE LICENSE FEE WAS DISPUTED. THE DISPUTE BETWEEN THE PARTIES WAS SETTLED BY AN ARBITRATION A WARD WHICH HELD THAT THE ASSESSEE IS NOT ENTITLED TO RECEIVE L ICENSE FEE. TAKING INTO CONSIDERATION THE SETTLEMENT OF DISPUTE BY WAY OF ARBITRATION AWARD AND FINDING OF THE LD. CIT(A) COU PLED WITH THE ORDER OF THE ITAT IN 1997-98 WE DO NOT FIND AN Y MERIT IN THESE GROUNDS OF APPEAL. THEY ARE REJECTED. 5. WE NOW PROCEEDING WITH THE APPEAL OF THE ASSE SSEE FOR AFORESAID YEAR BEARING NO. 4601(DEL)/2009. GROUND NO. 1 IS GENERAL IN NATURE, ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 11 WHICH HAS NOT BEEN ARGUED BY THE LD. COUNSEL. GROUND NO. 2 IS AGAINST THE ADDITIONS MADE TO THE INCOME RETURNED U/S 153A IN RESPECT OF WHICH NO EVIDENCE HAD BEEN FOUND IN THE COURSE OF SEA RCH. THIS GROUND HAS NOT BEEN PRESSED BY THE LD. COUNSEL. THEREFORE, THESE GROUNDS ARE DISMISSED. 6. GROUND NO. 3 IS AGAINST DENIAL OF DEPRECIATI ON OF RS. 3,90,359/- ON LEASED ASSETS. THE SUBMISSION OF THE ASSESSEE B EFORE THE AO WAS THAT IT HAD BEEN CONDUCTING BUSINESS OF HOTELIERING UNDER AN AGREEMENT WITH ITC LTD. UNDER THE AGREEMENT, THE ASSESSEE IS ENTITLED TO RECEIVE LICENSE FEE AMOUNTING TO 23% OF THE TURNOVER OF ITC LTD. BOMB BLASTS OCCURRED IN THE HOTEL IN THE YEAR 1993 CAUSING SEVERE DAMAGE TO THE HOTEL PREMISES. THEREAFTER, ITC LTD. DECLINED TO MAK E ANY PAYMENT UNDER THE AGREEMENT. THIS AND OTHER ISSUES WERE SUBJECT MA TTERS OF DISPUTE, WHICH HAVE BEEN SETTLED BY WAY OF ARBITRATION. IN T HE AWARD, IT HAS BEEN DECIDED THAT THE ASSESSEE WILL NOT BE ENTITLED TO THE LICENSE FEE. NOTWITHSTANDING THIS AWARD, THE FACTS ARE THAT THE ASSESSEE IS OWNER OF THE LEASED ASSETS AND THESE ASSETS HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. HOWEVER, THE AO DID NOT AGREE WITH THESE SUBMISSIONS. HE REFERRED TO NOTES TO THE ACCOUNTS WHICH DESCRI BE INTER-ALIA THE LINES OF LITIGATION AT VARIOUS FORA. THE DISPUTES AROS E IN RESPECT OF DAMAGES, ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 12 RETRIEVAL OF LOSS OF PROFIT, SHAREHOLDING AND TR ANSFER OF SHARES, CAPTURING OR RETAINING CONTROLLING INTERESTS ETC. THESE NOTES NOWHERE MENTION THAT THE ASSESSEE HAS BEEN CARRYING ON ANY BUSINESS A FTER THE YEAR 1993. SINCE BUSINESS HAS NOT BEEN CARRIED OUT IN THIS YEAR, IT HAS BEEN HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCT DEPRECIAT ION. THE MATTER WAS AGITATED BEFORE THE LD. CIT(APPEALS). IT HAS BEE N MENTIONED BY HIM THAT THE ASSESSEE HAD NOT CLAIMED DEPRECIATION IN THE RETURN FILED U/S 139(1). IN THE RETURN FILED U/S 153A, THE LICENSE FEE RECE IVABLE FROM ITC LTD. HAS NOT BEEN OFFERED BUT THE CLAIM OF DEPRECIATION HAS BEEN MADE. AS MENTIONED EARLIER, THE FINDING OF THE LD. CIT(A) IS THAT THE LICENSE FEE RECEIVABLE FROM ITC LTD. IS NOT TO BE INCLUDED ON ACCRUAL BASIS. CONSEQUENTLY, IT HAS ALSO BEEN HELD THAT THE ASS ESSEE IS ALSO NOT ENTITLED TO CLAIM DEPRECIATION. 6.1 BEFORE US, THE LD. COUNSEL SUBMITTED THAT UNDISPUTEDLY THE ASSETS ARE OWNED BY THE ASSESSEE. THE ASSETS HAD BEEN LICENSED TO ITC LTD., WHO HAS USED THE ASSETS IN THIS YEAR ALSO. TH EREFORE, IT CAN BE SAID THAT THE ASSESSEE HAS USED THE ASSETS IN ITS BUSINE SS OF LEASING THE ASSETS. IT IS ANOTHER MATTER THAT ITC LTD. HAS NOT BEEN P AYING LICENSE FEE ON ACCOUNT OF VARIOUS DISPUTES. SINCE BOTH THE CO NDITIONS OF SECTION 32 FOR ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 13 GRANT OF DEPRECIATION ARE SATISFIED IN THIS CASE , THE ASSESSEE IS ENTITLED TO DEDUCTION OF DEPRECIATION. IT WAS FURTHER SUB MITTED THAT THE ASSETS REMAINED UNDER LEASE FOR THE WHOLE OF THE YEAR AS ARBITRATION AWARD WAS RECEIVED ON 11.5.2005, A DATE WHICH FALLS IN THE SUBSEQUENT YEAR. 6.2 AGAINST THE AFORESAID, THE SUBMISSION OF THE LD. DR IS THAT THE ASSESSEE HAD NOT CLAIMED DEPRECIATION WHILE FILIN G THE ORIGINAL RETURN. IT HAD ALSO NOT BEEN ALLOWED IN THE ORIGINAL ASSE SSMENT. THEREFORE, THE MATTER CANNOT BE TAKEN UP UNDER SECTION 153A. FURTHER, HE REFERRED TO THE FINDINGS OF THE LD. CIT(APPEALS) THAT SINCE LICENSE FEE RECEIVABLE FROM ITC LTD. HAS NOT BEEN BROUGHT TO TAX, DEPRE CIATION ALLOWANCE IS ALSO NOT ADMISSIBLE IN COMPUTING THE TOTAL INCOME. 6.3 IN THE REJOINDER, THE LD. COUNSEL CLARIFIED THAT THE MATTER REGARDING ADMISSIBILITY OF DEPRECIATION IS PENDING BEFORE THE TRIBUNAL PURSUANT TO THE ORIGINAL ASSESSMENT ORDER. IN THIS CONNECTION , A REFERENCE WAS MADE TO PAGE NOS.75 TO 77 OF THE PAPER BOOK, CONTAINING G ROUNDS OF APPEAL AGAINST THE ORDER OF CIT(APPEALS) PASSED ON ORIGINAL A SSESSMENT ORDER. GROUND NO. 3 IS TO THE EFFECT THAT THE AO AND THE LD. C IT(APPEALS) FAILED TO APPRECIATE THAT THE ASSESSEE CONTINUED TO REMAIN IN THE BUSINESS OF ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 14 HOTELIERING DURING THE YEAR ON THE BASIS OF HOT EL OPERATOR AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITC LTD. OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS THE ORDER OF THE TRIBUNAL IN THE PR OCEEDINGS OF ASSESSMENT YEARS 2003-04 AND 2004-05, REFERRED TO ABOVE. I N PARAGRAPH NO. 11, IT HAS BEEN HELD THAT THE PASSIVE USER OF ASSETS CANNOT BE DISBELIEVED, THEREFORE, THE CLAIM OF DEPRECIATION CANNOT BE DENIED MERE LY ON THE GROUND THAT LICENSE FEE WAS NOT RECEIVED BY THE ASSESSEE. IN THIS CONNECTION, IT HAS BEEN MENTIONED THAT ACTUAL EARNING OF INCOME IN A YEAR IS ONE OF THE CORROBORATIVE FACTORS TO DEMONSTRATE THE USER OF ASSETS. IT IS NOT THE SOLE CRITERION FOR GRANT OF DEPRECIATION. THUS, THE DEDUCTION WAS ALLOWED. 6.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. TWO FACTORS ARE REQUIRED TO BE TAKEN INTO CONSIDERATION FOR DECIDING THIS GROUND, NAMELY, -(I) THE MATTER IS PE NDING BEFORE THE TRIBUNAL IN APPEAL PURSUANT TO THE ORIGINAL ASSESSMENT FRA MED, WHERE THE ISSUE REGARDING LACK OF CLAIM IN THE RETURN WILL ALSO B E CONSIDERED; AND (II) DEPRECIATION HAS BEEN ALLOWED TO BE DEDUCTED BY T HE TRIBUNAL IN COMPUTATION OF INCOME FOR ASSESSMENT YEARS 2003- 04 AND 2004-05. NORMALLY, THE DECISION OF THE TRIBUNAL IN AN EARL IER YEAR ON THE SAME ISSUE HAS TO BE FOLLOWED IN THE SUBSEQUENT YEAR IF THER E IS NO CHANGE IN FACTS OR ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 15 LAW. THERE IS NO SUCH CHANGE. HOWEVER, THE CLAI M FOR THIS YEAR IS ALSO PENDING BEFORE THE TRIBUNAL IN APPEAL ARISING F ROM ORIGINAL ASSESSMENT. THAT APPEAL WAS FILED PRIOR TO THIS APPEAL. THU S, THE SAME GROUND IS AGITATED AGAIN IN THIS APPEAL. WHEN QUESTIONED ABOUT THIS MATTER, THE CASE OF LD. COUNSEL HAS BEEN THAT THE MATTER MAY BE D ECIDED IN THAT APPEAL AND THAT ORDER MAY BE MADE APPLICABLE TO THIS APPEAL. IN THIS SITUATION, IT WILL BE APPROPRIATE TO HOLD THAT THE MATTER IS TO BE DECIDED BY THE TRIBUNAL IN THE APPEAL EARLIER FILED IN RESPECT OF ORIGINAL ASSESSMENT. THAT DECISION WILL BECOME APPLICABLE IN REGARD TO THIS APPEAL ALSO. THE GROUND IS DISPOSED OFF ACCORDINGLY. FOR STATISTICAL PURPO SE, THIS GROUND IS TAKEN AS DISMISSED. 7. GROUND NO. 4 IS AGAINST DISALLOWANCE OF A SUM OF RS. 23,85,323/-, BEING EXPENSES DEBITED IN THE BOOKS UNDER VARI OUS HEADS, THE DETAILS OF WHICH ARE AS UNDER:- (RS.) (I) PROFESSIONAL EXPENSES 18 ,27,140/- (II) TELEPHONE EXPENSES 68,798/- (III) COMPUTER EXPENSES 61,310/- (IV) ADMINISTRATIVE EXPENSES 1,32,418/- (V) REPAIRS & MAINTENANCE 94,700/- (VI) SALARY 2,00,957/- TOTAL: 23,85, 323/- ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 16 7.1 BEFORE US, IT IS SUBMITTED BY THE LD. COUNSEL THAT THESE EXPENSES HAD BEEN DISALLOWED IN THE COURSE OF FRAMING ORIGINAL ASSESSMENT ORDER. THE LD. CIT(A) UPHELD THE DISALLOWANCE TO THE EXTENT OF R S. 45,506/-. THE MATTER IS PENDING IN APPEAL BEFORE THE TRIBUNAL. OUR ATTE NTION HAS BEEN DRAWN TO PAGE NOS. 75 TO 77 OF THE PAPER BOOK, BEING THE GROUNDS TAKEN BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A). GROUND NO. 2 IS AGAINST DISALLOWANCE OF EXPENDITURE OF RS. 62,34,866/- IN RESPECT OF EXPENSES DEBITED UNDER 11 HEADS. THESE EXPENSES INCLUDE ALL THE EXPENSES MENTIONED IN GROUND NO. 4. THE ONLY ARGUMENT MAD E BY THE LD. COUNSEL IS THAT THE ORDER OF THE TRIBUNAL IS PENDING, WHICH M AY BE MADE APPLICABLE TO THIS GROUND. IN VIEW OF AFORESAID SUBMISSION, T HE LD. DR DID NOT MAKE ANY SUBMISSION IN THE MATTER. 7.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE POSITION IN RESPECT OF THIS GROUN D IS SIMILAR TO THE POSITION OF GROUND NO. 3, NAMELY, THAT SOME CLAIM WAS D ISALLOWED IN ORIGINAL ASSESSMENT AND THE DECISION OF THE TRIBUNAL IS AWAITED. THE SAME EXPENDITURE IS DISALLOWED IN ASSESSMENT MADE U /S 153A ALSO. FOLLOWING OUR ORDER ON GROUND NO. 3, IT IS HELD THAT THE DECISION OF THE TRIBUNAL IN ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 17 THAT APPEAL SHALL APPLY TO THIS GROUND. THUS, THIS GROUND IS ALSO TAKEN AS DISMISSED FOR STATISTICAL PURPOSE. 8. GROUND NO. 5 IS AGAINST SETTING OFF OF UNABSOR BED DEPRECIATION, WHICH HAS BEEN DENIED ON THE GROUND THAT NO NEW CLAIM CAN BE RAISED U/S 153A. ALTHOUGH NO ARGUMENT HAS BEEN MADE FROM EITHER SIDE IN THIS BEHALF, IT MAY BE MENTIONED THAT THE CASE OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) HAD BEEN THAT UNABSORBED DEPRECIATI ON CAN BE SET OFF AGAINST ANY HEAD OF INCOME. THE REASON IS THAT UNABSORBED DEPRECIATION BECOMES THE DEPRECIATION OF THE CURRENT YEAR. THE AO HAD DISALLOWED THIS BENEFIT BY RELYING ON THE PROVISION CONTAINED IN SECTION 72(1), WHICH DOES NOT DEAL WITH THIS ISSUE BUT DEALS WITH CARRY FORWARD AND SET OFF OF BUSINESS LOSS. UNDER SECTION 32, UNABSORBED DEPR ECIATION OF EARLIER YEARS REMAINING UNABSORBED ON 01.04.2001 WOULD BE GOVER NED BY THE CURRENT PROVISION. THUS, DECISION IN THE CASE OF RELIANC E JUTE INDUSTRIES LTD. VS. CIT, (1979) 120 ITR 921 (SC) AND CIT VS. VIRMA NI INDUSTRIES , (1995) 216 ITR 607 (SC) WILL BE APPLICABLE. THE LD. C IT(APPEALS) MENTIONED THAT SUCH A CLAIM HAD NOT BEEN MADE IN THE ORIGI NAL RETURN BECAUSE OF DECLARED LOSS. BUT ORIGINAL ASSESSMENT RESULTED INTO INCOME. THE AO DID NOT GRANT THE SET OFF AS CLAIMED NOW. H OWEVER, THE ASSESSEE DID NOT ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 18 RAISE ANY GROUND IN APPELLATE PROCEEDINGS AGAIN ST ORIGINAL ORDER. THEREFORE, THE CLAIM HAS BEEN MADE FOR THE FIRST T IME IN PROCEEDINGS U/S 153A. HE REFERRED TO THE DECISION OF JODHPUR BE NCH OF THE TRIBUNAL IN THE CASE OF SUNCITY ALLOY (P) LTD. VS. ACIT, 27 DTR 1 39, IN WHICH IT HAS BEEN HELD THAT ASSESSMENT OR RE-ASSESSMENT MADE PURSUANT TO A NOTICE U/S 153A IS NOT A DE-NOVO ASSESSMENT AND, THEREFORE, NO NEW CLAIM OF DEDUCTION OR ALLOWANCE CAN BE MADE BY THE ASS ESSEE WHERE ADMITTEDLY THE REGULAR ASSESSMENT IS SHOWN TO BE COMPLETED O N THE DATE OF INITIATION OF ACTION U/S 132. IN VIEW OF THIS DECISION, THE LD . CIT(APPEALS) HELD THAT NEW CLAIM CANNOT BE RAISED NOW IN PROCEEDINGS U/ S 153A. WE DO FIND THAT THE FACTS OF THIS CASE ARE DISTINGUISHABLE IN ASMUCH AS THE SEARCH WAS CONDUCTED ON 28.2.2007 AND ORIGINAL ASSESSMENT U/S 143(3) WAS COMPLETED ON 22.11.2007. THUS, IT CANNOT SAID THAT THE REGULAR ASSESSMENT FOR THIS YEAR STOOD COMPLETED ON THE DATE OF SEARCH. HOWEVER, LOOKING TO OUR DECISION ON GROUND NOS. 3 AND 4, IT WOULD BE APPROPRIATE TO HOLD THAT THE MATTER SHOULD HAVE BEEN AGITATED IN APPELLATE PROCEEDINGS ON REGULAR ASSESSMENT. AS THE APPEA L BEFORE THE TRIBUNAL IS PENDING EVEN NOW, THE ASSESSEE IS IN A POSITION T O MOVE ADDITIONAL GROUND, WHICH OBVIOUSLY WOULD BE CONSIDERED OR MODIFY THE EXISTING GROUND REGARDING DEPRECIATION BY ENHANCING THE QUANTUM OF THE CLAIM AS PER LAW. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 19 WITH THESE REMARKS, THE GROUND IS TAKEN AS DISMI SSED FOR STATISTICAL PURPOSE. 9. GROUND NO. 6 IS RESIDUARY IN NATURE, WHICH WAS NOT ARGUED BY THE LD. COUNSEL. THEREFORE, THE SAME IS DISMISSED. ASSESSMENT YEAR : 2006-07 10. FOR THIS YEAR, WE ARE PROCEEDING WITH THE APP EAL OF THE ASSESSEE IN ITA NO. 918(DEL)/2010. THE LD. COUNSEL MENTIONED A BOUT ONE DISTINGUISHING FACT IN THIS YEAR VIS--VIS LAST Y EAR, NAMELY, THAT THERE HAS BEEN NO ORIGINAL ASSESSMENT AND THE ONLY ASSESSM ENT MADE FOR THIS YEAR IS THE INSTANT ASSESSMENT U/S 153A OF THE ACT. WI TH THESE PRELIMINARY REMARKS, WE PROCEED WITH DETERMINATION OF VARIOUS GROUNDS TAKEN BY THE ASSESSEE. 11. GROUND NO. 1 IS GENERAL IN NATURE, WHICH HAS NOT BEEN ARGUED BY THE LD. COUNSEL. THEREFORE, THE SAME IS DISMISSED. 