DCIT,9(3), MUMBAI V. M/S. SACHDEV GATEWAYS & GETAWAYS PVT.LTD., MUMBAI

ITA 5637/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3612 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 05-09-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: S S PHADKAR
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI P. M. JAGTAP, A.M I.T.A. NO.5637/MUMBAI/2008 ASSESSMENT YEAR: 2005-06 DEPUTY COMMISSIONER OF INCOME TAX 9(3) ROOM NO.229, 2ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI M/S. SACHDEV GATEWAYS & GETAWAYS PVT. LTD. C/O. ROYAL INN PVT. LTD. OPP KHAR TELEPHONE EXCHANGE, LINKING ROAD, KHAR MUMBAI-400 052 PAN NO: AAECS5888D (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI D. SONGATE RESPONDENT BY : SHRI S.S. PHADKAR ORDER PER P.M. JAGTAP (AM) : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST T HE ORDER OF LEARNED CIT(APPEALS) CENTRAL-I, MUMBAI DATED 17.06. 2008. 2. IN GROUND NO.1, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWANCE OF RS.1,92,925/- MADE BY THE AO ON ACCOUNT OF LICENSE FEES FOR SERVING LIQUO R. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY W HICH IS CARRYING ON THE BUSINESS OF HOTELIERING BESIDES OWNING A RESTAU RANT AND BANQUET HALL. THE SAID RESTAURANT AND BANQUET HALL OWNED BY THE ASSES SEE COMPANY WAS GIVEN ON LEASE TO M/S. SHEETAL GRILLE RESTAURANT PVT. LTD. T HE RETURN OF INCOME FOR THE 2 YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE COMPANY ON 31.10.2005 DECLARING TOTAL INCOME OF RS.22,25,429/-. IN THE PR OFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, LICENSE FEES OF RS.1,92 ,925/- WAS DEBITED BY THE ASSESSEE COMPANY. SINCE THE SAID FEES RELATED TO SE RVING OF LIQUOR IN THE RESTAURANT WHICH WAS GIVEN BY THE ASSESSEE COMPANY ON LEASE TO M/S. SHEETAL GRILLE RESTAURANT PVT. LTD., THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENDITURE INCURRED ON LICEN SE FEES SHOULD NOT BE DISALLOWED IN ITS HANDS. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT LIQUOR WAS BEING SERVED EVEN IN THE HO TEL ROOMS USED FOR THE PURPOSE OF ITS BUSINESS. AS REGARDS LIQUOR BEING SE RVED IN BANQUET HALL AND RESTAURANT WHICH WAS LEASED OUT BY THE ASSESSEE COM PANY, IT WAS SUBMITTED THAT LICENSE FEES COULD NOT BE APPORTIONED AS THE RENTAL INCOME RECEIVED BY THE ASSESSEE COMPANY FROM BANQUET HALL AND RESTAURANT W AS OFFERED TO TAX. THE ASSESSING OFFICER DID NOT FIND THIS EXPLANATION OF THE ASSESSEE TO BE ACCEPTABLE AND DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSES SEE ON LICENSE FEES AMOUNTING TO RS.1,92,925/- OBSERVING THAT AS PER CL AUSE 9 OF THE LEASE AGREEMENT, IT WAS THE RESPONSIBILITY OF THE TENANT TO OBTAIN ALL THE LICENSES REQUIRED FROM THE GOVERNMENT AUTHORITIES ON ITS OWN . ON APPEAL, THE LEARNED CIT (APPEALS) DELETED THE SAID DISALLOWANCE MADE BY THE AO ACCEPTING THE SUBMISSION OF THE ASSESSEE COMPANY THAT THE LICENSE FEES WAS ACTUALLY PAYABLE BY IT AS PER CLAUSE 8 OF THE LEASE AGREEMENT. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY SUBMITT ED BY THE LEARNED DR, THE LICENSE FEES PAID BY THE ASSESSEE COMPANY FOR LIQUO R WAS PARTLY ATTRIBUTABLE TO BANQUET HALL AS WELL AS RESTAURANT WHERE THE LIQUOR WAS BEING SERVED AND SINCE THE BANQUET HALL AND RESTAURANTS WERE LEASED OUT BY THE ASSESSEE COMPANY AND RENTAL INCOME FROM THE SAME WAS ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THE LICENSE FEES TO THE EXTENT ATTRIBUTA BLE TO BANQUET HALL AND 3 RESTAURANT ATLEAST IS LIABLE TO DISALLOWED AS THERE IS NO SUCH DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE P ROPERTY. THE LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, HAS CONTENTED TH AT EVEN THE RENTAL INCOME FROM BANQUET HALL AND RESTAURANT IS ASSESSABLE TO T AX IN THE HANDS OF THE ASSESSEE COMPANY UNDER THE HEAD OF PROFITS AND GAINS OF BUS INESS OR PROFESSION AND MERELY BECAUSE THE SAME WAS OFFERED TO TAX BY THE A SSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ASSESSED AS SUCH B Y THE AO, THE LICENSE FEES ATTRIBUTABLE TO RESTAURANT AND BANQUET HALL CANNOT BE DISALLOWED ON THIS GROUND. THE LEARNED COUNSEL FOR THE ASSESSEE THUS HAS RAISE D THE ISSUE RELATING TO THE HEAD UNDER WHICH RENTAL INCOME OF BANQUET HALL AND RESTAURANT IT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE AND SINCE THE SAID ISSUE RAISED FOR THE FIRST TIME BEFORE US HAS A DIRECT BEARING ON THE ISSUE RELATIN G TO THE ALLOWABILITY OF LICENSE FEES WHICH IS INVOLVED IN GROUND NO. 1 OF THIS APPE AL, WE FIND IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO SET ASIDE THE IMP UGNED ORDER OF THE LEARNED CIT (APPEALS) ON THIS ISSUE AND RESTORE THE MATTER TO T HE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER DECIDING THE PRELIMINARY ISSUE RELATING TO THE HEAD OF INCOME UNDER WHICH THE RENTAL INCOME FROM BANQUET HALL AND RESTAURANT IS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE COMPANY. THE LEARNED DR HAS ALSO NOT RAISED ANY OBJECTION FOR RE STORING THIS ISSUE TO THE FILE OF THE AO WITH SUCH DIRECTION. GROUND NO.1 OF THE R EVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 5. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE ADDITION OF R S.21,09,915/- MADE BY THE AO BY WAY OF DISALLOWANCE OUT OF RENOVATION EXPENSE S INCURRED BY THE ASSESSEE TREATING THE SAME AS OF CAPITAL NATURE. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE COMPANY HAD INCURRED THE EXPENDITURE OF RS.42,03,830/- ON RENOV ATION OF HOTEL ROOMS AND THE 4 SAME WAS CLAIMED AS DEDUCTION BEING REVENUE IN NATU RE. ON EXAMINATION OF THE DETAILS OF THE SAID EXPENDITURE, IT WAS NOTED BY TH E AO THAT SUBSTANTIAL AMOUNT WAS SPENT BY THE ASSESSEE ON PURCHASE OF MARBLE TIL ES, VERTIFIED ITALIAN TILES, MARBLE SLABS ETC. ACCORDING TO THE AO, THE ADVANTA GE THAT ACCRUED TO THE ASSESSEE AS A RESULT OF THE SAID EXPENDITURE WAS OF ENDURING NATURE AND ACCORDINGLY 50% OF THE EXPENSES INCURRED BY THE ASS ESSEE ON RENOVATION OF HOTEL ROOMS WERE TREATED BY HIM AS OF CAPITAL NATUR E AND DISALLOWANCE OF RS.21,01,915/- WAS MADE BY HIM ON THIS ISSUE. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT (APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE COMPANY ON THIS ISSUE BEFORE HIM AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT (APPEALS) DELE TED THE DISALLOWANCE MADE BY THE AO OUT OF RENOVATION EXPENSES FOR THE FOLLOW ING REASONS GIVEN IN PARAGRAPH NO.7 OF HIS IMPUGNED ORDER: 7. I HAVE CAREFULLY CONSIDERED THE REASONING OF TH E AO AS WELL AS THE SUBMISSION OF THE APPELLANT AS MADE BEFORE M E. IT IS COMMON PRACTICE IN THE BUSINESS OF HOTELS AND RESTA URANTS THE RENOVATION OF THE ROOMS ETC. ARE BEING DONE PERIODI CALLY TO SUIT THE NEEDS OF THE CUSTOMERS FROM TIME TO TIME. TO ATTRAC T CUSTOMER THE HOTELIERS HAD TO REFURBISH THE EXISTING ASSETS WITH A VIEW TO ATTRACT ITS NEW CLIENTS. THE CHANGE AS EFFECTED BY THE HOTE LIERS IN THEIR HOTELS CANNOT BE SAID TO BE OF ENDURING BENEFIT FOR A LONGER PERIOD BECAUSE THE NEEDS OF CUSTOMERS KEEPS ON CHANGING WI TH A STIFF COMPETITION IN THE HOTEL BUSINESS. THEREFORE, I AM OF THE CONSIDERED VIEW THAT BY MAKING RENOVATIONS AND CHANGE OF TILES ETC. NO NEW ASSET HAS COME TO EXISTENCE AND IT IS PURELY REFURN ISHING OF THE EXISTING ASSETS. THEREFORE EXPENDITURE IS PURELY OF REVENUE IN NATURE. BESIDES I DO NOT KNOW AS TO WHAT BASIS THE AO HAS MADE THE DISALLOWANCE AT 50% OF THE EXPENSES RELATING TO RENOVATIONS AND THE ACTION OF THE AO LOOKS QUITE ARBITRARY AND WITHOUT ANY PROPER REASONING. THEREFORE, I HOLD THAT AO IS NOT JUSTIFIED IN ITS ACTION AND THE CLAIM OF THE APPELLANT FOR THE EXPEN DITURE AS REVENUE EXPENSES IS ALLOWED. THE ADDITION AS MADE B Y THE AO ACCORDINGLY GETS DELETED. THE APPELLANT SUCCEEDS ON ITS GROUND OF APPEAL. 5 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE DETAI LS OF RENOVATION EXPENSES FURNISHED BY THE ASSESSEE AT PAGE NO.19 TO 21 OF HI S PAPER BOOK. A PERUSAL OF THE SAID DETAILS SHOWS THAT THE RENOVATION EXPENSES INC URRED BY THE ASSESSEE COMPANY WERE MAINLY FOR REPAIRS AND REPLACEMENT OF FACILITIES PROVIDED IN THE HOTEL ROOMS AND THERE IS NOTHING TO INDICATE/SUGGES T THAT ANY NEW ADVANTAGE IN THE CAPITAL FIELD HAD ACCRUED TO THE ASSESSEE AS A RESULT OF THE SAID EXPENDITURE. AS RIGHTLY HELD BY THE LEARNED CIT (APPEALS), THE S AID EXPENDITURE WAS MAINLY INCURRED BY THE ASSESSEE TO REFURNISH OR RENOVATE T HE HOTEL ROOMS SO AS TO ATTRACT THE NEW CUSTOMERS AND IT WAS THEREFORE, RIGHTLY CLA IMED BY THE ASSESSEE AS REVENUE IN NATURE. WE THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) DELETING THE DISALLOWANCE MAD E BY THE AO OUT OF RENOVATION EXPENSES AND UPHOLDING THE SAME ON THIS ISSUE, WE DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 8. IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWANCE OF RS.16,335/- MADE BY THE AO ON ACCOUNT OF PAYMENT OF EMPLOYEES CONTRIBUTION TO PF AFTER THE DUE DATE BUT WITHIN THE GRACE PERIOD. 9. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE INTER ALIA BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SHRI GANPATI MILLS PVT. LTD. 243 ITR 879 (M ADRAS) AND THAT OF MUMBAI BENCH OF THE ITAT IN THE CASE OF FLUID AIR (INDIA) LTD. 63 ITD 189 (MUM). RESPECTFULLY FOLLOWING THE SAID JUDICIAL PRONOUNCEM ENTS, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO.3 OF THE REVENUES APPEAL. 6 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 15 TH DAY OF DECEMBER, 2010. SD/- SD/- ( D. MANMOHAN ) ( P.M. JAGTAP ) VICE PRESIDENT ACCOUNTA NT MEMBER MUMBAI, DATED: 15/12/2010 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, E - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI