DCIT, Bangalore V. M/s Royal Orchid Hotels Private Limited, Bangalore

ITA 846/BANG/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1527 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Capital expenditure

Judgement Text

ITA.846/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER I.T.A NO.846/BANG/2015 (ASSESSMENT YEAR : 2010-11) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE .. APPELLANT V. M/S. ROYAL ORCHID HOTELS P. LTD, NO.1, GOLD AVENUE, ADJOINING KGA GOLD COURSE, OLD AIRPORT ROAD, KODIHALLI, BANGALORE 560 008 .. R ESPONDENT PAN : AABCR0111M ASSESSEE BY : NONE REVENUE BY : SHRI. SUNIL KUMAR AGARWALA, JCIT HEARD ON : 29.10.2015 PRONOUNCED ON : 10.11.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE IT HAS RAISED FOUR GROUNDS OF WHICH GROUNDS 1 AND 4 ARE GENERAL NEEDING NO ADJUDI CATION. 02. VIDE ITS GROUND 2 REVENUE IS AGGRIEVED THAT CIT (A) ALLOWED A CLAIM OF EXPENDITURE FOR COVERING STORM WATER DRAIN. ITA.846/BANG/2015 PAGE - 2 03. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN RUNN ING HOTELS HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YE AR DECLARING TOTAL INCOME OF RS.8,42,64,776/-. DURING THE COURSE OF A SSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT ASSESSEE HAD A BUSINESS EXPENDITURE OF RS.2,24,70,345/- TOWARDS COVERING OF OPEN DRAINAGES NEAR ITS HOTEL PREMISES. SUBMISSION OF THE ASSESSEE WAS THAT THE DRAINAGE WAS RUNNING ALONG A COMMON AREA BELONGING TO BBMP. AS PER THE ASSESSEE, OPEN DRAINAGE WAS OVER-FLOWING WITH SEWAGE WATER RESULTI NG IN BAD SMELL AND MOSQUITO MENACE. FURTHER AS PER THE ASSESSEE, GUES TS OF THE HOTEL WERE COMPLAINING OF THE UNHEALTHY ATMOSPHERE WHICH NECES SITATED IT TO TAKE STEPS TO OVERCOME THIS PROBLEM. AS PER THE ASSESSE E, BBMP WAS NOT PREPARED TO COVER THE DRAINAGE WITH SLABS AND ASSES SEE WAS CONSTRAINED TO DO IT BY ITSELF RESULTING IN THE EXPENDITURE. CLAI M OF THE ASSESSEE WAS THAT IT DID NOT RESULT IN ANY CAPITAL EXPENDITURE. PREMISE S ON WHICH WORK WAS DONE WAS NOT OWNED BY IT BUT BY THE BBMP. HOWEVER THE AO WAS NOT IMPRESSED BY THE ABOVE EXPLANATION. ACCORDING TO H IM, ASSESSEE DERIVED ENDURING BENEFIT OUT OF THE EXPENDITURE. RELYING O N THE JUDGMENT OF HONBLE APEX COURT IN INDORE MUNICIPAL CORPORATION V. CIT [247 ITR 803], HE DENIED THE CLAIM. ITA.846/BANG/2015 PAGE - 3 04. AGGRIEVED ASSESSEE MOVED IN APPEAL BEFORE THE C IT (A). ARGUMENT OF THE ASSESSEE WAS THAT THE EXPENDITURE DID NOT RE SULT IN ANY ENDURING BENEFIT. AS PER THE ASSESSEE, THE CONCRETE SLABS C ONSTRUCTED WERE ON DRAINAGE WHICH WAS NOT OWNED BY THE ASSESSEE AND WA S NOT ITS ASSET. EXPENDITURE WAS INCURRED ONLY TO SAFEGUARD ITS BUSI NESS INTERESTS AND DID NOT ADD TO ITS INCOME GENERATING CAPACITY. NO NEW ASSETS CAME INTO EXISTENCE ON ACCOUNT OF THIS OUTGO. ASSESSEE ALSO RELIED ON THE PERMISSION LETTER ISSUED BY BBMP WHICH INTER ALIA STATED THAT ASSESSEE HAD NO OWNERSHIP OVER THE SLABS LAID OVER THE LENGTH OF TH E DRAIN AND COULD NEVER UTILISE IT FOR ANY BUSINESS PURPOSE. 05. CIT (A) WAS APPRECIATIVE OF THE ABOVE CONTENTIO NS. ACCORDING TO HIM JUST BECAUSE THE OUTGO WAS A ONE-TIME EXPENDITU RE WOULD NOT MEAN THAT IT WAS A CAPITAL OUTGO. RELYING ON THE JUDGME NT OF HONBLE APEX COURT IN THE CASE OF CIT V. ASSOCIATED CEMENT COMPA NIES LTD [(1988) 172 ITR 257], CIT (A) HELD THAT ASSESSEE HAD NOT AUGME NTED ITS CAPITAL STRUCTURE THROUGH THE OUTGO. AS PER THE LD. CIT (A ) NO INCOME EARNING APPARATUS WAS CREATED. FURTHER HE ALSO NOTED THAT ASSESSEE COULD NEVER USE IT FOR ITS OWN BUSINESS OPERATIONS. HE HELD THE EX PENDITURE TO BE A REVENUE OUT GO AND DELETED THE DISALLOWANCE. ITA.846/BANG/2015 PAGE - 4 06. NOW BEFORE US, LD. DR STRONGLY ASSAILING THE OR DER OF CIT (A) SUBMITTED THAT LAYING OF SLABS ON DRAINAGE RUNNING THROUGH THE PROPERTY OF THE ASSESSEE DID BRING ENDURING BENEFITS TO THE ASS ESSEE. EVEN IF NO CAPITAL ASSET AS SUCH WAS BROUGHT INTO EXISTENCE, THE SLAB OVER THE DRAIN COULD HAVE BEEN USED BY THE ASSESSEE FOR PARKING THE CARS, SIN CE ONE SIDE OF THE DRAIN WAS ASSESSEES HOTEL BUILDING AND THE OTHER SIDE WA S THE CAR PARKING. THUS ACCORDING TO HIM, CIT (A) FELL IN ERROR IN ALLOWING THE CLAIM OF THE ASSESSEE. 07. NOBODY APPEARED FOR THE ASSESSEE. 08. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTEN TIONS OF THE LD. DR. THERE IS NO DISPUTE THAT THE DRAIN WAS RUNNING ON T HE SIDE OF HOTEL BUILDING OF THE ASSESSEE AND THE OTHER SIDE OF THE DRAIN WAS USED BY THE ASSESSEE FOR PARKING OF VEHICLES. REVENUE HAD ALSO NOT DISPUTED THE FINDING OF THE CIT (A) THAT ASST. ENGINEER OF BBMP WHILE PERMITTING TH E ASSESSEE TO LAY SLABS OVER THE DRAIN RESTRAINED THE ASSESSEE FROM USING I T FOR ANY BUSINESS PURPOSE. DRAIN WAS OWNED BY BBMP. BY VIRTUE OF SL ABS LAID BY THE ASSESSEE WHAT ASSESSEE GAINED WAS IMPROVED FUNCTION ING OF ITS HOTEL. ASSESSEE, IF IT HAD NOT COVERED THE DRAIN WITH THE SLABS WOULD HAVE BEEN CONSISTENTLY PESTERED BY ITS GUESTS COMPLAINING OF BAD SMELL AND MOSQUITO ITA.846/BANG/2015 PAGE - 5 MENACE. IN OUR OPINION, THOUGH IT WAS A ONE-TIME O UTGO, IT DID NOT BRING INTO EXISTENCE ANY NEW PROFIT MAKING APPARATUS. IT SIMPLY IMPROVED THE FUNCTIONING EFFICIENCY OF THE ASSESSEE. WHEN THE FACTS ARE CONSIDERED IN TOTALITY WE CANNOT BUT AGREE WITH THE VIEW TAKEN BY THE CIT (A). GROUND 2 OF THE REVENUE STANDS DISMISSED. 09. VIDE ITS GROUND 3, GRIEVANCE RAISED BY THE REVE NUE IS THAT CIT (A) DELETED THE DISALLOWANCE MADE BY THE AO ON CREDIT C ARD COMMISSION. 10. FACTS APROPOS ARE THAT ASSESSEE HAD PAID RS.1,4 6,36,138/- TO THE BANK FOR CREDIT / DEBIT CARD PAYMENT REALISATION. AO WA S OF THE OPINION THAT SUCH PAYMENTS FELL WITHIN THE AMBIT OF COMMISSION AND TH EREFORE SECTION 194H OF THE ACT STOOD ATTRACTED. AS PER THE AO, RELATIO NSHIP BETWEEN THE BANK AND THE MERCHANT WAS ESTABLISHED UNDER THE MERCHANT CONTRACT AND HENCE CONTENTION OF THE ASSESSEE THAT BANK WAS ACTING ON BEHALF OF CARD HOLDER WAS INCORRECT. AO ALSO NOTED THAT CBDT VIDE NOTIFI CATION NO.56/2012, DT.13.12.2012 EXEMPTED SEVEN SERVICES FROM THE RIGO RS OF DEDUCTION OF TAX AT SOURCE WITH EFFECT FROM 01.01.2013 AND HENCE ACC ORDING TO THE AO, PRIOR TO THAT DATE, SUCH PAYMENTS FELL WITHIN SECTION 194 H OF THE ACT. SINCE THE ASSESSEE HAD NOT DEDUCTED TAX, AO HAD APPLIED SECTI ON 40(A)(IA) OF THE ACT AND MADE A DISALLOWANCE OF RS.1,46,13,188/-. ITA.846/BANG/2015 PAGE - 6 11. IN ITS APPEAL BEFORE THE CIT (A), ARGUMENT OF T HE ASSESSEE WAS THAT WHAT WAS RELEASED BY THE BANKS WAS THE NET AMOUNT A ND ASSESSEE HAD NOT PAID ANY DIRECT COMMISSION TO THE BANK. BANK ITSEL F HAD RETAINED THEIR CHARGES OUT OF THE PAYMENTS RECEIVED FROM CUSTOMERS AND PASSED ON ONLY THE BALANCE TO THE ASSESSEE. RELIANCE WAS PLACED B Y THE ASSESSEE ON THE DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT V. M/S. VAH MAGNA RETAIL LTD [I.T.A.NO.1105/HYD/2011, DT.10.04.2012]. CIT (A) WAS APPRECIATIVE OF THESE CONTENTIONS. ACC ORDING TO HIM, COORDINATE BENCH IN THE CASE OF TATA TELESERVICES L TD V. DCIT (TDS) [(2013) 140 ITD 451], HAD HELD AS UNDER : 3.5 IN LIGHT OF THE AFORESAID DECISION OF THE HON BLE HYDERABAD BENCH, WE ARE OF THE VIEW THAT PAYMENTS TO BANKS ON ACCOUNT OF UTILISATION OF CREDIT CARD FACILITIES WOULD BE IN T HE NATURE OF BANK CHARGE AND NOT IN THE NATURE OF COMMISSION WITHIN T HE MEANING OF SEC. 194H OF THE ACT. WE, THEREFORE, CONFIRM TH E ORDER OF THE CIT (APPEALS) ON THIS ISSUE AND DISMISS THE APPEALS OF THE REVENUE. HE DELETED THE DISALLOWANCE. 12. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DER OF CIT (A) SUBMITTED THAT COMMISSION PAYMENTS FELL WITHIN SECT ION 194H OF THE ACT. ACCORDING TO HIM, ASSESSEE HAVING NOT DEDUCTED TAX AT SOURCE ON SUCH COMMISSION PAYMENTS, SECTION 40(A)(IA) AUTOMATICALL Y STOOD ATTRACTED. ITA.846/BANG/2015 PAGE - 7 13. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTEN TIONS OF THE LD. DR. GROUNDS RAISED BY THE REVENUE RELIES ON CBDT NOTIFI CATION NO.56/2012, DT.31.12.2012 WHICH EXEMPTS CERTAIN TYPES OF PAYMEN T FROM DEDUCTION OF TAX AT SOURCE. SAID NOTIFICATION HAS BEEN ISSUED U NDER POWERS VESTED ON THE CENTRAL GOVERNMENT VIDE SECTION 197A(1D) OF THE ACT . NODOUBT ONE OF THE TYPE OF PAYMENTS MENTIONED IN THE ABOVE CIRCULAR IS CREDIT CARD/ DEBIT CARD COMMISSION ON TRANSACTIONS BETWEEN MERCHANT ESTABLI SHMENT AND ACQUIRER BANK. NOTIFICATION WAS EFFECTIVE FROM 01.01.2013. BUT IN OUR OPINION THIS NOTIFICATION CANNOT BE CONSTRUED IN A MANNER TO SAY THAT PRIOR TO 01.01.2013 CHARGES DEDUCTED BY THE BANK FROM CREDIT CARD PAYME NTS RECEIVED FROM CUSTOMERS OF THE ASSESSEE FELL WITHIN THE PURVIEW O F SECTION 194H FOR WARRANTING A DEDUCTION OF TAX AT SOURCE. AS MENTIO NED BY CIT (A), COORDINATE BENCH IN THE CASE OF TATA TELESERVICES ( SUPRA) HAD CLEARLY HELD THAT SUCH PAYMENTS WERE MORE IN THE NATURE OF BANK CHARGES THAN IN THE NATURE OF COMMISSION AND SECTION 194H OF THE ACT WO ULD NOT BE ATTRACTED. IN SUCH CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT (A). GROUND 3 STANDS DISMISSED. ITA.846/BANG/2015 PAGE - 8 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 10TH DAY OF N OVEMBER, 2015. SD/- SD/- (VIJAYPAL RAO) (ABRA HAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR