TMI Blog2007 (2) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... n depends on whether the assets have been used for less than or more than 180 days and the assets sold/discarded in the second half of the relevant previous years have been used by the assessee in its business for more than 180 days. Therefore, it was contended that the value received for the same is reduced from the opening WDV. This being the factual position, we are of the view that the assessee cannot be deprived of its claim of depreciation in relation to assets sold/discarded in spite of such assets used in its business. The AO is directed to verify the same and pass suitable orders. It is ordered accordingly. 3. The next issue arises under s. 43B of the Act. The AO disallowed a sum of ₹ 11,04,010 being the amount of provident fund contribution from the management for the month of March, 1998 on account of late deposit. The due date of deposit under the relevant law was 20th April, 1998 including grace period of 5 days. The actual deposit was made on 27th April, 1998. Therefore, the AO disallowed the amount. The assessee claimed that since the deposit was made well before the filing of return of income, the assessee could not be visited with the mischief of s. 43B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not result in any addition to the fixed capital of the assessee. The learned counsel for assessee relied on the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC). On the other hand, the learned Departmental Representative Smt. Swati Patil, fully supported the orders of the authorities below. She further submitted that by virtue of the MoU, the assessee had acquired right to use the central courtyard of Lallgarh Palace apart from the right to use marble installed in the central courtyard. The assessee has, thus, acquired an advantage of enduring benefit. Therefore, the expenditure would fall in the capital field. The expenditure could not be said to have been incurred to facilitate the trading operations of the assessee. The decision relied on by the learned counsel for assessee is not applicable to the facts of the case. She, therefore, contended that the orders of the authorities below have to be upheld. 6. We have heard the rival submissions and perused the records. It is an admitted fact that the aforesaid consideration of ₹ 10 lakhs was paid by the assessee for license to use marb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advantage may endure for an indefinite future. Therefore, we hold that the assessee is entitled to relief as claimed for. It is ordered accordingly. 7. Now let us consider the next issue in the appeal for asst. yr. 1998-99. The assessee is collecting service charges at 10 per cent of the bills raised on Banquet and Manor Club Victoria Room. These receipts were not included in the turnover of the assessee. The AO noticed that the assessee is charging 10 per cent in respect of bills raised for utilization facility in banquet hall in addition to tips, which have been mentioned as Add paid out . According to the AO, the bills include food and beverages supplied and also hall charges. Further, the AO held that the assessee was under obligation to deduct tax at source under s. 194C of the IT Act in respect of payments made by the assessee to the captains for disbursement of service charges to the employees. Therefore, there was investigation caused by the Revenue in this matter and subsequently the assessee was confronted with details of investigation. The assessee made various representations before the AO relying on Supreme Court decision as well as CBDT circulars. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) 10 per cent credited against breakages. (iii) 0.5 per cent credited against cafeteria subsidy. (iv) 20 per cent disbursed to the staff of hotel other than banquet employees. (v) 59.5 per cent disbursed amongst banquet employees through banquet captain. The learned counsel for assessee further pointed out that banquet captains might, depending on requirement of the function, have to engage casual employees to help employees in preparing/attending to the function. There is no privity of contract between the assessee and the casual workers. Banquet employees are expected to pay casual workers out of their share of service charges. As in the past, during the relevant assessment year, the assessee collected service charges amounting to ₹ 89,29,312 at 10 per cent of the bills raised on banquets and Manor club, Victoria room for disbursement to the banquet employees of the assessee. The learned counsel for assessee further pointed out that for the first time in the present assessment year the AO came to the conclusion that service charges collected by the assessee constituted income of the assessee. The AO, while allowing deduction for 59.5 per cent of the total co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the processing and hence, the accounts have neither receipt nor payment in its books. Since service charges were not received by the assessee on its own, no income arose to the assessee from the same. He finally concluded that the orders of the authorities below are not in accordance with law and the claim of the assessee has to be accepted. 11. On the other hand, the learned Departmental Representative Smt. Swati Patil contended that service charges collected by the assessee @ 10 per cent of the bills are receipts of the assessee and should have been included in the receipts of the assessee because they are not tips in nature. Tips have also been received separately which have been shown in the statement under a separate head 'add paid out'. She further submitted that the decision of Supreme Court relied upon by the assessee is not applicable to the assessee as facts are distinguishable and the decision relates to tips and not to service charges. The assessee suppressed receipts and provisions of s. 271(l)(c) are attracted. Payments have been made to the captains by bearer cheque against the provisions of s. 40A(3). Payments made to captains are in the nature of cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), the apex Court was pleased to hold as under : Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 14. In the case in hand the facts are similar to the previous assessment years. It has been submitted that the fact that service charges collected by the assessee are diverted by overriding title in favour of the banquet employees, has been accepted by the Revenue not only in the case of the assessee but also for the entire hotel industry. Therefore, such position should not be allowed to be disturbed without there being change in facts and unless the facts are different in this year. The assessee claimed that they are only custodian/trustee for the service charges and no income arises to the assessee from service charges as the same were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where no service charges we're levied by the assessee in Welcome Group Vadodara, Baroda. Adjustment on account of breakage only is made and the balance amount is distributed directly to the banquet staff and not through banquet captain. In Umed Bhavan, Kota, no adjustment is made out of banquet service charges. The assessee had cited certain instances where no service charges were collected. It has been submitted that in Lallgarh Palace, Bikaner and Bay Island, Port Blair no service charges were collected. It has been argued that the fact that Bikaner and Port Blair hotels do not collect service charges rebuts the AO's presumption that payment of banquet service charges is not voluntary. 16. As regards various items of adjustments the assessee has submitted that the AO never raised a specific query regarding admissibility of any particular item. The assessee has also objected to the AO's observation that the deductions on account of contribution to welfare fund, breakage, cafeteria subsidy etc., are mere provisions. It has been pointed out that gross breakage as reduced by the breakage credited on account of service charges has been debited to the PandL a/c. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e personnel manager of Windsor Sheraton and Towers stated as under : This has reference to the tripartite discussion held in your presence on various dates on the above subject. You will kindly appreciate that we have participated in the proceedings without prejudice to our rights and contentions contained in our letter dt. 28th July, 1997. However in response to the suggestion made by you during the discussion, it is agreed that the management will withhold 20 per cent of the service charges collected by the staff on their behalf w.e.f. 15th Sept., 1997. The modalities of distribution of this amount will be agreed upon at a later date and that the present dispute before you can be closed as warranting no further conciliation/consideration. In the event of the union not agreeing to the above, our contention vide our letter dt. 28th July, 1997 will stand revived. This clarifies that there was a union problem relating to the disbursement of tips collected from the customers and there was a reconciliation before the Asstt. Labour Commissioner. Therefore, the existence of the staff union cannot also be doubted. 19. During the first appellate proceedings, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which as per the practice of the trade, is maintained by the banquet captain. I, Joseph Reeves deponent abovenamed hereby solemnly affirm and state as under : 1. That I was working as a banquet captain at Hotel Chola Sheraton, Chennai, owned by ITC Hotels Ltd., during the financial year 1997-98. 2. That I am aware that the management of the hotel collects service charges on banquet functions for further distribution among banquet staff. 3. That as per understanding between the service staff and the management, 55 per cent (fifty-five per cent) of the amount received as banquet service charge is distributed among banquet service staff including casual workers engaged in banquets and the balance is adjusted by the management towards breakage (15 per cent), room service staff (12.5 per cent) and contribution to staff welfare fund (17.5 per cent). 4. That during the financial year 1997-98 I had received an aggregate sum of ₹ 5,66,411 from the management towards banquet service charges and that the entire sum so received by me was distributed among banquet service staff. I, S. Sankar deponent abovenamed hereby solemnly affirm and state as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1195/Del/2002, dt. 30th Nov., 2005. Respectfully following the same, this ground of the assessee is allowed. The AO is directed to recompute the deduction in line with ratio of the decision in the case of Maxcare Laboratories Ltd. (supra). 22. The last ground of the assessee is regarding the computation of deduction under s. 80HHD of the IT Act. The assessee had claimed ₹ 11,16,28,859 as deduction under s. 80HHD. The AO allowed deduction on the basis of the assessee's income from its entire business as a whole and whereas the assessee's claim is on the basis of income from each eligible hotel of the assessee. The issue on hand has been considered by 'B' Bench of this Tribunal in the assessee's own case in ITA No. 280/Bang/2001 and CO No. 27/Bang/2001 dt. 30th Oct., 2001. The Bench had observed that the assessee owned some hotels and in respect of them turnover and profits are accounted for in the books of account of the assessee. The second category of hotels are those, which are run on licence by the assessee. In these hotels also the turnover and profits vest with the assessee on payment of license fee to the owner of the property, which is calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing this order of the co-ordinate Bench we allow the claim of the assessee. This ground of appeal of the assessee is allowed. 24. Now, we deal with ITA No. 364/Bang/2005 for asst. yr. 1995-96. The first issue that arises for our consideration in this appeal is whether the reopening of assessment is bad in law. This issue forms ground Nos. 1 to 1.4 of the assessee's grounds of appeal. Ground Nos. 2 to 2.3 are dismissed as not pressed. Ground Nos. 3 and 4 are on the issue of bringing to tax part of receipt pertaining to banquet service charges. Ground No. 5 is on the issue of computation of deduction under s. 80-IA. Ground No. 6 is on the issue of computation of relief under s. 80HHD. Ground No. 7 is against levy of interest under s. 234B of the Act. 25. We first consider the issue of reopening. The brief facts are as follows : The assessee is engaged in the business of running hotels. For the previous year ended 31st March, 1995 relevant to asst. yr. 1995-96, the assessee filed return declaring 'Nil' income after setting off of unabsorbed depreciation for earlier years. The return was processed under s. 143(1)(a). 25(i). Notice under s. 148 dt. 22nd Jan., 2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved on the assessee. Order-sheet noting and postal receipt of dispatch cannot be considered as evidence in support of the fact that the notice has been served. Thus our factual finding is that the claim of the assessee that it had not received any notice, has not been disproved by the Revenue by submitting adequate proof of service of notice. 25(iv). Sec. 148 reads as follows : 148. Before making the assessment, reassessment or recomputation under s, 147, the AO shall serve on the assessee a notice........ A plain reading of the section clearly shows that the AO cannot assume jurisdiction without service of notice on the proper person. We draw strength from the decision of the Kerala High Court in the case of P.N. Sasikumar vs. CIT (1988) 69 CTR (Ker)78 : (1988) 170 ITR 80 (Ker) in support of our finding. 25(v). The assessee, in this case, had raised preliminary objection that no notice under s. 148 was served on him and no effort was made by the Revenue to address this specific averment of the assessee. Thus on facts and circumstances of the case we have to quash the order dt. 28th March, 2002 passed by the AO under s. 144 r/w s. 147 of the Act for asst. yr. 1995- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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