Appeal details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 6289 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 3 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-03-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
D
Next Hearing Date
03-01-2017
Assessment Year
2010-2011
Appeal Filed On
23-12-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT M EMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEM BER ITA NO. 79/DEL/2014 ASSESSMENT YEAR: 2010-11 DCIT, VS C.J. INTERNATIONAL HOTELS LTD., CIRCLE-3(1), LE MERIDIAN, WINDSOR PLACE, NEW DELHI. JANPATH, NEW DELHI. (PAN: AAACC0174E) ITA NO. 6713/DEL/2013 ASSESSMENT YEAR: 2007-08 ITA NO. 6714/DEL/2013 ASSESSMENT YEAR: 2010-11 C.J. INTERNATIONAL HOTELS LTD., VS DCIT, NEW DELHI. CIRCLE-3(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI UMESH CHAND DUBEY, SR. DR DEPARTMENT BY : SHRI TARANDEEP SINGH, CA DATE OF HEARING: 10.1.2017 DATE OF PRONOUNCMENT : 31.03.2017 ORDER PER BENCH ALL THE THREE APPEALS INVOLVE IDENTICAL ISSUES. THE Y WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH TH IS COMMON ORDER. 2. THE ASSESSEE IS RUNNING A FIVE STAR HOTEL ON A P IECE OF LAND TAKEN ON LICENSE FROM NDMC UNDER A LICENSE DEED. PART OF THE BUILDING HAS BEEN ALLOTTED TO ITS SUB LICENSEES WIT HOUT CHARGING I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 2 ANY RENT AGAINST REFUNDABLE DEPOSITS. 2.1 ITA NO 6713/DEL/2013 FOR ASSESSMENT YEAR 2007-08, THE ASSESSEE HAD FIL ED ITS RETURN SHOWING INCOME OF RS.3,34,974,780/-. THE ASSESSMEN T WAS COMPLETED U/S 143(3) OF THE ACT ON A TOTAL INCOME O F RS.4,07,085,962/-. THE ASSESSEE HAD PAID RS. 12,00 ,00,000/- TO NDMC FOR LEASE OF LAND WHICH WAS INITIALLY ALLOW ED IN THE ASSESSMENT. HOWEVER, THE CASE WAS REOPENED BY THE ASSESSING OFFICER ON THE GROUND THAT AS PER THE NOTES ON ACCO UNTS OF THE AUDIT REPORT, THIS PAYMENT HAD BEEN CLASSIFIED AS C ONTINGENT LIABILITY. THE ASSESSING OFFICER NOTED THAT NO AGR EEMENT HAD BEEN EXECUTED BETWEEN THE ASSESSEE COMPANY AND THE NDMC AFTER 31.03.1998 AND THE PAYMENT OF RS. 12 CRORE BY THE ASSESSEE COMPANY TO NDMC WAS A PAYMENT MADE ON AD HOC BASIS WITHOUT THERE BEING ANY ASCERTAINMENT OF ACTU AL LIABILITY. THE ASSESSEE OBJECTED TO THE REOPENING AS WELL AS C HALLENGED THE ADDITION ON MERITS. HOWEVER, THE LD. CIT (A) DISMI SSED THE ASSESSEES APPEAL BOTH ON THE LEGAL GROUND AS WELL AS ON MERITS. NOW, THE ASSESSEE HAS APPROACHED THE ITAT AND HAS F ILED THE FOLLOWING GROUNDS OF APPEAL. I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 3 2.1.1 GROUNDS OF ITA NO. 6713/DEL/2013 : 1. THAT ON THE FACTS AND IN LAW THE COMMISSIONER OF INCOME TAX (APPEALS) {HEREINAFTER REFERRED TO AS CIT(A)} ERRED IN UPHOLDING THE ASSUMPTION OF JURISDICTION U/S 147 OF THE INCOME TAX ACT, 1961 {HEREINAFTER REFERRED TO AS THE ACT} BY THE ASSES SING OFFICER {HEREINABOVE REFERRED TO AS THE AO}.` 1.1 THAT ON THE FACTS AND IN LAW THE CIT(A) ERRED IN NO T APPRECIATING THAT PREREQUISITES OF ASSUMPTION OF VA LID JURISDICTION IN TERM OF PROVISO TO SECTION 147 ARE NOT MET RENDERING THE ASSESSMENT ORDERS PASSED THERETO AS BAD IN LAW. 1.2 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN NOT APPRECIATING THAT THE IMPUGNED REASSESSMENT PROCEEDINGS WERE INITIATED BY THE AO AS A RESULT OF A MERE CHANGE OF OPINION ON SIMILAR SET OF FACTS. 1.3 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN HOLDI NG THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS THE APPELLANT HAD NOT DISCLOSED AND DECLARED ALL THE MATERIAL FACTS. 2. THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO ON ACCOUN T OF LICENSE FEE OF RS. 12,,00,00,000/- PAID TO NDMC DURING THE YEAR UNDER CONSIDERATION. 2.1 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN HOLDING THAT THE ABOVE PAYMENTS WERE NOT MADE TO NDMC IN TERMS OF ANY BINDING AGREEMENT AND/OR DIRECTIONS ISSUED BY THE HONBLE DELHI HIGH COURT. 2.2 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN HOLDING THAT THE PAYMENT OF RS. 12,00,00,000/- WERE MADE TO NDMC ON AD HOC BASIS AND THAT THE SAME CONSTITUTED AN UN-ASCERTAINED OR UN-CRYSTALIZED LIABILITY. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE LEV Y OF INTEREST U/S 234B AND 234D OF THE INCOME TAX ACT IS BAD IN LAW. I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 4 3.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AO ERRED IN WITHDRAWING INTEREST U/S 244A OF THE ACT . 4. THAT ON FACTS AND IN LAW THE ORDERS PASSED BY B OTH THE AO AND CIT (A) ARE BAD IN LAW AND VOID AB INITI O. THAT THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, A MEND AND/OR VARY THE GROUND(S) OF APPEAL AT OR BEFORE TH E TIME OF HEARING. 2.2 ITA NOS. 6714/DEL/2013 & 79/DEL/2014 THE FACTS FOR ASSESSMENT YEAR 2010-11 ARE ALSO SIMILAR IN WHICH A SIMILAR DISALLOWANCE OF RS. 12 CRORE PAID T O NDMC WAS DISALLOWED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSSMENT PROCEEDINGS ITSELF AND THE LD. CIT(A) ALSO DISMISSE D THE ASSESSEES APPEAL AGAINST SUCH DELETION. FURTHER, THE ASSESSING OFFICER HAD OBSERVED THAT THE ASSESSEE COMPANY OWNE D PROPERTY ADJACENT TO THE HOTEL BUILDING KNOWN AS WEST TOWER. THE ASSESSING OFFICER FURTHER OBSERVED THAT THIS BUILDI NG WAS LOCATED IN THE SAME COMPOUND IN WHICH THE HOTEL BUILDING WA S LOCATED AND THIS BUILDING WAS NOT USED FOR THE HOTEL BUSINE SS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER FURTHER NO TED THAT THIS BUILDING HAD A DIFFERENT ENTRANCE AND OTHER INFRAST RUCTURAL SERVICES SUCH AS LIFTS, STAIRS & PARKING SLOTS ETC. AS PER THE ASSESSING OFFICER, THE ASSESSEE COMPANY HAD SUBLICE NSED OFFICES & APARTMENTS IN THE BUILDING TO VARIOUS PARTIES FOR A PERIOD OF 9 I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 5 YEARS AND 11 MONTHS, WHICH WAS RENEWABLE ON THE REQ UEST OF SUB-LICENSEE. THE ASSESSING OFFICER ALSO OBSERVED T HAT THE ASSESSEE COMPANY WAS NOT CHARGING ANY RENT, LEASE O R LICENSE FEE FROM THESE PARTIES BUT HAD RECEIVED INTEREST FREE S ECURITY DEPOSITS IN THE YEAR OF ORIGINAL SUB-LICENSE WHICH WAS APPEA RING AS UNSECURED LOAN IN ITS BALANCE SHEET. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE INCOME FROM HOUSE PROPERTY IN RESPECT OF WEST TOWER BE NOT COMPUTED AND ADDED BACK TO THE TOTAL INCOME. THE ASSESSEE CONTENDED BEFORE THE ASSESSIN G OFFICER THAT THE ISSUE REGARDING COMPUTATION OF NOTIONAL IN COME FROM HOUSE PROPERTY IN RESPECT OF AREA OCCUPIED BY SUB L ICENSEES HAD BEEN A MATTER OF DISPUTE SINCE ASSESSMENT YEAR 2001 -02 AND THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE DELHI HIGH COURT IN ASSESSMENT YEAR 2001-02 WHICH HAS BEE N FOLLOWED IN SUBSEQUENT YEARS AS WELL AS ALSO IN EARLIER ASSE SSMENT YEARS REOPENED ON THIS ISSUE. HOWEVER, THE ASSESSING OFF ICER OBSERVED THAT THE REVENUE HAS NOT ACCEPTED THE FINDINGS OF T HE HON'BLE HIGH COURT AND HAS FILED AN SLP BEFORE THE HON'BLE APEX COURT WHICH HAS BEEN ADMITTED AND, THEREFORE, THE ISSUE H AD NOT ATTAINED FINALITY. THEREFORE, REJECTING THE ASSESS EES CONTENTIONS, THE ASSESSING OFFICER PROCEEDED TO DETERMINE THE AN NUAL RENTAL I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 6 INCOME IN RESPECT OF WEST TOWER AT RS.6,96,49,798/- . ON APPEAL, THE LD. CIT (A) DELETED THE ADDITION WHICH IS BEING CHALLENGED BEFORE THE ITAT IN THE DEPARTMENTAL APPEAL AND THE ASSESSEE IS BEFORE THE ITAT CHALLENGING THE DISALLOWANCE OF RS. 12 CRORE PAID TO NDMC. RESPECTIVE GROUNDS TAKEN BY BOTH THE PART IES ARE AS UNDER:- 2.2.1 GROUNDS OF ITA NO. 6714/DEL/2013 : 1. THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN UPHO LDING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF LICEN SE FEE OF RS. 12,00,00,000/- PAID TO NDMC DURING THE Y EAR UNDER CONSIDERATION. 1.1 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN HOLDI NG THAT THE ABOVE PAYMENTS WERE NOT MADE TO NDMC IN TERMS OF ANY BINDING AGREEMENT AND/OR DIRECTIONS ISSUED BY THE HONBLE DELHI HIGH COURT. 1.2 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN HOLDI NG THAT THE PAYMENT OF RS. 12,00,00,000/- WERE MADE TO NDMC ON AN AD HOC BASIS AND THAT THE SAME CONSTITUTED AN UN-ASCERTAINED OR UN-CRYSTALIZED LIABILITY. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE LEVY OF INTEREST U/S 234B & 234D OF THE INCOME TAX ACT, 196 1 IS BAD IN LAW. 3. THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN UPHOL DING THE ORDER OF AO PARTLY AND NOT ALLOWING COMPLETE RE LIEF AS CLAIMED. 4. THAT ON FACTS AND IN LAW THE ORDER PASSED BY THE ASSESSING OFFICER {HEREINABOVE REFERRED TO AS THE AO} IS BAD IN LAW AND VOID AB INITIO. THAT THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, A MEND AND/OR VARY THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 7 2.2.2 GROUNDS OF ITA/DEL/2014 1. WHETHER THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 6,96,49,798/- MADE ON ACCOUNT OF INCOME FROM HOUSE PROPERTY; A) THE PROVISIONS OF TAXABILITY OF ANNUAL LETTING VALUE OR PROPERTY CONSISTING OF ANY BUILDING OR LANDS APPURTENANT THERETO ARE DEALT IN SECTION 22 TO 27 OF INCOME TAX ACT, 1961, ANNUAL VALUE OF PROPERTY OF WHICH THE ASSESSEE IS OWNER IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY EXCEPT THE PORTION OF THE PROPERTY USED BY THE OWNER OF THE PROPERTY FOR THE PURPOSES OF ITS OWN BUSINESS OR PROFESSION, THE PROFIT OF WHICH ARE CHARGEABLE TO INCOME TAX. B) THE TAXABILITY OF THE PROPERTY U/S 22 IS THAT THE SAID PROPERTY SHALL NOT BE IN USE OF BUSINESS OF THE ASSESSEE ITSELF, THE PROFIT OF WHICH IS TAXABLE TO INCOME TAX. HENCE, IN THIS CASE, THE ASSESSEE COMPANY HAS SUB-LICENSED THE OFFICES AND APARTMENTS TO VARIOUS PERSONS SOME OF WHOM HAVE FURTHER SUB-LICENSED. THE ASSESSEE COMPANY IS NOT CHARGING ANY RENT, FEES, ETC., ON THE SUB-LICENSING OF THESE PROPERTIES, EXCEPT INTEREST FREE SECURITY DEPOSITS WHICH WERE TAKEN BY THE ASSESSEE COMPANY AT THE TIME OF SUB- LICENSE AGREEMENT. C) THE ASSESSEE COMPANY IS NOT PROVIDING ANY SERVICES IN THE NATURE OF HOTEL BUSINESS SUCH AS CATERING, LAUNDRY, TELEPHONE, RECEPTION ETC., TO THE OCCUPANTS OF WEST TOWER. FURTHER, FURNITURE AND FIXTURE IN THESE OFFICES AND APARTMENTS PERTAIN TO THE OCCUPANTS ONLY AND THEY ARE THE OWNER OF THE SAME. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 8 3. AT THE OUTSET, THE LD. AUTHORISED REPRESENTATI VE SUBMITTED THAT AS FAR AS I.T.A. NO. 6713/DEL/13 FOR ASSESSMEN T YEAR 2007- 08 WAS CONCERNED, THE GROUNDS RELATING TO ASSUMPTIO N OF JURISDICTION U/S 147 OF THE ITA WERE NOT BEING PRES SED. THEREFORE, GROUND NOS. 1, 1.1, 1.2 AND 1.3 ARE DISM ISSED AS NOT BEING PRESSED. 3.1 FURTHER, THE LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT AS FAR AS THE ISSUE OF LICENSE FEE PAID TO NDMC WAS CONCERNED, THE ISSUE STOOD COVERED IN FAVOUR OF THE ASSESSEE F OR ASSESSMENT YEARS 2007-08 AND 2010-11 BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR AYS 2003-04, 2008-09 AND 2 009-10. LD. AUTHORISED REPRESENTATIVE FILED A COPY OF THE S AID ORDER AND REFERRED TO PARAGRAPHS 16 AND 22 AND SUBMITTED THAT IN VIEW OF THE FINDINGS REPORTED BY THE ITAT ON IDENTICAL FACT S, THE ASSESSEES APPEALS FOR ASSESSMENT YEAR 2007-08 AND 2010-11 ALSO SHOULD BE ALLOWED. 3.2 ARGUING AGAINST THE DEPARTMENTS APPEAL CHALL ENGING THE DELETION OF ADDITION OF RS.6,96,49,798/- ON ACCOUN T OF ANNUAL RENTAL INCOME IN RESPECT OF WEST TOWER, THE LD. AUT HORISED REPRESENTATIVE SUBMITTED THAT THIS ISSUE ALSO STOOD COVERED BY I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 9 THE ABOVE REFERRED ITAT ORDER IN PARA 3. 4. IN RESPONSE, THE LD. DR PLACED RELIANCE ON TH E ORDERS OF THE AUTHORITIES BELOW. 5. HAVING HEARD THE RIVAL SUBMISSIONS AS WELL AS AFTER HAVING PERUSED THE RELEVANT RECORDS AND THE ORDER OF THE I TAT IN ASSESSEES OWN CASE IN I.T.A. NOS. 771/DEL/2012, 787/DEL/2012, 386/DEL/2013, 1107/DEL/2012, 218/DEL/ 2013 FOR ASSESSMENT YEARS 2003-04, 2008-09 AND 2009-10, WE AGREE WITH THE CONTENTIONS OF THE LD. AUTHORISED REPRESEN TATIVE THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN TERMS OF THE ORDER DATED 5.2.2016 OF THE ITAT IN THE ABOVE MENTI ONED APPEALS. AS FAR AS THE ISSUE OF PAYMENT OF RS. 12 CRORE TO NDMC IS CONCERNED, THE RELEVANT PARAGRAPHS 16 AND 17 ARE BEING REPRODUCED FOR A READY REFERENCE AS UNDER:- 16. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY BOTH THE PARTIES AND PERUSED THE MATERIAL A VAILABLE ON RECORD. IN OUR CONSIDERED OPINION LOOKING TO THE FACTS OF THE PRESENT CASE APPELLANT MERITS TO SUCCEED IN ITS CLAIM MADE FOR DEDUCTION OF 12 CRORES AS A LEGITIMATE BUS INESS EXPENSE. COMING FIRST TO THE ALLEGATION OF LD. CIT (A) THAT LICENSE DEED DATED 14TH JULY 1982 WAS NOT IN FORCE DURING THE COURSE OF ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 YEAR UNDER CONSIDERATION. WE CONCUR WITH SUBMISSIONS OF SHRI SYALI THAT LD. CIT (A) HAS ERRED IN NOT TAKING INTO CONSIDERATION EVENTS WHICH TRANSPIRED POST ISSUE OF SHOW CAUSE NOTICE DATED 12 TH NOVEMBER 1999 BY NDMC. ORDER DATED 18TH MAY 2001 I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 10 PASSED BY LD SINGLE JUDGE OF HON'BLE DELHI HIGH COU RT NEGATES THIS PRESUMPTION OF LD CIT(A). LD SINGLE JU DGE IN ITS ORDER HAS HELD AS UNDER: 'ON 25TH SEPTEMBER, 1998, HOWEVER, THE NDMC GAVE ANOTHER NOTICE TO THE PLAINTIFFS UPON THEM TO PAY THE ARREARS OF LICENCE FEE. IT WAS STATED THAT IN CASE THE ENTIRE OUTSTANDING DUES WERE NOT DEPOSITED, ACTION WOULD BE TAKEN UNDER THE PROVISIONS OF THE PUBLIC PREMISES (EVICTION OF UNAUTHORISED OCCUPANTS) ACT AGAINST THE PLAINTIFFS. ON 28TH JUNE, 1999 THE NDMC SENT A SHOW CAUSE NOTICE TO THE PLAINTIFFS CALLING UPON THEM TO DEPOS IT RS.109,82,16,368/- ALLEGEDLY DUE TO THE NDMC UP TO 30TH JUNE, 1999. THIS WAS NATURALLY DISPUTED BY THE PLAINTIFFS AND IT WAS ASSERTED THAT LICENCE FEE UP TO THE YEAR 2003 STOOD PAID AND NO AMOUNT WAS PAYABLE BY THEM TO THE NDMC. THEREAFTER CERTAIN MEETINGS TOOK PLACE BETWEEN THE PARTIES; HOWEVER, NO AMICABLE SOLUTION WAS ARRIVED AT BETWEEN THEM. A NOTICE DATED 12TH NOVEMBER, 1999 WAS THEN ISSUED BY THE NDMC TO THE PLAINTIFFS INFORMING THE PLAINTIFFS THAT THE RE-VALUATION OF THE LICENCE FEE WAS NEITHER POSSIBLE NOR WARRANTED. A MEETING OF THE PLAINTIFFS REPRESENTATIVE ALSO TOOK PLACE WITH THE CHAIRMAN OF THE NDMC ON 22ND NOVEMBER, 1999. PLAINTIFFS ALLEGE THAT IN THAT MEETING THE CHAIRPER SON OF THE PLAINTIFFS HOTEL AGREED TO PAY A SUM OF RS.3 CRORES ON THE CLEAR UNDERSTANDING THAT AN INDEPENDENT AGENCY / COMMITTEE WOULD BE CONSTITUTED BY THE NDMC TO DETERMINE THE FAIR AND EQUITABLE QUANTUM/RATE OF LICENCE FEE. HOWEVER, THE CHAIRPERSON REFUSED TO HAVE AGREED TO THE APPOINTMENT OF ANY SUCH COMMITTEE AND GAVE ONE WEEK'S TIME TO THE PLAINTIFFS TO MAKE PAYMENT FAILI NG WHICH IT WAS THREATENED THAT THE LICENCE WOULD BE CANCELLED AND POSSESSION OF THE HOTEL WOULD BE TAKEN. ON THIS THREAT BEING GIVEN, THE PLAINTIFFS F ILED A PETITION BEING CIVIL WRIT PETITION NO.7163/99 IN THIS COURT. IN THE AFORESAID WRIT PETITION FILED BY THE PLAINTI FFS, THEY PRAYED FOR ISSUE OF A WRIT OF CERTIORARY OR AN Y I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 11 OTHER APPROPRIATE WRIT ORDER OR DIRECTION FOR QUASHING THE SHOW CAUSE NOTICE DATED 28TH JUNE, 1999 AND 12TH NOVEMBER, 1999 AND FOR ISSUE OF AN APPROPRIATE WRIT ORDER OR DIRECTION DIRECTING THE RESPONDENTS TO CONSTITUTE A COMMITTEE OF INDEPENDENT PERSONS TO EVALUATE THE LEGITIMATE / FAIR LICENCE FEE PAYABLE IN RESPECT OF THE LAND HAV ING REGARD TO THE LICENCE FEE PAID BY OTHER HOTELS WHIC H WERE SIMILARLY SITUATE AS WELL AS THE ECONOMIC VIABILITY OF THE PLAINTIFFS HOTEL CONSISTENT WITH T HE SUPPLEMENTARY AGREEMENT DATED 11TH MARCH, 1999. CERTAIN OTHER RELIEFS WERE ALSO CLAIMED IN THIS WRI T PETITION. THIS PETITION WAS DISMISSED BY A.K. SIKRI , J. BY ORDER DATED 7TH MARCH, 2000 ON THE GROUND THAT SINCE THE MATTER INVOLVED DISPUTED QUESTIONS O F FACT, THE SAME CANNOT BE DECIDED IN THE WRIT PETITION. WHILE DISMISSING THE PETITION, THE COURT CONTINUED THE INTERIM ORDER GRANTED EARLIER TILL 31 ST MARCH, 2000. PRESENT SUIT WAS THEREAFTER FILED BY THE PLAINTIFFS FOR AN INJUNCTION RESTRAINING THE DEFENDANT FROM TAKING ANY ACTION PURSUANT TO THE SHOW ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 CAUSE NOTICES MENTIONED ABOVE AND FROM CAUSING ANY OBSTRUCTION TO THE AMENITIES LIKE WATER AND ELECTRICITY TO THE PREMISE S OF THE PLAINTIFFS. PLAINTIFFS ALSO CLAIMED A DECREE FOR SPECIFIC PERFORMANCE OF THE AGREEMENT DATED 14TH JULY, 1982 AS ALLEGEDLY MODIFIED BY THE AGREEMENTS DATED 11TH MARCH, 1991; 4TH AUGUST, 1995 AND 31ST MARCH, 1998. ALONG WITH THE SUIT, AN APPLICATION FOR TEMPORARY INJUNCTION WAS ALSO FILED BY THE PLAINTIFFS. BY THIS ORDER, I PROPOSE TO DISP OSE OF THIS APPLICATION OF THE PLAINTIFFS FOR THE GRANT OF AN AD-INTERIM INJUNCTION. ...... ....... ....... THE ONLY QUESTION WHICH REMAINS TO BE CONSIDERED IS AS TO HOW THIS LICENCE FEE WAS TO BE CALCULATED. WHILE THE CASE OF THE DEFENDANTS IS THAT THE PLAINTIFFS WERE REQUIRED TO PAY 21% OF THE ANNUAL GROSS TURN OVER OF THE HOTEL AS DISCLOSED BY THE I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 12 BALANCE SHEETS, THE PLAINTIFFS' CASE IS THAT EVEN ASSUMING THAT THE PLAINTIFFS ARE REQUIRED TO PAY TH E LICENCE FEE @ 21% OF THE GROSS TURNOVER OF THE HOTE L, IT HAS TO BE 21% OF THE GROSS TURN OVER AS CERTIFIE D BY THE CERTIFIED AUDITORS OF THE PLAINTIFFS. THE QUESTION IS AS TO WHAT IS THE GROSS TURN OVER AS CERTIFIED BY THE CERTIFIED AUDITORS OF THE PLAINTIF FS. A CHART HAS BEEN PLACED ON RECORD BY THE DEFENDANT- NDMC SHOWING THE ANNUAL GROSS TURNOVER OF THE HOTEL FROM 1988-89 TO 1998-99 AND THE AMOUNT OF LICENCE FEE PAYABLE BY THE PLAINTIFFS HAS BEEN CALCULATED IN TERMS OF THE SAID ANNUAL GROSS TURN OVER. ...... ....... ....... THOUGH, IT IS MENTIONED IN THE AGREEMENT THAT IT IS THE GROSS TURNOVER OF THE HOTEL AS CERTIFIED BY THE CERTIFIED AUDITORS OF THE HOTEL ON WHICH THE LICENC E FEE IS PAYABLE BY THE PLAINTIFFS, HOWEVER, PRIMA FACIE, IN MY VIEW, PLAINTIFFS MAY NOT BE ENTITLED T O ALL THE APPROPRIATIONS MENTIONED BY THE AUDITORS IN THEIR CERTIFICATES. PRIMA FACIE, IT APPEARS TO THE COURT THAT ONLY THAT INCOME WHICH IS COMPULSORILY PAYABLE BY THE PLAINTIFFS IN TERMS OF AN AGREEMENT WHICH IT MIGHT HAVE ARRIVED AT WITH THE THIRD PARTY OR STATUTORY LIABILITY NECESSARILY PAYABLE MAY ONLY HAVE BE DEDUCTED FOR THE PURPOSE OF ARRIVING AT THE GROSS TURN OVER TO THE HOTEL. THE FRANCHISEE FEE PAYABLE IS 3% BY THE NDMC TO THE FRANCHISEE AND IT IS ONLY THE 97% OF THE RECEIPTS WHICH ARE RECEIVED BY THE HOTEL. PRIMA FACIE, THIS 3% MAY HAVE TO BE DEDUCTED FROM THE ROOM TARIFF. LUXURY TAX ON BEHALF OF THE GOVERNMENT IS ALSO RECEIVED BY THE HOTEL AT THE TIME OF PROVIDING ITS SERVICES TO THE GUESTS AN D SINCE THIS TAX DOES NOT COME IN THE HANDS OF THE HOTEL, THIS MAY ALSO HAVE TO BE DEDUCTED FROM THE GROSS TURN OVER OF THE HOTEL. THE OTHER AMOUNT WHIC H MAY HAVE TO BE DEDUCTED FROM OUT OF THE GROSS TURN OVER OF THE HOTEL AS SHOWN IN THE BALANCE SHEETS IS THE CREDIT CARD COMMISSION AS THE AMOUNT WHICH IS RECEIVED BY THE HOTEL ON PAYMENTS RECEIVED THROUGH I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 13 CREDIT CARDS IS NET OF COMMISSION CHARGED BY THE CREDIT CARD COMPANIES. OTHER COMPONENT WHICH MAY HAVE TO BE DEDUCTED FROM THE GROSS TURN OVER IS THE INTEREST INCOME ON THE DEPOSITS WITH BANKS. THE ONLY OTHER RECEIPT TO WHICH THE PLAINTIFFS MAY BE ENTITLED TO DEDUCTION IS THE TELEPHONE RECEIPTS. TH E PLAINTIFFS MAY BE SAID TO BE ACTING AS AGENTS FOR T HE MAHANAGAR TELEPHONE NIGAM LIMITED WHILE THE TELECOMMUNICATION SERVICES ARE PROVIDED TO THE GUESTS. THE PAYMENT, THEREFORE, WHICH IS ACTUALLY MADE TO THE MAHANAGAR TELEPHONE NIGAM LIMITED MAY HAVE TO BE DEDUCTED FORM OUT OF THE GROSS AMOUNT WHICH IS RECEIVED BY THE PLAINTIFF FOR PROVIDING TELECOMMUNICATION SERVICES SO THAT THE BALANCE AMOUNT RECEIVED BY THE HOTEL IS ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 TAKEN AS ITS INCOME. BESIDES THESE DEDUCTIONS WHICH, PRIMA FACIE, MAY BE PERMISSIBLE FROM THE GROSS TURNOVER OF THE HOTEL, IN MY VIEW, T HE PLAINTIFFS ARE NOT ENTITLED TO ANY OTHER DEDUCTION FROM OUT OF THE GROSS TURN OVER OF THE HOTEL. THE C OST OF FOOD AND BEVERAGES IS A PART OF RUNNING OF THE HOTEL AND CANNOT, IN MY OPINION, BE DEDUCTED FROM OUT OF THE GROSS TURN OVER OF THE HOTEL. IF THIS IS DEDUCTED FROM THE GROSS TURN OVER, WHAT WILL BE ARRIVED AT IS THE GROSS INCOME AND NOT THE GROSS TU RN OVER. AT THIS STAGE OF DECIDED THIS APPLICATION THE COURT IS NOT DECIDING FINALLY AS TO WHAT WOULD BE THE GROSS TURN OVER OF THE HOTEL ON WHICH IT IS LIA BLE TO PAY THE LICENCE FEE AND IT IS ONLY A PRIMA FACIE VIEW OF THE COURT THAT THE AFORESAID OUTGOINGS MAY HAVE TO BE DEDUCTED FROM THE GROSS TURNOVER AS REFLECTED IN THE BALANCE SHEETS. SINCE, IN MY OPINION, NONE OF THE SUPPLEMENTARY AGREEMENTS MODIFIED THE TERMS OF THE AGREEMENT OF 14TH JULY, 1982, PROVIDING FOR PAYMENT OF LICENCE FEE @ 21% OF THE GROSS TURN OVER OF THE HOTEL, PLAINTIFFS ARE, PRIMA FACIE, LIABLE TO PAY LICENCE FEE @ 21% OF THE GROSS TURN OVER TO BE CALCULATED ON THE BASIS OF THE GROSS TURN OVER AS MENTIONED IN THE BALANCE SHEETS FILED ON RECORD BY THE PLAINTIFFS AN D I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 14 DEDUCTING FROM THIS TURN OVER THE AMOUNT TO BE CALCULATED IN TERMS OF THE AFORESAID PARAGRAPH. THE PLAINTIFF BEING PRIMA-FACIE LIABLE TO PAY LICENCE F EE AT THE RATE OF 21% OF THE GROSS TURNOVER OF THE HOTEL, IN MY OPINION, THERE IS NO QUESTION OF THE PLAINTIFF SUFFERING IRREPARABLE LOSS IN CASE IT HAS TO PAY TH E LICENCE FEE IN TERMS OF THE AGREEMENT. DEFENDANT- NDMC IS A CIVIC AUTHORITY AND FOR PURPOSES OF PROVIDING SERVICE TO THE PEOPLE IT REQUIRES FUNDS. PUBLIC BENEFIT IN THE PRESENT CASE OUTWEIGHS THE CASE OF THE PLAINTIFFS IN WITHHOLDING THE AMOUNT LEGITIMATELY DUE TO THE NDMC. BALANCE OF CONVENIENCE CLEARLY LIES IN FAVOUR OF THE LARGER PU BLIC INTEREST RATHER THAN IN FAVOUR OF THE PLAINTIFFS. T HE ONLY INDULGENCE TO WHICH THE PLAINTIFFS MAY BE ENTITLED IS TO PAY THE ARREARS OF LICENCE FEE IN INSTALLMENTS. SINCE THE AMOUNT WHICH MAY BE CALCULATED ON THE BASIS OF THE ABOVE FORMULA MAY BE QUITE HEAVY, THE PLAINTIFFS WILL BE AT LIBERTY TO DEPOSIT THE SAID AMOUNT IN FOUR EQUAL QUARTERLY INSTALLMENTS, FIRST OF WHICH WILL BE PAID WITHIN TH REE WEEKS FROM THE DATE OF THIS ORDER. I, ACCORDINGLY, RESTRAIN DEPENDENT-NDMC, ITS AGENTS AND EMPLOYEES FROM INTERFERING WITH THE POSSESSION OF THE PLAINTIFFS OVER THE LAND AND BUILDING SITUAT E AT 1, WINDSOR PLACE, JANPATH, NEW DELHI IN ANY MANNER WHATSOEVER AND FROM DISCONNECTING, WITHHOLDING OR CAUSING TO BE WITHHELD ANY AMENITIES INCLUDING WATER AND / OR ELECTRICITY TO T HE PLAINTIFFS HOTEL, SUBJECT TO THE PLAINTIFFS DEPOSIT ING THE ENTIRE LICENCE FEE IN THE MATTER DIRECTED IN TH IS ORDER CALCULATED @ 21% OF THE GROSS TURNOVER OF THE HOTEL ARRIVED AT ON THE BASIS ON THE OBSERVATIONS MADE IN THIS ORDER. PRIMA FACIE, I AM ALSO OF THE OPINION THAT THE PLAINTIFF WILL ALSO HAVE TO PAY INTEREST ON THIS AMOUNT CALCULATED FOR THE TIME BEI NG AT THE RATE OF 10% P.A.' WITH THESE OBSERVATIONS, THE APPLICATION OF THE PLA INTIFFS STANDS DISPOSED OF. ANY OBSERVATION MADE IN THIS OR DER WILL I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 15 NOT BE TAKEN AS EXPRESSION OF OPINION ON THE MERITS OF THE CASE.' AS CAN BE SEEN FROM THE INTERIM DIRECTIONS ISSUED BY THE LD SINGLE JUDGE PARTIES WERE BOUND BY THE TERMS AND CONDITIONS STIPULATED IN LICENSE DEED DATED 14TH JU LY 1982. THE DISPUTE SOLELY RESTED ON THE INTERPRETATION OF TERM 'GROSS TURNOVER AS CERTIFIED BY THE STATUTORY AUDITORS'. T O THIS THE LD SINGLE JUDGE ALLOWED CERTAIN EXCLUSIONS. HOWEVER ASSESSE WAS NOT SATISFIED FROM THIS INTERIM ORDER S INCE IN ITS VIEW IT WAS ENTITLED TO FURTHER EXCLUSIONS FROM GRO SS TURNOVER LIKE SUMS COLLECTED FOR FOOD AND BEVERAGES , ETC. IT THEREFORE PREFERRED AN APPEAL AGAINST THIS INTERIM ORDER BEFORE DIVISION BENCH OF HIGH COURT WHICH VIDE ORDE R DATED 06TH FEBRUARY 2002 DIRECTED ASSESSE TO MAKE PAYMENT OF RS 1 CR PER MONTH PENDING FINAL DISPOSAL OF THE CIVIL SUIT. SHRI SYALI RIGHTLY POINTED OUT THAT THERE IS NO DIRECTIO N ISSUED BY THE HIGH COURT IN ORDER DATED 06TH FEBRUARY 2002 TH AT IF ASSESSE SUCCEEDS AGAINST ITS CLAIMS FROM NDMC THEN IT SHALL BE ENTITLED TO A REFUND OF RS 1 CR. THIS IS VERY CR UCIAL. IN ABSENCE OF SUCH A DIRECTION THE PAYMENT OF RS 1 CR PER MONTH MADE BY THE ASSESSEE VIRTUALLY PARTAKES THE CHARACT ER OF A CONFIRMED LIABILITY DISCHARGE OF WHICH (I.E TO THE EXTEND OF RS 1 CR PER MONTH) IS ACCEPTED BY NDMC. IN SUPPORT OF THIS LD SENIOR COUNSEL HAS APPROPRIATELY RELIED UPON THE DE CISION OF HON'BLE APEX COURT IN CASE OF KCP LIMITED (SUPRA) W HEREIN IT IS HELD AS UNDER: '11. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE- APPELLANT RELIED ON THREE DECISIONS BY DIFFERENT HI GH COURTS AND SUBMITTED THAT IN IDENTICAL FACT AND CIRCUMSTANCES, THE PRICE OF THE SUGAR REALISED IN EXCESS OF THE LEVY PRICE WAS HELD NOT TO BE A TRADI NG RECEIPT OF THE ASSESSEE AND, HENCE, NOT LIABLE TO T AX. THE DECISIONS SO RELIED ON ARE : CIT V. MYSORE SUGA R CO. LTD. [1990] 183 ITR 113 / 51 TAXMAN 208 (KAR.), CIT V. SEKSARIA BISWAN SUGAR FACTORY (P.) L TD. [1992] 195 ITR 778 /[1991] 59 TAXMAN 453 (BOM.) AND CIT V. CHODAVARAM CO-OPERATIVE SUGARS LTD. [1987] 163 ITR 420/ 30 TAXMAN 615 (AP). WE HAVE CAREFULLY PERUSED THE DECISIONS. IT IS CLEAR FROM T HE FACTS STATED BY THE HIGH COURTS THAT IN EACH OF THE I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 16 CASES, THE ASSESSEE'S RIGHT TO ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 REALISE THE EXCESS PRICE WAS THE SUBJECT-MATTER OF DISPUTE PENDING IN THE HIGH COURT AND THE HIGH COURTS HAD PASSED DIFFERENT INTERIM ORDERS PURSUANT TO WHICH T HE RESPECTIVE ASSESSEES WERE COLLECTING THE EXCESS PRI CE. THOUGH THE INTERIM ORDERS OF THE HIGH COURTS ARE DIFFERENTLY WORDED IN THE THREE CASES, ONE COMMON FEATURE OF ALL THE ORDERS IS THAT THE REALISATION O F THE EXCESS PRICE BY THE RESPECTIVE ASSESSEES WAS HEDGED BY SEVERAL CONDITIONS, ONE OF WHICH WAS THAT THE ASSESSEE SHALL REFUND THE AMOUNT RECEIVED IN EXCESS OF THE PRICE FIXED IN THE EVENT OF THE PENDING DISPUTE BEING DECIDED ADVERSELY TO THE ASSESSEE BY THE COUR T. THUS, THE RECEIPT OF THE AMOUNT BY THE ASSESSEE WAS CLEARLY ASSOCIATED WITH A LIABILITY TO REFUND THE A MOUNT WHICH LIABILITY WAS ASCERTAINABLE AND QUANTIFIED. S UCH IS NOT THE CASE AT HAND.......' 17. WE FURTHER OBSERVE THAT IN PAST THE TAX DEPARTM ENT ITSELF HAD ALLOWED THE CLAIM MADE BY THE APPELLANT. BARING REASSESSMENT PROCEEDINGS FOR AY 2003-04, WHICH TOO ARE PREMISED UPON A CHANGE OF OPINION (AS HELD BY US LA TER IN THIS ORDER) THE CLAIM MADE BY THE APPELLANT HAS BEE N ALLOWED IN AYS 2004-05, 2005-06, 2006-07 AND 2012-13. IN FA CT IN AY 2004-05 LIABILITY OF RS 12 CRORES BEING ACTUALLY PAID WAS HELD ALLOWABLE AS A DEDUCTION BY THE LD AO HIMSELF AND A DISPUTE AROSE VIS A VIS ADDITIONAL RS 2.41 CRORES P AID TO NDMC IN THAT YEAR. ON THIS HON'BLE DELHI HIGH COURT FOR AY 2004-05 VIDE ORDER DATED 04TH SEPTEMBER 2009 IN ITA NO. 450/2011 HAS HELD AS UNDER: '8. THE ASSESSING OFFICER HAD DISALLOWED EXPENDITUR E OF RS.2.41 CRORES OUT OF EXPENDITURE OF RS.14.41 CR ORES ON THE GROUND THAT IT WAS CONTINGENT LIABILITY AS T HERE WERE DISPUTES BETWEEN THE NDMC, THE LICENSOR AND THE RESPONDENT RELATING TO THE LICENCE FEE. THIS WA S SUBJECT MATTER OF LITIGATION PENDING IN DELHI HIGH COURT. THE ASSESSING OFFICER HAS MENTIONED THAT RS.2.41 CRORES WAS NOT PAID BY THE ASSESSEE AND HE HAD MADE REFERENCE TO TWO ORDERS PASSED BY THE DELH I HIGH COURT DATED 18.5.2001 AND 6.2.2002. THE I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 17 RESPONDENT HAS STATED IN ITS LETTER DATED 21.04.200 3 THAT A CHEQUE OF RS.2.41 CRORES DRAWN ON CITI BANK DATED 21ST APRIL, 2003 HAD BEEN ENCLOSED. CIT(A) HE LD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TRE ATING RS.2.41 CRORES AS UNASCERTAINED / DISPUTED LIABILIT Y AND THE DISALLOWANCE OF RS.2.41 CRORES BY THE ASSESSEE OFFICER WAS NOT JUSTIFIED. THE TRIBUNAL NO TED THAT BY CONSEQUENCE OF THE LETTER DATED 17TH APRIL, 2003 ISSUED BY NDMC THE AMOUNT OF RS.2.41 CRORES CAME TO BE QUANTIFIED AND THE AMOUNT PAID HAD BEEN IN COMPLIANCE OF THE SAID DEMAND. THE TRIBUNAL UPHELD THE ORDER OF CIT(A) AND STATED THAT THE DEMAND HAD SPECIFICALLY COME INTO EXISTENCE DURING THE ASSESSMENT YEAR 2004-05 AND CONSEQUENTLY THE SAME WAS ALLOWED FOR THE YEAR 2004-05. THUS, THE AMOUNT OF ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 RS.2.41 CRORES WAS PAID BY THE RESPONDENT ON 21.4.2003 AND HENCE, WAS NOT A CONTINGENT LIABILITY LEARNED COUNSEL FOR THE APPELL ANT HAS NOT BEEN ABLE TO CONTROVERT THAT THE SAID FINDI NG IS INCORRECT. IN VIEW OF THE AFORESAID POSITION, WE ARE NOT INCLI NED TO ENTERTAIN THE PRESENT APPEAL ON THIS GROUND.' EVEN AS PER THE ABOVE DECISION OF HON'BLE JURISDICT IONAL HIGH COURT ONCE LIABILITY IS PAID AND ACCEPTED BY NDMC T HEN IT CANNOT BE TERMED AS CONTINGENT. APPEAL OF REVENUE W AS DISMISSED AT ADMISSION STAGE ITSELF AS NO QUESTION OF LAW AROSE. 5.1 THE ASSESSEES APPEALS WERE ALLOWED BY THE ITAT IN TERMS OF THE ABOVE MENTIONED OBSERVATIONS AND FOLLOWING THE SAME, WE ALLOW THE ASSESSEES GROUNDS IN THESE TWO APPEALS A S WELL. 5.2 AS FAR AS THE DEPARTMENTS GROUND CHALLENGING THE DELETION OF ADDITION OF ANNUAL RENTAL VALUE IN RESP ECT OF WEST TOWER IS CONCERNED, WE FIND THAT THE ISSUE IS AGAIN COVERED IN I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 18 FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT A ND THE ISSUE HAS BEEN DISCUSSED AT LENGTH IN PARA 3 OF THE ORDER OF THE ITAT AS REFERRED TO ABOVE. THE RELEVANT PARAGRAPH IS BEING REPRODUCED FOR A READY REFERENCE:- 3. IN GROUND NO. 1 REVENUE IS AGGRIEVED BY THE ACT ION OF LD. CIT(A) IN DELETING THE ADDITION OF RS.6,96,49,7 95/- MADE BY THE AO ON ACCOUNT OF NOTIONAL INCOME UNDER THE H EAD 'INCOME FROM HOUSE PROPERTY'. THIS ISSUE IS DISCUSS ED AT LENGTH BY THE AO AT PAGES 1-8 OF THE ASSESSMENT ORD ER. IT IS OBSERVED BY THE LD. AO AT PAGE 6 OF HIS ORDER THAT IDENTICAL ADDITION WAS MADE BY THE TAX DEPARTMENT IN ASSESSEE 'S OWN ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 CASE FOR A.Y. 2001-02 TO A.Y. 2003-04 . LD. CIT(A) ON THE OTHER HAND NOTES THAT THE SIMILAR ADD ITION MADE BY THE AO IN CASE OF ASSESSEE FOR EARLIER ASSESSMEN T YEARS HAS BEEN DELETED BY TRIBUNAL VIDE ORDER DATED 24TH JULY, 2007 WHICH HAS SUBSEQUENTLY BEEN UPHELD BY THE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 18TH NOV EMBER, 2010. THE ADDITION HAS BEEN DELETED BY THE LD. CIT( A) FOLLOWING ORDERS PASSED BY JURISDICTIONAL HIGH COUR T IN ASSESSEE'S OWN CASE. DURING THE COURSE OF HEARING B EFORE US LD. CIT(DR) STATED THAT SINCE THE TAX DEPARTMENT HA S PREFERRED AN SLP BEFORE HON'BLE APEX COURT AGAINST HIGH COURT ORDER DATED 18TH NOVEMBER 2010 ADDITIONS ARE BEING MADE BY THE LD. AO IN ASSESSMENTS FOR SUBSEQUENT YE ARS IN ORDER TO KEEP THE MATTER ALIVE. ON THE OTHER HAND L D. AR FOR THE ASSESSEE INVITED OUR ATTENTION TO ORDER PASSED BY TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2001-02 IN ITA NOS. 1519 & 1698/DEL/2005 ORDER DATED 24TH JULY, 2007 COPY OF W HICH IS ENCLOSED AT PAGES 175 TO 199 OF THE PAPER BOOK WHER EIN THIS ADDITION HAS BEEN DELETED BY THE TRIBUNAL. LD. AR A LSO INVITED OUR ATTENTION TO PAGES 200-203 OF THE PAPER BOOK WH EREIN THE JURISDICTIONAL HIGH COURT VIDE ORDER REPORTED IN 19 7 TAXMANN 230 (DEL) HAS UPHELD THE ORDER OF TRIBUNAL DELETING THE ADDITION. IT IS ADMITTED BEFORE US THAT FACT AND CI RCUMSTANCES OF THE ISSUE INVOLVED IS IDENTICAL TO EARLIER YEARS . A PERUSAL OF ORDER PASSED BY THE JURISDICTIONAL HIGH COURT REVEL S THAT THE I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 19 NOTIONAL ADDITION HAS BEEN DELETED BY THEIR LORDSHI PS OBSERVING AS UNDER:- '4. WITH THE CONSENT OF THE LEARNED COUNSEL FOR THE PARTIES, WE HAVE HEARD THE MATTER FINALLY AT THIS STAGE ITSELF. THE FACTS IN BRIEF LEADING TO THE AFO RESAID QUESTION OF LAW MAY BE RECAPITULATED FIRST. THE ASSESSEE-COMPANY IS RUNNING A FIVE STAR HOTEL KNOWN AS HOTEL LE-MERIDIAN WINDSOR PLACE, NEW DELHI. THE LAWN ON WHICH THE ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 HOTEL IS CONSTRUCTED BELONGS TO NDMC AND NDMC HAS EXECUTED A LICENSE DEED IN FAVOUR OF THE ASSESSEE GRANTING LICENCE FOR A PERIOD OF 99 YEARS FOR THE RUNNING OF THE AFORESAID HOTEL. AFTER TAKING THE SA ID LAWN ON LICENCE ON THE TERMS EXECUTED IN THE LICENC E DEED, THE ASSESSEE HAD CONSTRUCTED THE SAID HOTEL. ADJACENT TO THE HOTEL, THERE IS ANOTHER BUILDING CONSTRUCTED ON THIS VERY LAWN, WHICH IS KNOWN AS WEST TOWER. THIS BUILDING IS LOCATED IN THE SAME COMPOUND IN WHICH THE HOTEL BUILDING IS LOCATED. ADMITTEDLY, THIS BUILDING IS NOT USED FOR HOTEL BUSINESS OF THE ASSESSEE, BUT THE APARTMENTS OF THI S BUILDING WERE GIVEN ON SUB-LICENCE BASIS TO DIFFERE NT PARTIES FOR CARRYING ON BUSINESS AS SPECIFIED ON TH E SUB-LICENCE AGREEMENTS. THE LICENCE AGREEMENT WHICH WAS ENTERED INTO BETWEEN THE ASSESSEE AND THE NDMC PERMITS THE ASSESSEE TO SUB-LICENCE THE PORTIO N OF THE PREMISES. IT IS ON THE BASIS OF THIS AUTHORIZATION GIVEN IN THE LICENCE DEED THAT THE ASSESSEE HAS SUB-LICENCED OFFICES AND APARTMENTS IN THE WEST TOWER TO THE VARIOUS PARTIES. THE SUB- LICENCES GIVEN TO THESE PARTIES ARE FOR A PERIOD OF 9 YEARS AND 11 MONTHS, WHICH IS RENEWABLE AT THE REQUEST FOR THE SUB-LICENSEES. THE ASSESSEE IS NOT CHARGING ANY RENT LEASE OR LICENCE FEE FROM THESE PARTIES INSTEAD, THE ASSESSEE HAS RECEIVED INTEREST FREE SECURITY DEPOSITS IN THE YEAR OF ORIGINAL SUB- LICENCE, WHICH RECEIPT WAS SHOWN BY THE ASSESSEE- COMPANY AS UNSECURED LOAN IN ITS BALANCE SHEET. THE SUB-LICENCE DEEDS, WHICH ARE EXECUTED BY THE ASSESSEE WITH THE SUB-LICENSEES ALSO PERMIT THE SUB - I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 20 LICENSEES TO TRANSFER THE SAME TO ANY OTHER PERSON ON PAYMENT OF TRANSFER CHARGES TO THE ASSESSEE- COMPANY. THUS, THE SUB-LICENSEE IS ENTITLED TO TRANSFER THE SAID SUB-LICENCE TO THIRD PARTY AS WEL L. HOWEVER, AT THE TIME OF TRANSFER OF THE SAID SUB- LICENCE, CERTAIN TRANSFER CHARGES ARE PAYABLE TO TH E ASSESSEE-COMPANY. IT IS NOT IN DISPUTE THAT WHENEVE R THESE TRANSFER CHARGES ARE RECEIVED BY THE ASSESSEE ON TRANSFER OF SUB-LICENCE BY THE SUB-LICENSEE IN FAVOUR OF THE THIRD PARTY, THE ASSESSEE IS SHOWING THESE TRANSFER CHARGES AS ITS INCOME AND IS OFFERIN G THE SAME FOR TAX. 5. THE ASSESSING OFFICER (AO) FOUND THAT ALMOST ALL THE SUB-LICENSEES HAD TRANSFERRED THEIR SUB-LICENSE S AND VARIOUS OTHER PERSONS WERE, THUS, OCCUPYING THESE PREMISES. THOSE PERSONS HAVE ENTERED INTO THE AGREEMENT WITH THE SUB-LICENSEES AS PER WHICH THEY WERE PAYING RENTS TO THE SUB-LICENSEES. IT IS ALSO AN ADMITTED FACT THAT THE RENTS/LICENCE FEES RECEIVED BY THE SUB-LICENSEES ON THESE TRANSFERS TO THE OCCUPIE RS HAS BEEN SHOWN AS RENTAL INCOME AND TAXED AT THE HANDS OF SUB-LICENSEES UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. 6. THE ASSESSING OFFICER, HOWEVER, ASKED THE ASSESS EE TO EXPLAIN WHY PROPERTY KNOWN AS WEST TOWER BE NOT FIX ED ON ITS ANNUAL LETTING VALUE AS PER WHICH SECTION 23 OF THE INCOME-TAX ACT (HEREINAFTER REFERRED TO AS 'THE ACT '). TO PUT IT OTHERWISE, THE ASSESSING OFFICER WANTED TO FIX ANNU AL LETTING VALUE IN RESPECT OF THE SAID WEST TOWER SUB-LICENSE D BY THE ASSESSEE BY FIXING ITS NOTIONAL VALUE AND CHARGING THE TAX THEREUPON UNDER THE HEAD 'INCOME FROM HOUSE PROPERT Y'. IT IS FOR THIS REASON THAT THE AFORESAID SHOW- CAUSE NOTI CE WAS ISSUED. THE ASSESSEE IN REPLY TO THE SAID NOTICE RA ISED VARIOUS OBJECTIONS TO THE AFORESAID PROPOSED MOVE OF THE AS SESSING OFFICER. SOME OF THESE OBJECTIONS INCLUDED: (A) THE ASSESSEE WAS ONLY A LICENSEE IN RESPECT OF THE AFORESAID PREMISES AND THE ACTUAL OWNER WAS NDMC. T HUS, THE ASSESSEE WAS NOT THE 'OWNER' OF THE PREMISES. T HEREFORE, PROVISIONS OF SECTION 23 OF THE ACT ARE NOT APPLICA BLE. I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 21 (B) IT WAS ALSO HIGHLIGHTED THAT IN THE PREVIOUS YE ARS, THE AFORESAID ARRANGEMENT AS DISCLOSED BY THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER AND THEREFORE, IT A NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./2013 ON THE PRINCIPLE OF CONSISTENCY, SUCH A MOVE ON THE PART O F THE ASSESSING OFFICER IN FIXING THE ANNUAL LETTING VALU E OF THE WEST TOWER, WHEN NO ACTUAL RENT/LICENCE FEE WAS RECEIVED BY THE ASSESSEE, WAS NOT PROPER. (C) THE ASSESSEE HAD ENTERED INTO SUB-LICENCE DEEDS IN RESPECT OF THOSE PORTIONS AND IT COULD NOT BE DEEMED AS 'LE TTING' OF THE PROPERTY AND FOR THIS REASON ALSO PROVISIONS OF SEC TION 22 OF THE ACT WOULD NOT BE APPLICABLE, AS THE ASSESSEE CO NTINUED TO BE IN THE LEGAL OCCUPATION AND POSSESSION. (D) THE USE OF THE PREMISES BY THE SUB-LICENSEES WA S TO ASSIST THE ASSESSEE- COMPANY IN GETTING HOTEL ACCOMMODATIO N BOOKED FOR THE GUESTS, DELEGATES OF THE SUB-LICENSE ES, APART FROM THE INCREASE IN CATERING AND RESTAURANTS' ACTI VITIES USED BY THE SUB-LICENSEES. THEREFORE, THE USE OF CERTAIN PORTION BY THE SUB-LICENSEES WAS NOT FOR THE PURPOSE OF OR FOR THE BENEFIT OF THE BUSINESS OF THE ASSESSEE-COMPANY. 7. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT T HE AFORESAID EXPLANATION FURNISHED BY THE ASSESSEE. HE WAS OF THE VIEW THAT THE LICENSE AGREEMENT WITH THE NDMC W AS FOR A PERIOD OF 99 YEARS WITH THE RIGHT OF CONSTRUCTING A ND DEVELOPING THE PROPERTY WHICH MAKES THE ASSESSEE-CO MPANY OWNER OF THE PROPERTY. HE ALSO OPINED THAT THE ASSE SSEE- COMPANY HAD SUB-LICENSED THE OFFICES AND APARTMENTS TO VARIOUS PERSONS, SOME OF WHOM HAD FURTHER SUB-LICEN SED THE SAME; THE ASSESSEE WAS NOT CHARGING ANY RENT, FEES ETC. ON THE SUB-LICENSING OF THESE PROPERTIES, EXCEPT INTER EST FREE SECURITY DEPOSITS WHICH WERE TAKEN BY THE ASSESSEE AT THE TIME OF SUB- LICENCE AGREEMENT. THEREFORE, IT WAS P ROPER, IN SUCH CIRCUMSTANCES, TO FIX NOTIONAL ANNUAL LETTING VALUE OF THE PREMISES AND TO CHARGE TAX THEREUPON INSOFAR AS THE ASSESSEE IS CONCERNED. 8. WE MAY ALSO POINT OUT THAT IN ITA NO. 1254 OF 20 10, WHICH PERTAINS TO THE ASSESSMENT YEAR 1999-2000 ORIGINALL Y NO SUCH ADDITION WAS MADE. HOWEVER, REASSESSMENT PROCEEDING S I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 22 WERE STARTED BY ISSUANCE OF NOTICE UNDER SECTION 14 3(2) READ WITH SECTION 147 OF THE ACT AND THE TRIBUNAL QUASHE D THOSE REASSESSMENT PROCEEDINGS. IT IS NOT NECESSARY TO GO INTO THE QUESTION AS TO WHETHER REASSESSMENT PROCEEDINGS WER E INITIATED OR NOT INASMUCH AS ON MERIT ITSELF WE HAV E DECIDED THAT SUCH AN ADDITION WAS NOT PROPER. 9. THE ASSESSING OFFICER THEREAFTER TOOK INTO CONSI DERATION THE RENT/LICENCE FEE, WHICH WAS PAID BY THE OCCUPIERS T O THE SUB- LICENSEES TO WHOM THE ASSESSEE HAD SUB- LICENSED TH E PREMISES. THE ASSESSING OFFICER ON THAT BASIS CALCU LATED FIRST CARE FEE AVERAGE AND TREATED THE SAME AS ANNUAL LET TING VALUE OF THE SAID WEST TOWER AND ADDED THE SAME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. 10. THE ASSESSEE PREFERRED APPEAL AGAINST THIS ORDE R BEFORE THE CIT(A). IN THIS APPEAL, THE ASSESSEE TOOK AN AD DITIONAL GROUND PREDICATED ON THE PROVISIONS OF SECTION 27(I II) READ WITH SECTION 269UA(F)( II) OF THE ACT AND SUBMITTED THAT UNDER THOSE PROVISIONS, IT WOULD BE A SUB-LICENSEE AS DEE MED OWNER WOULD BE CHARGED TO TAX IN HIS HANDS. THE CIT(A) CO NSIDERED THIS ARGUMENT, WHICH WAS PURELY A LEGAL ARGUMENT BA SED ON THE INTERPRETATION OF THE AFORESAID SECTIONS ON ADM ITTED FACTS ON RECORD, BUT DID NOT ACCEPT THE AFORESAID PLEADIN G. AFTER CONSIDERING OTHER SUBMISSIONS OF THE APPELLANT, WHI CH WERE RAISED BEFORE THE ASSESSING OFFICER, THE CIT(A) UPH ELD THE ORDER OF THE ASSESSING OFFICER ON THIS GROUND. IN T HIS SCENARIO, THE ASSESSEE PREFERRED FURTHER APPEAL BEFORE THE IN COME-TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS 'THE TRIBUNAL'). THIS TIME, BEFORE THE TRIBUNAL, THE ASSESSEE SUCCEE DED IN ITS ATTEMPT TO DEMONSTRATE THAT THE ASSESSEE COULD NOT BE ITA NO.771, 787 & 1107/DEL./2012 ITA NO.218 & 386/DEL./ 2013 LIABLE TO PAY ANY SUCH TAX FIXING LETTING VALUE ON NOTIONAL BASIS WHEN, IN FACT, NO SUCH AMOUNT OF RENT/LICENCE FEE WAS RECEIVED BY THE ASSESSEE. THE TRIBUNAL EXAMINED THE LICENCE AGREEMENT ENTERED INTO BETWEEN THE NDMC AND THE ASS ESSEE ON THE BASIS OF WHICH IT HAS COME TO THE CONCLUSION THAT IT IS THE NDMC, WHICH IS THE 'OWNER OF THE PREMISES AND R EMAINS TO BE THE OWNER OF THE PREMISES IN QUESTION'. THE T RIBUNAL HAS FURTHER ACCEPTED THE SUBMISSIONS OF THE ASSESSEE TH AT IN VIEW OF THE PROVISIONS OF SECTION 27(III) OF THE ACT, IT IS THE SUB- LICENSEE WHO WOULD BE 'DEEMED OWNER' OF THOSE PREMI SES I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 23 WHICH THE SUB-LICENSEES WHEREOF TRANSFERRED TO THE PRESENT OCCUPIERS AND THOSE OCCUPIERS ARE PAYING RENT/LICEN CE FEE TO THE SUB- LICENSEES. ON THAT BASIS, THE TRIBUNAL HAS SET ASIDE THE ADDITION MADE BY THE ASSESSING OFFICER AND DELE TED THIS COMPONENT OF INCOME HOLDING THAT THE SAME WOULD NOT BE CHARGEABLE TO TAX. 11. THIS IS HOW THE DEPARTMENT HAS FILED THE APPEAL S PERTAINING TO DIFFERENT ASSESSMENT YEARS. AS POINTE D OUT ABOVE, THOUGH THE ISSUES BEFORE THE ASSESSING OFFIC ER, CIT(A) AS WELL AS THE TRIBUNAL WERE NUMEROUS, IN THESE APP EALS PRIMARILY ONE QUESTION OF LAW WHICH IS FORMULATED A ND REPRODUCED ABOVE HAS BEEN PRESSED BY THE DEPARTMENT . 12. FOR THE AFORESAID REASONS, WE ARE OF THE VIEW T HAT THE APPROACH OF THE TRIBUNAL IN DECIDING THE AFORESAID ISSUE IS PERFECTLY JUSTIFIED. THERE IS NO REASON TO INTERFER E WITH THE SAME. WE CLARIFY THAT THE ASSESSEE WOULD NOT BE ENT ITLED TO DEPRECIATION ON THIS PURPOSE. WE, THUS, ANSWER THE QUESTION OF LAW IN FAVOUR OF THE ASSESSEE AND AGAINST THE RE VENUE, AS A RESULT THEREOF ALL THESE APPEALS ARE DISMISSED.' RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTION AL HIGH COURT ABOVE GROUND NO.1 OF THE REVENUE APPEAL IS DISMISSE D. 5.2.1 RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE DEPARTMENTS GROUNDS IN THIS APPEAL ALSO. 6. IN THE FINAL RESULT, I.T.A. NO. 6713/DEL/2013 OF THE ASSESSEE STANDS PARTLY ALLOWED, I.T.A.NO.6714/DEL/2013 BY TH E ASSESSEE STANDS ALLOWED AND I.T.A. NO. 79/DEL/2014 OF THE DE PARTMENT STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.03.2 017. SD/- SD/- (N.K. SAINI) (SUDHANS HU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER I.T.A. NOS. 79/D/2014 I.T.A. NOS. 6713 & 6714/D/13 24 DT. 31ST MARCH 2017 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT(A) 4. DR BY ORDER ASSTT. REGISTRAR
