Tourist Resorts(Kerala) ltd, Trivandrum V. JtCIT, Trivandrum

ITA 605/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58256 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 21-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 18-11-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: V SATYANARAYANAN
• Keywords: Business income; Depreciation; Search and seizure; Opportunity of being heard; Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 605/COCH/2010 ASSESSMENT YEAR:2007-08 TOURIST RESORTS (KERALA) LTD., PARIS ROAD, BAKERY JUNCTION, TRIVANDRUM. [PAN: AABCT 1976C] VS. THE JOINT COMMISSIONER OF INCOME-TAX, RANGE-1. TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI V.SATYANARAYANAN, CA REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 21/11/2011 DATE OF PRONOUNCEMENT 31/01/2012 O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDE R BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIVANDRUM (CIT(A) FOR SH ORT) DATED 14-09-2010, AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2007-08. 2. THE APPEAL RAISES A SINGLE ISSUE, I.E., THE MAIN TAINABILITY IN LAW OF THE DISALLOWANCE IN THE SUM OF ` 23,46,096/- EFFECTED BY THE ASSESSING OFFICER (AO) VIDE ORDER U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 21-12-2009 IN COMPUTING THE ASSESSEES INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES FOR THE YEAR. 3. THE REASON FOR THE ASSESSEES DISALLOWANCE IS TH AT THE IMPUGNED EXPENDITURE DID NOT FALL TO BE COVERED U/S. 57(III) OF THE ACT, I.E ., THE RELEVANT PROVISION UNDER WHICH THE EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXP ENDITURE) LAID OUT WHOLLY AND I.T.A. NO. 605/COCH/2010 TOURISM RESORTS (KERALA) LTD. VS. JT. CIT, TRIVANDR UM 2 EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME, IS TO BE ALLOWED AS A DEDUCTION; THE SAME, THE DETAILS OF WHICH ARE AS UN DER, ADMITTEDLY NOT FALLING UNDER OTHER CLAUSES OF S. 57:- (AMOUNT IN ` ) PAYMENT OF AND PROVISION FOR EMPLOYEES AS PER SCHEDULE J TO THE AUDITED ACCOUNTS 7,22,641 ADMINISTRATION AND OTHER EXPENSES AS PER SCHEDULE K TO THE AUDITED ACCOUNTS 12,01,931 DEPRECIATION AS PER I.T. RULES AS PER RETURN OF INC OME FILED FOR THE YEAR 4,18,524 . IN DOING SO, THE AO OSTENSIBLY FOLLOWED THE DIRECTI ONS BY THE TRIBUNAL IN THE ASSESSEES CASE FOR THE AYS 1999-2000 TO 2004-05 DATED 13-03-2 009 (COPY ON RECORD), WHEREIN THE TRIBUNAL RESTORED THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER WITH THE DIRECTION TO ALLOW THE EXPENDITURE AS INCURRED DIRECTLY FOR THE EARNING THE RENTAL INCOME, WHICH IS TO BE ALLOWED ONLY AS PER THE PROVISIONS OF S. 57 (III ) OF THE ACT. THE LD. CIT(A) CONFIRMED THE ASSESSMENT ON THE BASIS THAT THE SAME WAS ONLY IN TERMS OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES CASE FOR THE EARLIER YEARS; HER RELE VANT FINDINGS APPEARING AT PARAS 6 TO 8 OF HER ORDER, WHICH WE REPRODUCE AS UNDER:- 6. I HAVE CONSIDERED THE ISSUE IN DETAIL. IT IS WORTH MENTIONING HERE THAT IN THE APPELLANTS CASE THE ITAT, COCHIN BENCH VIDE ITS OR DER IN I.T.A. NOS. 1107 & 1109/COCH/2005, 689,690,691 AND 699/2006 AND, 644 & 588/2007 DATED 13.3.2009 FOR THE A.Y. 1999-2000 TO 2004-05 HAS HEL D THAT THE INCOME RECEIVED BY THE ASSESSEE FROM LEASE RENTAL IS TO BE TREATED AS INCOME FROM OTHER SOURCES. FURTHER THE ITAT HAS HELD THAT NO DEDUCTION U/S. 80 IB AND 35B ARE ALLOWED FROM THE INCOME OF THE ASSESSEE. 7. ON VERIFICATION OF RECORD, IT IS FOUN D THAT THE APPELLANT HAS CLAIMED THE SAID EXPENSES OF ` 23,86,190/- AS DEDUCTION U/S. 80IB IN THE RETURN OF INCOME. AS PER THE ORDER OF ITAT THE APPELLANT IS NOT ENTITLED TO GET THE CLAIM U/S. 80IB. ACCORDINGLY, I HOLD THAT THE CLAIM OF THE APPELLANT IS NOT ALL OWABLE U/S. 80IB. APPEAL ON THE GROUND IS DISMISSED. 8. THE HONBLE ITAT HAS FURTHER DIRECTED THE ASSESS ING OFFICER TO EXAMINE THE ALLOW ABILITY OF REVENUE EXPENSES OF THE ASSESSEE A S PER THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER FOUND THAT THERE ARE NO EXPEN SES WHICH ARE ALLOWABLE AGAINST THE RECEIPTS OF THE ASSESSEE U/S. 57 OF THE I.T. ACT. MOREOVER, AS THE CLAIM I.T.A. NO. 605/COCH/2010 TOURISM RESORTS (KERALA) LTD. VS. JT. CIT, TRIVANDR UM 3 IS ONLY TERMED A DEDUCTION U/S. 80IB THE ASSESSEE I S NOT ELIGIBLE TO CLAIM THE EXPENSES. THE CONTENTIONS RAISED ON THE ISSUE ARE REJECTED. APPEAL ON THE GROUND IS DISMISSED. AGGRIEVED, THE ASSESSEE IS IN APPEAL 4.1 BEFORE US, THE LD. AR, THE ASSESSEES COUNSEL, ARGUED THE ASSESSEES CASE EXTENSIVELY. THE ASSESSEE IS A WHOLLY-OWNED COMPANY OF THE GOVERNMENT OF KERALA (GOK), BEING A 100% SUBSIDIARY OF KERALA TOURISM DE VELOPMENT CORPORATION LTD., WHICH ITSELF IS A WHOLLY-OWNED COMPANY OF GOK, ESTA BLISHED WITH THE OBJECT OF PROMOTING TOURISM IN THE STATE OF KERALA. AS PER TH E MEMORANDUM OF UNDERSTANDING (MOU), ENTERED INTO BETWEEN THE GOK AND THE ITC HOT ELS LTD. (A COMPANY BELONGING TO THE TAJ GROUP), A JOINT VENTURE COMPANY BY THE NAME TAJ KERALA RESORTS (P) LTD WAS FORMED WITH EQUITY PARTICIPATION BY THE ASSESSEE AN D THE ITC HOTELS LTD. ACCORDINGLY, GOK TRANSFERRED LAND AND BUILDING AT VARIOUS STRATE GIC LOCATIONS IN THE STATE HAVING IMPORTANCE FROM THE TOURISM POINT OF VIEW TO THE AP PELLANT FOR FURTHER LETTING OUT TO THE JOINT VENTURE (JV) COMPANY. THE SAME ARE ACCORDINGL Y LET OUT BY THE ASSESSEE-COMPANY TO THE JV COMPANY SO FORMED FOR CARRYING ON THE BUSINE SS OF HOTELS/RESORTS. 4.2 FOR THE YEAR UNDER REFERENCE THE APPELLANT HA S LET OUT THE SAME TO TWO SUCH (JV) COMPANIES, EARNING LEASE RENTAL THERE-FROM (AT ` 59.28 LACS) IN RESPECT OF THREE HOTELS, APART FROM INTEREST INCOME (AT ` 126.89 LACS) ON ITS SURPLUS FUNDS, BY PLACING THEM UNDER DEPOSIT WITH BANKS AND OTHER GOVERNMENT CORPORATION S, AND WHICH CONSTITUTE ITS PRINCIPAL SOURCE OF INCOME; THE GROSS RECEIPT FOR THE YEAR BE ING AT ` 186.70 LACS (PB PG. 21). THE ASSESSEES PRINCIPAL CLAIM IS FOR BEING ALLOWED DED UCTION IN RESPECT OF THE IMPUGNED EXPENSES, BEING ONLY ESTABLISHMENT EXPENSES INCURRE D OUT OF COMMERCIAL EXPEDIENCY, EVEN AS CERTAIN EXPENSES ARE NECESSARILY REQUIRED T O BE INCURRED FOR MAINTAINING ITS STATUS AS A CORPORATE ENTITY, WHICH THE HIGHER COURTS OF L AW HAVE HELD AS ELIGIBLE FOR DEDUCTION U/S. 57, AND TOWARD WHICH IT RELIES ON DECISIONS IN THE CASE OF CIT V. RAMPUR TIMBER & TURNERY CO. LTD ., 129 ITR 58 (ALL.); CIT V. GANGA PROPERTIES LTD ., 199 ITR 94 (CAL.); CHINAI & CO. (P.) LTD. V. CIT , 206 ITR 616 (BOM.). FURTHER, RELIANCE STANDS ALSO PLACED I.T.A. NO. 605/COCH/2010 TOURISM RESORTS (KERALA) LTD. VS. JT. CIT, TRIVANDR UM 4 ON DECISIONS TO THE EFFECT THAT THE PURPOSE OF INCU RRING THE EXPENDITURE, DEDUCTION IN RESPECT OF WHICH IS BEING SOUGHT U/S. 57(III) (CORR ESPONDING TO S. 12(2) OF THE 1922 ACT), MUST BE TO EARN INCOME, HOWSOEVER INDIRECT THE NEXU S OR THE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED MAY BE ( CIT V. SHRE VIJAYKUVERBA SAHEB OF MORVI (H.H. MAHARANI) , 100 ITR 67 (BOM.)), AS ALSO TO THE EFFECT THAT TH OUGH THE PURPOSE OF INCURRING THE EXPENDITURE MUST TO BE EARN INCOME , IT IS YET NOT A CONDITION OF ITS DEDUCTIBILITY THAT THE SAME MUST NECESSARILY RESULT IN INCOME BEING EARNED ( CIT V. RAJENDRA PRASAD MOODY (1978) 115 ITR 519 (SC)). 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIALS ON RECORD, INCLUDING THE CASE LAW, AS WELL AS THE ORDER BY THE TRIBUNAL IN THE AS SESSEES OWN CASE FOR THE PRECEDING YEARS (PB PGS. 22 TO 30). THE FIRST THING THAT WE OBSERVE IS THAT NEITHER PARTY HAS DISPUTED THE ORDER BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R THE PRECEDING YEARS, HAVING NOT BEEN APPEALED AGAINST. THAT BEING THE CASE, THE SAME ASS UMES FINALITY AS BETWEEN THE PARTIES. WE SAY SO, EVEN AS THE PROCEEDINGS UNDER THE ACT AR E NOT SUBJECT TO RES JUDICATA , AS NO THERE IS NO CHANGE IN THE FACTS OF THE CASE AND NEI THER HAS ANY ADDITIONAL (RELEVANT) FACT BEEN BROUGHT TO OUR NOTICE. IN FACT, EVEN THOUGH TH E ASSESSEE STATES OF THE SAME BEING AN EX PARTE ORDER, IT HAS NOT RAISED ANY CONTENTION OR ARGUMEN T IN CONTRADICTION TO WHAT STANDS HELD BY THE TRIBUNAL VIDE ITS ORDER SUPRA, D ECIDING THE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE. THE TRIBUNAL REJECTED THE CLAIM OF BOTH, THE ASSESSEE, WHO RETURNED THE LEASE INCOME AS BUSINESS INCOME, AND THE REVENUE, W HICH SOUGHT TO ASSESS IT AS INCOME FROM HOUSE PROPERTY, TO HOLD THE SAME AS ASSESSABLE U/C. IV-F, I.E., AS INCOME FROM OTHER SOURCES U/S. 56 OF THE ACT, RELYING ON THE DECISION IN THE CASE OF EAST WEST HOTELS LTD. V. DY. CIT , 309 ITR 149 (KAR.), FINDING THE DECISION IN THE C ASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD. V. CIT , 266 ITR 685 (MAD.), RELIED UPON BY THE REVENUE, A S DISTINGUISHABLE ON FACTS. ACCORDINGLY, THE CLAIM FO R EXPENDITURE THERE-AGAINST WOULD ONLY BE AS PERMISSIBLE U/S. 57. THE ASSESSEE, NEITHER B EFORE THE FIRST APPELLATE AUTHORITY NOR BEFORE US, HAS RAISED ANY GROUND CONTESTING THE DEC ISION WITH REGARD TO THE HEAD OF INCOME. THE SOLE SURVIVING ISSUE, AND WHICH FORMS T HE BONE OF CONTENTION BETWEEN THE TWO PARTIES, THUS, IS THE ELIGIBILITY OF THE IMPUGN ED EXPENDITURE FOR DEDUCTION U/S. 57 OF I.T.A. NO. 605/COCH/2010 TOURISM RESORTS (KERALA) LTD. VS. JT. CIT, TRIVANDR UM 5 THE ACT. WHILE THE REVENUE CLAIMS IT TO BE NOT SO, THE ASSESSEE ASSEVERATES IT TO BE SO. CLEARLY, THEREFORE, THE NATURE OF THE EXPENDITURE A ND THE PURPOSE FOR WHICH THE SAME IS INCURRED, ASSUMES VITAL IMPORTANCE. AND WE DO NOT C ONSIDER THAT THE SAID ORDER BY THE TRIBUNAL IN ANY MANNER COMES IN THE WAY OF ITS ALLO WANCE OR DISALLOWANCE, AS THE CASE MAY BE. FIRSTLY, THERE WAS NO EXAMINATION OF ANY EX PENDITURE BY THE TRIBUNAL AND, SECONDLY, ALL IT STATES, IN FINE, IS THAT THE INCOM E BEING ASSESSABLE U/C. IV-F, ONLY EXPENDITURE FALLING WITHIN THE PURVIEW OF SEC. 57 W OULD FALL TO BE ALLOWED THERE-AGAINST. AS EXPLAINED BY THE APEX COURT IN THE CASE OF CIT V. BIRLA COTTON SPNG. & WVG. MILLS LTD . (1971) 82 ITR 166 (SC), WHICH CONTINUES TO HOLD THE FIELD TO DATE, THE WORDS `FOR THE PURPOSE OF BUSINESS ARE MUCH WIDER IN SCOPE THAN T HE EXPRESSION `FOR THE PURPOSE OF EARNING PROFIT. THE LIMITATIONS OF THE LATTER ARE IMPLICIT THEREIN. AS REGARDS THE CASE LAW RELIED UPON BY THE ASSESSEE, WE ARE UNABLE TO APPRE CIATE THE SAME IN THE ABSENCE OF ANY FACTUAL EXAMINATION OF THE IMPUGNED EXPENDITURE WIT H REFERENCE TO THE EXACT PURPOSE OF ITS INCURRENCE BY THE AUTHORITIES BELOW (WHO, AS IT APPEARS AND, WE MAY ADD, UNFORTUNATELY SO, HAVE BEEN PRE-CONCEIVED AND CURSORY IN THEIR AP PROACH TO THE MATTER), I.E., AS TO HOW THE SAME FITS IN OR IS APPLICABLE IN THE FACTS OF T HE CASE. THERE IS NO FINDING AS TO ANY PART THEREOF AS HAVING BEEN INCURRED TOWARD MAINTAINING THE LEGAL STATUS OF THE COMPANY, OR OF IT BEING ABORTIVE, IN THE SENSE THAT IT DID NOT YIE LD THE EXPECTED INCOME. THE ASSESSEE, ON ITS PART, HAS ALSO, APART FROM RELYING ON CASE LAW, DONE PRECIOUS LITTLE. IN FACT, FOR ALL WE SEE, THE ASSESSEE HAS DULY `EARNED THE INCOME BARG AINED FOR DURING THE RELEVANT YEAR. ALSO, MAINTAINING THE LEGAL STATUS DOES NOT POSTULA TE EMPLOYING A PARTICULAR NUMBER OF PERSONS, ETC. IT IS ONLY THE FUNCTIONAL TEST (OF TH E CLAIMED EXPENDITURE, INCLUDING DEPRECIATION) THAT WOULD LEAD TO THE FACTUAL DETERM INATION OF IT BEING ACTUALLY INCURRED, OR NOT SO, FOR THAT (AND/OR THE STATED) PURPOSE. WE MA Y THOUGH, AND WITHOUT ANY HESITATION, ADD THAT THE REVENUE AUTHORITIES CANNOT SIT IN JUDG MENT OVER THE DECISION BY THE ASSESSEE AS REGARDS THE NECESSITY OF INCURRING AN EXPENDITUR E, BUT ONLY VERIFY THE PURPOSE FOR AND TOWARD WHICH ITS HAS AS A MATTER OF FACT BEEN WHOLL Y AND EXCLUSIVELY INCURRED, I.E., THE MANDATE OF THE SECTION, APPLYING THE COMMON SENSE O R THE REASONABILITY TEST, WHERE NECESSARY, FOR DECIDING ON THE QUESTION AS TO NEXUS . THE ORDERS BY THE AUTHORITIES BELOW ARE DE HORS ANY EXAMINATION ON THESE FACTUAL ASPECTS, IMPELLIN G US TO COMMENT AS AFORE- I.T.A. NO. 605/COCH/2010 TOURISM RESORTS (KERALA) LTD. VS. JT. CIT, TRIVANDR UM 6 STATED ON THEIR APPROACH. IN FACT, THE IMPUGNED ORD ER IS PASSED ON THE FOOTING THAT THE CLAIM/S UNDER REFERENCE IS U/S. 80IB, AND WHICH - A LONG WITH THE CLAIM U/S. 35D STANDS DECLINED BY THE TRIBUNAL. THOUGH CLAIMED PER ITS RE TURN, NO SUCH CLAIM ATTENDS THE ASSESSEES APPEAL BEFORE THE FIRST APPELLATE AUTHOR ITY. THERE HAS BEEN, WE ARE AFRAID, NO PROPER ADJUDICATION OF THE MATTER BY HER. IN THIS V IEW OF THE MATTER, WE ONLY CONSIDER IT FIT AND PROPER TO REMIT THE MATTER BACK TO THE FILE OF THE FIRST APPELLATE AUTHORITY FOR A DECISION ON MERITS PER A SPEAKING ORDER AND AFTER A LLOWING PROPER OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES AND, IF DEEMED NECESSARY, C AUSING SUCH VERIFICATION BY THE AO AS REQUIRED FOR THE PURPOSE FOR PROPER DISPOSAL OF THE ASSESSEES APPEAL. BEFORE PARTING WITH THE ORDER, WE MAY ADD THAT WE MAY NOT BE CONSTRUED AS HAVING EXPRESSED ANY OPINION IN THE MATTER; OUR RELEVANT FINDING BEING ONLY OF THE ISSUE BEING FACTUALLY INDETERMINATE, SO THAT IN ITS ABSENCE THERE COULD BE NO PROPER APPLIC ATION OF LAW, AS SOUGHT TO BE PLEADED BEFORE US, NOTWITHSTANDING THE CASE LAW RELIED UPON BY THE ASSESSEE FOR THE PURPOSE. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALL OWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 31ST JANUARY, 2012 GJ COPY TO: 1. M/S. TOURIST RESORTS (KERALA) LTD., PARIS ROAD, BAKERY JUNCTION, TRIVANDRUM. 2. THE JOINT COMMISSIONER OF INCOME-TAX, RANGE-1. T RIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN BENCH