Asst. Commissioner of Income Tax, Circle-2(1), Panaji, Panaji V. Hotel La Paz Gardens (P) Ltd., Vasco

ITA 55/PAN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2079 (ITAT-PANAJI)
• Duration Of Justice: 1 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 16-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R MURALIDHAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 55 /P A N/201 5 (ASST. YEAR : 200 7 - 0 8 ) ACIT, CIRCLE - 2(1), PANAJI GOA. VS. HOTEL LA PAZ GARDENS (P) LTD., SALGAOCAR HOUSE, F.L. GOMES R OAD, VASCO - DA - GAMA, GOA. PAN NO. AAACH 7656 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R. MURALIDHAR ADV. DEPARTMENT BY : SHRI R.N. SIDDAPPAJI - DR DATE OF HEARING : 1 2 / 0 5 /201 6 . DATE OF PRONOUNCEMENT : 1 2 / 0 5 /201 6 . O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) , PANAJI - 1 IN APPEAL NO. 145/MRG/09 - 10, DATED 2 4 / 11 /201 4 FOR THE ASSESSMENT YEAR 2007 - 08. 2. SHRI R. N. SIDDAPPAJI, DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF THE REVENUE AND SHRI R. MURALIDHA R , ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE. 3 . IT WAS SUBMITTED BY THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE ONLY ISSUE IN THE REVENUES APPEAL IS AGAINST THE ACTION OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N TREATING THE PAYMENT TOWARDS C OMPENSATORY L EASE C ANCELLATION AS REVENUE EXPENDITURE AS AGAINST 2 ITA NO. 55 /P A N/201 5 THE ACTION OF THE ASSESSING OFFICER IN HOLDING THE SAME AS CAPITAL EXPENDITURE. IT WAS THE SUBMISSION THAT IN 1975 OR THEREABOUTS , ONE SHRI CHAN CHIN SHING AND M/S. SIRSAT JEWELLERS HAD TAKEN ON LEASE SHOPS ADME A SURING 119 SQ.MTS. ON THE GROUND FLOOR OF A BUILDING ON ODLEM CULA GOR IN RESPECT OF SHRI CHAN CHIN SHING AND 19 SQ.MTS. ON THE GROUND FLOOR OF THE SAID BUILDING BY M/S. SIRSAT JEWELLERS . SUBSEQUENTLY, THE SAID LAND AND BUIL D ING WAS PURCHASED BY M/S. V.M. SALGAOCAR & B R OTHERS P VT. LTD. FROM THE ORIGINAL OWNERS. THE SAID LAND AND BUILDING , AGAIN WAS SUBSEQU EN TLY PURCHASED BY M/S. LA PAZ HOTELS & RESORT PVT. LTD. FROM M/S. V.M. SALGAOCAR & BROTHERS PVT. LTD. IN 1999 , M/S. LPHR WAS AMALGAMATED WITH M/S. HOTEL LA PAZ GARDENS PVT. LTD. BY AN ORDER , DATED 09/12/2005 PASSED BY THE HONBLE HIGH COURT OF BOMBAY AT PANAJI . AS A CONSEQUEN CE OF THE AMALGAMATION, M/S. HOTEL LA PAZ GARDENS PVT. LTD. (HLPG) BECAME THE OWNER OF THE PROPERTY , WHICH HAD BEEN PARTLY LEASED TO SHRI CHAN CHIN SHING AND M/S. SIRSAT JEWELLERS . IN OCTOBER, 2006 AND MARCH, 2007, THE ASSESSEE - HLPG ENTERED INTO AN AGREEMENT FOR SURRENDER OF LEASE WITH BOTH , SHRI CHAN CHIN SHING AND M/S. SIRSAT JEWELLERS AND HAD PAID 35 LAC TO SHRI CHAN CHIN SHING AND 5,50,000/ - TO M/S. SIRSAT JEWELLERS . THE ASSESSEE HAD CLAIMED CONSIDERATION PAID FOR SURRENDER OF THE LEASE , AS REVENUE EXPENDITURE. THE ASSESSING OFFICER , IN THE COURSE OF ASSESSMENT , HELD THE SAME TO BE CAPITAL EXPENDITURE. IT WAS THE SUBMISSION TH A T THE ASSESSING OFFICER HAD ALSO HELD TH A T THE ASSESSEE HAD TAKEN BACK HIS OWN PREMISES, THEREBY HAD NOT BROUGHT ANY CAPITAL ASSET OR ANY ADDITIONAL RIGHT , AND CONSEQUENTLY HAD NOT GRANTED DEPRECIATION ALSO . IT WAS THE SUBMISSION THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAD DELETED THE ADDITION MADE AND HAD HELD THAT THE EXPENDITURE WAS REVENUE EXPENDITURE . F OR THIS PURPOSE, HE RELIED UPON THE DECISION OF THE HONBLE FULL BENCH OF DELHI HIGH COURT IN THE CASE OF AIR PORT AUTHORITY OF INDIA REPORTED IN (2012) 340 ITR 407 (DELH I)(FB) . IT WAS THE SUBMISSION THAT THE ASSESSEE HAVING ACQUIRED THE LAND AND BUIL D ING , THROUGH AMALGAMATION , AND THE ASSESSEE BEING THE OWNER OF THE 3 ITA NO. 55 /P A N/201 5 PROPERTY , HAD NO BUSINESS REASON TO MAKE THE PAYMENT FOR SURRENDER OF LEASE OF SUCH PROPERTY , ESPECIALLY WHEN THE ASSESSEE COULD HAVE VER Y WELL HAVE EVICTED THE TENANTS THROUGH DUE PRO CESS OF LAW. IT WAS THE SUBMISSION THAT THERE WERE OTHER TENANTS ALSO, WHO HAD BEEN VACATED AND NO CONSIDERATION WAS PAID IN RESPECT OF THOSE TENANTS. IT WAS THE SUBMISSION THAT CONSEQUENTLY , THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE THAT THE SAID EXPENDITURE WAS R E VENUE IN NATURE. IT WAS THE SUBMISSION THAT THE EXPENDITURE WAS NOT FOR THE PUR P OSE OF BUSINESS O F THE ASSESSEE , AND THE ASSESSEE BEING OWNER OF THE PROPERTY, DID NOT GET ANY ADDITIONAL RIGHTS AND CONSEQUENTLY , THE SAME WAS NOT BEING TREATED AS CAPITAL EXPENDITURE, BUT WAS ONLY A PAYMENT OUT OF CAPITAL. IT WAS THE SUBMISSION THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WAS LIABLE TO BE REVERSED. 4 . IN REPLY , THE ASSESSING OFFICER SUBMITTED THAT SINCE THE LEASE COMMENCED IN THE YEAR 1975 AND CONTINUED WITHOUT BREAK TILL 2006 , THERE WAS A POSSIBILITY OF INDIRECT CLAIM FOR PERPETUAL LEASE AND THE TENANT S COULD CREATE LEGAL PROBLEMS AND IT REQUIRED THE PROPERTY FOR ITS OWN USE, WHICH WAS VERY ESSENTIAL . IT WAS THE SUBMISSION THAT THE ASSESSEE WAS RUNNING A HOTEL AT THE SAID BUILDING AND IT HAD 64 ROOMS WITH 03 FOOD & BEVERAGE OUTLETS AND ONE BAR . A S THE BUSINESS OF THE ASSESSEE WAS GROWING BY LEAPS AND B OU NDS , AND THE GROUND FLOOR OF THE SAID BUILDING WAS MOSTLY OCCUPIED , THE ASSESSEE WAS COMPELLED TO CANCEL THE LEASE AND TAKE BACK THE SHOP ON THE GROUND FLOOR . IT WAS THE SUBMISSION THAT AFTER GETTING BACK THE SPACE, THE SAME WAS BEING USED FOR TRANSIT STORAGE OF HOUSEKEEPING ITEMS, OPERATING SUPPLIES , AS ALSO STAFF CAFETERIA. IT WAS THE SUBMISSION THAT THAT THE ASSESSEE WAS GETTING A RENT OF ABOUT 3,000/ - P.M. FROM THE SAID LEASES , AND IF THE ASSESSEE HAD TO TAKE ON LEASE THE SIMILAR AREA, THE MARKET RENT WOULD BE MUCH HIGHER. IT WAS THE SUBMISSION THAT ON THIS COUNT, THE ASSESSEE HAD REQUESTED THE TENANTS TO VACATE. IT WAS THE SUBMISSION THAT TH E 4 ITA NO. 55 /P A N/201 5 SAID TWO TENANTS BEING SHRI CHAN CHIN SHING WHO WAS RUNNING A RESTAURANT UNDER THE NAME AND STYLE OF NA N K ING RESTAURANT AND M/S.SIRSAT JEWELLERS WAS RUNNING A JEWELLERY SHOP. THE SAID TWO PERSONS SHOWED RELUCTANCE TO SURRENDER THEIR SHOPS AND CONSEQUENTLY, NEGOTIATIONS HAD BEEN ENTERED INTO WITH THEM AND SETTLEMENT REACHED TO, ON ACCOUNT OF WHICH , THE SAID AMOUNT OF 40,50,000/ - WAS PAID FOR LEASE CANCELLATION . IT WAS THE SUBMISSION THAT THE SAID EXPENDITURE HAD BEEN WHOLLY AND EXCLUSIVELY INCURRED ONLY FOR THE BUSINESS PURPOSE OF THE ASSESSEE. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF S H RIRAM BUILDCO N LTD. REPORTED IN 306 ITR 328 TO SUBMIT THAT THE AMOUNTS PAID AS COMPENSATION TO THE TENANTS FOR VACATING THE PREMISES , WAS LI A BLE TO BE ALLOWED AS REVENUE EXPENDITURE. HE ALSO PLACED RELIAN C E UPON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF AUTO DISTRIBUTORS LTD . REPORTED IN 210 ITR 222 , AS ALSO THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF BOMBAY BURMAH TRADING CORPORATION LTD . REPORTED IN 131 ITR 154 (KER.) TO SUPPORT HIS CONTENTION THAT THE COMPENSATION PAID FOR EVICTION OF TEN A NTS FROM A SHOP BUILDING , WAS REVENUE EXPENDITURE. IT WAS THE SUBMISSION THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AIRPORT AUTHORITY OF INDIA (SUPRA) WAS ALSO APPLICABLE. IT WAS THE SUBMISSION THAT THE REVENUE RELYING UPON THE DECISION IN THE CASE OF V. JAGANMOHAN RAO REPO R TED IN 75 ITR 373 (SC) , HAD NO APPLICATION INSOFAR AS IN THE SAID CASE, THE EXPENDITURE WAS INCURRED FOR PERFECTION OF A TITLE AND FOR GETTING RID OF DEFECT IN THE TITLE . IT WAS THE SUBMISSION THAT IN THE ASSESSEES CASE, THERE WAS NO DEFECT IN THE TITLE, THE PROPERTY IN ITS PHYSICAL FORM WAS AVAILABLE WITH THE ASSESSEE AND IN THE POSSESSION OF THE ASSESSEE BY EVICTING THE SAID TWO PERSONS BY PAYMENT OF THE COMPENSATION . T HE ASSESSEE DID NOT GAIN ANY C APITAL ASSET INSOFAR AS THE PHYSICAL SIZE OF THE STRUCTURE DID NOT IMPROVE. IT WAS THE SUBMISSION THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WAS LIABLE TO THE CONFIRMED. 5 ITA NO. 55 /P A N/201 5 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHRIRAM BUILDCON LTD. (SUPRA) SHOWS THAT THIS WAS A CASE OF CIVIL CONTRACTOR AND BUILDER , WHO WANTED TO HAVE THE TENANCY VACATED, SO THAT HIS STOCK IN TRADE BEING THE LAND COULD BE PUT TO USE FOR THE BUSINESS . CONSEQUENTLY, THE FACTS OF THE SAID CASE ARE DIFFERENT FROM THE ASSESSEES CASE . THE DECISION RELIED UPON , ON BEHALF OF THE ASSESSEE , BY THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF AUTO DISTRIBUTORS LTD. (SUPRA) SHOWS THAT THE DECISION THAT WAS A CASE OF UNAUTHORIZED TENANT MORE IN THE NATURE OF HIS S QUA T TER. IN RESPECT OF THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF BOMBAY BURMAH TRADING CORPORATION LTD. (SUPRA) , IT WAS A CASE OF EXPENDITURE INCURRED FOR PROTECTION OF LAND FROM BEING E NCROACHED UPON BY STRANGERS AND THE EXPENDITURE INCURRED FOR EVICTION OF TENANT FROM BUILDING , WITHIN ESTATE FOR THE PURPOSE OF PROTECTING THE ESTATE AND PEACEFUL COLLECTION FROM THE ESTATE . NONE OF THE SAID DECISIONS APPLIED TO THE FACTS OF THE ASSESSEES CASE . THE DECISION RELIED UPON BY THE DEPARTMENTAL REPRESENTATIVE IN THE CASE OF V. JAGANMOHAN RAO (SUPRA) ALSO CLEARLY SHOWS THAT THE EXPENDITURE WAS IN RESPECT OF PERFECTION OF TITLE MORE SO, FOR GETTING RID OF DEFECT IN THE TI TL E , WHICH ARE NOT THE FACTS IN THE ASSESSEES CASE. H OWEVER, A PERUSAL OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AIRPORT AUTHORITY OF INDIA SHOWS THAT IN THE SAID DECISION , THE HONBLE DELHI HIGH COURT HAS ALSO TAKEN INTO CONSIDERATION THE VERY PRIMARY DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD. REPORTED IN (1995) 25 ITR 34 , WHEREIN THE BASIC CRITERIA FOR THE PUR P OSE OF DECIDING THE ISSUE WHETHER AN EXPENDITURE IS IN THE REVENUE F IEL D OR IN THE CAPITAL FIE L D , HAS BEEN ELABORATED AS FOLLOWS: - 'IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS IT IS PRO PERLY ATTRIBUTABLE TO CAPITAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE IF ON THE OTHER HAND IT IS MADE NOT FOR THE PURPOSE OF BRINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO PRODUCE THE PROFITS IT IS A REVENUE 6 ITA NO. 55 /P A N/201 5 EXPENDITURE. IF ANY SUCH ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS S IS THUS ACQUIRED OR BROUGHT INTO EXISTENCE IT WOULD BE IMMATERIAL WHETHER THE SOURCE OF THE PAYMENT WAS THE CAPITAL OR THE INCOME OF THE CONCERN OR WHETHER THE PAYMENT WAS MADE ONCE AND FOR ALL OR WAS MADE PERIODICALLY. THE AIM AND OBJECT OF THE EXPENDITURE WOULD DETERMINE THE CHARACTER OF THE EXPENDITURE WHETHER IT IS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE.' WHEN THESE PRINCIPLES ARE APPLIED TO THE FACTS OF THE ASSESSEES CASE , THE FOLLOWING EMERGE : - 1) THE LEASE AGREEMENT C L EAR L Y SHOWS THAT THEY ARE LIABLE FOR TERMINATION AFTER A PERIOD OF 03 MO N THS NOTICE AND THE LEASE AGREEMENT HAVE NOT BEEN REGULARLY RENEWED , THOUGH THE LESS EE CONTINUED WITH THE ASSESSEE ON THE TACIT UNDERSTANDING OF THE LESSOR. 