Bir Hotels(P)Ltd., Allahabad V. ACIT, Allahabad

ITA 73/ALLD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89825 (ITAT-ALLAHABAD)
• Duration Of Justice: 4 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: UMESH PATHAK
• Assessee Lawyers: S K JAUHARI
• Keywords: Business income; Rectification of order
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI C. N. PRASAD, JUDICIAL MEMBER ITA NOS.72 & 73/ALLD/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 BIR HOTELS PVT. LTD. 13, S.P. MARG ALLAHABAD PAN:AABCB 8507 B VS. ACIT RANGE II ALLAHABAD (APPELLANT) (RESPO NDENT) ASSESSEE BY : SHRI S.K. JAUHARI REVENUE BY : SHRI UMESH PATHAK DATE OF HEARING : 20.04.2015 DATE OF PRONOUNCEMEN T : 22 .04.2015 O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS OF THE ASSESSEE UNDER CONSID ERATION AND THEY RELATE TO THE A.YS. 2006-07 & 2007-08. THE GROUNDS ARE COMMON FOR BOTH THE ASSESSMENT YEARS AND THE GROUNDS FOR A.Y. 2006-07 ARE AS FOLLO WS:- 1. THAT IT IS UNJUSTIFIED TO SAY THAT INCOME FROM SALOON SECTION CANNOT BE TAKEN TO BE PROFIT AND GAIN DERIVED FROM HOTEL BUSI NESS TO BE ELIGIBLE FOR DEDUCTION AS THE SAME IS DERIVED FROM FRANCHISEE B USINESS, BECAUSE RUNNING A BUSINESS UNDER A FRANCHISEE AGREEMENT DOE S NOT CHANGE ITS ORIGINAL CHARACTER, NATURE & NAME OF BUSINESS AND BE CALLED ONLY A FRANCHISEE BUSINESS AS THE FRANCHISEE IS ONLY A METHOD OF DOIN G ANY BUSINESS TO TAKE THE ADVANTAGE OF BRAND NAME. 2. THAT IT IS UNJUSTIFIED TO SAY THAT INCOME FROM S ALOON SECTION CANNOT BE TAKEN TO BE PROFIT AND GAIN DERIVED FROM HOTEL BUSI NESS, BECAUSE CIT (APPEAL) IN HIS ORDER HIS ACCEPTED THAT SALOON IS A N INTEGRAL PART OF STAR CATEGORIES HOTEL LIKE THAT OF ASSESSEE. 3. THAT IT IS UNJUSTIFIED TO SAY THAT THE SALOON AC TIVITY IS NOT SPECIFICALLY APPROVED BY THE PRESCRIBED AUTHORITY, BECAUSE THE P RESCRIBED AUTHORITIES HAS SIMPLY APPROVED THE HOTEL U/S 80IB(7)(A) OF INCOME TAX ACT AND NOT SPECIFICALLY ITS VARIOUS ACTIVITIES LIKE, ROOM HIRI NG, HALL HIRING, BANQUETING, RESTAURANT, BAR SWIMMING POOL, SALOON ETC. ITA NOS.72 & 73/ALLD/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 2 4. THAT IT IS JUSTIFIED TO SAY THAT SALOON ACTIVITY IS NOT FULFILLING ANY OF THE REQUISITE CONDITIONS, BECAUSE APPROVAL U/S 80IB(7)( A) OF IT ACT HAS BEEN GRANTED BY DIRECTOR GENERAL OF TOURISM. GOVT. OF IN DIA AND DG. (INCOME TAX EXEMPTION) AFTER SATISFYING ALL THE REQUISITE CONDI TION LAID U/S 80IB(7)(A) & RULE 18 BBC OF THE IT ACT IS FULFILLED. FROM THE GROUNDS FOR BOTH A.YS. IT IS FOUND THAT TH E COMMON ISSUE FOR ADJUDICATION RELATES TO ALLOWABILITY OF DEDUCTION U/S 80IB(7)(A) OF THE INCOME-TAX ACT IN RESPECT OF INCOME EARNED OUT OF SALOON BUSINESS ACTIVITY OF THE ASSESSEE. IT IS THE CLAIM OF THE ASSESSEE THAT SUCH INCOME CONSTITUTES ELIGIBLE INCO ME AND IT IS ENTITLED FOR DEDUCTION U/S 80IB(7)(A) OF THE ACT. 2. BRIEFLY STATED, THE RELEVANT FACTS ARE THAT THE ASSESSEE IS IN HOTEL BUSINESS OF THE THREE STAR HOTEL CATEGORY. ASSESSEE STARTED THI S BUSINESS ACTIVITY BEFORE MARCH, 2001 AND STARTED CLAIMING DEDUCTION U/S 80IB(7)(A) OF THE ACT IN RESPECT OF THE INCOME FROM THE HOTEL BUSINESS. DURING THE FINANCIA L YEAR 2005-06, ASSESSEE ENTERED INTO FRANCHISE AGREEMENT WITH LAKME AND STARTED S ALOON ACTIVITY IN THE HOTEL. ASSESSEE EARNED INCOME OUT OF THE SAID FRANCHISE AC TIVITY AND RELATED SALOON BUSINESS AND CLAIMED DEDUCTION U/S 80IB(7)(A) OF TH E IN RESPECT OF THE RELATED INCOME TOO. DURING THE ASSESSMENT PROCEEDINGS, AO A LLOWED THE CLAIM OF THE ASSESSEE. HOWEVER, ON FINDING THE RECTIFIABLE MISTA KE THE AO INITIATED RECTIFICATION PROCEEDINGS U/S 154 OF THE ACT AND PASSED AN ORDER DATED 29.09.2009 DENYING THE CLAIM OF DEDUCTION IN RESPECT OF RECEIPTS FROM THE SAID SALOON ACTIVITY. 3. THE LD. CIT (A) UPHELD THE DECISION OF THE AO IN THE RECTIFICATION ORDER. THE MATTER TRAVELLED TO THE TRIBUNAL IN THE FIRST ROUND AND THE ITAT REMANDED THE ISSUE TO THE FILE OF THE LD. CIT (A) FOR WANT OF A SPEAKI NG ORDER. IN THE SAID SPEAKING ORDER DATED 10.02.2011, THE LD. CIT (A) VIDE PARA 5.5.3 A ND PARA 6 OF THE IMPUGNED ORDER HELD THAT THE SALOON INCOME OF RS.4,00,563/- FOR A. Y. 2006-07 IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB(7)(A) OF THE ACT. THE REASON BEI NG THAT THE SAID INCOME CANNOT BE TAKEN AS THE PROFITS AND GAINS DERIVED FROM TH E HOTEL BUSINESS AND SIMILAR DECISION WAS TAKEN FOR A.Y. 2007-08 TOO ELIGIBLE FO R DEDUCTION. HE IS OF THE OPINION THAT THE SAID BUSINESS INCOME BEING FRANCHISE BUSIN ESS CANNOT BE CONSIDERED AS ELIGIBLE INCOME DERIVED FROM THE HOTEL BUSINESS. ITA NOS.72 & 73/ALLD/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 3 4. LD. CIT (A), RELIED UPON THE APEX COURT DECISION IN THE CASE OF STERLING FOODS 237 ITR 579 WHICH IS RELEVANT FOR THE PROPOSITION THAT DERIVED FROM RESTRICTS THE QUALIFYING THE PROFITS DIRECTLY FROM THE PARTICULAR ACTIVITY AND NOT THAT OF THE ELIGIBLE BUSINESS. AGGRIEVED THE SAID FINDING OF THE LD. CIT (A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL IN THE SECOND ROUND. 5. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE ARGU ED BY STATING THAT THE SALOON BUSINESS ACTIVITY CONSTITUTES AND INTEGRAL PART OF THE HOTEL BUSINESS AS SUCH SALOON BUSINESS ATTRACTS THE CUSTOMERS TO THE HOTEL AND CA TERS TO THE NEEDS OF THE INMATES OF THE HOTEL. SHRI S.K. JAUHARI APPEARED ON BEHALF OF THE ASSESSEE AS PER THE LD. COUNSEL, THE CITED JUDGMENT IN THE CASE OF STERLING FOODS (SUPRA) IS DISTINGUISHABLE ON FACTS. IT IS THE ARGUMENT OF THE ASSESSEES COUN SEL THAT THE INCOME OUT OF SALOON SECTION CONSTITUTES DERIVED FROM THE HOTEL BUSINE SS, WHICH INCLUDES VARIOUS BUSINESS ACTIVITIES NAMELY ROOM HIRING, HALL HIRING , RESTAURANT, BAR SWIMMING POOL ETC. FURTHER, HE ALSO ARGUED STATING THAT THE DEDUC TION U/S 80IB(7)(A) OF THE ACT, ONCE GRANTED IN THE INITIAL YEAR OF THE HOTEL BUSIN ESS, THE SAME CANNOT BE DENIED IN SUBSEQUENT YEARS. FOR THIS PROPOSITION HE RELIED UP ON THE BASIS OF THE TRIBUNAL NAMELY AQUA PLUMBING PVT. LTD. 46 SOT 366 AGRA AND TATA COMMUNICATION INTERNET SERVICES PVT. LTD. ITA 4214/DEL/2010 (DEL) . 6. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE LD. CIT (A) AND THE RECTIFICATION ORDER OF THE AO. SHRI UME SH PATHAK, LD. DR FOR THE REVENUE SUBMITTED THAT THE HOTEL IN QUESTION WAS SET UP PRI OR TO MARCH, 2001 AND SALOON SECTION STARTED ONLY THE YEAR 2006-07. FOR ALL THE YEARS I.E. PRIOR TO THE A.Y. 2006-07, THE HOTEL WAS RUNNING WITHOUT SALOON SECTION. IN SU CH CIRCUMSTANCES THE SALOON SECTION CANNOT INTEGRAL PART OR NECESSARY SECTION F OR THE HOTEL BUSINESS. FURTHER REFERRING TO THE ARGUMENT OF THE LEARNED COUNSEL FO R ASSESSEE, THE LD. DR MENTIONED THAT THE DENIAL OF DEDUCTION IN A.Y. 2005-06 IS ONL Y WITH REFERENCE TO THE SALOONS RECEIPTS AND NOT IN RESPECT OF THE ELIGIBLE PROFITS OF THE HOTEL BUSINESS. OTHERWISE, THE AO DID NOT DENY THE CLAIM OF THE DEDUCTION IN R ESPECT OF THE INCOME FROM THE HOTEL BUSINESS. FURTHER HE MENTIONED THAT THE PROVI DING THE SALOON SECTION IS ONLY DESIRABILITY AND NOT THE NECESSITY. THIS SUGGEST TH AT HAVING A SALOON SECTION IS NOT COMPULSORY AND THEREFORE, IT IS NOT AN INTEGRAL PAR T OF THE HOTEL BUSINESS. ITA NOS.72 & 73/ALLD/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 4 7. WE HAVE HEARD, BOTH THE PARTIES AND PERUSED THE ORDER OF THE REVENUES AS WELL AS THE CASE LAWS CITED BY THE PARTIES BEFORE U S. THE UNDISPUTED FACTS ARE THAT THE HOTEL BUSINESS WAS RUN BY THE ASSESSEE TILL THI S YEAR WITHOUT HAVING A SALOON AS PART OF THE HOTEL BUSINESS. THE SALOON BUSINESS CAM E INTO EXISTENCE BY VIRTUE OF FRANCHISEE AGREEMENT WITH THE LAKME IN THE YEAR UND ER CONSIDERATION. UNLIKE THE RESTAURANT SECTION OR BAR SECTION OF THE HOTEL BUSI NESS, THE SALOON SECTION CANNOT BE EQUATED WITH THEM ALTHOUGH THE SALOON SECTION IS AL SO CONNECTED TO THE GENERAL NEEDS OF THE PEOPLE AND THEREFORE, IT DISTANTLY REL ATED TO THE HOTEL BUSINESS ACTIVITY FOR BECOMING ELIGI BLE FO CLAIM OF DEDUCTIONS, THE RECEIPTS SHOULD BE DERIVED FROM THE HOTEL BUSINESS AND NOT FRESH RELATED TO HOTEL BUSIN ESS. DIRECT NEXUS HAS BE DEMONSTRATED BY THE ASSESSEE. AS DISCUSSED IN THE O PEN COURT ABOUT THE APPLICABILITY OF THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA ALL THE RECEIPTS OF THE UNDERTAKING IS NOT E LIGIBLE FOR DEDUCTION UNDER THE RELEVANT PROVISIONS. IT IS THE RATIO OF THE SUPREME COURT IN THE CASE OF STERLING FOODS (SUPRA) THAT THE RECEIPTS, WHICH HAS A DIRECT NEXUS TO THE CORE BUSINESS ACTIVITY ARE ONLY ELIGIBLE FOR DEDUCTION. WITH THE SALOON SECTIO N, WHICH STARTED FUNCTIONING IN THE YEAR 2005-06 ONLY CANNOT BE CONSIDERED INTEGRAL PAR T OF THE HOTEL BUSINESS ACTIVITY OF THE ASSESSEE WHICH STARTED PRIOR TO MARCH, 2001. IN THE GIVEN CASE THE CORE ACTIVITY OF THE HOTEL BUSINESS INCLUDE A HIRING OF ROOMS, HA LLS, RESTAURANT, BAR ETC. INTEGRAL OR CORE ACTIVITY OF THE HOTEL BUSINESS THE SALOON SECT ION ALSO WOULD HAVE STARTED ALONG WITH HOTEL PRIOR TO THE MARCH, 2001. THERE ARE NO F ACTS ON THE RECORDS REGARDING THE PROFILE OF THE CUSTOMERS TO THE SAID SALOON ACTIVIT IES. IT IS NOT THE CASE OF THE ASSESSEE THAT THE USERS OF THE SALOON ARE ONLY THE INMATES OF THE HOTEL AND THE SAME IS NOT OPEN TO THE OUTSIDERS. IN THAT CASE, WHERE T HE SALOON IS NOT CLOSED FOR THE OUTSIDERS, THE SALOON CANNOT BE SAID TO BE THE IN TEGRAL PART OF THE HOTEL ACTIVITY. THE SAME SHOULD BE CONSIDERED ON INDIFFERENT BUSINESS A CTIVITY. WE HAVE ALSO ANALYZED IF THE SALOON ACTIVITIES I.E. HAIR DRESSING, HAIR DYIN G, TRADING OF THE LAKME PRODUCTS THIS SALOON BY WAY OF FRANCHISEE AGREEMENT ARE AKIN TO T HE RESTAURANT AND BAR SECTIONS OF THE SAID HOTEL BUSINESS. IN OUR OPINION, THE HAI R DRESSING/DYING ETC BEING RELATED TO COSMETICS, SHALL NOT BE EQUATED TO THE FOOD AND DRINKING SECTIONS. THESE ARE NECESSITIES OF THE HOTEL BUSINESS UNLIKE SALOON SEC TION WHICH IS MERELY DESIRABLE TO HOTEL BUSINESS. FROM THIS POINT OF VIEW ALSO, THE S ALOON SECTION CANNOT BE DESCRIBED ITA NOS.72 & 73/ALLD/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 5 HAVING CLOSE NEXUS TO THE HOTEL ACTIVITIES. THEREFO RE, THE RECEIPTS FROM THE SALOON SECTION ARE NOT DERIVED FROM THE HOTEL BUSINESS. REGARDING LEARNED COUNSELS ARGUMENT RELATING TO RELYING ON THE CITED ORDERS OF THE TRIBUNAL, WE FIND THE SAME IS MISPLACED. IT IS NOT THE CASE THAT THE AO DENIED DE DUCTION IN RESPECT OF THE ELIGIBLE HOTEL RECEIPTS OF THE ASSESSEE. WHAT IS DENIED ONLY IN RESPECT OF A SOURCE OF INCOME I.E. SALOON ACTIVITY. THEREFORE, CITED JUDGMENTS BY THE ASSESSEES COUNSEL ARE MISPLACED. THUS, RELEVANT ARGUMENTS OF THE LD. COUN SEL ARE DISMISSED. 8. THEREFORE, WE ARE OF THE CONSIDERED OPINION THA T FOR ABOVE REASONS ALSO, THE ORDER OF THE LD. CIT (A) FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. THERE IS NO ISSUE RAISED BEFORE US BY THE ASSESSEE ABOUT THE JURISDICTION, QUA THE PROVISIONS OF SECTION 154 OF THE ACT. THEREFORE, WE ARE DESIST FROM ENTERING INTO RELEVANT DEBATE. ACCORDINGLY, ALL THE GROUNDS RAISE D BY THE ASSESSEE IN BOTH A.YS. 2006-07 & 2007-08 ARE DISMISSED. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF APRIL, 2015. SD/- SD/- (C. N. PRASAD) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER ALLAHABAD, DATED: 22.04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, ALLAHABAD THE CIT(A) CONCERNED, ALLAHABAD THE DR BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, ALLAHABAD.