DCIT 8(2), MUMBAI V. PLAZA HOTELS P.LTD, MUMBAI

ITA 6636/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4984 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 04-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEEPAK KUMAR SINHA
• Assessee Lawyers: J D MISTRY
• Keywords: Business income; Opportunity of being heard; Rule of consistency; Source of fund
• Section: 143(3); 14A; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH , MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI R AJENDRA SINGH, A M T A NO. 6676 / MUM / 20 1 1 ( ASSESSMENT YEAR : 2006 - 07 ) PLAZA HOTELS PVT.LTD., 70 - C, NEHRU ROAD, VILE PARLE (EAST), MUMBAI - 400 099 VS. DCIT RG.8(2), MUMBAI - 20 PAN/GIR NO. : A A ACP 2117 N ( APPELLANT ) .. ( RESPONDENT ) AND TA NO. 66 3 6 / MUM /20 11 ( ASSESSMENT YEAR :2006 - 07 ) DCIT RG.8(2), MUMBAI - 20 VS. PLAZA HOTELS PVT.LTD., 70 - C, NEHRU ROAD, VILE PARLE (EAST), MUMBAI - 400 099 PAN/GIR NO. : A AACP 21 17 N ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. J.D.MISTRY /REVENUE BY : MR. DEEPAK KUMAR SINHA DATE OF HEARING : 5 TH S E PTEMBER , 201 3 DATE O F PRONOUNCEMENT : 13 TH SEPTEMBER , 2013 O R D E R P ER SHRI R.K.G UPTA, JM : THIS COMMON ORDER SHALL GOVERN THE DISPOSAL OF TWO APPEALS, WHICH HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY DEPARTMENT AGAINST THE ORDER PASSED BY THE LEA RNED CIT(A) , MUMBAI FOR ASSESSMENT YEAR 2006 - 07 . I TA NO S . 6676&663 6 /1 1 2 2 . SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE CASES, THEREFORE, FOR THE SAKE OF CONVENIENCE, BOTH THE CASES HAVE BEEN HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER. 3 . THE FIRST ISSUE IN APPEAL OF T HE ASSESSEE (I.E. ITA NO.6676/M/2011 ) IS AGAINST CONFIRMING THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT. THIS GROUND HAS FOUR PART I.E. GROUND 1(I) TO (IV) . 4. LEARNED COUNSEL OF THE ASSESSEE STATED THAT ALL THE GROUNDS ARE COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR EARLIER YEARS, COPY OF WHICH HAS ALSO BEEN FILED. 5. ON THE OTHER HAND, LEARNED DR PLACED RELIANCE ON THE ORDER OF AO & CIT(A). 6. SUCCINCTLY STATED FACTS OF THE CASE ARE THAT DURING THE ASS ESSMENT PROCEEDINGS THE AO N OTED THAT A SUM OF RS. 65,11,970/ - HAD BEEN DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT BY WAY OF INTEREST. THE AO ALSO NOTED THAT THAT OUT OF THE SAID AMOUNT, THE ASSESSEE HAD DISALLOWED A SUM OF RS.36,86,605/ - IN TH E COMPUTATION OF INCOME, AND, THEREFORE, EFFECTIVELY CLAIMED AN AMOUNT OF RS.28,25,365/ - BY WAY OF INTEREST. AFTER GIVING NECESSARY SHOW CAUSE NOTICE AND AFTER EXAMINING THE REPLY OF THE ASSESSEE THE AO DISALLOWED THE SUM OF RS. 28,25,365/ - ON THE GROUNDS T HAT THE EXPENSE WAS NOT FOR I TA NO S . 6676&663 6 /1 1 3 THE PURPOSES OF BUSINESS AND, HENCE, NOT ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. 7. ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) , WHO ALLOWED THE ISSUE PARTLY IN FAVOUR OF THE ASSESSEE. 8. AFTER CONSIDERING THE ORDER OF THE AO AND CIT(A) AND THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE, IT IS SEEN THAT GROUND NO.1 IS COVERED BY THE ORDER OF THE TRIBUNAL FOR EARLIER YEAR. 8.1 IN RESPECT TO DISALLOWANCE OF RS. 12,19,177/ - , WHICH WAS PAID TO THE ALLAHABAD BANK ON ACCO UNT OF LOAN TAKEN OF RS.2 CRORES FOR WINDMILL BUSINESS. SIMILAR DISALLOWANCE WAS MADE FOR EARLIER YEAR AND THE TRIBUNAL WHILE DECIDING THE APPEAL OF THE ASSESSEE IN ITA NO.3335/M/2013 AND 4427/M/2013 FOR ASSESSMENT YEAR 2003 - 04 VIDE ORDER DATED 24 - 7 - 2013, HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE FINDINGS OF THE TRIBUNAL HAVE BEEN RECORDED IN PARA 9 OF ITS ORDER. SINCE FACTS ARE SIMILAR, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEAR IN THE CASE OF ASSESSEE ITSELF, THE ADDITION S USTAINED BY THE CIT(A) IS HEREBY DELETED. HENCE, GROUND NO. 1(I) IS ALLOWED. 8. 2 IN RESPECT OF DISALLOWANCE OF INTEREST OF RS. 6,22,467/ - RAISED BY GROUND NO. 1(II), THIS INTEREST WAS PAID TO SATARA SAHKARI BANK ON LOAN TAKEN FOR FINANCING BUSINESS IN PAST. SIMILAR DISALLOWANCE WAS MADE FOR IMMEDIATELY PRECEDING YEAR I.E. FOR ASSESSMENT YEAR 2003 - 04. THE CIT(A) CONFIRMED THE ADDITION, HOWEVER, THE TRIBUNAL WHILE PASSING THE I TA NO S . 6676&663 6 /1 1 4 ORDER DATED 24 - 7 - 2013, HAS DELETED THE DISALLOWANCE. THE FINDINGS OF THE TRIBUNAL HAVE BEEN RECORDED IN PARA 10 IN ITS ORDER. SINCE FACTS ARE SIMILAR, THEREFORE, THIS ADDITIONS IS ALSO HEREBY DELETED. 8. 3 IN RESPECT TO DISALLOWANCE OF INTEREST OF RS.18,294/ - PAID TO ABN AMRO BANK ON LOAN TAKEN FOR PURCHASE OF VEHICLE, WHICH IS RAISED BY TH E ASSESSEE BY GROUND NO. 1(III ), IT IS SEEN THAT S IMILAR ISSUE CAME BEFORE THE TRIBUNAL FOR EARLIER YEAR 2005 - 06 AND THE TRIBUNAL WHILE DECIDING THE APPEAL OF THE ASSESSEE IN ITA NO. 2676/M/2009, VIDE ORDER DATED 29 - 3 - 2011, HAS SET ASIDE THE ISSUE TO THE FIL E OF THE AO. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR PASSING A FRESH ORDER IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2005 - 06. 8. 4 IN RESPECT TO DISALLOWANCE OF INTEREST OF RS. 8,6 7,731/ - PAID TO SATARA SAHAKARI BANK ON LOAN TAKEN FOR FINANCING BUSINESS, RAISED BY THE ASSESSEE BY GROUND NO. 1 (IV), IT IS SEEN THAT SIMILAR ISSUE CAME BEFORE THE TRIBUNAL FOR ASSESSMENT YEAR 2005 - 06 AND THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE O F THE AO FOR PASSING A FRESH ORDER. ACCORDINGLY WE ALSO SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR PASSING A FRESH ORDER IN THE LIGHT OF THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2005 - 06. 9 . GROUND NO.2 IS AGAINST CONFIRMING THE ORDER OF THE AO THAT THE MANAGEMENT FEES RECEIVED FROM KAMAT HOTELS (INDIA) LTD (KHIL) IS TAXABLE AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME. I TA NO S . 6676&663 6 /1 1 5 10. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE ASSESSEE HAS RECEIV ED ONE PER CENT (1%) OF THE TURN OVER FROM M/S KAMAT HOTELS (INDIA) LTD (HEREINAFTER REFERRED TO AS KHIL) AND HAS SHOWN BUSINESS INCOME. THE AO ASKED THE ASSESSEE AS TO WHY THIS INCOME SHOULD NOT BE TREATED AS INCOME FROM HOUSE PROPERTY AS THE ENTIRE HOT EL HAS BEEN GIVEN TO ANOTHER HOTEL FOR ITS USE. IN REPLY IT WAS SUBMITTED THAT THE MAIN OBJECTION OF THE COMPANY WAS TO CARRY ON THE BUSINESS RELATING TO RUNNING OF HOTELS; TILL 19 9 4 THE ASSESSEE COMPANY WAS RUNNING THE HOTEL ON ITS OWN; ALL THE LICENSES W ERE IN THE NAME OF THE ASSESSEE COMPANY; ON CONCLUSION OF AGREEMENT WITH KHIL THE HOTEL WAS TO REVERT BACK TO THE ASSESSEE; THERE WAS NO MINIMUM GUARANTEE AMOUNT IN THE AGREEMENT; EVEN THE INTEREST FREE DEPOSIT RECEIVED FROM KHIL IS REFUNDABLE. IT WAS ALS O SUBMITTED THAT FROM ASSESSMENT YEAR 1995 - 96 TO 2005 - 06, THE INCOME UNDER THE AGREEMENT HAS BEEN ASSESSED AS BUSINESS INCOME. IT WAS ALSO SUBMITTED THAT THE ASSESSEE IS EXPLOITING THE HOTEL AS A BUSINESS ASSET. HOWEVER, THE AO WAS NOT AGREED WITH THE CONT ENTION OF THE ASSESSEE AND P LACING RELIANCE ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENT PVT. LTD., REPORTED IN 263 ITR 143 , HELD THAT THE INCOME RECEIVED FROM LETTING OUT OF PREMISES WAS ASSESSABLE UNDER THE HEAD INCOME F ROM HOUSE PROPERTY. 11. DETAILED SUBMISSIONS WERE FILED BEFORE THE CIT(A) . RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE I TA NO S . 6676&663 6 /1 1 6 OF CIT VS. MOHIDDIN HOTELS PVT. LTD., REPORTED IN 284 ITR 229 , WHEREIN ON IDENTICAL FACTS , IT WAS HELD THAT THE INCOME WAS ASSESSABLE UNDER THE HEAD BUSINESS INCOME.. THE SUBMISSION MADE BEFORE THE AO WERE REITERATED BEFORE THE CIT(A) AND IT WAS FURTHER SUBMITTED THAT IN VIEW OF THE PRINCIPLE OF CONSISTENCY, THE INCOME SHOULD BE ASSESSED AS BUSINESS IN COME. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. C IT , REPORTED IN 193 ITR 321 AND ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. V.S.PROMOTERS & DEVELOPERS PRIVATE LTD. , DECIDED IN ITA NO. 654 . AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE CIT(A), FIRSTLY HELD THAT THE DOCTRINE OF PRINCIPLE OF CONSISTENCY IS NOT APPLICABLE IN THE INCOME TAX PROCEEDINGS. THEREFORE, HE REJECTED THIS CONTENTION. WHILE REJECTING THE CONTENTION OF THE ASSESSEE, VARIOUS DECISIONS HAVE BEEN CONSIDERED BY THE CIT(A) IN HIS ORDER. THE CONTENTION OF THE ASSESSEE THAT FROM ASSESSMENT YEAR 1995 - 96 TO 2005 - 06, THE REGULAR RECEIPT HAS BEEN ACCEPTED AS BUSINESS RECEIPT. THE C IT(A) AFTER ANALYZING THE ASSESSMENT ORDER FOR EARLIER YEARS, FOUND THAT IN THOSE YEARS RELEVANT FACTS WERE NOT CONSIDERED, THEREFORE, IT CANNOT BE SAID THAT EARLIER ASSESSMENT ORDERS SHOULD BE FOLLOWED. THE CIT(A) BY OBSERVING THAT THE ENTIRE HOTEL WAS GI VEN TO M/S KHIL UNDER THE AGREEMENT FOR RUNNING THE HOTEL BUSINESS. POWER OF ATTORNEY WAS GIVEN TO THE MANAGEMENT OF M/S KHIL NOT ONLY TO MANAGE THE HOTEL BUT ALSO TO CARRY OUT RENOVATIONS, REMOVE EMPLOYEES, OBTAIN LICENSES AND PERMISSIONS. I TA NO S . 6676&663 6 /1 1 7 THERE WAS NO A SPECT OF MANAGEMENT IN THE RUNNING OF THE IMPUGNED PROPERTY, WHICH WAS RETAINED BY THE ASSESSEE PURSUANT TO THE SAID AGREEMENT. IT IS INTERESTING TO NOTE THAT VIDE AN ADDENDUM TO THE AGREEMENT DATED 31 ST OF AUGUST, 1995, KHIL WAS GIVEN PERMISSION TO RECONS TRUCT THE ENTIRE HOTEL ON THE REASON THAT WHILE CARRYING OUT RENOVATIONS, IRREPARABLE DAMAGE HAD OCCURRED TO THE FOUNDATIONS OF THE PROPERTY. HENCE, IT WAS AGREED THAT KHIL WILL RECONSTRUCT THE ENTIRE HOTEL AT ITS OWN COST, IF IT NEEDS. IT WAS ALSO OBSERVE D BY THE CIT(A) THAT THOUGH THE ENTIRE HOTEL WAS GIVEN UNDER THE AGREEMENT TO KHIL TO RUN, HOWEVER, IF THE CONTROL OF THE HOTEL WAS GIVEN TO KHIL, THEREFORE, RIGHT OF THE ASSESSEE IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY AND NOT FROM THE BUSINESS. TH E CIT(A) WHILE REJECTING THE CLAIM OF THE ASSESSEE HAS ALSO EXAMINED AUDITED ACCOUNTS OF THE ASSESSEE AND FOUND THAT DURING THE YEAR APART FROM HAVING INCOME FROM THE IMPUGNED MANAGEMENT AGREEMENT, THE OTHER SOURCES OF THE ASSESSEES INCOME ARE FROM WIND P OWER GENERATION UNIT AND INCOME FROM FINANCING. THE LAST TWO SOURCES OF INCOME HAVE BEEN ASSESSED UNDER THE HEAD BUSINESS INCOME. OTHER THAN LEASING OUT THE HOTEL PROPERTY TO ITS SISTER CONCERN I.E KHIL, THE ASSESSEE HAS CARRIED OUT NO OTHER BUSINESS ACT IVITY IN THE FIELD OF RUNNING A HOTEL OR RESTAURANT. ACCORDINGLY, THE CIT(A) HELD THAT IT IS CLEAR THAT THE ASSESSEE HAS NO INTENTION TO RUN THE HOTEL AND THE AO WAS CORRECT IN FOLLOWING THE DECISION IN THE CASE OF SHAMBHU INVESTEMENTS PVT. LTD. AND CONFIR MED THE ORDER ON THIS ISSUE. I TA NO S . 6676&663 6 /1 1 8 12. LEARNED COUNSEL OF THE ASSESSEE REITERATED THE CONTENTION RAISED BEFORE THE LEARNED CIT(A) . IT WAS FURTHER SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DIRECT DECISION OF THE H O N BLE BOMBAY HIGH COURT IN THE CASE OF MOHIDDIN HOTELS, REPORTED IN 284 ITR 229 (BOM) . HE ALSO PLACED RELIANCE IN THE CASE OF EVEREST HOTELS LTD, 114 ITR 779 (CAL); BOSOTTO BROS. AND 8 ITR 41 (MAD) . 12.1 REGARDING CONSISTENCY, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RADHASAOMI SATSANG, 193 ITR 321 (SC) AND IN THE CASE OF GOPAL PUROHIT, 336 ITR 287 (BOM) AND MANY OTHERS MENTIONED IN THE CHART FILED DURING THE COURSE OF HEARING OF APPEAL. 13. ON THE OTHER HAND, LEARNED DR PLACED RELIANCE ON THE ORDER OF CIT(A) . 14. AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THERE IS NO DISPUTE THAT THE ASSESSEE WAS RUNNING THE HOTEL ITSELF BEFORE GIVING TO KHIL UNDER AGREEMENT ENTERED IN THE YEAR OF 1994. THE ENTIRE ACTI VITIES OF HOTEL CARRIED OUT BY THE ASSESSEE ITSELF BEFORE ENTERING THE AGREEMENT WAS GIVEN TO KHIL. AN INTEREST FREE SECURITY WAS ALSO OBTAINED FROM KHIL, WHICH WAS REFUNDABLE AFTER COMPLETION OF PERIOD ENTERED INTO BETWEEN THE PARTIES. THE ASSESSEE WAS SH ARING A REVENUE AT THE RATE OF 1% OF THE REVENUE EARNED BY THE KHIL ON ACCOUNT OF RUNNING OF HOTEL OWNED BY THE I TA NO S . 6676&663 6 /1 1 9 ASSESSEE. THOUGH THE CIT(A) HAS RECORDED THE FACTS IN HIS ORDER THAT M/S KHIL WAS ALLOWED TO RENOVATE THE HOTEL OR RECONSTRUCT THE SAME FROM HIS OWN FUNDS, BUT IT DOES NOT MEAN THAT THE CHARACTER OF ASSET OWNED BY THE ASSESSEE HAS BEEN CHANGED. THE FACT IS THAT THE ASSESSEE OWNED HOTEL, WHICH WAS RUN BY THE ASSESSEE BEFORE ENTERING INTO THE AGREEMENT. WHATEVER THE REQUIREMENT OF THE HOTEL WAS THER E, THE SAME WAS MADE BY KHIL WITH ITS OWN FUND AS AGREED UPON. THE CHARACTER OF THE ASSET WAS THAT THE ENTIRE HOTEL WHICH WAS RUN BY THE ASSESSEE ITSELF EARLIER WAS GIVEN UNDER THE AGREEMENT TO M/S KHIL TO RUN THE HOTEL. THEREFORE, IN OUR CONSIDERED VIEW, THIS WAS AN EXPLOITATION OF COMMERCIAL ASSET FOR BUSINESS PURPOSE AND WHATEVER THE RECEIPTS ARE RECEIVED FROM EXPLOITING OF COMMERCIAL ASSET FOR BUSINESS USE ARE TO BE TREATED AS BUSINESS RECEIPTS. WHEN THE ASSESSEE WAS RUNNING THIS HOTEL, THE RECEIPTS FR OM THE HOTEL WERE SHOWN AS BUSINESS RECEIPTS AND THEY WERE ACCEPTED. AFTER GIVING TO KHIL I.E. IN THE YEAR 1994, THE RETURN WAS FILED FOR ASSESSMENT YEAR 1995 - 96 SHOWING THE REVENUE RECEIPT FROM KHIL AS BUSINESS INCOME AND THE SAME WAS ACCEPTED. THE ASSESS MENT WAS COMPLETED UNDER SECTION 143(3). UP TO ASSESSMENT YEAR 2005 - 06, THE ASSESSMENT HAS BEEN COMPLETED BY THE AO AND THE CONTENTION OF THE ASSESSEE THAT THE REVENUE RECEIVED FROM KHIL ARE BUSINESS ASSET, WERE ACCEPTED. FOR ASSESSMENT YEAR 2005 - 06 & 2003 - 04 THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) . THE MATTER REACHED TO THE STAGE OF THE TRIBUNAL, HOWEVER, THIS ISSUE WAS NEVER DISPUTED BY THE AO THAT THE REVENUE I TA NO S . 6676&663 6 /1 1 10 RECEIPT RECEIVED FROM M/S KHIL UNDER THE AGREEMENT ARE BUSINESS RECEIPT AS THEY WERE A CCEPTED. THEREFORE, IT CANNOT BE SAID THAT ANY CHARACTER OF THE REVENUE RECEIPT HAS BEEN CHANGED IN THE YEAR UNDER CONSIDERATION. IN OUR CONSIDERED VIEW, THE PRINCIPLE OF CONSISTENCY IN THE CASE IN HAND IS APPLICABLE. ACCORDINGLY, THE AO SHOULD HAVE ACCEPT ED THE RECEIPT UNDER THE HEAD BUSINESS INCOME SHOWN BY THE ASSESSEE. 14.1 THE AO HAS PLACED RELIANCE ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS (SUPRA) , WHICH HAS BEEN CONSIDERED BY THE LEARNED CIT(A) ALSO. HOWEVER, WE NOTED THAT IN THE CASE OF SHAMBHU INVESTMENTS (SUPRA) , THE HON BLE APEX COURT HAS OBSERVED THAT, IF THE ASSESSEE HAS GIVEN ANY ASSET EXPLOITING THE PROPERTY FOR COMMERCIAL PURPOSE, THEN THE SAME HAS TO BE TREATED AS BUSINESS INCOME. THE FOLLOWING OBSERV ATIONS HAVE BEEN MADE BY THE HONBLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS (SUPRA) : - TAKING A SUM TOTAL OF AFORESAID DISCUSSIONS, IT CLEARLY APPEARS THAT MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVABLE PROPERTY CANNOT BE THE SOLE FACTOR FOR ASSESSMENT OF SUCH INCOME AS INCOME FROM PROPERTY; WHAT HAS TO BE SEEN IS WHAT WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT IS FOUND, APPLYING SUCH TEST, THAT MAIN INTENTION IS FOR LETTING OUT THE PROPERTY, OR ANY PART THERE OF, THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. IN CASE, IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IN THAT EVENT, IT MUST BE HELD AS BUSINESS INCOME. I TA NO S . 6676&663 6 /1 1 11 IN THI S CASE THE HONBLE SUPREME COURT HAS HELD THAT IF IT IS FOUND THAT THE MAIN INTENTION IS FOR LETTING OUT THE PROPERTY OR ANY PART THEREOF, THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. IN THIS CASE IT IS OBSERVED THAT IF THE MAIN IN TENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IT MUST BE HELD AS BUSINESS INCOME. THE RATIO OF THIS DECISION, IN OUR CONSIDERED VIEW, IS APPLICABLE IN THE PRESENT FACTS OF THE CASE AS THE ASSESSEE HAS GIVEN THE PROP ERTY FOR EXPLOITING BY WAY OF COMPLEX COMMERCIAL ACTIVITIES IN THE YEAR OF 1994 AND FROM ASSESSMENT YEAR 1995 - 96 TO 2005 - 06, THE DEPARTMENT HAS ACCEPTED THE CONTENTION OF THE ASSESSEE HOLDING THAT THE RECEIPT ON ACCOUNT OF LEASING TO KHIL ARE BUSINESS RECE IPT. 14. 2 THIS IS ALSO A MATTER OF FACT THAT THERE WAS NO FIXED RATE AS THE ASSESSEE WAS EARNING/RECEIVING ONLY 1% OF THE GROSS REVENUE RECEIPTS. FROM THIS FACT, IT IS AMPLY PROVED THAT THE COMMERCIAL ASSET WAS USED BY THE ASSESSEE, AND, THEREFORE, ANY COMMERCIAL RECEIPT HAS TO BE TREATED AS BUSINESS RECEIPT. IT IS FURTHER SEEN THAT AS PER AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S KHIL, THE HOTEL PREMISES WILL BE HANDED OVER TO THE ASSESSEE AND THE ASSESSEE IS LIABLE TO PAY ALL THE EXPENDITURES INCURRED BY M/S KHIL ON ITS CONSTRUCTION AND RENOVATION AS PER FORMULA AGREED UPON. IT IS ALSO A MATTER OF FACT THAT THE ASSESSEE WAS RUNNING THIS HOTEL ITSELF AND THE ASSESSEE IS ALSO RUNNING VARIOUS OTHER HOTELS AT PRESE N T. I TA NO S . 6676&663 6 /1 1 12 14. 3 IN CASE OF CIT VS . MOHI DDIN HOTELS P. LTD. , REPORTED IN 284 ITR 229 , SIMILAR FACTS WERE INVOLVED. IN THIS CASE ALSO THE HOTEL WAS GIVEN ON LEASE TO A THIRD PARTY. THE AO TREATED THE LEASE INCOME AS INCOME FROM HOUSE PROPERTY AGAINST SHOWN BY THE ASSESSEE AS BUSINESS RECEIPT. THE TRIBUNAL ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. ON APPEAL BEFORE THE HIGH COURT, THE HON BLE HIGH COURT IN THE AFORESAID CASE CONFIRMED THE ORDER OF THE TRIBUNAL BY HOLDING AS UNDER : - HELD, T HAT FROM THE FACTS FOUND BY THE TRIBUNAL AS WELL AS THE AGREEMENT DATED FEBRUARY 1, 1987, IT WAS MORE THAN CLEAR THAT THE AGREEMENT BETWEEN THE ASSESSEE AND S RELATED TO THE BUILDING THAT WAS READY FOR THE PURPOSES OF COMMENCING THE HOTEL BUSINESS. THE AGREEMENT DID NOT RELATE TO A BARE TENEMENT BUT WAS IN RES PECT OF THE HOTEL. THAT THE SAID HOTEL WAS COMPLETE WITH FITTINGS AND FIXTURES AND READY FOR COMMENCING THE BUSINESS WAS APPARENT FROM THE AGREEMENT. THE FACT THAT ALL LICENCES, PERMISSIONS AND NO OBJECTION CERTIFICATES REQUIRED FOR RUNNING HOTEL WERE TO B E OBTAINED IN THE NAME OF THE ASSESSEE WAS A POINTER TO THE ASPECT THAT THE ASSESSEE INTENDED TO EXPLOIT THE BUSINESS ASSET (THE HOTEL). THE INCOME OF RS. 7,80,000 RECEIVED FROM S IN THE HANDS OF THE ASSESSEE WAS INCOME FROM BUSINESS UNDER SECTION 28 OF TH E INCOME - TAX ACT, 1961. WHILE HOLDING SO, THE HONBLE HIGH COURT HAS REFERRED TO THE CASES VIZ., CEPT VS. SHRI LAKSHMI SILK MILLS LTD., 20 ITR 451 (SC), CIT VS. CALCUTTA NATIONAL BANK LTD., 37 ITR 171 (SC), CIT VS. VIKRAM COTTON MILLS LTD., 169 ITR 597 ( SC) , SULTAN BROTHERS P. LTD. VS. CIT, REPORTED IN 51 ITR 353 (SC) AND IN CASE OF UNIVERSAL PLAST LTD. VS. CIT, 237 ITR 454 (SC) . AFTER CONSIDERING V ARIOUS DECISIONS AS MENTIONED ABOVE , THE HONBLE HIGH COURT HAS HELD THAT THE ASSESSEE HAS GIVEN HOTEL ON LE ASE FOR EXPLOITING BUSINESS ASSET AND, THEREFORE, I TA NO S . 6676&663 6 /1 1 13 THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE INCOME FROM LEASING THE HOTEL WAS INCOME FROM BUSINESS. FACTS OF THE CASE IN HAND ARE SIMILAR TO THE FACTS BEFORE THE HON BLE HIGH COURT IN CASE OF MOHIDDIN HOTE LS PVT. LTD. (SUPRA) . THEREFORE, FOR THIS REASON ALSO, WE ARE OF THE VIEW THAT THE RECEIPT FROM M/S KHIL ON ACCOUNT OF LEASING THE HOTEL WAS BUSINESS RECEIPT. THERE IS NO DISPUTE THAT THE ASSESSEE IS OWNER OF THE HOTEL GIVEN ON LEASE TO M/S KHIL. ALL THE LICENSES AND PERMISSIONS ARE IN THE NAME OF ASSESSEE. THIS IS ALSO A FACT THAT THE ASSESSEE WAS RUNNING ITS HOTEL ITSELF BEFORE GIVING TO M/S KHIL. ACCORDINGLY, IN OUR CONSIDERED VIEW, THE RECEIPTS RECEIVED FROM KHIL ARE BUSINESS RECEIPT. THEREFORE, WE ALL OW THIS GROUND OF THE ASSESSEE AND DIRECT THE AO TO TREAT THE BUSINESS RECEIPT AGAINST INCOME FROM PROPERTY TREATED BY HIM. 15 . GROUND NO.3 IS ALTERNATE GROUND TO GROUND NO.2. 1 5 .1 SINCE WE HAVE ALLOWED GROUND NO.2 IN FAVOUR OF THE ASSESSEE, THEREFORE, GROUND NO.3 DOES NOT REQUIRE ANY ADJUDICATION UPON. 1 6 . GROUND NO.4 IS AGAINST DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D. 1 6 .1 RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS HELD BY THE HON BLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81 (BOM) . THEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO TO DECIDE AFRESH I TA NO S . 6676&663 6 /1 1 14 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WITHOUT APPLYING RULE 8D. 1 7 . THUS, APPEAL O F THE ASSESSEE IS ALLOWED IN PART AND PARTLY FOR STATISTICAL PURPOSES. 1 8 . NOW, WE WILL TAKE UP APPEAL OF THE DEPARTMENT I.E. ITA NO. 6636/M/2011 . 1 8 .1 THE DEPARTMENT IN ITS APPEAL HAS RAISED OBJECTION THAT THE LEARNED CIT(A) HAS FAILED TO INTERPRET THE P ROVISIONS OF SECTION 14A READ WITH RULE 8D IN ITS RIGHT PERSPECTIVE AND TRUE MEANING. 1 8 .2 THIS ISSUE WAS ALSO INVOLVED IN APPEAL OF THE ASSESSEE I.E. ITA NO. 6676/M/2011 , WHEREIN WE HAVE RESTORED THE ISSUE TO THE FILE OF THE AO BY HOLDING THAT THE RULE 8 D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION BECAUSE AS PER THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) , THE RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008 - 09. THEREFORE, THE ISSUE INVOLVED IN APPEAL OF THE DEPARTMENT IS ALSO SET ASIDE TO THE FILE OF THE AO TO PASS A FRESH ORDER AFTER AFFORDING OPPORTUNITY OF HEARING TO THE ASSESSEE. 19 . FOR THE REASONS AFOREMENTIONED, APPEAL OF THE ASSESSEE (I.E ITA NO. 6676/M/2011) IS ALLOWED IN PART AND PAR TLY FOR STATISTICAL PURPOSES AND APPEAL OF THE DEPARTMENT (I.E ITA NO. 6636/M/2011) IS ALLOWED FOR STATISTICAL PURPOSES. I TA NO S . 6676&663 6 /1 1 15 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF SEPT . 201 3 . SD/ - ( ) ( R AJENDRA SINGH ) SD/ - ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 13 / 09/2013 /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE C I T(A) , MUMBAI . 4. / C I T 5. / DR, ITAT, MUMBAI . 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( /ASSTT. REGISTRAR) / ITAT, MUMBAI