12. GROUND NO. 2 IS THAT THE LD. CIT(APPEALS) ER RED IN ASSESSING GODOWN RENT UNDER THE RESIDUARY HEAD AS AGAIN ST THE BUSINESS HEAD OR THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 20 PROPERTY HEAD. IN THIS CONNECTION, THE FACTS ARE THAT THE ASSESSEE RECEIVED A SUM OF RS. 9.00 LAKH FROM ITC LTD. FO R USE AND OCCUPATION OF A PART OF THE HOTEL PREMISES FOR A PERIOD IN THIS YE AR. THERE IS NO WRITTEN AGREEMENT REGARDING LEASE ETC. TO THE LATTER. HOWEVER, THESE PREMISES WERE USED BY ITC LTD. THE CLAIM OF THE ASSESSE E BEFORE THE AO HAD BEEN THAT IT SHOULD BE TREATED AS PROPERTY INCO ME AS THE PREMISES HAVE BEEN LET OUT QUA THE OWNER OF THE PROPERTY. IN T HE ALTERNATIVE, IT HAD ALSO BEEN ARGUED THAT IT SHOULD BE TREATED AS BUSINES S INCOME. THE AO TREATED THE INCOME AS HOUSE PROPERTY INCOME, HOW EVER, IT APPEARS FROM THE COMPUTATION OF INCOME THAT HE DID NOT ALLOW D EDUCTION U/S 24. THE MATTER WAS AGITATED IN APPEAL. BEFORE THE LD. C IT(APPEALS), IT HAS BEEN SUBMITTED THAT THE INCOME IS PROPERLY ASSESSABLE AS BUSINESS INCOME AND IN THE ALTERNATIVE IT MAY BE ASSESSED AS PROPE RTY INCOME, FROM WHICH STATUTORY DEDUCTION U/S 24 SHOULD BE ALLOWED. IT HAS BEEN HELD THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIV ITY AND THE AMOUNT HAS NOT BEEN RECEIVED IN PURSUANCE OF ANY SUCH ACTIVITY. THE ITC LTD., WHO HAD BEEN RUNNING THE HOTEL WITHDREW FROM THE PREMISE S ON 11.05.2005. HOWEVER, THEY CONTINUED IN OCCUPATION OF SOME R OOMS TO KEEP THEIR BELONGINGS FOR WHICH RENT OF RS. 9.00 LAKH HAS BEEN PAID. THIS IS NOT THE BUSINESS INCOME. COMING TO THE TAXATION OF THE AM OUNT UNDER THE PROPERTY ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 21 HEAD, IT IS MENTIONED THAT THE ANNUAL VALUE OF ANY BUILDING OR LAND APPURTENANT THERETO, OF WHICH THE ASSESSEE IS OW NER, OTHER THAN SUCH PROPERTY WHICH HE MAY OCCUPY FOR HIS OWN BUSINES S, IS CHARGEABLE UNDER THIS HEAD. THE AMOUNT RECEIVED IS NOT THE ANNU AL VALUE OF THE PROPERTY. THE HOTEL IS A BUSINESS ASSET OF THE ASSESSEE-C OMPANY. THEREFORE, THIS AMOUNT CANNOT BE TAXED AS PROPERTY INCOME. IN VIEW THEREOF, IT HAS ALSO BEEN HELD THAT STATUTORY DEDUCTION U/S 24 IS NO T ADMISSIBLE TO THE ASSESSEE. HOWEVER, HE CAME TO THE CONCLUSION THA T THIS INCOME IS ASSESSABLE UNDER THE RESIDUARY HEAD, FOR WHICH REA SONS HAVE NOT BEEN SPELT OUT. 12.1 THE CASE OF THE LD. COUNSEL BEFORE US IS THAT THE RENT HAS BEEN RECEIVED IN RESPECT OF BUSINESS ASSET WHICH HAD BEEN EXPLOITED TEMPORARILY AS NO OTHER USE COULD BE FOUND. THER EFORE, THE RECEIPT IS IN THE NATURE OF BUSINESS INCOME. NO PARTICULAR ARGU MENT HAS BEEN FURNISHED BY THE LD. DR ALTHOUGH HE RELIED ON THE ORDER OF THE LD. CIT(APPEALS). 12.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE HOTEL SEA RO CK HAD BEEN VACATED BY THE ITC LTD. ON 11.05.2005. HOWEVER, THEY CONTINUED I N OCCUPATION OF SOME ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 22 ROOMS TO STORE THEIR GOODS TEMPORARILY. FOR US E OF A PART OF THE PREMISES, RENT OF RS.9.00 LAKH WAS PAID. THE ASS ESSEE HAD LEASED THE PREMISES TO CLARIDGES HOTELS PRIVATE LTD. (CHPL FOR SHORT) BUT IT WAS THOUGHT FIT TO LET ITC LTD. CONTINUE OCCUPYING SOME ROOMS. IT IS CLEARLY A CASE OF EXPLOITATION OF BUSINESS ASSET FOR A SHORT PERIOD WHEN IT HAD ALSO BEEN LET OUT TO ANOTHER PARTY. THE LEASE R ENT FROM CHPL IS LIABLE TO BE TAXED AS BUSINESS INCOME. THEREFORE, IT IS HELD THAT THE INCOME IS TAXABLE AS BUSINESS INCOME. WE ALSO FIND THAT TH E CONTROVERSY IS RATHER STERILE AS IN THE SAME YEAR LOSS WAS ONE OF TH ESE HEADS CAN BE SET OFF AGAINST INCOME FROM THE OTHER HEAD. THUS, IRRESPE CTIVE OF THE BUSINESS OR HEAD, THERE WILL BE NO DIFFERENCE IN THE COMPUTATI ON OF INCOME. THUS, THIS GROUND IS ALLOWED AS DISCUSSED ABOVE. 13. GROUND NO. 3, REGARDING TREATMENT OF SALE PR OCEEDS OF SCRAP, HAS NOT BEEN PRESSED BY THE LD. COUNSEL. IT MAY, H OWEVER, BE MENTIONED THAT THE FINDING OF THE LD. CIT(A) IS THAT THE SALE PROCEEDS ARE IN RESPECT OF HOTEL ASSETS AND, THEREFORE, THE SAME HAS TO BE REDUCED FROM THE WDV FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION ON BLOC K OF FURNITURE AND FIXTURES. THIS ISSUE HAS ALSO BEEN TAKEN UP BY THE REVENUE IN GROUND NO. 2 OF ITS APPEAL FOR THIS YEAR. THE ORDER OF T HE LD. CIT(APPEALS) HAS BEEN ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 23 ASSAILED BY MENTIONING THAT HE ERRED IN HOLDING THAT THE SALE PROCEEDS REPRESENT CAPITAL RECEIPTS, WHICH ARE TO BE RED UCED FROM WDV OF BLOCK OF ASSETS AS AGAINST TAXATION OF THE SAME AS REVENUE RECEIPT. IN THIS CONNECTION, THE CASE OF THE LD. DR IS THAT THE AG REEMENT WITH THE ITC LTD. GOT TERMINATED ON 11.05.2005. THEREAFTER, ALL TH E ASSETS WERE LEASED TO CHPL IN TERMS OF AGREEMENT DATED 11.5.2005. T HUS, THE HOTEL AS A WHOLE, WHICH WAS EARLIER OCCUPIED BY THE ITC LTD . WAS HANDED OVER TO CHPL. IN THESE CIRCUMSTANCES, THE PROCEEDS RE ALIZED ON SALE OF SCRAP CANNOT BE THE BUSINESS INCOME OF THE ASSESSEE. AC CORDINGLY, IT WAS ARGUED THAT THE AMOUNT SHOULD BE TAXED AS INCOME UNDER T HE RESIDUARY HEAD. 13.1 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE OBT AINED POSSESSION OF THE HOTEL ON 11.5.2005, WHEN IT WAS LEASED TO CHPL AS P ER WRITTEN AGREEMENT EFFECTIVE FROM THE SAME DATE. SOME OF THE FURNITUR E BECAME SCRAP AND UNUSABLE, WHICH WAS SOLD. THE ASSETS SOLD HAD BEEN HELD AS CAPITAL ASSET ON WHICH DEPRECIATION HAD BEEN CLAIMED IN PAST. THE SAME WAS ALLOWED ALSO. THE FINDING OF THE LD. CIT(APPEALS) IS THAT THE SALE PROCEEDS SHOULD BE REDUCED FROM THE BLOCK OF ASSETS OF FURNITURE AND FIXTURES. WE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 24 DO NOT FIND ANY INFIRMITY IN THIS FINDING AS THE SAME IS IN ACCORDANCE WITH LAW. THEREFORE, THE GROUND OF THE REVENUE IS ALSO DISMISSED. 14. GROUND NO. 4 TAKEN UP BY THE ASSESSEE IS IN R ESPECT OF DISALLOWANCE OF EXPENSES FROM VARIOUS HEADS, THE DETAILS OF WHICH ARE AS UNDER:- (RS.) (I) BUSINESS ENTERTAINMENT EXPENSES 1,897/- (II) BUSINESS PROMOTION 7,800/- (III)MISCELLANEOUS EXPENSES 70,000/- (IV)MOTOR CAR EXPENSES 21,500/- 14.1 FROM THE ASSESSMENT ORDER, IT IS SEEN THAT ALL RECEIPTS OF THE ASSESSEE HAVE BEEN BROUGHT TO TAX UNDER THE RESID UARY HEAD. AGAINST THE GROSS RECEIPTS OF RS. 2,87,22,611/-, SOME EXP ENSES AGGREGATING TO RS. 1,80,161/- HAVE BEEN ALLOWED, WHICH REPRESENTS EX PENDITURE INCURRED FOR EARNING THIS INCOME. THE EXPENSES ARE IN RESP ECT OF AUDITOR CHARGES, BANK CHARGES, INSURANCE EXPENSES AND PROFESSIONAL TAX. OTHER EXPENSES HAVE NOT BEEN ALLOWED. THE LD. CIT(APPEALS) ALLO WED SOME OF THE EXPENSES, BUT DISALLOWED THE AFORESAID EXPENSES BY MENTIONING THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THE SAME HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 25 14.2 BEFORE US, THE LD. COUNSEL MERELY REFERRED TO THE DISCUSSION IN THE IMPUGNED ORDER ON THIS ISSUE. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER OF THE AO. 14.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. WE FIND THAT THE EXPENSES ARE OF M INOR NATURE. THE GENUINENESS OF THE EXPENSES HAS NOT BEEN DOUBTED BY THE LOWER AUTHORITIES. THE ACCOUNTS HAVE BEEN AUDITED, WH ICH INDIRECTLY REINFORCES THE VIEW THAT THE EXPENSES HAVE BEEN INCURRED EITHER FOR EARNING THE INCOME LISTED BY THE AO IN COMPUTATION OF INCOME O R FOR CARRYING ON THE BUSINESS. THEREFORE, WE DO NOT SEE ANY REASON A S TO WHY THESE EXPENSES SHOULD NOT BE ALLOWED. ACCORDINGLY, GROUND NO. 4 IS ALLOWED. 15. GROUND NO. 5 IS AGAINST DISALLOWANCE OF RS. 92,500/- OUT OF LEGAL AND PROFESSIONAL EXPENSES. AS MENTIONED EARLIER, THE AO HAD ALLOWED ONLY A SMALL PART OF THE EXPENDITURE BY HOLDING THAT OTHER EXPENSES HAD NOT BEEN INCURRED FOR EARNING THE INCOME TAXED B Y HIM UNDER THE RESIDUARY HEAD. THE LD. CIT(APPEALS) FURTHER ALLOWED EXPENSES OF RS. 6.00 LAKH, RS. 2,05,000/- AND RS. 7,763/- REPRESEN TING WORKMAN COMPENSATION, COMPUTER CONSULTANCY EXPENSES AND TELEPHONE EXPENSES ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 26 RESPECTIVELY. IN PARAGRAPH NO. 5.2, HE LISTE D EIGHT PAYMENTS, AGGREGATING TO RS. 4,36,160/-, MADE TO VARIOUS PE RSONS. THREE PAYMENTS WERE MADE TO THE PROFESSIONALS FOR MAKING STATU TORY COMPLIANCES. TWO PAYMENTS WERE MADE FOR PROTECTION OF ASSETS I NTER-ALIA IN RESPECT OF INSURANCE CLAIM AND ARBITRATION CHARGES. SIX PA YMENTS WERE MADE IN RESPECT OF AUDIT FEES, TAX MATTERS AND SURVEY O F LAND. THE LD. CIT(APPEALS) CAME TO THE CONCLUSION THAT THE SUM OF RS. 12,500 /- PAID TO MANDAR KARANDE & ASSOCIATES AS SURVEY FEE IS NOT REV ENUE EXPENDITURE. THE FEES PAID TO TULI & COMPANY OF RS. 80,000/- IN R ESPECT OF INSURANCE CLAIM WAS ALSO DISALLOWED ON THE GROUND THAT IT C OULD NOT BE ASCERTAINED AS TO WHETHER IT WAS IN RESPECT OF THE BUSINESS OF THE ASSESSEE. THEREFORE, EXPENDITURE OF RS. 3,43,660/- WAS ALLOWED AND D ISALLOWANCE TO THE EXTENT OF RS. 92,500/- WAS UPHELD. 15.1 IN RESPECT OF THE AFORESAID DISALLOWANCE OF R S. 92,500/-, THE LD. COUNSEL MERELY REFERRED TO THE DISCUSSION ON PAGE NOS. 10 TO 12 OF THE IMPUGNED ORDER. NO PARTICULAR ARGUMENT HAS BEEN MADE BY THE LD. DR. 15.2 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. WE FIND THAT A VERY SMALL EXPENDITU RE OF RS. 12,500/- HAS BEEN ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 27 EXPENDED ON SURVEY OF LAND, WHICH CAN HARDLY LEAD TO CREATION OF ANY ASSET OR BENEFIT OF ENDURING NATURE TO THE ASSE SSEE. SIMILARLY, A SUM OF RS. 80,000/- HAD BEEN PAID TO TULI & COMPANY IN RE SPECT OF INSURANCE CLAIM. ALTHOUGH THE DETAILS OF THE CLAIM ARE NOT AVAILABLE, THE EXPENDITURE HAS BEEN CERTIFIED IN THE AUDITED ACCOUNT AS R ELATING TO ACTIVITIES OF THE ASSESSEE. THEREFORE, WE DO NOT FIND THAT ANY REASONABLE BASIS EXISTS FOR DISALLOWANCE OF THIS EXPENDITURE. ACCORDINGLY, G ROUND NO. 5 IS ALLOWED. 15.3 THE REVENUE HAS TAKEN UP GROUND NO. 5 IN ITS APPEAL REGARDING ALLOWANCE OF EXPENSES OF RS. 4,36,160/- ON THE GRO UND THAT THESE WERE CAPITAL IN NATURE AS THE ASSESSEE HAD NOT BEEN CA RRYING ON ANY BUSINESS ACTIVITY. FROM THE AFORESAID DISCUSSION, IT IS S EEN THAT THE LD. CIT(APPEALS) HAD UPHELD THE DISALLOWANCE OF RS.92,500/-, THUS, RELIEF WAS GRANTED TO THE EXTENT OF RS. 3,43,660/-. THE RIVAL PARTIES REL IED ON THE ORDERS OF THE AO AND THE LD. CIT(APPEALS) RESPECTIVELY. WE HAVE N OT ACCEPTED THE FINDINGS OF THE AO REGARDING TAXATION OF THE WHOLE INCOM E UNDER THE RESIDUARY HEAD. THE ASSETS OF THE ASSESSEE CONTINUED TO BE LEASED TO ITC LTD. UP TO 11.05.2005 AND THEREAFTER TO CHPL. THEREFORE, IT CANNOT BE SAID THAT THE BUSINESS HAS NOT BEEN CARRIED ON BY THE ASSESSE E. THE EXPENDITURE INCURRED IS IN RELATION TO STATUTORY COMPLIANCES, INTERNAL AUDIT, AND ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 28 ARBITRATION FEES PAID TO JUSTICE SURESH, THE ARB ITRATOR. THESE ARE NORMAL BUSINESS EXPENSES, WHICH THE LD. CIT(APPEALS) HAS RIGHTLY ALLOWED. THUS, THE GROUND OF THE REVENUE IN THIS BEHALF IS DISMIS SED. 16. GROUND NOS. 6, 7 AND 8 ARE IN RESPECT OF ENH ANCEMENT OF INCOME OF THE ASSESSEE BY AN AMOUNT OF RS. 2,02,67,668/-, B EING ROYALTY PAYABLE TO THE ASSESSEE BY CHPL. IT IS MENTIONED THAT THE L D. CIT(APPEALS) ERRED IN OBSERVING THAT THE REVISED AGREEMENT MADE ON 01.0 7.2005 WAS ONLY TO DEPRIVE THE REVENUE OF LEGITIMATE TAXES PAYABLE ON ROYALTY DUE FROM THE LESSEE. IT IS ALSO MENTIONED THAT HE ERRED IN N OT GIVING A DIRECTION THAT THE CORRESPONDING AMOUNT SHOULD BE ALLOWED IN THE HANDS OF CHPL. AT THE OUTSET, WE MAY MENTION THAT GROUND NO.8 REGARDI NG DEDUCTION IN THE CASE OF CHPL DOES NOT ARISE OUT OF THIS APPEAL. THAT CASE IS NOT BEFORE US. THIS ISSUE CAN BE DECIDED ONLY IN THE APPEAL IN THE CASE OF THAT COMPANY. THEREFORE, GROUND NO. 8 IN THIS BEHALF IS DISMISSED AT THE OUTSET. 16.1 IN THIS CONNECTION, IT HAS BEEN MENTIONED I N THE IMPUGNED ORDER THAT ON CESSATION OF AGREEMENT WITH ITC LTD., THE A SSESSEE ENTERED INTO A MANAGEMENT AGREEMENT WITH CHPL, FOR OPERATION AND MANAGEMENT OF ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 29 HOTEL SEA ROCK, MUMBAI. IN ACCORDANCE WITH THIS AGREEMENT, THE ASSESSEE WAS TO RECEIVE ROYALTY CALCULATED @ 23% OF THE GROSS REVENUE OF THE HOTEL. IT WAS STIPULATED THAT IN THE YEAR OF INADEQUATE PROFIT, THE ROYALTY SHALL NOT BE PAID, HOWEVER, SUCH AMOUNT OF ARREARS SHALL BE PAID IN THE SUBSEQUENT YEAR. IT IS FURTHER MENTIONED THAT THE ASSESSEE DID NOT DECLARE ANY INCOME ACCRUING TO IT AS A CONSEQUEN CE OF THE AGREEMENT WITH CHPL. IT IS ALSO MENTIONED THAT THE ASSESSEE HA S BEEN CLAIMING THE DEDUCTION OF DEPRECIATION ON ASSETS EMPLOYED IN THE HOTEL ON THE GROUND THAT THE BUSINESS WAS BEING CONDUCTED. THEREFORE, THE ASSESSEE WAS REQUESTED TO STATE AS TO WHY THE INCOME SHOULD NOT BE BROUGHT TO TAX. IT WAS SUBMITTED THAT THE ASSESSEE ENTERED INTO AN A GREEMENT WITH CHPL ON 11.05.2005. A SUPPLEMENTARY AGREEMENT WAS MADE ON 01.07.2005. THE GROSS REVENUE IN THIS PERIOD AMOUNTED TO RS. 9,02 ,17,237/-, THE DETAILS OF WHICH HAVE BEEN FURNISHED BY THE LD. CIT(APPEALS) ON PAGE NO. 15 OF HIS ORDER. THE CASE OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) WAS THAT NO INCOME ACCRUED TO IT BECAUSE OF SUPPLEMENTARY AGREE MENT DATED 01.07.2005. ACCORDING TO THE AGREEMENT DATED 1.7.2005, THE RO YALTY WAS REDUCED TO 16% OF THE GROSS REVENUE EXCLUDING NON-OPERATION AL PERIOD AGAINST THE EARLIER RATE OF 23% OF GROSS REVENUE EXCLUDING NON-OPERATIONAL PERIOD. FURTHER, THE ROYALTY WAS NOT PAYABLE UNLESS 250 R OOMS WERE AVAILABLE FOR ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 30 USE BY CHPL. AT THE TIME OF AGREEMENT ONLY 40 ROOMS WERE AVAILABLE. THIS NUMBER INCREASED TO 168 BY THE END OF THIS YEAR. THEREFORE, IT WAS ARGUED THAT NO ROYALTY IS DUE TO THE ASSESSEE F ROM CHPL. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE HIM. IT IS MENTIONED THAT THE CHANGES IN THE AGREEMENT WERE HIGHLY DISADVANTAGEOUS TO THE ASSESSEE IN TERMS OF ROOMS AVAILABLE AND THE RATE OF ROYALTY. THEREFORE, IT HAS BEEN CONCLUDE D THAT THE REVISED AGREEMENT IS NOT A HONEST AGREEMENT BUT IT HAS B EEN MADE ONLY WITH A VIEW TO DEPRIVE THE REVENUE OF THE TAXES ON ROYAL TY DUE AS PER ORIGINAL AGREEMENT. HE COMPUTED THE REVENUE SUBJECT TO R OYALTY AT RS.8,81,20,297/- AND ROYALTY PAYABLE THEREON @ 23 % AT RS. 2,02,66,668/-. THIS AMOUNT WAS DIRECTED TO BE FURTHER INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. 16.2 BEFORE US, THE LD. COUNSEL RAISED TWO ARGUME NTS AGAINST THIS ADDITION, NAMELY, THAT (I) THE ADDITION WAS BEY OND THE COMPETENCE OF THE LD. CIT(APPEALS); AND (II) THE ADDITION COULD NOT HAVE BEEN MADE ON MERITS OF THE CASE. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 31 16.3 IN REGARD TO THE FIRST LINE OF ARGUMENT, HIS CASE IS THAT THIS ISSUE NEVER AROSE IN ASSESSMENT PROCEEDINGS. NO QUESTI ON HAS BEEN ASKED BY THE AO IN THE MATTER. THERE IS NO NOTE APPENDED IN THE AUDITED ACCOUNT, TAX AUDIT REPORT OR THE RETURN OF INCOME IN THIS BEHAL F. THEREFORE, THE LD. CIT(APPEALS) HAS ENHANCED THE INCOME OF THE ASS ESSEE BY DISCOVERING A TOTALLY NEW SOURCE OF INCOME. OUR ATTENTION HAS BEEN DRAWN TOWARDS PAGE NOS. 111 TO 113 OF THE PAPER BOOK, WHICH IS A N OTICE U/S 142(1) DATED 10.12.2008, ISSUED IN THE COURSE OF ASSESSMENT PR OCEEDINGS. POINT NO. 1 OF THE QUESTIONNAIRE FOR THIS YEAR DEALS WITH THE DETAILS OF VARIOUS INCOMES EARNED BY THE ASSESSEE AND SHOWN IN THE RETURN OF INCOME, WHICH AGGREGATE TO ABOUT RS. 28.72 CRORE. IT IS MENT IONED THAT THESE INCOMES DO NOT HAVE ANY CONNECTION WITH THE BUSINESS OF HO TEL OPERATION. THEREFORE, THE ASSESSEE HAS BEEN ASKED TO FURNISH ITS EXP LANATION PRIMARILY WITH A VIEW TO DISALLOW THE EXPENSES DEBITED TO PROFI T AND LOSS ACCOUNT. THE ASSESSEE HAS ALSO BEEN ASKED TO FILE COPIES OF AGREEMENT WITH CHPL. THEREAFTER, OUR ATTENTION HAS BEEN DRAWN TOWARDS THE WRITTEN SUBMISSIONS MADE BY THE ASSESSEE IN RESPONSE TO VARIOUS QUER IES OF THE QUESTIONNAIRE IN ITS LETTER DATED 15.12.2008. IT HAS BEEN MENT IONED THAT THE ASSESSEE- COMPANY IS CONDUCTING THE BUSINESS OF HOTELIERING AND IT IS A MATTER OF RECORD THAT THE HOTEL CONTINUED TO BE USED BY THE ITC LTD. TILL 11.5.2005. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 32 THEREAFTER, THE BUSINESS WAS CONTINUED BY MEAN S OF AGREEMENT WITH CHPL. COPIES OF AGREEMENT WITH CHPL WERE ALSO ENCLOSED. ANOTHER LETTER DATED 24.12.2008 WAS ADDRESSED TO THE AO, IN WHICH IT WAS INTER-ALIA MENTIONED THAT THE ASSESSEE HAS BEEN CONDUCTING BUSINESS OF HOTELIERING AND FOR RUNNING AND MANAGING ITS HOTEL, IT HAD APP OINTED ITC LTD. FOR A PART OF THE PERIOD AND CHPL FOR REST OF THE PERIO D. IT IS ARGUED THAT THE AO MIGHT HAVE BEEN EXAMINING THE POSSIBILITY OF TAXING REVENUE FROM THE ITC LTD. OR CHPL, BUT INCOME THEREFROM HAS NOT B EEN BROUGHT TO TAX BY HIM. COMING TO THE POWERS OF THE CIT(APPEALS) IN R ESPECT OF ENHANCEMENT OF INCOME, OUR ATTENTION HAS BEEN DRAWN TOWARDS THE PROVISIONS CONTAINED IN SECTION 251(1). THIS POWER EXTENDS TO CONFIR MATION, REDUCTION, ENHANCEMENT OR ANNULMENT OF THE ASSESSMENT. T HE POWER OF ENHANCEMENT IS SUBJECT TO THE CONDITION THAT THE ASSESSEE HAS BEEN GRANTED A REASONABLE OPPORTUNITY OF BEING HEARD. THE E XPLANATION UNDER THIS SECTION MENTIONS THE CIT(APPEALS) HAS BEEN EMP OWERED TO CONSIDER AND DECIDE ANY MATTER ARISING OUT OF THE PROCEEDINGS IN WHICH THE ORDER APPEALED AGAINST WAS PASSED, NOTWITHSTANDING THAT SUCH MATTER WAS NOT RAISED BEFORE THE CIT(APPEALS) BY THE ASSESSEE. IT IS SUBMITTED THAT THERE WAS NO CORRESPONDING PROVISION IN THE 1922 ACT FOR THE EXPLANATION. FURTHER, UNDER THE 1961 ACT, THE CIT(APPEALS) WAS ALSO EMPOWERED TO SET ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 33 ASIDE THE ASSESSMENT, BUT THIS POWER WAS TAKEN AWAY BY WAY OF AMENDMENT INTRODUCED BY FINANCE ACT, 2001. THE CASE OF THE LD. COUNSEL IS THAT UNLESS THE AO HAS SPECIFICALLY EXAMI NED AN ISSUE IN THE COURSE OF ASSESSMENT, THE CIT(APPEALS) IS NOT EMPOWERED TO ENHANCE THE INCOME ON THE ISSUE. AS AGAINST THE AFORESAID, THE CASE OF THE LD. DR IS THAT THE POWERS OF THE CIT(APPEALS) FOR ENHANCING THE INCOM E ARE MUCH WIDER UNDER 1961 ACT VIS--VIS 1922 ACT BECAUSE OF INTROD UCTION OF THE EXPLANATION. THE ASSESSEE HAS ONLY ONCE SOURCE O F INCOME, I.E., HOTEL SEA ROCK. THE ASSESSEE HAS BEEN CLAIMING DEPRECIATI ON IN RESPECT OF THE ASSETS OF THE HOTEL. THIS MATTER HAS BEEN EXAMIN ED IN DETAIL BY THE AO. THEREFORE, THE SOURCE OF INCOME OF THE ASSESSEE IS KNOWN TO THE AO. IT IS ANOTHER MATTER THAT IN SPITE OF HAVING THE AGR EEMENT WITH CHPL ON RECORD, HE FORGOT TO BRING THE REVENUE TO TAX. HIS OBSERVATION REGARDING NON-DEDUCTION OF DEPRECIATION SHOULD BE CONSIDERED IN THE LIGHT OF THE FACT THAT PREVIOUS DECISIONS OF THE TRIBUNAL HAVE H ELD THAT THE DEPRECIATION IS DEDUCTIBLE. THIS CAN ONLY MEAN THAT REVENUE FROM ITC LTD. AS WELL AS CHPL ARE TO BE INCLUDED IN THE TOTAL INCOME. 16.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D THE SUBMISSIONS MADE BEFORE US. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD BEEN EARNING ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 34 BUSINESS INCOME FROM ITC LTD. ON ACCOUNT OF AN AGREEMENT WITH IT. DISPUTES AROSE BETWEEN THE ASSESSEE AND THE ITC LTD., BECAUSE OF WHICH THE LATTER WAS NOT PAYING LICENSE FEE TO THE ASSESSEE. THEREAFTER, THE DISPUTES WERE RESOLVED THROUGH ARBITRATION PRO CEEDINGS AND THE AGREEMENT STOOD TERMINATED ON 11.5.2005. ON THE SAME DAY, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH CHPL, UNDER WHICH IT WAS TO RECEIVE ROYALTY ON GROSS RECEIPTS FROM THE HOTEL AS U NDERSTOOD IN THE AGREEMENT. THE ROYALTY WAS PAYABLE @ 23% OF THE GROSS REVEN UE. THIS AGREEMENT WAS MODIFIED ON 1.7.2005, UNDER WHICH THE RA TE OF ROYALTY WAS REDUCED TO 16% AND THE SAME WAS PAYABLE WHEN 250 ROOMS WERE READY FOR USE. IN THIS YEAR, THIS NUMBER HAS NOT BEEN ACHIEVED. THE AO CALLED FOR THE AGREEMENT WITH CHPL, BUT DID NOT ADD ANY AMOUNT T O THE INCOME AS ROYALTY. AT THE SAME TIME, HE DISALLOWED THE DE DUCTION OF DEPRECIATION ON THE GROUND THAT NO BUSINESS IS BEING CONDUCTED BY THE ASSESSEE. HIS FINDING REGARDING DEPRECIATION WAS AGAINST THE EARLIER F INDINGS OF THE TRIBUNAL IN THE MATTER THAT THE ASSESSEE IS ENTITLED TO DEDU CT THE DEPRECIATION. THE LD. CIT(APPEALS) ALLOWED THE DEDUCTION OF DEPRECIATION AND ALSO BROUGHT TO TAX ROYALTY RECEIVABLE FROM CHPL. THE QUESTION IS- WHETHER, ANY ROYALTY WAS INCLUDIBLE ON THE INCOME OF THE ASSESSEE? ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 35 16.5 IN SO FAR AS THE STATUTORY PROVISION IS CON CERNED, THE CIT(APPEALS) HAS BEEN EMPOWERED TO INTER-ALIA ENHANCE THE A SSESSMENT. AS PER THE EXPLANATION, HE IS EMPOWERED TO CONSIDER AND DE CIDE ANY MATTER ARISING OUT OF THE PROCEEDINGS IN WHICH ORDER APPEALED A GAINST WAS PASSED. THIS POWER IS VESTED IN HIM IRRESPECTIVE OF THE FACT T HAT THE MATTER WAS RAISED OR NOT RAISED BEFORE HIM BY THE ASSESSEE. THEREFORE , ON A PRIMA FACIE READING, THE CIT(APPEALS) HAS POWER TO ENHANCE TH E ASSESSMENT IN RESPECT OF ANY MATTER ARISING OUT OF THE ASSESSMENT P ROCEEDINGS. THE QUESTION OF DEPRECIATION HAS ARISEN IN THE ASSESSMENT PROCEE DINGS. THE AO HAS ALSO OBTAINED COPIES OF AGREEMENTS CHPL. THEREFORE , IT APPEARS ON A PRIMA FACIE BASIS FROM THE READING OF THE PROVISION THAT THE CIT(APPEALS) COULD HAVE ENHANCED THE ASSESSMENT. HOWEVER, FOR FINA LLY DECIDING THE MATTER, WE MAY DISCUSS THE CASES RELIED UPON BY THE RIVAL PARTIES. 16.6 IN THE CASE OF CIT VS. RAI BAHADUR HARDUTROY MOTILAL CHAMARIA, (1967) 66 ITR 443 (SC), THE QUESTION BEFORE THE HONBLE COURT WAS- WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE ASSISTANT COMMISSIONER WAS WITHIN HIS AUTHORITY IN ENHANCING THE ASSESSMENT OF THE ASSESSEE BY RS. 1,55,000/- FO R ASSESSMENT YEAR 1952- 53? THE HIGH COURT HAD ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 36 AND AGAINST THE REVENUE. BRIEFLY, THE FACTS ARE T HAT THE ASSESSEE HAD WITHDRAWN A SUM OF RS. 5,30,000/- FROM A CALCUTTA BANK AND HAD SENT A SUM OF RS. 5,85,000/- TO HIS FORBESGANJ BRANCH ON THE SAME DAY FOR ENABLING IT TO MAKE PAYMENTS INCLUDING REPAYMEN T OF RS. 2,50,000/- TO SHRI KHARAG BAHADUR. THE ITO DISCUSSED THE IM POSSIBILITY OF THE AMOUNT REACHING FORBESGANJ IN SUCH A SHORT PER IOD. HIS OBSERVATION IN RESPECT OF THE SUM OF RS. 5,85,000/- WAS THAT IT I S SOMEWHAT DIFFICULT TO UNDERSTAND HOW THE MONEY COULD HAVE WITHDRAWN FRO M A BANK IN CALCUTTA AND SENT TO FORBESGANJ FOR PAYMENTS INCLUDING A PAYMENT OF RS. 2,50,000/- TO SHRI KHARAG BAHADUR COULD REACH THE RE, WHEN THE JOURNEY, INCLUDING THE FERRY TRIP, TAKES MORE THAN 24 H OURS. THE ASSESSEE TOOK THE MATTER IN APPEAL TO THE APPELLATE ASSISTANT COMMISS IONER AGAINST INCLUSION OF THREE SUMS OF RS. 2,50,000/-, RS. 1,50,000/- AN D RS. 30,000/- TO THE TOTAL INCOME. THE APPELLATE ASSISTANT COMMISSIONER CONF IRMED THE ADDITION OF RS. 4,30,000/-. HE ALSO CONSIDERED THE MATTER OF ALLEGED TRANSFER OF RS. 5,85,000/- FROM CALCUTTA TO FORBESGANJ ON 31.03. 1952. AFTER CONSIDERING ALL THE FACTS, HE ENHANCED THE ASSESSMENT BY A S UM OF RS. 1,55,000/-. THE HONBLE SUPREME COURT MENTIONED THAT THE APPELLATE ASSISTANT COMMISSIONER CONSIDERED THE REMITTANCE OF RS. 5,85 ,000/- FROM A DIFFERENT ASPECT, NAMELY, THE POINT OF VIEW OF ITS TAXABILIT Y. BUT THE INCOME-TAX ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 37 OFFICER HAD NOT APPLIED HIS MIND TO THE QUESTION OF TAXABILITY OR NON- TAXABILITY OF THIS AMOUNT. IT WAS HELD THAT H E COULD NOT DO SO FOR THE REASON THAT IT IS NOT OPEN TO HIM TO TRAVEL OU TSIDE THE RECORDS, I.E., THE RETURN MADE BY THE ASSESSEE OR THE ASSESSMENT O RDER OF THE INCOME-TAX OFFICER WITH A VIEW TO FIND OUT NEW SOURCES OF INCOME. THE POWER OF ENHANCEMENT IS RESTRICTED TO SOURCES OF INCOME WHI CH HAVE BEEN SUBJECT- MATTER OF CONSIDERATION BY THE INCOME-TAX OFFICER FROM THE POINT OF VIEW OF TAXABILITY. IN THIS CONTEXT CONSIDERATION D OES NOT MEAN INCIDENTAL OR COLLATERAL EXAMINATION OF ANY MATTER BY THE INCO ME-TAX OFFICER IN THE COURSE OF ASSESSMENT. THERE MUST BE SOMETHING IN THE ASSESSMENT ORDER TO SHOW THAT THE INCOME-TAX OFFICER APPLIED HI S MIND TO THE PARTICULAR SUBJECT-MATTER OR THE PARTICULAR SOURCE OF INCOM E WITH A VIEW TO ITS TAXABILITY OR NON-TAXABILITY, AND NOT TO ANY INCID ENTAL CONNECTION. THE INCOME-TAX OFFICER HAD NOT CONSIDERED THE ENTRY O F RS. 5,85,000/- FROM THE POINT OF VIEW OF ITS TAXABILITY AND, THEREFORE, I T WAS HELD THAT THE APPELLATE ASSISTANT COMMISSIONER HAD NO JURISDICTION, IN APPEAL UNDER SECTION 31 OF THE ACT, TO ENHANCE THE ASSESSMENT. 16.7 IN THE CASE OF CIT VS. NIRBHERAM DALURAM, (19 81) 127 ITR 491 (M.P), THE FACTS ARE THAT IN THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 38 INCOME-TAX OFFICER NOTICED 12 BOGUS ENTRIES RE LATING TO HUNDI LOANS. HE ADDED A SUM OF RS. 2,45,000/- TO THE TOTAL INCOME BY WORKING OUT THE PEAK CREDIT. IN APPEAL, THE APPELLATE ASSISTANT CO MMISSIONER NOTICED THAT THERE WERE 10 MORE BOGUS ENTRIES OF SIMILAR NA TURE TOTALING TO RS. 2,30,000/-. THESE ENTRIES WERE NOT CONSIDERED BY THE ASSESSING OFFICER. THESE ENTRIES WERE NOT MENTIONED IN THE RETURN O R IN THE ASSESSMENT ORDER. HOWEVER, THE APPELLATE ASSISTANT COMMISSIONER ADDE D THIS AMOUNT ALSO TO THE TOTAL INCOME OF THE ASSESSEE. THE HONBLE COU RT AFFIRMED THE DECISION OF THE TRIBUNAL THAT THE APPELLATE ASSIS TANT COMMISSIONER HAD NO POWER TO CONSIDER THOSE ENTRIES WHICH WERE NOT CO NSIDERED BY THE INCOME- TAX OFFICER AS TO THEIR TAXABILITY OR OTHERWISE. THESE ENTRIES CONSTITUTE NEW SOURCES OF INCOME WHICH WERE NOT SUBJECT-MATT ER OF ASSESSMENT BEFORE THE ITO. IT WAS ALSO HELD THAT THE POWE R OF THE APPELLATE ASSISTANT COMMISSIONER TO CONSIDER ANY OTHER MATTER ARISING OUT OF THE PROCEEDINGS, MENTIONED IN THE EXPLANATION TO SECTION 251, ARE N OT WIDE ENOUGH TO INCLUDE ANY MATTER WHICH COULD BE RAISED IN ASSES SMENT BUT WAS NOT RAISED BEFORE HIM NOR CONSIDERED BY HIM. 16.8 IN THE CASE OF CIT VS. UNION TYRES, (1999) 240 ITR 556 (DEL), THE QUESTION BEFORE THE HONBLE HIGH COURT WAS-WHETH ER, ON THE FACTS AND IN ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 39 THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RI GHT IN HOLDING THAT THE APPELLATE ASSISTANT COMMISSIONER COULD NOT IN LAW CALL FOR A REMAND REPORT IN RESPECT OF ITEM NOS. 1,3, 8,10 AND (SIC ) MENTIONED IN THE ORDER OF THE APPELLATE ASSISTANT COMMISSIONER DATED MAY 4, 1973? ON REVIEW OF VARIOUS CASES, IT HAS BEEN HELD THAT THE PRINC IPLE EMERGING IS THAT THE FIRST APPELLATE AUTHORITY IS VESTED WITH VERY WI DE POWERS AND ONCE AN ASSESSMENT ORDER IS BROUGHT BEFORE THE AUTHORITY, HIS COMPETENCE IS NOT RESTRICTED TO EXAMINING ONLY THOSE ASPECTS OF THE ASSESSMENT ABOUT WHICH THE ASSESSEE MAKES A GRIEVANCE BUT RANGES OVER THE WHOLE ASSESSMENT TO CORRECT THE ASSESSING OFFICER NOT ONLY WITH REG ARD TO A MATTER RAISED BY THE ASSESSEE IN APPEAL BUT ALSO WITH REGARD TO A NY OTHER MATTER WHICH HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AND DE TERMINED IN THE ASSESSMENT. HOWEVER, THERE IS A SOLITARY BUT SIG NIFICANT LIMITATION TO THIS POWER THAT IT IS NOT OPEN TO THE APPELLATE ASSIS TANT COMMISSIONER TO INTRODUCE IN THE ASSESSMENT A NEW SOURCE OF INCO ME AND THE ASSESSMENT HAS TO BE CONFINED TO THOSE ITEMS OF INCOME WHICH ARE SUBJECT-MATTER OF ORIGINAL ASSESSMENT. COMING TO THE FACTS OF THE CASE BEFORE IT, THE HONBLE COURT MENTIONED THAT NONE OF THE FOUR P OINTS HAD ANY BEARING ON ESTIMATION OF SALES OR THE RATE OF GROSS PR OFIT. THE APPELLATE ASSISTANT COMMISSIONER HAD DOUBTS ABOUT THE CAPAC ITY OF THE ASSESSEE TO ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 40 RAISE FINANCES FOR PURCHASE OF GOODS AND SHOW HUGE TURNOVER IN THE VERY FIRST YEAR OF BUSINESS. IT IS BUT OBVIOUS THAT FAILURE TO PROVE THE SOURCES OF INVESTMENT WILL RESULT IN ADDITION UNDER DIFFERE NT PROVISIONS OF LAW. IT WAS HELD THAT THE AAC CANNOT INTRODUCE A NEW SOURCE OF INCOME, WHICH WAS NOT THE SUBJECT-MATTER OF THE ASSESSMENT BEFORE TH E AO. 16.9 IN THE CASE OF LOKENATH TOLARAM VS. CIT, (198 6) 161 ITR 82 (BOM.), THE AO HAD MADE ADDITION ON ACCOUNT OF EXCESS OF DEPOSIT BY TWO PARTIES OVER THE SALES MADE TO THEM. HOWEVER, THE APPELLATE ASSISTANT COMMISSIONER DIRECTED TO INVESTIGATE THE TRANSAC TIONS FURTHER BY REMANDING THE MATTER TO THE INCOME-TAX OFFICER, WH O FOUND THAT THESE CONCERNS WERE MERELY BENAMI CONCERNS. EVEN A THIRD BENAMI CONCERN WAS FOUND BY HIM. ON THE BASIS OF THE REMAND REPO RT, THE ASSESSMENT WAS ENHANCED. IT WAS HELD THAT THE ENHANCEMENT IN RELATION TO THE TWO PARTIES WAS VALID. HOWEVER, THE REMAND MADE BY THE APPEL LATE ASSISTANT COMMISSIONER RELATED TO SPECIFIC ITEM. IT DID NOT INCLUDE THE THIRD PARTY WHICH WAS NOT EXAMINED BY THE INCOME-TAX OFFICER IN THE COURSE OF ORIGINAL ASSESSMENT. THEREFORE, THE ORDER OF ENH ANCEMENT IN RESPECT OF THE THIRD PARTY WAS HELD TO BE INVALID. IT WAS ME NTIONED THAT THE PROPER WAY TO LOOK AT THE SITUATION WOULD BE TO CONSIDER THE SUBJECT MATTER OF ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 41 ASSESSEES INCOME, WHICH IS NOT THE YARN BUSINE SS BUT THE ACCOUNTS OF THE BENAMI PARTIES. THE SUBJECT MATTER OF REMAND R EPORT WAS FOR TWO PARTIES, HOWEVER, ENQUIRIES WERE MADE BEYOND THESE PARTI ES. THE APPELLATE ASSISTANT COMMISSIONER ALSO WENT BEYOND THE REC ORD WHEN HE ENHANCED THE INCOME IN RESPECT OF THE THIRD PARTY. 16.10 IN THE CASE OF CIT VS. SARDARI LAL AND CO ., (2001) 251 ITR 864 (DEL) (FB), THE HONBLE COURT HELD THAT INEVITA BLE CONCLUSION IS THAT WHEN THE QUESTION OF TAXABILITY OF INCOME FROM A NEW SOURCE OF INCOME ARISES, WHICH HAD NOT BEEN CONSIDERED BY THE AO, THE JURISDICTION TO DEAL WITH THE SAME IN APPROPRIATE CASES MAY LIE U/S 1 47 OR 263 OF THE ACT, IF THE REQUISITE CONDITIONS ARE FULFILLED. IT WOULD BE I NCONCEIVABLE THAT IN PRESENCE OF SUCH SPECIFIC PROVISIONS, A SIMILAR P OWER IS AVAILABLE TO THE FIRST APPELLATE AUTHORITY ALSO. WHILE DEALING WI TH THE CASE OF MCMILLAN &COMPANY, (1958) 33 ITR 182, IT HAS BEEN MENTION ED THAT THE CONTENTION OF THE REVENUE IS THAT THE WORDS ENHAN CEMENT OF ASSESSMENT OCCURRING IN SECTION 31 OF THE 1922 ACT ARE NOT C ONFINED TO ASSESSMENT REACHED THROUGH A PARTICULAR PROCESS BUT THE A MOUNT WHICH OUGHT TO HAVE BEEN COMPUTED IF THE TRUE TOTAL INCOME HAD BEEN FOUND. THERE IS NO DOUBT THAT THIS VIEW IS ALSO A POSSIBLE VIEW, BUT HAV ING REGARD TO THE STATUTORY ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 42 PROVISIONS, WHICH MADE PROVISION FOR ASSESSING T HE ESCAPED INCOME FROM NEW SOURCES, THE VIEW SUGGESTED BY IT WOULD BE AG AINST THE VIEW CONSISTENTLY HELD IN THE FIELD FOR NEARLY 37 YEA RS. 16.11 ON THE OTHER HAND, THE LD. DR RELIED ON THE DECISION IN THE CASE OF CIT VS. KANPUR COAL SYNDICATE, (1964) 53 ITR 225 (SC), IN WHICH IT HAS BEEN HELD THAT THE POWERS OF THE APPELLATE ASSIST ANT COMMISSIONER ARE CO-TERMINUS WITH THE POWERS OF THE INCOME-TAX OFF ICER. HE CAN DO WHAT THE ITO CAN DO OR DIRECT HIM TO DO SO. IT IS AR GUED THAT THESE POWERS ARE VERY VAST AND EXTEND TO ALL MATTERS CONSIDERED BY THE AO. BOTH THE AGREEMENTS WITH THE CHPL WERE THERE BEFORE THE ASSESSING OFFICER. HOWEVER, HE DID NOT BRING THE INCOMES ACCRUING AS A CONSEQUENCE OF THESE AGREEMENTS TO TAX. IT WAS NOT A CASE OF DISCOVE RING A NEW SOURCE OF INCOME. THE QUESTION OF CONDUCTING THE BUSINESS WAS THERE BEFORE THE AO, BUT HE CONCLUDED THAT NO BUSINESS HAS BEEN CONDUC TED. ACCORDINGLY, THE INCOME BY WAY OF ROYALTY WAS NOT INCLUDED IN THE TO TAL INCOME. 16.12 IN ORDER TO SUPPORT THE CONTENTION, RELIANCE HAS FURTHER BEEN PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA LTD. VS. CIT & ANOTHER, (1991) 187 ITR 6 88. IN THIS CASE, THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 43 ASSESSEE HAD RAISED AN ADDITIONAL GROUND CLAIMI NG DEDUCTION OF RS. 11,54,995/- AS LIABILITY TOWARDS PURCHASE-TAX. THE APPELLATE ASSISTANT COMMISSIONER PERMITTED THE GROUND TO BE RAISED, H EARD THE INCOME-TAX OFFICER, AND ALLOWED THE DEDUCTION. THE HONBLE COURT INTER-ALIA CONSIDERED ITS OWN DECISION IN THE CASE OF KANPU R COAL SYNDICATE. IT HAS BEEN HELD THAT THE LIABILITY TOWARDS PURCHASE-TAX WAS NOT CLAIMED UNDER THE BELIEF THAT IT WAS NOT LIABLE TO PAY PURCHASE-T AX UNDER THE PROVISIONS OF BENGAL RAW JUTE TAXATION ACT, 1941. BUT, LATER ON, IT WAS ASSESSED TO PURCHASE-TAX AND THE ORDER WAS RECEIVED ON 23.1 1.1973. THE DEMAND WAS DISPUTED BUT THE CORRESPONDING AMOUNT WAS CLAIMED IN INCOME-TAX ASSESSMENT. THE LIABILITY WAS DEDUCTIBLE IN VIEW OF THE DECISION IN THE CASE OF KEDAR NATH JUTE MANUFACTURING CO. LTD. VS. CIT, (1971) 82 ITR 363 (SC), THEREFORE, IT WAS HELD THAT THE VIEW TAKEN BY THE TRIBUNAL AND THE HIGH COURT WAS NOT SUSTAINABLE IN LAW. ON TH E BASIS OF THIS DECISION, THE CASE OF THE LD. DR IS THAT A MATTER WHICH WA S NOT CONSIDERED AT ALL IN THE ASSESSMENT WAS ALLOWED TO BE RAISED FOR T HE FIRST TIME BEFORE THE APPELLATE ASSISTANT COMMISSIONER. THEREFORE, THE LD . CIT(APPEALS) HAS POWER TO CONSIDER THE ISSUE WHICH ARISES FROM TH E RECORD OF ASSESSMENT PROCEEDINGS. RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF HONBLE ORISSA HIGH COURT IN THE CASE OF PRANAKRUSHNA SWA IN VS. CWT, (1991) ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 44 187 ITR 143. IN THIS CASE, THE AAC ENHANCED T HE PENALTY LEVIED U/S 18(1)(A), BUT NO NOTICE WAS GIVEN TO THE ASSE SSEE. THE HONBLE COURT HELD THAT ANY ORDER PASSED WITHOUT NOTICE IS A NULLITY, HAVING VIOLATED THE PRINCIPLES OF NATURAL JUSTICE WHICH IS EMBEDDED I N THE PROVISO ITSELF. HOWEVER, THE MATTER DOES NOT END HERE. IT HAS BEEN HELD THAT THE TRIBUNAL WAS RIGHT IN SETTING ASIDE THE APPELLATE ORDER AND REMITTING IT BACK TO THE APPELLATE ASSISTANT COMMISSIONER FOR DISPOSAL A FTER GIVING SHOW CAUSE NOTICE TO THE ASSESSEE. ON THE BASIS OF THIS D ECISION, THE CASE OF THE LD. DR IS THAT THE ACTUAL REQUIREMENT FOR ENHANCEME NT IS THAT A NOTICE SHOULD BE GIVEN FOR HEARING TO THE ADVERSE PAR TY, WHICH HAD BEEN DONE IN THIS CASE. HE ALSO RELIED ON THE DECISION OF S MT. VIJAY KUNVERBA VS. CIT, (1994) 208 ITR 312. IT HAS BEEN HELD THAT T HE POWERS OF THE APPELLATE ASSISTANT COMMISSIONER ARE NOT CONFINE D TO SUBJECT-MATTER OF THE APPEAL BUT EXTENT TO SUBJECT-MATTER OF THE A SSESSMENT. THE ENTIRE ASSESSMENT IS THROWN OPEN BEFORE THE APPELLATE AS SISTANT COMMISSIONER AND SO LONG AS HE DOES NOT TRAVEL BEYOND THE MA TTERS CONSIDERED AND DETERMINED BY THE INCOME-TAX OFFICER. HE CAN CO RRECT ANY DECISION TAKEN IN THE COURSE OF ASSESSMENT EVEN IF THE ASSESSEE IS SATISFIED WITH IT AND HAS NOT CHALLENGED IT IN APPEAL. AS IT WIL L BE SEEN, TRAVELING BEYOND THE MATTERS CONSIDERED AND DETERMINED MAY BE PERMISSIBLE EVEN WHEN ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 45 THE ASSESSEE HAS NOT CHALLENGED IT. HOWEVER, TH E DECISION DOES NOT LAY DOWN THAT THE APPELLATE ASSISTANT COMMISSIONER CAN TRAVEL BEYOND THE MATTERS CONSIDERED AND DETERMINED FOR THE PURPOS E OF ENHANCEMENT OF INCOME. NONETHELESS, THE ARGUMENT OF THE LD. DR IS THAT SIMILAR POWER IS INHERENTLY VESTED IN THE APPELLATE ASSISTANT COMM ISSIONER. 16.13 THE FACTS RELATING TO THIS ISSUE HAVE BEEN DESCRIBED IN PARAGRAPH NO. 16.4 (SUPRA). IT MAY, HOWEVER, BE MENTIONED THA T THE CONCLUSION OF THE ASSESSING OFFICER HAS BEEN THAT THE ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS IN THIS YEAR. ACCORDINGLY, THE DEDUCTIO N OF DEPRECIATION WAS DENIED. MOST OF THE EXPENSES WERE ALSO NOT A LLOWED AND ONLY SUCH EXPENSES, WHICH HAD NEXUS WITH EARNING INCOME UND ER THE RESIDUARY HEAD, WERE ALLOWED U/S 57(III). IN OTHER WORDS, NEITH ER THE BUSINESS INCOME WAS TAXED NOR THE EXPENSES OR DEDUCTIONS RELATABLE T HERETO WERE ALLOWED. THIS BASIS OF ASSESSMENT GOT DRASTICALLY CHANGED WHEN IT WAS HELD BY THE LD. CIT(APPEALS) THAT THE ASSESSEE HAD CARRIED ON T HE BUSINESS IN THIS YEAR. THE CONSEQUENCE OF THIS DECISION WAS THAT THE AS SESSEE WAS ALLOWED THE DEDUCTION IN RESPECT OF DEPRECIATION AND MOST OF T HE EXPENSES WERE ALSO ALLOWED. IN THIS CHANGED SCENARIO, THE QUESTION IS-WHETHER, THE CIT(APPEALS) COULD INCLUDE INCOME FROM THE BUSI NESS IN THE TOTAL ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 46 INCOME? IN ALL THE CASES, RELIED UPON BY THE LD. COUNSEL, THERE IS NO CHANGE IN THE BASIS OF ASSESSMENT, WHICH CONTINU ED TO BE THE SAME AS DETERMINED BY THE AO. IN THE CASE OF RAI BAHADUR HARDUTROY MOTILAL CHAMARIA, THE APPELLATE ASSISTANT COMMISSIONER HAD NOT CHANGED THE BASIS OF ASSESSMENT BUT HE WAS NOT SATISFIED ABOUT TRA NSMISSION OF A SUM OF RS. 5,85,000/- FROM CALCUTTA TO FORBESGANJ IN A SHO RT PERIOD. IN THE CASE OF NIRBHEYRAM DALURAM, THE APPELLATE ASSISTANT COMM ISSIONER NOTED SOME MORE ENTRIES OF HUNDI LOANS. IN THE CASE OF UNI ON TYRES, THE HONBLE DELHI HIGH COURT CAME TO THE CONCLUSION THAT THE A PPELLATE ASSISTANT COMMISSIONER COULD ENHANCE THE INCOME IN RESPECT OF TRANSACTIONS OF TWO ITEMS, FOR WHICH REMAND WAS MADE TO THE INCOME-TA X OFFICER. HOWEVER, HE COULD NOT ENHANCE THE INCOME IN RESPECT OF TRANS ACTION OF THE THIRD ITEM, WHICH INTRODUCED A NEW SOURCE OF INCOME. SUCH WAS ALSO THE DECISION IN THE CASE OF LOKENATH TOLARAM. IN THE CASE OF SAR DARI LAL & COMPANY ALSO, THE APPELLATE ASSISTANT COMMISSIONER WANTED TO GO I NTO THE SOURCES OF FUNDS RESULTING IN A HUGE TURNOVER IN THE CASE O F PERSON WHO WAS MERELY A STUDENT PRIOR TO STARTING THE BUSINESS. THIS ISS UE WAS NOT CONSIDERED OR DECIDED BY THE ITO AND, THEREFORE, THE HONBLE CO URT CAME TO THE CONCLUSION, WHICH HAD BEEN ARRIVED AT IN THE CA SES ALREADY DISCUSSED BY US. AT THE SAME TIME, THE CASES RELIED UPON BY THE REVENUE ARE ON TOTALLY ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 47 DIFFERENT ISSUES, NAMELY, WHETHER-THE APPELLATE AS SISTANT COMMISSIONER CAN ENTERTAIN NEW CLAIM OF THE ASSESSEE IF ALL THE FACTS ARE ON RECORD? IT HAS BEEN HELD THAT THE AAC COULD ENTERTAIN A NEW GR OUND. HOWEVER, THAT DOES NOT MEAN THAT SIMILAR POWER IS AVAILABLE W ITH THE APPELLATE ASSISTANT COMMISSIONER TO ENHANCE THE ASSESSMENT. THIS HAS BEEN CLEARLY BROUGHT OUT IN THE CASE OF SARDARI LAL & CO., WHEN THE H ONBLE DELHI HIGH COURT MENTIONED THAT THE PLEA OF THE REVENUE FOR ENHAN CING THE INCOME CANNOT BE ACCEPTED BECAUSE OF THE EXISTENCE OF SECTIONS 147 AND 263 IN THE ACT. HOWEVER, WE HAVE MENTIONED THAT THE NECESSITY T O TAX ROYALTY INCOME ARISES IN THIS CASE ON COMPLETE CHANGE OF THE BASIS OF ASSESSMENT ADOPTED BY THE ASSESSING OFFICER, WHEN IT WAS HE LD BY THE LD. CIT(A) THAT THE ASSESSEE HAD BEEN CARRYING ON THE BUSINESS . IF THE SUBMISSIONS OF THE LD. COUNSEL ARE ACCEPTED, IT WILL LEAD TO G RAVE MISCARRIAGE OF JUSTICE THAT THE BUSINESS INCOME HAS NOT BEEN TAXED BUT A LL EXPENSES AND DEDUCTIONS HAVE BEEN ALLOWED. IN OTHER WORDS, BR INGING TO TAX THE INCOME IS A CONSEQUENCE OF ALLOWING EXPENSES AND DED UCTIONS. THEREFORE, IT IS NOT A CASE OF INTRODUCING A NEW SOURCE OF INC OME AT THE LEVEL OF FIRST APPELLATE AUTHORITY BUT A CASE OF COMPUTATION O F BUSINESS INCOME, WHICH WAS NOT ASSESSED TO TAX AT ALL BY THE AO. IN THIS EXCEPTIONAL ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 48 CIRCUMSTANCE, WE ARE OF THE VIEW THAT THE LD. C IT(APPEALS) WAS RIGHT IN COMPUTING THE BUSINESS INCOME HITHERTO NOT ASS ESSED BY THE AO. 17. HAVING DECIDED THE AFORESAID ISSUE, THE NEX T QUESTION IS-WHETHER, ANY INCOME ACCRUES TO THE ASSESSEE BY WAY OF ROYA LTY FROM LEASING OF ASSETS TO CHPL? THE FACTS REGARDING THIS ISSUE HAVE ALREADY BEEN MENTIONED BY US IN PARAGRAPH NO. 16.1 (SUPRA). T HE FINDINGS RECORDED BY THE CIT(APPEALS) ARE THAT THE SECOND AGREEMENT DATED 01.07.2005 CONTAINS STIPULATIONS WHICH ARE HIGHLY DISADVAN TAGEOUS TO THE ASSESSEE IN TERMS OF RATE OF ROYALTY, AVAILABILITY OF 2 50 ROOMS FOR OCCUPATION BY THE GUESTS, AND SECURITY DEPOSIT. THIS AGREEMENT IS NOT AN HONEST AGREEMENT AND IT HAS BEEN ENTERED INTO WITH A VIEW TO D EPRIVE THE REVENUE OF TAXES DUE AND PAYABLE ON ROYALTY. 17.1 BEFORE US, IT IS SUBMITTED BY THE LD. COUNS EL THAT WITHIN A SHORT PERIOD OF THE MAKING OF THE FIRST AGREEMENT ON 11 .05.2005, THE LESSEE REALIZED THAT THE AGREEMENT CANNOT BE FULFILLED AS ONLY 40 ROOMS WERE AVAILABLE FOR THE GUESTS AT THAT POINT OF TIME. THE HOTEL BUILDING WAS IN A STATE OF DISREPAIR. IN VIEW THEREOF, AS PER ART ICLE 4, CHPL WAS AUTHORIZED BY THE ASSESSEE TO CARRY OUT AT ITS OWN COST ADD ITIONS, ALTERATIONS, REPAIRS, ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 49 RENOVATION ETC. IN THE PREMISES. AS PER ARTICLE 8, CHPL WAS TO PLACE SECURITY DEPOSIT OF RS. 43.25 CRORE WITH THE A SSESSEE PRIMARILY FOR MAKING PAYMENT OF RS. 43.10 CRORE TO ITC LTD. AS PER THE AWARD. AS THE AGREEMENT WAS NOT A VIABLE BUSINESS PROPOSITION , SOME OF THESE TERMS WERE MODIFIED BY AN AGREEMENT DATED 11.05.2005 . THE RATE OF ROYALTY WAS REDUCED TO 16% OF THE GROSS REVENUE. THE AMOUN T OF SECURITY DEPOSIT WAS REDUCED TO RS. 25.00 CRORE. THE ROYALTY WIL L NOT BE PAYABLE TILL 250 ROOMS BECOME AVAILABLE FOR OCCUPATION BY THE G UESTS. THE CASE OF THE LD. COUNSEL IS THAT THE MODIFICATION IS A BONA F IDE ONE AND NOT A DEVISE TO AVOID PAYMENT OF TAX BY THE ASSESSEE. IN THIS CO NNECTION, IT IS SUBMITTED THAT THE ASSESSEE HAS BEEN INCURRING LOSS WHIL E CHPL HAS BEEN MAKING PROFIT. THEREFORE, THE DIVERSION OF INCOME FROM THE ASSESSEE TO CHPL DOES NOT MAKE ANY SENSE IN SO FAR AS OVERALL TAX LI ABILITY IS CONCERNED. THE ASSESSEE HAS ALSO RECEIVED SECURITY DEPOSIT OF RS. 25.00 CRORE. THEREFORE, IT IS AGITATED THAT THE FINDINGS OF THE LD. CIT(AP PEALS) ARE CONTRARY TO FACTS ON RECORD. 17.2 IN REPLY, THE LD. DR SUBMITTED THAT AS PER RECITAL OF THE AGREEMENT DATED 11.05.2005, CHPL IS IN HOSPITALITY BUSINESS FOR LAST SEVERAL YEARS AND HAS WIDE EXPERIENCE OF SUCCESSFULLY OPERATING UP -MARKET HOTEL PROPERTY ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 50 IN METRO CITIES. IT HAS PROVEN TRACK RECORD O F MAINTAINING HIGH QUALITY SERVICE STANDARDS. SUCH AN ASSESSEE CANNOT BE EXPECTED TO ENTER INTO A ONEROUS AGREEMENT. THEREFORE, IT CAN BE SAFELY CONCLUDED THAT THE ORIGINAL AGREEMENT WAS MADE AFTER ASSESSING VARI OUS PROS AND CONS IN THE LIGHT OF EXPERIENCE CHPL HAD IN THE HOSPITALIT Y BUSINESS. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF CHPL. IT IS THIS DOMINANCE POSITION WHICH LED TO THE SUPPLEMENTARY AGREEME NT DELETERIOUS TO THE INTEREST OF THE ASSESSEE-COMPANY. THEREFORE, THE RECITAL IN THE SUPPLEMENTARY AGREEMENT, THAT THE AGREEMENT DATED 11.05.2005 IS STRINGENT AND IRRATIONAL AND DOES NOT HAVE ANY COMMERCIAL SENSE, IS NOT CORRECT. IN THIS AGREEMENT, NOT ONLY THE RATE OF ROYALTY HAS BEEN REDUCED BUT AN ONEROUS CLAUSE HAS BEEN INTRODUCED THAT NO ROYALTY SHALL BE PAYABLE TILL 250 ROOMS ARE AVAILABLE FOR OCCUPATION BY GUESTS. THE WORK OF REPAIRS AND RENOVATION IS THE RESPONSIBILITY OF CHPL AND IT W ILL TAKE A LONG TIME TO ACHIEVE THE TARGET. THIS CLAUSE EMPOWERS CHP L TO GO ON USING THE HOTEL PREMISES WITHOUT PAYMENT OF ANY ROYALTY AS ATTAINING THE GOAL OF 250 ROOMS IS IN ITS EXCLUSIVE DOMAIN. ACCORDINGLY, IT IS ARGUED THAT THE SUPPLEMENTARY AGREEMENT IS REQUIRED TO BE IGNORE D. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 51 17.3 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. WE MAY NOTE DOWN THE ESSENTIAL CONTENT S OF AGREEMENT DATED 11.05.2005 AS UNDER:- (I) THE REPAIRS, RENOVATION ETC. IS THE OBLIGATION OF CHPL, WHICH IT HAS TO CARRY OUT FROM ITS OWN FUNDS OR BORROWED FUNDS FOR WHICH IT IS ENTITLED TO PROVIDE ANY SECURITY I NCLUDING THE HOTEL; (II) CHPL IS REQUIRED TO PLACE SECURITY DEPOSIT OF R S. 43.25 CRORE TO THE ASSESSEE; AND (III) THE ASSESSEE IS ENTITLED TO RECEIVE ROYALTY @ 23 % OF THE GROSS REVENUE. THIS AGREEMENT HAS BEEN MODIFIED ON 01.07.2005, I .E., WITHIN A PERIOD OF ABOUT ONE MONTH AND 20 DAYS. THE IMPORTANT CHAN GES ARE AS UNDER:- (I) IN THE DEFINITION NON-OPERATIONAL PERIOD HAS BEEN MODIFIED TO INCLUDE IN ITS AMBIT THE PERIOD DURING WHICH THE HOTEL HAS AVAILABILITY OF NOT LESS THAN 250 ROOMS IN THE HOTEL FOR OCCUPATION BY GUESTS; ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 52 (II) THE SECURITY DEPOSIT HAS BEEN REDUCED TO RS. 25.0 0 CRORE; AND (III) THE RATE OF ROYALTY HAS BEEN REDUCED TO 16%. THE LD. COUNSEL HAS MADE A STATEMENT AT BAR TH AT WHILE THE ASSESSEE HAS BEEN MAKING LOSSES, CHPL IS EARNING PROFIT. THU S, IT CANNOT BE SAID THAT THE SUPPLEMENTARY AGREEMENT HAS BEEN MADE WITH A V IEW TO REDUCE THE OVERALL INCIDENCE OF TAXATION. ON THE OTHER HAN D, THE CASE OF THE LD. DR IS THAT LEGALLY ENFORCEABLE AGREEMENT HAS BEEN WATER ED DOWN BECAUSE THE ASSESSEE IS IN A POSITION TO DICTATE THE TERMS TO THE ASSESSEE-COMPANY, BEING ITS HOLDING COMPANY. THE FURTHER CASE I S THAT THE AGREEMENT HAS BEEN MADE TO LOWER THE INCIDENCE OF TAXATION IN THE CASE OF THE ASSESSEE- COMPANY. HAVING CONSIDERED THE RIVAL SUBMISSIONS , WE ARE OF THE VIEW THAT THE OVERALL TAX LIABILITY OF THE HOLDING AND THE SUBSIDIARY COMPANY DOES NOT GET REDUCED ON ACCOUNT OF SUPPLEMENTARY AGR EEMENT FOR THE FACTUAL POSITION MENTIONED BY THE LD. COUNSEL, WHICH REMAIN S UN-REBUTTED. IT IS NO DOUBT TRUE THAT CHPL IS THE HOLDING COMPANY AN D CAN DICTATE TERMS TO THE ASSESSEE COMPANY. NONETHELESS, BOTH THE COMPA NIES ARE INDEPENDENT ENTITIES WHICH ARE EXPECTED TO ACT AT ARMS LEN GTH IN THEIR OWN INTERESTS. THEREFORE, UNLESS THERE IS EVIDENCE OF COLLUSION AIMED AT ACHIEVING SOME ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 53 PURPOSE, THE TERMS OF ANY AGREEMENT CANNOT BE IGN ORED. THERE IS NO EVIDENCE OF SUCH COLLUSION AND IN ANY CASE THE COLLUSION IS NOT AIMED AT TAX AVOIDANCE. THEREFORE, WE ARE OF THE VIEW THAT BOTH THE AGREEMENTS SHOULD BE TAKEN INTO CONSIDERATION FOR DETERMINI NG THE ACCRUAL OF INCOME IN THE HANDS OF THE ASSESSEE. IN COMING TO THIS CONCLUSION, RECITALS HAVE TO BE IGNORED BECAUSE ALTHOUGH THEY FORM PART OF T HE AGREEMENT, THEY DO NOT LEAD TO ANY INFERENCE REGARDING ACCRUAL OF I NCOME. THE FIRST AGREEMENT HAS BEEN IN OPERATION FROM 11.05.2005 T O 30.06.2005. THE SECOND AGREEMENT DOES NOT MENTION ANYWHERE SPEC IFICALLY THAT IT SHALL HAVE RETROSPECTIVE EFFECT. THEREFORE, IT COMES INTO OPERATION FROM 01.07.2005. ACCORDINGLY, THE AO IS DIRECTED TO Q UANTIFY THE INCOME ACCRUING TO THE ASSESSEE IN THIS YEAR ON THE BASIS OF BOTH THE AGREEMENTS FOR THE PERIOD DURING WHICH THEY ARE APPLICABLE. GR OUND NOS. 6 AND 7 ARE DECIDED ACCORDINGLY. 18. GROUND NOS. 9 AND 11, REGARDING CLAIM OF DEP RECIATION AT RS. 7,71,59,159/- AND SETTING OFF OF UNABSORBED DEPREC IATION, SHALL BE TAKEN AS SUGGESTED BY THE LD. COUNSEL ALONG WITH THE APPE AL OF THE REVENUE. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 54 19. GROUND NO. 10, REGARDING ADDITIONS MADE IN RE SPECT OF WHICH NO INCRIMINATING MATERIAL HAS BEEN FOUND, WAS NOT PRESSED BY THE LD. COUNSEL. THEREFORE, THIS GROUND IS REQUIRED TO BE DISMISSE D. 20. GROUND NO. 12, BEING RESIDUARY IN NATURE, WAS NOT ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE. 21. WE NOW PROCEED WITH THE APPEAL OF THE REVENUE FOR THIS YEAR. GROUND NO. 1 IS GENERAL IN NATURE, WHICH WAS NOT ARGUED BY THE LD. DR. THEREFORE, THE SAME IS DISMISSED. 22. GROUND NO. 2 IS REGARDING THE TREATMENT TO BE GIVEN TO THE INCOME OF RS. 4,08,889/- REPRESENTING SALE OF SCRAP. THI S GROUND HAS ALREADY BEEN DECIDED WHILE DISCUSSING GROUND NO. 3 IN THE APP EAL OF THE ASSESSEE. THE FINDING OF THE LD. CIT(APPEALS) HAS BEEN UPHELD. THEREFORE, THIS GROUND IS DISMISSED. 23. GROUND NO. 5, REGARDING LEGAL EXPENDITURE OF RS. 4,36,160/-, HAS ALSO BEEN DECIDED WHILE DISCUSSING GROUND NO. 5 IN THE APPEAL OF THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 55 ASSESSEE. THE FINDINGS OF THE LD. CIT(APPEALS) HAVE BEEN CONFIRMED. THEREFORE, THIS GROUND IS ALSO DISMISSED. 24. GROUND NO. 3 CONSISTS OF TWO COMPONENTS. THE FIRST ONE IS THAT THE LD. CIT(APPEALS) ERRED IN ALLOWING DEPRECIATION ON THE ASSETS WHILE THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS IN THIS YE AR. THIS ISSUE STANDS COVERED IN OUR ORDER FOR ASSESSMENT YEAR 2005- 06 (SUPRA), IN WHICH IT HAS BEEN HELD THAT THE ASSESSEE IS ENTITLED TO DEDUC T THE DEPRECIATION BY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL IN TH E MATTER. FOLLOWING THIS ORDER, THIS PART OF THE GROUND IS DISMISSED. 24.1 THE SECOND COMPONENT IS THAT THE LD. CIT(APP EALS) ERRED IN CAPITALIZING THE AMOUNT OF RS. 30.86 CRORE AS H OTEL BUILDING, REPRESENTING PAYMENT MADE TO ITC LTD., AND IN ALLOWING DEPREC IATION ON THIS AMOUNT. WE HAVE ALREADY MENTIONED THE FACTS REGARDIN G DISPUTES BETWEEN THE ASSESSEE AND THE ITC LTD. IN PARAGRAPH NO. 16.4 (SUPRA). THE DISPUTES WERE RESOLVED THROUGH ARBITRATION PROCEEDINGS. ON THE BASIS OF THE AWARD, A SUM OF RS. 30.86 CRORE WAS PAID TO ITC LTD., WHO IN TURN HANDED OVER PEACEFUL AND VACANT POSSESSION OF THE HOTEL TO THE ASSESSEE ON 11.05.2005. THE AGREEMENT OF LEASE BETWEEN THE TWO PARTIES ALSO STOOD ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 56 TERMINATED ON THIS DATE. THE CONSENT TERMS DATED 11.05.21005 PRECEDING THE AWARD DATED 24.04.2005 HAVE BEEN PLACED IN THE PAPER BOOK ON PAGE NOS. 52 TO 77. IN THESE TERMS, DISPUTE HAS BEEN DEFINED TO MEAN ALL DISPUTES BETWEEN THE ASSESSEE AND THE ITC LTD. IN ANY MANNER ARISING OUT OF OR TOUCHING OR RELATING TO HOTEL SEA ROCK INCL UDING PLAYMATE CLUB AND ROCK INTERNATIONAL CLUB (BOTH NON-OPERATIONAL) AN D ANY AND ALL ARRANGEMENTS, UNDERSTANDINGS, AGREEMENTS RELATI NG TO THE HOTEL INCLUDING OPERATING LICENSE AGREEMENT DATED 03.05.1986 AND CLAIMS, COUNTER CLAIMS AND DISPUTES IN SUIT NOS. 3832 OF 1995, 3885 O F 1993, 3886 OF 1993 AND 1887 OF 1995 ON THE FILES OF THE HIGH COURT, MUMBAI AND BEFORE THE ARBITRATOR. THE DETAILS OF THE SUITS AND THE DIS PUTES BEFORE THE ARBITRATOR ARE NOT ON RECORD. IT IS MENTIONED THAT ALL DIS PUTES ARE FINALLY COMPROMISED AND SETTLED. FURTHER, IT IS DECLARED THAT : A. ALL ARRANGEMENTS UNDERSTANDINGS AND AGREEM ENTS RELATING TO THE HOTEL INCLUDING THE OPERATING LICENSE STAND TERMI NATED WITH EFFECT FROM THE DATE HEREOF WITH NO CLAIM OF ANY NATURE WHATSOEVER REMAINING OUTSTANDING BETWEEN ELEL AND ITC AND/OR ANY PERSON CLAIMING THROUGH, UNDER OR IN TRUST FOR EITHER OF ELEL OR ITC; B. ALL ALLEGATIONS MADE BY OR AGAINST ELEL AND I TC BY THE OTHER, WHETHER IN THE ARBITRATION OR IN THE SUITS REFERR ED TO IN CLAUSE 1 ABOVE, STAND WITHDRAWN; C.(I) ALL POWERS OF ATTORNEY (IF ANY) OR OTHER AUTHORITY OF ANY NATURE CONFERRED OR DELEGATED BY ELEL TO ITC STAND REV OKED AND CANCELLED WITH EFFECT FROM THE DATE HEREOF; ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 57 (II) ANY AUTHORIZATION OR CONSENT OR POWER OF A TTORNEY GIVEN BY ITC IN FAVOUR OF ELEL OR ANY OF ITS DIRECTORS OR OFFICERS STAND REVOKED AND CANCELLED WITH EFFECT FROM THE DATE H EREOF; D. ELEL ACKNOWLEDGES THAT ALL ACTIONS (INCLUDI NG OMISSIONS) TAKEN OR IMPLEMENTED HITHERTO BY ITC PURSUANT TO POWE RS OF ATTORNEY (IF ANY) OR OTHER AUTHORITY OF ANY NATURE CONFERRED OR DELEGATED BY ELEL TO ITC ARE IN PROPER EXERCISE OF POWERS CONFERRE D ON/DELEGATED TO ITC BY ELEL AND ARE BINDING ON ELEL; E.(I) ALL STATUTORY CONSENTS, LICENCES, APPROV ALS AND AUTHORIZATIONS (COLLECTIVELY THE LICENCES AND INDIVIDUALLY THE LICENCE) RELATING TO THE OPERATION OF THE HOTEL STANDING IN THE NAME OF ELEL HAVE BEEN HANDED OVER BY ITC TO ELEL ON EXECUTION OF THES E CONSENT TERMS AND ELEL HAS RECEIVED ALL SUCH LICENSES AS PER LIST ANNEXURE A; (II) IN RESPECT OF LICENCE(S) STANDING IN THE NAM E OF ITC AS PER LIST ANNEXURE B, ITC CONSENTS TO SUCH LICENCE BEI NG TRANSFERRED TO/ENDORSED IN FAVOUR OF ELEL, OR, IF SUCH TRANSF ER/ENDORSEMENT IS NOT PERMISSIBLE, ITC SHALL SURRENDER/CANCEL SUCH LICE NCE(S) PROMPTLY; (III) FEES AND OTHER CHARGES (IF ANY) RELATING T O THE TRANSFER/ENDORSEMENT OLF LICENCE(S) SHALL BE TO THE ACCOUNT OR AND BORNE AND PAID BY ELEL. REFUND OF SECURITY OR OT HER DEPOSITS (IF ANY PAID BY ITC) IN RESPECT OF LICENCE(S) AS MAY BE SURRENDERED/CANCELLED BY ITC SHALL BE TO THE AC COUNT OF AND APPROPRIATED BY ITC; 24.2 IT IS ALSO MENTIONED THAT THE ITC LTD. HAS RECEIVED FOLLOWING PAYMENTS FROM THE ASSESSEE ON OR BEFORE THE EXEC UTION OF THE CONSENT TERMS: (I) THE SUM OF RS. 7.75 CRORES (RUPEES SEVEN CRORES AND SEVENTY FIVE LACS ONLY) AS AND BY WAY OF REFUND OF INT EREST FREE SECURITY DEPOSIT UNDER THE OPERATING LICENCE; ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 58 (II) THE SUM OF RS. 2.29 CRORES (RUPEES TWO CRORES TWEN TY-NINE LAKHS ONLY) AS AND BY WAY OF REIMBURSEMENT OF EXPENSE S; (III) THE SUM OF RS. 64 LAKHS (RUPEES SIXTY FOUR LAKH S ONLY) BY WAY OF REIMBURSEMENT OF THE COST OF STORES AS SET OUT IN ANNEXURE C HELD BY ITC FOR THE PURPOSES OF THE HOTEL; (IV) THE SUM OF RS. 32.42 CRORES (RUPEES THIRTY TWO C RORES FORTY TWO LAKHS ONLY) AS AND BY WAY OF RELINQUISHMENT OF RIGHTS TO OPERATE THE HOTEL UNDER THE OPERATING LICENCE; 24.3 IT WILL BE SEEN THAT A SUM OF RS. 32.42 CR ORE WAS PAID IN RESPECT OF RELINQUISHMENT OF RIGHT TO OPERATE THE HOTEL UNDE R OPERATING LICENCE. IN OTHER WORDS, THIS AMOUNT HAS BEEN PAID FOR TERMI NATING THE LEASE AGREEMENT AS THE ITC LTD. RELINQUISHED ITS RI GHT TO OPERATE THE HOTEL. THE DISPUTE BEFORE US IS ONLY IN RESPECT OF THE A MOUNT OF RS. 30.86 CRORE, FORMING PART OF THE AFORESAID SUM OF RS. 32.42 CRO RE. THE GROUND RAISED BEFORE THE LD. CIT(APPEALS) WAS IN RESPECT OF DISA LLOWING DEPRECIATION AMOUNTING TO RS. 7,78,27,608/-, WHICH INCLUDED DEPRECIATION ON RS. 30.86 CRORE PAID TO ITC LTD. THE MAIN CLAIM WAS THAT THIS PAYMENT HAD BEEN MADE FOR ACQUIRING AN INTANGIBLE ASSET. IN TH E ALTERNATIVE, IT HAD BEEN ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 59 CLAIMED THAT THE AMOUNT IS RELATABLE TO THE BUILDIN G HELD BY THE ASSESSEE AND, THEREFORE, IT BECOMES A PART OF THE COST OF THE BUILDING. IT MAY BE MENTIONED HERE THAT THE ASSESSEE HAD FILED ORIGI NAL RETURN DECLARING LOSS OF RS. 39,39,710/-. ANOTHER RETURN WAS FILED U/S 1 53A DECLARING LOSS OF RS. 5,08,73,700/-. THE DIFFERENCE IN LOSS IS ON ACCOU NT OF ENHANCED CLAIM OF DEPRECIATION, WHICH WAS REVISED FROM RS. 3,08,93, 616/- TO RS. 7,78,27,608/-. THE AO HAS NOT ALLOWED ANY DEDUCTIO N OF DEPRECIATION ON THE GROUND THAT NO BUSINESS HAS BEEN CONDUCTED B Y THE ASSESSEE IN THIS YEAR. 24.4 IT WAS SUBMITTED BEFORE THE LD. CIT(APPEALS) THAT THE AFORESAID AMOUNT WAS PAID FOR OBTAINING VACANT POSSESSION OF THE HOTEL PREMISES AND ACCORDINGLY DEPRECIATION @ 10% WAS CLAIMED IN THE ORIGINAL RETURN. IN RETURN U/S 153A, THE CLAIM HAS BEEN REVISED UPWA RDS AS THE AMOUNT WAS PAID FOR ACQUIRING THE RIGHT TO MANAGE AND CONDU CT THE HOTEL BUSINESS. ALTERNATIVE CLAIM WAS ALSO MADE THAT THE AFORESAID PAYMENT WAS REVENUE EXPENDITURE AND, THEREFORE, ALLOWABLE IN FULL AS REVENUE EXPENDITURE. THE LD. CIT(APPEALS) CAME TO THE CONCLUSION THAT THE BU SINESS OF THE ASSESSEE WAS IN EXISTENCE DURING THE YEAR AND AN AMOUNT OF RS. 2,02,67,668/- IS INCLUDIBLE IN THE TOTAL INCOME AS ACCRUED ROYALT Y FROM CHPL. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 60 CONSEQUENTLY, THE DEDUCTION FOR DEPRECIATION WAS HELD TO BE ADMISSIBLE IN COMPUTING THE INCOME. IT HAS ALSO BEEN HELD THAT T HE PAYMENT MADE TO CHPL IS NEITHER REVENUE EXPENDITURE NOR A PAYME NT FOR ACQUIRING INTANGIBLE ASSET. THE PAYMENT HAS RIGHTLY BEEN ACCOUNTED FOR IN THE BOOKS AS BUILDING AND, THEREFORE, THE ASSESSEE IS ENTI TLED TO DEDUCTION OF DEPRECIATION @ 10%. 24.5 BEFORE US, THE LD. CIT, DR REFERRED TO THE F ACTS THAT THE SEARCH AND SEIZURE OPERATIONS WERE CONDUCTED ON 28.02.2007, NOTICE U/S 153A WAS ISSUED ON 09.09.2008 AND THE RETURN WAS FILED U/ S 153A ON 18.11.2008. THE CLAIM OF HIGHER DEPRECIATION WAS MADE IN THE R ETURN FILED U/S 153A AND NOT IN THE ORIGINAL RETURN. THEREAFTER, HE REFER RED TO THE FINDINGS OF THE LD. CIT(APPEALS) THAT THE HOTEL PREMISES WERE OWNED B Y THE ASSESSEE, WHICH WERE LEASED TO ITC LTD. FOR MANAGING AND CONDUC TING ITS BUSINESS. THE PAYMENT WAS MADE TO GET VACANT POSSESSION OF THE H OTEL AND NOT FOR ACQUIRING RIGHT TO RUN THE HOTEL, THEREFORE, NO INTANGIBLE ASSET WAS ACQUIRED BY THE ASSESSEE. THE PAYMENT HAD BEEN M ADE TO TERMINATE AN EXISTING AGREEMENT, WHICH ONLY LED TO REMOVAL OF DE FECT IN THE TITLE. ACCORDINGLY, THE PAYMENT CANNOT BE REVENUE IN NATU RE. THEREFORE, IT WAS ARGUED THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCT DEPRECIATION IN THE FIRST ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 61 PLACE AS NO BUSINESS WAS CONDUCTED BY IT DURING THE YEAR OR AT BEST DEPRECIATION AT THE RATE APPLICABLE TO BUILDINGS CAN BE ALLOWED. THE HIGHER CLAIM CAN ALSO NOT BE ENTERTAINED IN VIEW OF TH E FACT THAT NORMAL DEPRECIATION WAS CLAIMED IN THE ORIGINAL RETURN AN D THE AMOUNT HAD BEEN CAPITALIZED IN THE BOOKS UNDER THE HEAD BUILDING . 24.6 IN REPLY, THE LD. COUNSEL SUBMITTED THAT TH E AO HAD NOT INITIATED ANY ASSESSMENT PROCEEDINGS ON THE BASIS OF THE ORIGIN AL RETURN, WHICH COULD HAVE BEEN INITIATED EVEN ON THE DATE OF SEARCH BY ISSUING NOTICE U/S 143(2). THUS, THE ONLY ASSESSMENT MADE IN THIS CA SE IS THE INSTANT ASSESSMENT U/S 153A READ WITH SECTION 143(3) OF THE ACT. AS NO ASSESSMENT HAD BEEN MADE TILL THE DATE OF SEARC H, THE DECISION IN THE CASE OF SUN CITY ALLOYS (P) LTD. (SUPRA) IS NOT APPLI CABLE. ACCORDINGLY, THE ASSESSEE COULD RAISE ANY CLAIM IF THE RETURN MADE U/S 153A INCLUDING THE CLAIM THAT THE EXPENDITURE IS REVENUE IN NATURE. THEREAFTER, HE MADE THREE WITHOUT PREJUDICE ARGUMENTS, IN ORDER OF PREFERENC E, THAT (A) THE EXPENDITURE IS REVENUE IN NATURE, (B) THE EXPEN DITURE IS FOR ACQUIRING INTANGIBLE ASSETS, AND (C) THE PAYMENT IS MADE FO R IMPROVING THE TITLE OF THE HOTEL BUILDING. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 62 24.7 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. BRIEFLY, THE FACTS ARE THAT THE AS SESSEE MADE VARIOUS PAYMENTS TO ITC LTD. AS PER CONSENT TERMS. THE PAYMENTS INTER-ALIA INCLUDED A SUM OF RS. 30.86 CRORE, WHICH HAS BEEN CAPITALIZED IN THE BOOKS AS BUILDING. THE QUESTION BEFORE US IS REGARDING R AISING ADDITIONAL CLAIM AND NATURE OF THE PAYMENT. 24.8 WE HAVE ALREADY MENTIONED THAT THE DECISION IN THE CASE OF SUN CITY ALLOWS (P) LTD. IS NOT APPLICABLE TO THE FACT S OF THE CASE FOR THE REASON THAT UP TO THE DATE OF SEARCH, NO ASSESSMENT H AD BEEN COMPLETED IN THIS YEAR. FURTHER, THE SECOND PROVISO TO SECTION 1 53A CONTAINS A PROVISION THAT ASSESSMENT OR REASSESSMENT, IF ANY, RELATIN G TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN SUB-SECTION (1) PENDING ON THE DATE OF INITIATION OF SEARCH U /S 132, SHALL ABATE. THE WORD ABATE HAS NOT BEEN DEFINED UNDER THE ACT , THEREFORE, ITS NATURAL MEANING WILL HAVE TO BE ASCERTAINED. IN WEBSTER S COMPREHENSIVE DICTIONARY OF THE ENGLISH LANGUAGE (2003 EDITION) , THIS WORD MEANS-(I) TO MAKE LESS OR REDUCE IN SIZE, NUMBER, DEGREE, AM OUNT, IMPORTANCE, SPEED OR FORCE; (II) TO DEDUCT AS A PART OF PAYMENT; (III ) LAW: TO DO AWAY WITH OR ANNUL; (IV) TO BECOME OF LESS IMPORTANCE OR DEGRE E; AND (V) LAW: TO FAIL OR ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 63 BECOME VOID. THUS, IN SO FAR AS THE PURPOSE OF LAW IS CONCERNED, THE WORD MEANS TO DO AWAY WITH OR ANNUL, TO FAIL OR TO BECOME VOID. ON THE BASIS OF THESE MEANINGS, IT CAN VERY WELL BE CON CLUDED THAT THE ORIGINAL RETURN OR ANY PROCEEDING TAKEN ON THE RETURN UP TO THE DATE OF INITIATION OF SEARCH BECOMES VOID OR IS ANNULLED. IN OTHER WORDS, THE SAME DOES NOT EXIST. THEREFORE, EVEN THE ORIGINAL RETURN DOES NOT EXIST FOR THE PURPOSE OF LAW. THE ONLY RETURN WHICH EXISTS IS THE ONE FI LED U/S 153A. BEING THE ONLY RETURN, THE ASSESSEE CAN TAKE ANY PLEA OR CLAIM FOR DEDUCTION IN SUCH A RETURN. WITH THESE PRELIMINARY REMARKS, WE PROCEED TO DECIDE WHETHER THE PAYMENT IS IN THE NATURE OF CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. 24.9 THE LD. DR RELIED ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF V. JAGMOHAN RAO & OTHERS VS. CIT, (1970) 7 5 ITR 737. ONE OF THE QUESTIONS BEFORE THE HONBLE COURT WAS- WHETH ER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSMENT OF ENTIRE INCOME OF RS. 31,087/- IN THE HANDS OF THE ASSESSEE IS VALID IN THE FACE OF COMPROMISE MEMO DATED 7.9.1945 APPROVED BY THE COURT? THE FACTS IN THIS CONNECTION ARE THAT THE ASSESSEE HAD BEEN ASSESS ED IN THE CAPACITY OF THE KARTA OF THE HUF FOR THREE YEARS NOT ONLY UN DER THE INCOME-TAX ACT BUT ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 64 ALSO THE EXCESS-PROFIT TAX. HE PURCHASED A SPI NNING MILL FROM RANDHI APPALASWAMY ON 01.02.1941 FOR A SUM OF RS. 54,73 1/-. AT THAT POINT LITIGATION WAS GOING ON BETWEEN THE VENDOR AND HI S SONS IN RESPECT OF THE SPINNING MILL AND OTHER PROPERTIES. THE SONS WER E CLAIMING THAT THE MILL WAS THE PROPERTY OF JOINT HINDU FAMILY AND CL AIMING PARTITION OF THE SAME ALONG WITH OTHER PROPERTIES. THE VENDOR WAS C LAIMING THE PROPERTIES TO BE SELF-ACQUIRED. THE DISTRICT JUDGE HELD T HE PROPERTIES TO BE SELF- ACQUIRED PROPERTIES. APPEAL WAS FILED AGAINST THIS ORDER BEFORE THE MADRAS HIGH COURT. THE MILL WAS PURCHASED BY THE ASSESSEE WHEN SUCH APPEAL WAS PENDING BEFORE THE HIGH COURT. THE HIGH COURT HELD THAT THE PROPERTIES WERE OWNED BY THE JOINT HINDU FAMILY . THE VENDOR PREFERRED AN APPEAL AGAINST THIS JUDGMENT TO THE PRIVY COUN CIL. AT THIS JUNCTURE, THE ASSESSEE SUBMITTED RETURN OF INCOME. BEFORE THE ASSESSMENT WAS COMPLETED, HE ENTERED INTO A COMPROMISE WITH THE PLAINTIFFS AND RECEIVED THE RELEASE OF THE INTEREST OF THE SONS OF THE V ENDOR ON PAYMENT OF RS. 1,15,000/-. THE PLAINTIFFS HAD ALSO APPLIED TO THE HIGH COURT FOR RECOVERY OF THEIR SHARE OF PROFITS AND FOR THIS PURPOSE THE HIGH COURT HAD APPOINTED A RECEIVER DIRECTING HIM TO DEPOSIT PROFITS IN T HE HIGH COURT. THE ASSESSEE DEPOSITED THREE SUMS OF RS. 1,09,613/-, RS. 31,0 87/- AND RS. 4,775/- FOR THE YEARS 1944-45, 1945-46 AND 1946-47. UNDER T HE COMPROMISE THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 65 ASSESSEE WAS ENTITLED TO DRAW THESE AMOUNTS ON PA YMENT OF RS. 1,15,000/-. THE PRIVY COUNCIL REVERSED THE ORDER OF THE HIGH COURT AND IT WAS HELD THAT THE VENDOR WAS THE ABSOLUTE OWNER OF THE PROP ERTY. THEREAFTER, THE ITO ISSUED A NOTICE U/S 34 IN RESPECT OF THE AMOU NT OF RS. 1,09,613/- RECEIVED BY THE ASSESSEE AS LEASE INCOME OF THE MILL. IT WAS CONTENDED THAT THE NOTICE WAS INVALID. IN THESE PROCEEDIN GS, A QUESTION AROSE WHETHER ANY PORTION OF THE AMOUNT OF RS. 1,15,000 /- WAS LIABLE TO BE TREATED AS BUSINESS EXPENDITURE. THE HONBLE COUR T MENTIONED THAT WHERE MONEY IS PAID TO PERFECT A TITLE OR AS CONSIDERA TION FOR GETTING RID OF A DEFECT IN THE TITLE OR A THREAT OF LITIGATION, TH E PAYMENT WOULD BE CAPITAL AND NOT REVENUE IN NATURE. IN THE CASE OF RAMKRI SHNA & COMPANY VS. CIT, (1973) 88 ITR 406 (MAD.), IT HAS BEEN HELD THAT THE AMOUNT PAID FOR ACQUISITION OF A CAPITAL ASSET WHICH ENABLED THE ASSESSEE TO CARRY ON ITS BUSINESS IS AN EXPENDITURE OF CAPITAL NATURE. IN THE CASE OF J.K. COTTON MANUFACTURERS LTD. VS. CIT, (1975) 101 ITR 221 (S C), IT HAS BEEN HELD THAT SINCE THE TERMINATION OF MANAGING AGENCY WAS A V OLUNTARY ACT SO AS TO OBTAIN AN ENDURING OR RECURRING BENEFIT AND THE P AYMENT OF COMPENSATION WAS NOT DICTATED BY A COMMERCIAL EXPEDIENCY AS THERE WAS NO NECESSITY TO TERMINATE THE AGENCY, AND THE ASSESSEE WANT ED TO BENEFIT THE FIRMS IN WHICH SINGHANIA FAMILY HAD MAJOR INTEREST, THE COM PENSATION PAID TO THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 66 OUTGOING AGENCY WAS CAPITAL IN NATURE. IN THE CASE OF FLORIDA INDIA LTD. VS. CIT, (1981) 130 ITR 61(CAL.), IT HAS BEEN H ELD THAT THE PAYMENT MADE TO PREVIOUS TENANT AT THE TIME OF TAKING PREM ISES ON LEASE IS CAPITAL EXPENDITURE. IN THE CASE OF ARVIND MILLS LTD. V S. CIT, (1992) 197 ITR 422 (SC), IT HAS BEEN HELD THAT BETTERMENT CHARGE S LEVIED UNDER TOWN PLANNING SCHEME FOR IMPROVEMENT OF LAND WITHIN THE SCHEME, SUCH AS LAYING ROADS AND DRAINAGE, LEAD TO ENHANCEMENT IN THE VALUE OF LAND AND, THEREFORE, IT IS A CAPITAL EXPENDITURE. FINALL Y, IN THE CASE OF SALGAONKAR MINING INDUSTRIES VS. CIT, (1997) 228 ITR 183 (B OM.), IT HAS BEEN HELD THAT THE PAYMENT OF A SUM OF RS.92,000/- BY WAY OF LIQUIDATED DAMAGES FOR ACQUISITION OF MINING LEASES WHICH WERE NO T OPERATED, OBVIOUSLY, IS THE EXPENDITURE REFERABLE TO ACQUISITION OF MININ G LEASE AND NOT FOR OPERATING THE SAME. THEREFORE, THE EXPENDITURE IS CAPITAL IN NATURE. ON THE BASIS OF THESE CASES, IT IS ARGUED THAT T HE EXPENDITURE WAS INCURRED FOR IMPROVING THE TITLE BY REMOVING LONG-TERM LEA SE, THEREFORE, THE EXPENDITURE IS CAPITAL IN NATURE. 24.10 IN REPLY, THE LD. COUNSEL SUBMITTED THAT T HE ASSESSEE HAD EXISTING TRADING RELATIONSHIP WITH ITC LTD., WITH WHOM IT WAS SHARING REVENUES OF THE HOTEL, RECEIVING 23% OF THE NET REVENUE. A FTER BOMB BLASTS, DISPUTES ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 67 AROSE WITH ITC LTD., WHICH WERE SETTLED THROUGH CONSENT TERMS. THE PAYMENT WAS MADE TO REMOVE IMPEDIMENTS IN COMM ERCIAL EXPLOITATION OF THE PROPERTY. NO NEW ASSET WAS CREATED. NO A DDITION WAS MADE TO THE EXISTING CAPITAL ASSETS. THEREFORE, THE EXPEN DITURE IS REVENUE IN NATURE. IN THIS CONNECTION, RELIANCE HAS BEEN PLACED ON T HE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ADDITIONAL CIT VS . J & S (P) LTD., (1984) 149 ITR 581. IN THIS CASE, THE ASSESSEE HAD TWO CINEMA HOUSES AND IT WAS DECIDED THAT THESE SHOULD BE RUN THROUGH F INANCIERS FOR 104 WEEKS. FOR THIS PURPOSE AN AGREEMENT WAS ENTERED INT O WHICH RESULTED IN WEEKLY HIRE BEING PAID FOR PLAYING TIME AMOUN TING TO RS. 5,000/-. THE AGREEMENT WAS CANCELLED MIDWAY FOR WHICH THE AS SESSEE HAD TO PAY A SUM OF RS. 68,000/-. IT HAS BEEN HELD THAT THE AG REEMENT MADE FOR TWO YEARS DID NOT CREATE ANY CAPITAL ASSET OR BENEFI T OF ENDURING NATURE. THE ASSESSEE THOUGHT IT FIT TO TERMINATE THE AGR EEMENT BY PAYING A SUM OF RS. 68,000/- FOR EARNING MORE INCOME. THIS WAS M ERELY A CHANGE IN THE NATURE OF RUNNING THE BUSINESS AND, THEREFORE, TH E EXPENDITURE IS REVENUE IN NATURE. FURTHER, RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF CIT VS. PEICO ELECTRONICE & ELECTRICALS LTD., (199 2) 107 CTR (CAL.) 240. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WIT H VULCAN INDUSTRIES UNDER WHICH IT MANUFACTURED CERTAIN GOODS FOR U SE OF THE ASSESSEE. THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 68 ASSESSEE HAD BEEN LIFTING THESE GOODS SINCE JA NUARY, 1972, BUT STOPPED DOING SO IN MARCH, 1975. A SUM OF RS. 4,03,000/- WAS PAID AS COMPENSATION FOR BREACH OF CONTRACT. THE HONBLE COURT HELD THAT THE PAYMENT WAS MADE AS A MATTER OF COMMERCIAL EXP EDIENCY AND TERMINATION OF THE AGREEMENT DID NOT IN ANY MANN ER AFFECT THE FRAMEWORK OF THE BUSINESS. THUS, THE EXPENDITURE HAS BE EN HELD TO BE REVENUE IN NATURE. RELIANCE HAS ALSO BEEN PLACED ON THE DEC ISION IN THE CASE OF CIT VS. ASHOK LEYLAND LTD., (1972) 86 ITR 749 (SC). IN THIS CASE, THE ASSESSEE TERMINATED THE CONTRACT WITH THE MANAG ING AGENTS AS A CONSEQUENCE OF WHICH COMPENSATION WAS PAID. IT W AS OBSERVED BY THE TRIBUNAL THAT THE TERMINATION OF MANAGING AGEN CY CONTRACT AROSE OUT OF BUSINESS CONSIDERATION BECAUSE OF THE CHANGE I N BUSINESS ACTIVITIES. THE HONBLE COURT HELD THAT THE COMPENSATION WAS MADE TO SAVE BUSINESS EXPENDITURE IN THE RELEVANT ACCOUNTING YEAR AS WELL AS FOR A FEW MORE YEARS. THIS DID NOT LEAD TO BENEFIT OF ENDURI NG NATURE TO THE ASSESSEE AND, THEREFORE, THE EXPENDITURE HAS BEEN HELD TO BE REVENUE IN NATURE. IN THE CASE OF CIT VS. MOTOR INDUSTRIES CO. LTD., ( 1997) 223 ITR 112 (KARNATAKA), THE ASSESSEE COMPANY TERMINATED TH E AGREEMENT WITH SOLE DISTRIBUTOR OF ITS PRODUCTS AND SET UP ITS OWN SALE HOUSE. THE COMPENSATION WAS PAID FOR TERMINATING THE AGREE MENT. IT WAS HELD THAT ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 69 THE EXPENDITURE WAS REVENUE IN NATURE. IN THE CASE OF CIT VS. OBEROI HOTELS (INDIA) PVT. LTD., (1994) 209 ITR 732, TH E COMPENSATION PAID FOR TERMINATION OF MANAGING AGENCY OF SINGAPORE HOTEL WAS HELD TO BE REVENUE IN NATURE AS THE PAYMENT DID NOT ALTER THE PROFIT MAKING STRUCTURE OF THE COMPANY. IN THE CASE OF BIKANER GYPSUMS LTD. VS. CIT, (1990) 187 ITR 39 (SC), THE ASSESSEE PAID A SUM OF RS. 3. 00 LAKH TO THE RAILWAYS FOR SHIFTING RAILWAY STATION AND TRACK EXISTING ON I TS LAND FROM WHICH MINING OPERATIONS WERE CONDUCTED. THE HONBLE COURT HE LD THAT THE PAYMENT WAS MADE FOR REMOVING OBSTRUCTION, RESTRICTION OR DISABILITY, WHICH MAY LEAD TO BENEFIT TO THE BUSINESS OF MINING BUT IT DID NOT LEAD TO ACQUISITION OF ANY CAPITAL ASSET AS THE LAND BELONGED TO THE A SSESSEE. THEREFORE, IT WAS HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE . IN THE CASE OF CIT VS. SHAMSHER PRINTING PRESS, (1960) 39 ITR 90 (SC), THE COMPENSATION RECEIVED ON COMPULSORY VACATION OF THE PREMISES AR ISING OUT OF REQUISITION OF THE PREMISES WAS HELD TO BE REVENUE RECEIPT AS THE COMPENSATION WAS FOR LOSS OF FUTURE PROFIT. IN THE CASE OF CIT VS. ALL INDIA FILM CORPORATION, (2008) 297 ITR 358 (DEL), IT HAS BE EN HELD THAT COMPENSATION RECEIVED FOR PRE-MATURE TERMINATION OF LEASE OF CINEMA THEATRE IS TOWARDS THE BUSINESS LOSS AND, THEREFORE, IT IS A REVENU E RECEIPT. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 70 24.11 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE QUESTION AS TO WHETHER AN EXPENDIT URE IS CAPITAL OR REVENUE IN NATURE DEPENDS UPON FACTS OF EACH CASE. IT IS A MIXED QUESTION OF FACT AND LAW. THEREFORE, UNLESS THE FACTS ARE IDE NTICAL, NO CASE REALLY LAYS DOWN A PRECEDENCE FOR ANY OTHER CASE. HOWEVER, THE GENERAL PRINCIPLE WHICH CAN BE CULLED OUT IS THAT AN EXPENDITURE I S CAPITAL IN NATURE IF IT LEADS TO ACQUISITION OF AN ASSET OR BETTERMENT T HEREOF. THE EXPENDITURE WHICH LEADS TO BENEFIT OF ENDURING NATURE IS AL SO A TEST TO CONCLUDE THAT IT IS A CAPITAL IN NATURE. HOWEVER, THIS TEST IS NOT AN INFALLIBLE TEST. IT HAS TO BE SEEN FURTHER AS WHETHER THE EXPEN DITURE IS IN THE CAPITAL FIELD OR IN THE REVENUE FIELD. THE FACTS OF THE CAS E ARE THAT AFTER BOMB BLASTS IN THE YEAR 1993, DISPUTES AROSE BETWEEN THE A SSESSEE AND THE ITC LTD. THESE DISPUTES MULTIPLIED AS COUNTER CLAIMS WE RE SET UP. ULTIMATELY, THE DISPUTES WERE RESOLVED AND A NUMBER OF PAYME NTS WERE MADE BY THE ASSESSEE TO ITC LTD. THESE PAYMENTS INCLUDED A SUM OF RS. 30.86 CRORE FOR TERMINATION OF AGREEMENT DATED 03.05.1986, WHICH WAS OTHERWISE TO REMAIN IN FORCE FOR A PERIOD OF 25 YEARS, I.E ., UP TO 30.06.2011. IN OTHER WORDS, ON THE DATE OF ITS TERMINATION, THE AG REEMENT WOULD HAVE SUBSISTED FOR A FURTHER PERIOD OF ABOUT SIX YEAR S. THE ASSESSEE HAD NOT BEEN RECEIVING ANY LICENSE FEE SINCE THE BOMB BLASTS AND CONSEQUENTLY ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 71 NOTHING ON THIS ACCOUNT WAS BEING OFFERED FOR TAXATION. THIS IS THE ONLY BUSINESS OF THE ASSESSEE. AFTER TERMINATION OF THE AGREEMENT, THE VACANT POSSESSION WAS HANDED OVER TO THE ASSESSEE. THE R ESULT WAS THAT THE ASSESSEE COULD RUN THE BUSINESS OF HOTEL ON ITS O WN OR IT COULD HAVE CARRIED ON THE BUSINESS ALONG WITH SOMEBODY ELSE ON SUCH TERMS AS IT THOUGHT FIT. THEREFORE, THE BUSINESS WHICH HAD DRIED U P AFTER THE BOMB BLASTS AND IN RESPECT OF IT NO INCOME WAS BEING RECEI VED, COULD BE REVIVED ON PAYMENT OF THE AFORESAID SUM OF RS. 30.86 CRORE TO ITC LTD. THE AGREEMENT IS QUITE DISTINCT FROM THE AGREEMENT OF TERMINATION OF AGENCY AGREEMENT OR DISTRIBUTION-SHIP AGREEMENT FOR TH E REASON THAT ONLY A PART OF THE BUSINESS WAS BEING MANAGED OR LOOKED AFTER BY THE AGENT. THESE AGREEMENTS WERE BETWEEN A PRINCIPAL AND AN AGE NT WHERE THE AGENT ACTS ON BEHALF OF THE PRINCIPAL IN CERTAIN SPECIFIED AREA. HOWEVER, THE AGREEMENT BETWEEN THE ASSESSEE AND THE ITC LTD. WAS ON A PRINCIPAL TO PRINCIPAL BASIS. ITC LTD. WAS RUNNING THE HOTEL AND IN LIEU OF THE USE OF THE BUSINESS ASSETS OF THE ASSESSEE, NAMELY, THE HOTEL PREMISES, LICENSE FEE WAS PAID WHICH WAS COMPUTED ON THE BASIS OF NET TU RNOVER. THE FEE COULD HAVE BEEN CALCULATED OR DETERMINED ON SOME OTHER BASIS ALSO. HOWEVER, THE FACT IS THAT THE ASSESSEE WAS NOT ACTUALLY R UNNING THE BUSINESS OF THE HOTEL. IT WAS MERELY ENJOYING THE USUFRUCT OF TH E ASSETS. ARRANGEMENTS ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 72 WERE MADE FOR ENSURING THAT IT RECEIVED ITS DUE SHARE AS USUFRUCT, BUT THAT DOES NOT MEAN THAT THE ASSESSEE WAS RUNNING THE HOTEL. ON TERMINATION OF THE AGREEMENT THE ASSESSEE COULD, AS MENTIONED EARLIER, RUN THE BUSINESS OF HOTEL ON ITS OWN, IN ASSOCIATION WIT H OTHERS OR AGAIN LEASE THE PREMISES TO A THIRD PARTY ON PAYMENT OF COMPENSAT ION TO BE CALCULATED IN A MANNER AS MUTUALLY AGREED UPON. THUS, THE PAY MENT TO ITC LTD. OPENED A HOST OF AVENUES FOR THE ASSESSEE TO UTILIZE T HE HOTEL PREMISES IN ANY MANNER AS THOUGHT FIT BY IT. IN OTHER WORDS, THE RE WAS A COMPLETE CHANGE IN THE STRUCTURE OF BUSINESS, WHICH OTHERWISE WA S ENCUMBERED FOR A LONG TIME IN VIEW OF THE AGREEMENT WITH ITC LTD. AND WHICH BECAUSE OF UNFORTUNATE INCIDENT DID NOT YIELD ANY REVENUE. AS MENTIONED EARLIER, THIS WAS THE ONLY BUSINESS CARRIED ON BY THE ASSESSEE, WHICH UNDERWENT DRASTIC CHANGE IN ITS STRUCTURE. IT IS NOT A CASE OF PREMATURE TERMINATION OF LEASE AS DISPUTES AROSE ON ACCOUNT OF EXTENSIVE DAMAGE CAUSED TO THE PREMISES AFTER BOMB BLASTS. THE TERMINATION WAS NOT ON ACCOUNT OF THE ASSESSEES DESIRE TO CHANGE THE MANNER IN WHICH IT WANTED TO CONDUCT THE BUSINESS. IN SUCH CIRCUMSTANCES, IT CAN BE SAID THAT THE ASSESSEE GOT RID OF ONEROUS LEASE WHICH WAS NOT YIELDING ANY PROFIT , LEADING TO REMOVAL OF LONG STANDING IMPEDIMENT IN FRUITFUL COMMERCIAL EXPLOITATION OF THE ASSET. IN THIS CONNECTION, IT MAY ALSO BE MENTIONED THAT THE TRANSACTION HAS TO BE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 73 SEEN FROM THE POINT OF VIEW OF THE ASSESSEE AND NOT FROM THE POINT OF VIEW OF ITC LTD. THEREFORE, THE TREATMENT MET ED OUT IN THE CASE OF ITC LTD. TO THE COMPENSATION RECEIVED BY IT IS OF N O CONSEQUENCE. WE MAY ALSO HASTEN TO ADD HERE THAT IN THE CASE OF ITC LTD., THIS WAS ONE OF THE HOTELS RUN BY IT AND, THEREFORE, THE POSITION OF T WO ASSESSEES IS QUITE DISTINCT IN TERMS OF THEIR BUSINESS ACTIVITIES. SINCE THE ASSESSEES BUSINESS ACQUIRED A NEW LEASE OF LIFE AFTER PAYING THE AFORESAID AMOUNT, IT CAN ONLY BE HELD TO BE AN EXPENDITURE OF CAPITAL IN NATURE. IT IS HELD ACCORDINGLY. 24.12 THE SECOND LIMB OF THE LD. COUNSELS ARGUME NT IS THAT THE PAYMENT HAS LED TO ACQUISITION OF AN INTANGIBLE ASSET. I N THIS CONNECTION, THE LD. DR REFERRED TO THE PROVISIONS CONTAINED IN SECTIO N 32, WHICH ALLOWS DEPRECIATION ON INTANGIBLE ASSETS BEING KNOW-HO W, PATENTS, COPYRIGHT, TRADE-MARKS, LICENSES, FRANCHISEES OR ANY OTHER BUS INESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. IT IS SUBMITTED THAT ADMITTEDLY THE ASSESSEE DID NOT RECEIVE ANY KNOW HOW, PATENT, COPYRIGHT, TR ADEMARK, LICENSE OR FRANCHISEE ON PAYMENT OF THE SAID SUM. THEREFORE, THE ASSESSEES CASE CAN BE COVERED AT BEST UNDER THE RESIDUARY CLAUSE, I.E., ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE. IT IS A RGUED BY THE LD. DR THAT THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 74 PRINCIPLE OF EJUSDEM GENERIS WILL HAVE TO BE AP PLIED TO UNDERSTAND THE MEANING OF THE RESIDUARY CLAUSE AS IT WILL HAVE TO BE GET ITS COLOUR FROM SPECIFIC ITEMS MENTIONED IN THE PROVISION, BEING KNOW-HOW ETC. THE FACT OF THE MATTER IS THAT THE ASSESSEE HAS NOT RECEI VED ANY RIGHT WHATSOEVER EITHER BUSINESS OR COMMERCIAL AND WHAT IT HAS RE CEIVED IS THE VACANT POSSESSION OF THE PREMISES. THEREFORE, THE PAYMENT CANNOT BE SAID TO BE FOR ACQUISITION OF ANY INTANGIBLE ASSET. 24.13 IN THIS CONNECTION, RELIANCE HAS BEEN PLACE D ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HEREDILLA CHEMICALS LTD., (1997) 225 ITR 532, IN WHICH IT HAS BEEN HELD THAT PREMIUM PAID FOR ACQUIRING LEASE-HOLD RIGHT DOES NOT FORM TH E COST OF THE BUILDING CONSTRUCTED THEREON FOR THE PURPOSE OF ALLOWING D EPRECIATION U/S 32 OF THE ACT. FURTHER, IN THE CASE OF CIT VS. SEA LORD HOTEL P. LTD., (2000) 245 ITR 601 (KER.), IT HAS BEEN HELD THAT THE AMOUNT PAID AS RETRENCHMENT COMPENSATION TO THE WORKERS OF PREVIOUS OWNERS DO ES NOT LEAD TO IMPROVEMENT OF THE CAPITAL ASSET ON WHICH DEDUCTI ON OF DEPRECIATION COULD BE ALLOWED. IT HAS ALSO BEEN HELD THAT THE HO TEL BUILDING DOES NOT CONSTITUTE PLANT FOR THE PURPOSE OF DEDUCTION U/S 32. IN THE CASE OF CIT VS. HOOGLY MILLS CO. LTD., (2006) 287 ITR 333 (SC), IT HAS BEEN HELD ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 75 THAT THE AMOUNT OF RS. 3.5 CRORE REPRESENTING AC CRUED AND FUTURE LIABILITY OF THE VENDOR FOR PAYMENT OF GRATUITY TO ITS EMPLOYEES DOES NOT FORM PART OF THE COST OF ACQUISITION OF PLANT AND, THE REFORE, NOT ENTITLED TO DEDUCTION OF DEPRECIATION U/S 32. IN THE CASE OF R.G. KESWANI VS. ACIT, (2009) 308 ITR (AT) 271 (MUM. BENCH), IT HAS BE EN HELD THAT GOODWILL IS NOT AN INTANGIBLE ASSET SPECIFIED U/S 32(1)( II), ON WHICH DEPRECIATION COULD BE GRANTED. WHILE ARRIVING AT THIS DEC ISION, IT HAS BEEN MENTIONED THAT THE RESIDUARY PART OF CLAUSE (II) REPRES ENTS AN ASSET OF THE NATURE OF KNOW-HOW, PATENT, COPYRIGHT, TRADEMARK ETC. IN T HE CASE OF TECHNO SHARES & STOCKS LTD. VS. CIT, (2010) 327 ITR 323 (SC), IT HAS BEEN HELD THAT DEPRECIATION CAN BE CLAIMED ON MEMBERSHIP CARD OF BOMBAY STOCK EXCHANGE AS IT IS AN INTANGIBLE ASSET. IT IS ME NTIONED THAT THE RIGHT OF MEMBERSHIP IS A BUSINESS OR COMMERCIAL RIGHT, WHI CH WAS OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS. IT IS AKIN TO A LICENSE GRANTED BY BOMBAY STOCK EXCHANGE. THIS DECISION HAS BEEN DISTINGUISHED BY THE LD. DR BY STATING THAT NO LICENSE OR SI MILAR RIGHT HAS BEEN RECEIVED FROM ITC LTD. ON PAYMENT OF THIS AMOUNT. 24.14 IN REPLY, THE LD. COUNSEL SUBMITTED THAT T HE WORDS INTANGIBLE ASSET ARE OF WIDE IMPORT, WHICH GIVE RISE TO THE RIGHT TO CARRY ON BUSINESS. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 76 SUCH ASSETS DO NOT HAVE PHYSICAL EXISTENCE. T HEY MAY NOT BE MARKETABLE BUT ONLY REPRESENT THE EVIDENCE OF THE VALUE OF T HE ASSET. THE ASSESSEE HAD LOST THE RIGHT TO OPERATE THE HOTEL WHICH GOT REVIVED ON MAKING THE AFORESAID PAYMENT. THEREFORE, THE PAYMENT CREATE D AN INTANGIBLE ASSET BEING THE RIGHT TO OPERATE THE HOTEL. IN ORDER TO SUPPORT THIS CONTENTION, RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF SKYLINE CATERERS (P) LTD. VS. ITO, (2008) 116 ITD 348 (SMC BENCH) ( MUM.). IN THIS CASE, THE ASSESSEE ACQUIRED THE RIGHT TO PROVIDE CAT ERING SERVICES TO HINDUSTAN LEVER LTD. (HLL FOR SHORT) BY PAYING A SUM OF RS. 27.00 LAKH TO THE PREVIOUS CATERER WHO HAD THE RIGHT TO PROVIDE SU CH SERVICES FOR A PERIOD OF 30 YEARS. THE AMOUNT WAS SHOWN IN THE ACCOUN TS AS GOODWILL AND DEPRECIATION WAS CLAIMED. THE HONBLE MEMBER ME NTIONED THAT THE DESCRIPTION OF THE ASSET IN THE BALANCE-SHEET IS NOT CONCLUSIVE OF THE MATTER. THE REAL ASSET ACQUIRED BY THE ASSESSEE WAS TH E RIGHT UNDER THE CONTRACT AND ALSO THE ARTICLES AND PARAPHERNALIA LYING I N THE CANTEEN. THE VALUE OF THE ARTICLES ARE ENTITLED TO DEPRECIATION U/S 32 AND THE BALANCE PAYMENT REPRESENTS INTANGIBLE ASSET ON WHICH DEDUCTION OF DEPRECIATION IS ADMISSIBLE TO THE ASSESSEE. IN THE CASE OF ITO VS. MEDICORP TECHNOLOGIES INDIA LTD., (2009) 122 TTJ (CHENNAI) 394, THE NON -COMPETE RIGHT HAS BEEN HELD TO BE A BUSINESS OR COMMERCIAL RIGHT ON WHIC H DEPRECIATION IS ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 77 ADMISSIBLE U/S 32(1)(II) OF THE ACT. WHILE DOING SO, THE TRIBUNAL ALSO LOOKED AT THE DICTIONARY MEANING OF THE WORDS INTANGIBLE ASSET. IN THE CASE OF ASHOKA INFO (P) LTD. VS. ACIT, (2009) 12 3 TTJ (PUNE) 77, IT HAS BEEN HELD THAT THE RIGHT TO COLLECT TOLL GRANT ED BY THE STATE GOVERNMENT IS IN THE NATURE OF LICENCE AND EVEN IF THE PR INCIPLE OF EJUSDEM GENERIS IS APPLIED, THE RIGHT IS IN THE NATURE OF AN INT ANGIBLE ASSET. IN THE CASE OF TECHNO SHARES AND STOCKS LTD. AND OTHERS (SUPRA), DEPRECIATION HAS BEEN ALLOWED ON THE VALUE OF THE MEMBERSHIP CARD OF TH E BOMBAY STOCK EXCHANGE. IN THE CASE OF CIT VS. HINDUSTAN COCA COLA BEVERAGES (P) LTD., (2011) 339 ITR 192 (DEL), THE REVISIONARY ORDER OF THE COMMISSIONER U/S 263 HOLDING THAT DEPRECIATION IS NOT ADMISSIBLE ON GOODWILL IS SET ASIDE BY HOLDING THAT TWO VIEWS ARE POSSIBLE IN THE MATTER AND, THEREFORE, IF THE AO HAS TAKEN ONE VIEW, TH E ASSESSMENT ORDER CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICE TO THE INT EREST OF REVENUE. 24.15 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. TWO QUESTIONS ARISE FOR DECISION BEF ORE US, I.E., -(I) WHETHER THE PAYMENT TO ITC LTD. HAS LED TO CREATION OF A NY INTANGIBLE ASSET; AND (II) IF ANSWER TO THE AFORESAID QUESTION IS IN AFFIRMA TIVE, WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION OF DEPRECIATION PRESCRI BED FOR AN INTANGIBLE ASSET? ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 78 THE FACTS OF THE CASE HAVE BEEN REPEATED A NUM BER OF TIMES IN THIS ORDER. THEREFORE, THESE NEED NOT BE REPEATED AGAIN. SUF FICE IT TO SAY THAT THE ASSESSEE OWNED THE HOTEL BUILDING WHICH WAS ENCU MBERED ON ACCOUNT OF LEASE AGREEMENT WITH ITC LTD. THE ASSESSEE HAD A LSO NOT BEEN GETTING LICENCE FEE FOR A NUMBER OF YEARS ON ACCOUNT OF DISPUTES ARISING AFTER BOMB BLASTS IN THE PREMISES OF THE HOTEL. THE ASS ESSEE PAID THE SUM AND OBTAINED VACANT POSSESSION OF THE PREMISES. ITC LTD. DID NOT PART WITH ANY INTANGIBLE ASSET BELONGING TO IT IN LIEU OF THE AFORESAID PAYMENT. IT ALSO DID NOT PART WITH ANY KNOW-HOW, TECHNICA L KNOW-HOW, LICENSE ETC. IN FAVOUR OF THE ASSESSEE FOR THE AFORESAID PAYME NT. WHAT REALLY HAPPENED WAS THAT THE ASSESSEE SETTLED ITS DISPUTES AND GOT BACK VACANT POSSESSION OF THE PREMISES. IT DID NOT GET MEMBERSHIP OF AN Y ASSOCIATION, WHICH PERMITTED IT TO CARRY ON THE BUSINESS. THUS, THE CASE REGARDING MEMBERSHIP FEES OF THE BOMBAY STOCK EXCHANGE IS QUITE DISTINC T AND DIFFERENT ON FACTS. THE ASSESSEE ALSO DID NOT GET ANY GOODWILL EARLIER ENJOYED BY ITC LTD. AND, THEREFORE, NO USEFUL PURPOSE WILL BE SERVED BY GOING THROUGH THE CASES DEALING WITH THE STATUS OF GOODWILL. THE PAYMENT IS ALSO NOT IN THE NATURE OF PREMIUM PAID FOR ACQUIRING LEASE HOLD LAND F ROM GOVERNMENT OR ANY STATUTORY AUTHORITY OR EVEN A PRIVATE PERSON. THE ASSESSEE WAS, IN FACT, OWNER OF THE LAND AND BUILDING AND, THUS, THERE IS NO QUESTION OF ANY ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 79 PAYMENT OF PREMIUM FOR ACQUIRING RIGHT IN THE L EASE-HOLD LAND. THEREFORE, THE FACTS ARE QUITE DISTINGUISHABLE FROM THE CASES CITED BY THE RIVAL PARTIES. SINCE IT IS A SIMPLE CASE OF RE-POSSESS ION OF AN ASSET LEASED TO ITC LTD., THE TRANSACTION IS IN THE REALM OF TANGI BLE ASSETS. ACCORDINGLY, IT IS HELD THAT THE PAYMENT DID NOT LEAD TO ACQUI SITION OF ANY INTANGIBLE ASSET NOT TO SAY THAT IT LED TO ACQUISITION OF INTANGIBLE ENUMERATED IN SECTION 32 OF THE ACT. THEREFORE, THE SUBMISSIONS OF THE LD. COUNSEL IN THIS BEHALF ARE ALSO REJECTED. 24.16 THIS LEAVES US TO DECIDING THE TRUE NATURE OF PAYMENT. AS A MATTER OF FACT, WE HAVE REPEATEDLY STATED THE NATURE OF PAYMENT, I.E., IT IS FOR ACQUIRING PEACEFUL POSSESSION OF THE PREMISES. ACCORDINGLY, IT ENHANCED THE RIGHT OF THE ASSESSEE TO USE THE PREMISES I N ANY MANNER IT DESIRED WHICH WAS OTHERWISE ENCUMBERED UP TO 30.06.2011. THEREFORE, THE PAYMENT CAN ONLY BE ATTRIBUTED TO THE HOTEL BUILD ING AND IT IS ENTITLED FOR DEDUCTION OF DEPRECIATION AT THE RATE APPLICABLE TO HOTEL BUILDING. 24.17 IN THE RESULT, GROUND NO. 3(B) IS ALSO DISMIS SED. ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 80 25. GROUND NO. 9 IN THE APPEAL OF THE ASSESSEE ALS O RELATES TO THE AMOUNT OF DEDUCTION AVAILABLE TO THE ASSESSEE IN THIS YEAR BY WAY OF DEPRECIATION. IT IS MENTIONED THAT THE LD. CIT(APPEALS) ERRED IN REJECTING THE HIGHER CLAIM OF RS. 7,71,59,159/-. THIS ISSUE STANDS COVE RED IN OUR DECISION ON GROUND NO. 3 IN THE APPEAL OF THE REVENUE, IN WHI CH IT HAS BEEN HELD THAT THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF HIGHER DE PRECIATION @ 25% BUT ONLY 10%. THEREFORE, THIS GROUND IS DISMISSED. 26. GROUND NO. 11 IN THE APPEAL OF THE ASSESSEE IS IN RESPECT OF THE CLAIM OF SETTING OFF OF UNABSORBED DEPRECIATION OF EAR LIER YEARS. IN THIS CONNECTION, IT IS MENTIONED IN THE IMPUGNED ORDER T HAT THE ASSESSEE DID NOT CLAIM THE SET OFF IN THE RETURNS FILED UNDER SEC TION 139(1) AND SECTION 153A. THE ASSESSEE HAD SHOWN INCOME OF RS. 2,1 1,73,895/- IN THE RETURN FOR ASSESSMENT YEAR 2005-06, WHICH SHOWS THAT TH ERE IS NO BROUGHT FORWARD UNABSORBED DEPRECIATION TO BE SET OFF A GAINST THE INCOME OF THIS YEAR. ACCORDINGLY, THE GROUND WAS HELD TO BE ONLY OF ACADEMIC INTEREST AND NON-EST. THUS, THE GROUND WAS DISMISSED. THE FINAL DETERMINATION OF THE INCOME FOR ASSESSMENT YEAR 2005-06 IS NOW T O BE MADE ON THE BASIS OF OUR ORDER IN THE CROSS APPEALS. IT IS HELD THA T THE ASSESSEE COULD RAISE ADDITIONAL GROUND BEFORE THE LD. CIT(APPEALS) OR B EFORE US FOR THE REASON ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 81 THAT THIS IS THE ONLY ASSESSMENT MADE IN THE C ASE OF THE ASSESSEE. THEREFORE, IF ANY BUSINESS LOSS IS COMPUTED FOR ASSESSMENT YEAR 2005-06 AS PER OUR ORDER, IT IS DIRECTED THAT THE AO S HALL CONSIDER THE MATTER FOR SETTING IT OFF AGAINST THE INCOME OF THIS YEAR AS PER LAW. THUS, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 27. GROUND NOS. 4 AND 5 RELATE TO THE RELIEF G RANTED BY THE LD. CIT(APPEALS) IN RESPECT OF EXPENSES INCURRED AS WORKMEN COMPENSATION, COMPUTER CONSULTANCY, TELEPHONE EXPENSES AND LEGAL AND PROFESSIONAL FEES. THESE ISSUES, EXCEPT THE EXPENDITURE BY WAY OF WORKMEN COMPENSATION, STAND COVERED IN OUR DECISION FOR ASSESSMENT YEA R 2005-06 (SUPRA). THE FACTS REGARDING WORKMEN COMPENSATION PAID BY THE ASSESSEE, AS MENTIONED IN THE IMPUGNED ORDER, ARE THAT A DISPUT E WAS PENDING BEFORE THE HIGH COURT BETWEEN THE ASSESSEE ON ONE HAND AND WORKERS OF THE HOTEL ON THE OTHER. THE DISPUTE AROSE WHEN THE HOTEL WAS RUN BY THE ITC LTD. THE SERVICES OF THE WORKERS WERE TERMINATED WITH EFFECT FROM 31.01.2000. AS PER THE ORDER OF THE HIGH COURT DATED 10.12.2001 , THE ITC LTD. WAS DIRECTED TO MAKE THE PAYMENT TO THE WORKMEN @ 75% O F THE WAGES FOR EACH MONTH OF THE PENDENCY OF THE COMPLAINT. HOW EVER, SUBSEQUENTLY VOLUNTARY RETIREMENT SCHEME WAS OFFERED TO THESE WORKMEN AND THE ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 82 AMOUNT OF RS. 6.00 LAKH WAS PAID IN PURSUANCE OF THE SCHEME. IT WAS SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED IN THE COURSE OF THE BUSINESS, WHICH CONTINUED EVEN AFTER TERMINATION OF THE AGREEMENT WITH ITC LTD. THEREFORE, THE EXPENDITURE IS DEDUCTIB LE IN COMPUTING THE INCOME. THE LD. CIT(APPEALS) MERELY MENTIONED THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ARGUME NTS OF THE LD. AR AND JUDICIAL PRONOUNCEMENTS, THE AMOUNT IS DEDUCTIBLE IN COMPUTING THE INCOME. 27.1 BEFORE US, NO ARGUMENT WAS MADE EITHER BY T HE LD. DR OR THE LD. COUNSEL IN THIS MATTER. FROM THE FACTS NARRATED IN THE IMPUGNED ORDER, IT APPEARS THAT THE LIABILITY WHICH AROSE AS A CON SEQUENCE OF TERMINATION OF EMPLOYEES BY THE ITC LTD. ON 31.01.2000 WAS CR YSTALLIZED IN THIS YEAR ON THE BASIS OF THE VRS. HOWEVER, IT IS NOT CLEAR AS TO WHETHER THE EMPLOYEES WERE THOSE OF THE ITC LTD. OR THE ASSE SSEE. IT DOES APPEAR TO US THAT THE LIABILITY IN RESPECT OF THESE EMPLOYEE S WAS TAKEN OVER BY THE ASSESSEE-COMPANY ON TERMINATION OF AGREEMENT WI TH ITC LTD. NONETHELESS, AS THE FACTS ARE NOT CLEAR AND T HE GROUND HAS ALSO NOT BEEN ARGUED BY ANY OF THE PARTY, THE FINDING OF THE LD. CIT(APPEALS) THAT THE LIABILITY WAS NOT IN CONNECTION WITH CLOSURE OF THE BUSINESS DOES NOT ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 83 REQUIRE ANY INTERFERENCE FROM OUR SIDE. HOWEVER, OTHER EXPENSES ARE HELD TO BE ALLOWABLE BY FOLLOWING OUR EARLIER DEC ISION IN THE MATTER. THUS, THESE GROUNDS ARE DECIDED ACCORDINGLY. 28. GROUND NO. 6, BEING RESIDUARY IN NATURE, WAS NOT ARGUED BY THE LD. DR. THE SAME IS DISMISSED. 29. IN THE RESULT: (I) THE APP EAL OF THE REVENUE FOR ASSESSMENT YEAR 2005-06 IS DISMISSED; (II) THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEA R 2005-06 IS PARTLY ALLOWED; (III) THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YE AR 2006-07 IS PARTLY ALLOWED; AND (IV) THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07 IS DISMISSED; THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 5 AUGUST, 2011. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 5TH AUGUST,2011. SP SATIA ITA NOS. 4542 & 4601(DEL)/2009 ITA NOS. 918 &1047(DEL)/2010 84 COPY OF THE ORDER FORWARDED TO:- EL EL HOTELS & INVESTMENT LTD., NEW DELHI. ACIT, CENTRAL CIRCLE-13, NEW DELHI. CIT CIT(APPEALS) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.