2) THE LEASE WAS NOT PERPETUAL AND THE LEASE ITSELF WAS NOT RENEWABLE INSOFAR AS THE SAME HAD NOT BEEN RENEWED AFTER THE AMALGAMATION WITH THE ASSESSEE COMPANY. 3) THE LEASE PERIOD HAD ALSO EXPIRED AND THERE WAS NO UNEXPIRED LEASE PERIOD . 4) I N ANY CASE, EVEN ASSUMING THAT THERE COULD BE A CLAIM OF A PERPETUAL LEASE BEING RAISED , WHAT HAS TO BE UNDERSTOOD IS THAT THE OWNERSHIP OF A PROPERTY IS A BUNDLE OF RIGHTS . F ROM THIS BUNDLE, THE ASSESSEE HAD GRANTED THE LEASE RIGHTS TO THE TENANTS. THIS IS ON ACCOUNT OF PRE - AMALGAMATION TENANCY . WHAT THE ASSESSEE AFTER THE AMALGAMATION HAS DONE IS IN EFFECT PURCHASED BACK THE TENANCY RIGHTS WHICH HAD BEEN GIVEN BY THE PREDEC ESSORS. THE ASSESSEE HAS ALSO SUBSTANTIALLY BENEFITED FROM THE SAID TRANSACTION INSOFAR AS IT HAS BEEN ABLE TO CUT OFF A COMPETITION IN THE FORM OF THE RESTAURANT RUNNING UNDER THE NAME & STYLE OF N A N K ING RESTAURANT, WHICH WAS , IN EFFECT A COMPETITION FOR THE RESTAURANTS RUNNING IN THE 7 ITA NO. 55 /P A N/201 5 HOTEL OF THE ASSESSEE. THUS, BY CANCELLATION OF THE LEASE AND THE PAYMENTS OF THE CONSIDERATION THEREON, THE ASSESSEE TOOK BACK THE TENANCY RIGHT S AS ALSO THE CLOSURE OF COMPETITION WHICH IN EFFECT WAS AN ADVANTAGE OF ENDURING BENEFIT T O THE BUSINESS . C LEARLY, THIS EXPENDITURE IS ATTRIBUTABLE TO CAPITAL WHEN THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD. (SUPRA) IS APPLIED . A PERUSAL OF THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY IN RESPECT OF AUTHORIZATION FOR CANCELLATION OF THE LEASE, ALSO TALKS AS COMPENSATION AND FOR LOSS OF BUSINESS. A PERUSAL OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE SHOWS THE RELINQUISHMENT OF THE LES S EES LEASE RIGHTS AND INTEREST IN THE LEASED PREMISES . I T IS CLEARLY A CAPITAL ASSET HAS COME INTO EXISTENCE IN THE HANDS OF THE ASSESSEE , WHICH IS OF ENDURING BENEFIT FOR THE BUSINESS OF THE ASSESSEE AND CONSEQUENTLY, THE EXPENDITURE IS LIABLE TO BE TREATED AS CAPITAL EXPENDITURE. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER NOT ONLY TRE A TED THE SAME AS CAPITAL EXPENDITURE ALSO, B UT AN EXPENDITURE OUT OF THE CAPITAL, BUT IN THE GROUNDS OF APPEAL, THE ISSUE OF CAPITAL EXPENDITURE HAS BEEN RAISED BY THE ASSESSING OFFICER. AS WE HAVE HELD THAT THE SAID EXPENDITURE IS A CAPITAL EXPENDITURE, THE ASSESSING OFFICER IS DIRECTED TO GRANT THE ASSESSEE DEPRECIATION , ON THE SAME , AS APPLICABLE. 6 . IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON THURSDAY , THE 1 2 TH DAY OF MAY , 201 6 AT GOA . S D / - S D / - (N.S.SAINI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 2 TH MAY , 201 6 . 8 ITA NO. 55 /P A N/201 5 VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI .