SHAHINOOR AKBAR LALNI, MUMBAI V. ITO 19(3)(4), MUMBAI

ITA 515/MUM/2012

• Counselvise Citation: 51519914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 24-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESHAV B BHUJLE
• Keywords: Business income
• Section: 56

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !'# $ $ $ $ %&. !.'.. $( ) !'# !* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM !./ I.T.A. NO. 515/MUM/2012 ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEAR : 2005-06 SMT. SHAHINOOR A AKBAR LALNI, 902, AJUNA TOWER, MOUNT MARRY ROAD, BANDRA (W), MUMBAI 400 050. ( ( ( ( / VS. INCOME TAX OFFICER 19(3)(4), MUMBAI. #. !./ PAN : AACPL4841M ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ASSESSEE BY SHRI KESHAV B. BHUJLE ASSESSEE BY : SHRI SHISHIR SRIVASTAVA !($ 2 / // / DATE OF HEARING : 20-08-2013 34- 2 / DATE OF PRONOUNCEMENT : 11-10-2013 [ '5 / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) 30, MUMBAI DATED 29-11-2011. 2. GROUND NO. 1 TO 4 OF THIS APPEAL INVOLVE A COMMO N ISSUE RELATING TO THE HEAD OF INCOME UNDER WHICH THE AMOUNT RECEIVED BY T HE ASSESSEE AS PER THE CONDUCTING AGREEMENT IS ASSESSED TO TAX. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HER RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 21 ST JULY, 2005 DECLARING TOTAL INCOME OF RS. 6,49,643/-. THE ASSESSEE EARLIER WAS RUNNING A RESTAURANT IN ITA 515/M/12 2 THE NAME AND STYLE OF HER PROPRIETARY CONCERN M/S K HANA KHAZANA. AS A RESULT OF LOSS INCURRED IN THE SAID BUSINESS, THE A SSESSEE DECIDED TO ENTER INTO AN AGREEMENT WITH MRS. RAJENDRA SAIGAL FOR CONDUCTI NG THE SAID BUSINESS. AS PER SUCH AGREEMENT INITIALLY ENTERED INTO ON 6-10-2 003 AND FURTHER RENEWED ON 6-10-2004, THE ASSESSEE WAS TO RECEIVE COMMISSI ON AND SUCH COMMISSION AMOUNTING TO RS. 16,90,205/- RECEIVED DURING THE YE AR UNDER CONSIDERATION WAS OFFERED BY THE ASSESSEE IN HER RETURN OF INCOME AS BUSINESS INCOME TO THE TUNE OF RS. 7,59,300/- AFTER CLAIMING CERTAIN EXPEN SES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. EXAMINED THE CONDU CTING AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND RAJENDRA SAIG AL AND FOUND ON SUCH EXAMINATION CERTAIN CLAUSES AS EXTRACTED BELOW TO B E IMPORTANT:- I) THE ASSESSEE WAS PROPRIETOR OF M/S KHANA KHAZAN A AND WAS A HOTELIER BY BUSINESS AND THE HOTEL BUSINESS WAS CAR RIED ON IN THE NAME AND STYLE OF M/S KHANA KHAZANA. II) THE ASSESSEE HAS THE BOMBAY SHOP AND ESTABLISHM ENT LICENSE, EATING HOUSE LICENSE, POLICE LICENSE AND GRADE-I LI CENSE. THE HOTEL BUSINESS IS IN RUNNING CONDITION WITH ALL THE FIXTU RES, FURNITURES AND ARTICLES, UTENSILS, EQUIPMENTS, DECORATIONS, ETC. III) THE CONDUCTORS I.E. MRS. RAJINDER SAIGAL APPRO ACHED THE ASSESSEE WITH A REQUEST TO PERMIT HER TO OPERATE TH E SAID RUNNING HOTEL BUSINESS UNDER HER MANAGEMENT AND THE OWNERS HAD AG REED TO GIVE FOR A LIMITED PERIOD THEIR HOTEL BUSINESS ON AS IS WHER E IS BASIS TO THE CONDUCTOR FOR OPERATING AND CONDUCTING UNDER THE MA NAGEMENT OF THE CONDUCTOR WITH ALL THE PARAPHERNALIA AND LICENCES A T MONTHLY ROYALTY PAYABLE BY THE CONDUCTOR TO THE ASSESSEE ON CERTAIN TERMS. IV) THE CONDUCTOR SHALL PAY 22% OF THE GROSS SALE P ROCEEDS SUBJECT TO TOP MINIMUM OF RS.1 LAKHS P.M. TO ASSESSEE AS RO YALTY FOR THE USE AND RUNNING OF THE SAID HOTEL BUSINESS PAYABLE OPEN DAILY BASIS PROVIDED HOWEVER, THAT IF FOR ANY THREE CONSECUTIVE MONTHS THE CONDUCTOR FAILS TO PAY AFORESAID ROYALTY THE ASSESS EE SHALL BE ENTITLED TO TERMINATE THE AGREEMENT WITHOUT ANY NOTICE AND SHAL L BE ENTITLED TO EVICT THE CONDUCTOR FROM THE OCCUPATION OF THE SAID HOTEL PREMISES AND BUSINESS AND THE CONDUCTOR SHALL NOT OBJECT AND CAU SE ANY OBSTRUCTION OF THE SAID HOTEL BUSINESS AND THE PREMISES TO THE SAID OWNER. V) THE CONDUCTOR SHALL PAY ALL THE FEES OF LICENSES OF THE HOTEL ON BEHALF OF THE ASSESSEE. ITA 515/M/12 3 VI) THE CONDUCTOR SHALL PAY SEPARATELY ELECTRICITY BILLS, WATER CHARGES AND TELEPHONE BILLS AS PER THE METER READING. VII) THE CONDUCTOR AT HER OWN COST AND EXPENSES WI LL MAINTAIN THE INVENTORY OF EQUIPMENTS, FIXTURES AND UTENSILS AND PRESERVE ALL THE ARTICLES ENUMERATED IN THE ANNEXURE IN GOOD AND PRO PER CONDITION. THE CONDUCTOR SHALL PAY FOR ANY AND ALL AUTHORISATION L ICENSES AND PERMITS THAT MAY BE REQUIRED BY ANY RULE, ORDINANCE OR LAW. THE CONDUCTOR AT HER OWN COST AND EXPENSES WILL REPLACE WITH ARTICLE S OF SAME BRAND AND QUALITY SUCH PART OF THE EQUIPMENTS, UTENSILS AND F IXTURES AND FURNITURES AS MAY BE DESTROYED, ENDURED OR DAMAGED. VIII) THE CONDUCTOR SHALL EMPLOY SUCH PERSON OR PER SONS FOR RUNNING THE SAID HOTEL AND PAY THE REMUNERATION WITHOUT ANY RESPONSIBILITY TO THE ASSESSEE. IX) THE CONDUCTOR SHALL BE SOLELY RESPONSIBLE FOR T HE CARE OR SAFE KEEPING OF ANY OF THE GOODS, REFRESHMENT, EQUIPMENT S, UTENSILS AND FIXTURES KEPT, PLACED OR USED IN THE HOTEL PREMISES WHETHER SUCH ITEM BELONGS TO OWNER OR ASSESSEE. X) THE CONDUCTOR SHAH PAY ALL THE EXPENSES, CHARGES , OUTGOINGS, DEBTS AND LIABILITIES FOR THEMSELVES AND OBLIGATION IN CONNECTION. THE SAID HOTEL BUSINESS INCLUDING THE WAGES OF EMPLOYEE S AND WORKMEN AND ANY COMPENSATION AND MONEY PAYABLE TO THEM AND SHAL L KEEP THE OWNER INDEMNIFIED IN RESPECT THEREOF. THE CONDUCTOR SHALL CONDUCT THE HOTEL BUSINESS OF THE OWNER AT HER OWN RISK AND ON HER OWN ACCOUNT AND SHALL NOT IN ANY WAY PLEDGE OR CHARGE TO CREDIT THE OWNERS FOR CARRYING ON THE SAME HOTEL BUSINESS. XI) THE CONDUCTOR HEREIN HAVE AGREED THAT ALL THE S ALES AND PURCHASES OF FOOD, REFRESHMENTS AND BEVERAGES, CONS UMABLES AND OTHER ITEMS SHALL BE IN TERMS OF CASH PAYMENT. THE OWNER S ARE NOT RESPONSIBLE TO MAKE ANY PAYMENTS TO THE CREDITORS. 4. ACCORDING TO THE A.O., THE ABOVE TERMS AND CONDI TIONS OF THE AGREEMENT WERE SUFFICIENT TO SHOW THAT THE ENTIRE RISK OF THE BUSINESS WAS TRANSFERRED BY THE ASSESSEE TO THE CONDUCTOR AND THERE WAS NO SUCH RISK IN WHATEVER FORM ATTRIBUTABLE TO THE ASSESSEE. HE ALSO NOTED THAT T HE ASSESSEE AS PER THE SAID AGREEMENT WAS TO RECEIVE MINIMUM AMOUNT OF RS. 1 LA C PER MONTH OR 22% OF THE NET SALES WHICHEVER IS HIGHER AS COMPENSATION F OR USE BY THE CONDUCTOR OF HER LICENSES, PREMISES, FURNITURE, FIXTURE AND OTHE R ASSETS. HE, THEREFORE, HELD THAT THE COMPENSATION RECEIVED BY THE ASSESSEE FROM MRS. SAIGAL FOR ALLOWING HER TO USE THE LICENCES AND PREMISES ALONG WITH FUR NITURE AND FIXTURE WITHOUT ITA 515/M/12 4 ASSUMING ANY BUSINESS RISK WAS NOT THE BUSINESS INC OME OF THE ASSESSEE AND THE SAME WAS CHARGEABLE TO TAX IN HER HANDS UNDER T HE HEAD INCOME FROM OTHER SOURCES U/S 56 OF THE ACT. HE ALSO HELD THA T OUT OF THE VARIOUS EXPENSES CLAIMED BY THE ASSESSEE, ONLY THE EXPENSES WHICH WERE COVERED BY THE PROVISIONS OF SECTION 57(II) AND 57(III) OF THE ACT WERE ALLOWABLE AS DEDUCTION. ACCORDINGLY, AFTER ALLOWING SUCH EXPENSE S QUANTIFIED BY HIM AT RS. 5,05,803/- FROM THE TOTAL RECEIPT OF RS. 16,90,205/ - RECEIVED BY THE ASSESSEE UNDER THE CONDUCTING AGREEMENT, THE BALANCE AMOUNT OF RS. 11,84,402/- WAS BROUGHT TO TAX BY HIM IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES THEREBY DISALLOWING THE EXPENSE S OF RS. 4,25,102/- CLAIMED BY THE ASSESSEE. 5. AGAINST THE ORDER OF THE A.O., THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE LD. CIT(A) CHALLENGING THE ACTION OF THE A.O. I N TREATING THE RECEIPTS UNDER THE CONDUCTING AGREEMENT AS INCOME FROM OTHER SOUR CES INSTEAD OF BUSINESS INCOME AND CONSEQUENTLY DISALLOWING THE EXPENSES CL AIMED TO THE TUNE OF RS. 4,25,102/-. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD INCLUDING THE A SSESSMENT ORDER, THE LD. CIT(A) FOUND NO MERIT IN THE APPEAL OF THE ASSESSEE AND UPHOLDING THE ORDER OF THE A.O., HE DISMISSED THE SAID APPEAL. AGGRIEVE D BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFO RE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE BUILDING PREMISES WAS PURCHASED BY THE ASSESSEE IN THE YEAR 1991 AND AFTER MODIFYING THE SAME FOR HOTEL PURPOSE, SHE STARTED THE RESTAURANT BUSIN ESS IN THE YEAR 1993-94. HE SUBMITTED THAT THE SAID BUSINESS WAS CONTINUED B Y THE ASSESSEE IN THE YEAR 1998 AND DUE TO LOSSES SUFFERED IN THE SAID BU SINESS, THE RESTAURANT WAS GIVEN TO MRS. SAIGAL FOR RUNNING THE SAID BUSINESS AS PER THE CONDUCTING AGREEMENT. HE TOOK US THROUGH THE COPY OF THE SAID AGREEMENT PLACED AT PAGE NO. 77 OF HIS PAPER BOOK AND CONTENDED THAT GOING B Y THE TERMS AND ITA 515/M/12 5 CONDITIONS OF THE SAID AGREEMENT AS WELL AS KEEPING IN VIEW THE FACT THAT THE RESTAURANT BUSINESS WAS GIVEN BY THE ASSESSEE FOR R UNNING TO THE THIRD PARTY AS A TEMPORARY MEASURE, THE RECEIPTS UNDER SUCH AGR EEMENT CONSTITUTE BUSINESS INCOME OF THE ASSESSEE. HE POINTED OUT THA T ALL THE LICENSES REQUIRED FOR RUNNING THE RESTAURANT WERE IN THE NAME OF THE ASSESSEE AND EVEN THE RESTAURANT WAS BEING RUN BY THE CONDUCTOR IN THE NA ME OF THE ASSESSEE. 7. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. HE SUBMITTED THAT THERE WAS NO BUSINESS RISK ATTRIBUTA BLE TO THE ASSESSEE AS PER THE RELEVANT CONDUCTING AGREEMENT AS CLEARLY MADE O UT BY THE A.O. AND SINCE THE ASSESSEE WAS ENTITLED TO RECEIVE THE FIXED MINI MUM COMPENSATION FOR THE USE OF HER LICENSES AND OTHER ASSETS, THE SAID COMP ENSATION IS CHARGEABLE TO TAX IN HER HANDS UNDER THE HEAD INCOME FROM OTHER SOURCES AS RIGHTLY HELD BY THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. KEEPING IN VIEW THE R ELEVANT TERMS AND CONDITIONS OF THE CONDUCTING AGREEMENT AS EXTRACTED BY THE A.O. IN HIS ORDER, WE FIND OURSELVES IN AGREEMENT WITH THE AUTHORITIES BELOW THAT THE COMPENSATION RECEIVED BY THE ASSESSEE UNDER THE SAI D AGREEMENT WAS ESSENTIALLY FOR USE OF HER LICENSES AND OTHER ASSET S AND THERE BEING NO BUSINESS RISK ASSUMED BY THE ASSESSEE, THE COMPENSA TION RECEIVED BY HER UNDER THE SAID AGREEMENT WAS NOT HER BUSINESS INCOM E. IT IS, HOWEVER, OBSERVED THAT ONE OF THE ASSETS GIVEN BY THE ASSESS EE FOR USE IN THE RESTAURANT BUSINESS WAS BUILDING PREMISES AND SINCE THE ASSESS EE WAS THE OWNER OF THE SAID MAIN ASSET, WE ARE OF THE VIEW THAT THE COMPEN SATION RECEIVED BY THE ASSESSEE TO THE EXTENT ATTRIBUTABLE TO THE USE OF B UILDING PREMISES IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY WHILE THE COMPENSATION RECEIVED FOR OTHER ASSETS AND LICENCES IS CHARGEABLE TO TAX ITA 515/M/12 6 UNDER THE HEAD INCOME FROM OTHER SOURCES. AS THER E IS NO SUCH BIFURCATION OF COMPENSATION INDICATED IN THE RELEVANT CONDUCTIN G AGREEMENT, WE DIRECT THE ASSESSEE TO MAKE SUCH BIFURCATION ON SOME REASO NABLE BASIS AND THE A.O. IS DIRECTED TO VERIFY THE SAME AND BRING TO TAX THE COMPENSATION ATTRIBUTABLE TO THE USE OF BUILDING PREMISES UNDER THE HEAD INC OME FROM HOUSE PROPERTY AND FOR USE OF OTHER ASSETS AND LICENCES UNDER THE HEAD INCOME FROM OTHER SOURCES. GROUND NO. 1 TO 4 OF THE ASSESSEES APPE AL ARE THUS PARTLY ALLOWED. 9. AS REGARDS THE ISSUE RAISED IN GROUND NO. 5 RELA TING TO THE DISALLOWANCE OF EXPENSES OF RS. 4,25,102/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A), IT IS OBSERVED THAT THE SAID DISALLOWANCE W AS MADE AS A RESULT OF DENIAL OF THE CLAIM OF THE ASSESSEE THAT THE RECEIP TS UNDER CONDUCTING AGREEMENT WERE CHARGEABLE TO TAX AS HER BUSINESS IN COME. SINCE WE HAVE UPHELD THE DECISION OF THE AUTHORITIES BELOW HOLDIN G THAT THE RECEIPTS UNDER THE CONDUCTING AGREEMENT DID NOT CONSTITUTE BUSINES S INCOME OF THE ASSESSEE, THE CONSEQUENTIAL DISALLOWANCE ON ACCOUNT OF EXPENS ES MADE BY THE A.O. IS LIABLE TO BE CONFIRMED. ACCORDINGLY, WE CONFIRM THE SAID DISALLOWANCE AND DISMISS GROUND NO. 5 OF THE ASSESSEES APPEAL. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH OCTOBER, 2013. . '5 2 34- 6'(7 11-10-2013 4 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 6'( DATED 11-10-2013 $.)(.!./ RK , SR. PS ITA 515/M/12 7 '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. ; () / THE CIT(A)13, MUMBAI. 4. ; / CIT 7,, MUMBAI 5. 9$> 0))( , , / DR, ITAT, MUMBAI E BENCH 6. %, ? / GUARD FILE. '5(! '5(! '5(! '5(! / BY ORDER, !19 0) //TRUE COPY// @ @ @ @/ // /!A !A !A !A ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI