TMI Blog2013 (9) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 (Delhi) of 2012 - - - Dated:- 17-5-2013 - DIVA SINGH AND B. C. MEENA , JJ. For the Appellant : Piyush Koushik. For the Respondent : D.K. Gupta. ORDER:- These are three appeals filed by the assessee against the orders of the Assessing Officer u/s 143(3) read with Section 144C of the Income-tax Act 1961 for 2007-08, 2008-09 2009-10 assessment years. All these appeals are being decided by common order for the sake of convenience. 2. The grounds raised in ITA No. 5481/Delhi/2012, 2007-08 Assessment year read as under:- "1. That the Assessing Officer has erred in law and on facts in disallowing appellant's claim for revenue expenses amounting to Rs. 9,53,34,915/- holding that the business of the appellant had not been set up during the relevant assessment year. 1.1 That the AO has erred in holding that, the business of the appellant can be said to be set up only when the appellant's customers construct the hotels wherein the appellant has agreed to provide services. 1.2 On the facts and circumstances of the case, the A.O failed to appreciate that the business of the appellant was set up on 1 February, 2006 and the above expenditure being inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why expenses of Rs. 9,53,34,915/- should be allowed. The relevant order sheet noting dated 13/08/2009 is reproduced as under:- "As per the details accompanying your return of income, you have not started any business in India. In view of this please explain why the expenses claim by you in the profit and loss account should not be disallowed and added to your total income since business has not commenced in India." 5.1 The assessee claimed that it is a Company incorporated in Singapore and is engaged in the business of providing various hotel related services and is a tax resident of Singapore. It was explained that it had set up a Branch Office in India with the approval of RBI dated 19/10/2005 who permitted the assessee to provide the management services to hotels in India. It was also submitted that:- (a) After obtaining the permission of the RBI for setting up of Branch Office (BO) in India, the assessee was ready to commence its business. (b) It employed few employees including two expatriates, took a fully furnished office on rent and negotiations started with various parties. (c) The negotiations got converted into final agreements with Classic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as per the agreements, provided by the assessee it was seen that almost all the agreements were similar. Perusing the first agreement dated 14/10/2006 with Bridge Enterprises Pvt. Ltd. the A.O observed that the other agreements entered on March 2007 were also similar. Accordingly after extracting the various terms and conditions from the contracts he culled out the salient points for consideration. The relevant extracts reproduced from the Assessment order are as under:- 5.3 BRIDGE ENTERPRISES PRIVATE I.IMITEO AND STARWOOOD ASIA PACIFIC HOTELs RESORTS PTE;. LTD. 4 OCTOBER 2006 OPERATING AGREEMENT This Operating Agreement (this "Agreement") is entered into as of the Effective Date;. between BRIDGE ENTERPRISES PRIVATE LIMITED, ~ private limited company under the laws of India having its registered office at Penthouse, Brigade Towers, 135. Brigade Road, Bangalore, India ("Owner"), and STARWOOD ASIA PACIFIC HOTELS RESORTS PTE. ITD., a Singapore company, having its registered office at 6 Temasek Boulevard, #40-01, Suntec Tower 4, Singapore Q38986. and having its registered branch office in India ("Operator"). Owner and Operator are sometimes referred to collectively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically to: (a) establish rates for the usage of all Guest Rooms and other Hotel facilities, including all (i) room rates for individuals and groups. (ii) charges for room service, food and. beverage, (iii)' charges for recreational and other guest amenities at the Hotel, (iv) policies with respect to discounted and complimentary room food and beverage and other services at the Hotel. (v) billing policies (including entering into agreements with credit card organizations). (vi) price and rate schedules, and (vii) rents, fees and charges for all leases, concessions or other rights to use or occupy and public space in the hotel; .. (q) prepare and submit to Owner the Operating plan for each Operating Year in accordance with Section 5.1;...... ARTICLE 3 FEES AND EXPENSES 3.1 Operating Fees 3.1.1 Payment of Operating Fees. For the services to be provided by Operator under this Agreement, Owner shall pay to Operator the Operating Fees. Owner shall pay the Operating Fees monthly in arrears based on the Operating Fees accrued for the immediately preceding month. All Operating Fees shall be set forth in the Operating Reports required under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if Owner or its authorized representative is unwilling or unable to participate in the interview within fifteen days after Operator's offer. Owner shall not unreasonably withhold or delay its approval of the candidates, and Owner shall be deemed to have approved the candidates, unless Owner delivers notice of its disapproval of such appointment within ten days after Operator's offer to Owner to interview the candidates or Owner's interview of the candidate. whichever is later. Owner acknowledges that it may not reject more than three candidates proposed by Operator for the positions of general manager. Financial controller or chief engineer . 5.11.3 Pre-Operating Period- Owner acknowledges that, notwithstanding anything to the contrary in this Agreement, except for the opening Services and the services to be provided by Consultant pursuant to the Technical Services Agreement, exhibit I;) and E of this Agreement an~ the Operating Support Agreement, Operator and its Affiliates shall have no obligations to provide any services for the Operation of the, hotel prior to the commencement of the Operating Term on the Opening Date ARTICLE 6 CONSTRUCTION OF HOTEL 6.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation within six months after the Effective Date, then Operator shall have the right to terminate this Agreement by providing notice to Owner, with no liability whatsoever to Owner for such termination. IN WITNESS WHEREOF, the Parties hereto have duly executed this Operating Agreement as of the Effective Date. Effective Date shall mean the date on which this Agreement is executed by the Parties. Operator countersigns the Agreement, as set forth next to its signature line at the end of the Agreement .. EXHIBIT TO OPERATING AGREEMENT PRE-OPENING SERVICES Subject to Owner's performance of its obligations during the Pre-Opening Period, Operator shall perform the following services during the Pre-Opening Period in order to facilitate a proper and orderly opening Of the Hotel (collectively, the "Pre-Opening Services"): 1.1 Pre-Opening Budgets. 1.1.1 Proposal of Pre-Opening Budgets. Operator shall prepare the following budgets for pre-opening activities (each a "Pre-Opening Budget" and collectively, the "Pre-opening Budgets") for Owner's review and approval. (a) A plan and budget for all Pre-Opening Services provided Owner (including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.4 From the above clauses the crucial points that emerge are: The owner has not started the construction of the hotel in respect of which the assessee is required to render services. The owner intends to construct the hotel. (b) Once the Hotel comes into existence, then the assessee is required to operate all the aspects of the hotel. (c) The assessee is required to prepare and deliver to the assessee a proposed budget for the first operating year, 60 days prior to the Anticipate opening date. Needless to say that the agreement is silent as to when precisely is the opening date. This is because the hotel has not been constructed and the owner is not aware as to when the construction can be completed. (d) Operator shall recruit, screen, appoint, hire, pay, train, Supervise, instruct and direct the Hotel's general manager and department heads, etc. However, none of these activities has started. (e) "Pre-Opening Period: Owner acknowledges that, notwithstanding anything to the contrary in this Agreement, except for the Pre-Opening Services and the services to be) provided' by Consultant pursuant to the Technical services Agreement, Exhibit D and E o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Ltd. v. CIT [1954] 26 ITR 151 (Bom) wherein it had been held that the certificate of commencement of business issued by the Registrar of Joint Stock Companies is not relevant for deciding the date of setting up of the business . Thus the AO was of the view that simply because few staff including two expatriates had been appointed and a completely furnished office was taken on rent and the fact that commencement certificate is issued it cannot be said that the business had commenced as it was to commence only when the hotel is constructed. 6.5 Accordingly he was of the view that since the draft assessment order was confirmed by the Dispute Resolution Panel vide its order dated 30th September, 2010 income as proposed in the draft assessment order was assessed. 7. Similarly, in 2008-09 assessment year identical claim of expenditure was disallowed. In the said year the assessee had submitted copies of agreements which were found to be similar to the agreements pertain to 10 hotels. The particulars of the 10 agreements were set out in Page 4 of the A.O and are being reproduced for ready reference:- S.No. Name of Customers Address Name of Hotel Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the A.O in the draft assessment order and the action was confirmed by the DRP consequent to which the final assessment order was passed. 9. Aggrieved by this in each of the years the assessee is in appeal before the Tribunal. 10. Ld. A.R inviting attention to DRP's order dated 30/9/2010 in 2007-08 assessment order submitted that the Dispute Resolution Panel has dismissed the claim of the assessee by way of non-speaking order as such it was his humble prayer that the issue may be restored back to the DRP with the direction that the issues are disposed by way of a speaking order so that the objections of the assessee are considered. It was the stand of the ld. A.R that elaborate arguments on facts and position of law on the issues were addressed before the DRP against the action proposed by the Assessing Officer in the draft assessment order. Attention was invited to Form No-35 A filed before the DRP. 11. We have heard the rival submissions and perused the material available on record .It is seen that in 2007-08 arguments advanced before the DRP were disposed in the following manner:- "The above assessee has filed objections u/s 144c(2)(b) of the Income Tax Act, (t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any propose variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. 8. If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. 9. Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer, 10. No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the revenue, respectively. 11. No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. 12. Upon receipt of the directions issued under sub-section 95), the Assessing Officer shall, in conformity with the directions complete, notwithstanding anything to the contrary contained in Section 153, the assessment without providing any further opportunity of be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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