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2015 (9) TMI 13 - ITAT PANAJI

2015 (9) TMI 13 - ITAT PANAJI - TMI - Income from hotels - income from business or house property - Held that:- The inference drawn by the Assessing Officer that the assessee intended to let out the hotels on rent and earn rental therefrom is not justified. Our this view also finds support from the decision of the Hon'ble Bombay High Court in the case of Mohiddin Hotels P. Ltd. (2005 (9) TMI 46 - BOMBAY High Court ), wherein in the similar facts and circumstances of the case has held that when t .....

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rmity in the order of the Commissioner of Income Tax (Appeals), which is hereby confirmed and the grounds of appeal of the Revenue are dismissed. - Decided against revenue. - ITA No. 382/PNJ/2014 - Dated:- 9-7-2015 - N. S. Saini, AM And George Mathan, JM,JJ. For the Appellant : Shri V Srinivasan, CA For the Respondent : Shri B Balakrishna, DR ORDER Per N. S. Saini, Accountant Member This is an appeal filed by the Revenue against the order of Commissioner of Income Tax(Appeals), Panaji, dated 06/ .....

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CIT(A) was right in concluding that the assessee had intention to run the business of hotel and in allowing the benefits of depreciation to the assessee under the facts and circumstances of the case?" 3. Brief facts of the case are that the company is managed by three Directors namely Mr. Matthias Helmut Schwaighofer, Mr. Vikram Sundarji and Mr. Vivekanand Pednekar. 99% of the shares are held by Mr.Matthias Helmut Schwaighofer promoter of the company. The project is totally financed out of .....

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r managing such a small project. He hired the services of Shunya Project Consultancy Pvt. Ltd. The Shunya Project Consultancy Pvt. Ltd is managed by Mr. Vikram Sundarji and Mr. Vivekanand Pednekar who have a vast experience in managing the resorts. There is a management agreement dated 01.12.2008 wherein the Shunya Project Consultancy Pvt. Ltd have been appointed as 'Mangers' and have taken the responsibility of marketing the hotel rooms and they are entitled to 40% of the net profits as .....

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g the hotel. The facts and circumstances of the case are very clear that the assessee had never started the business and the assessee was left with no concern in the business of hotel and, therefore, an inference is to be drawn that the assessee intended to exploit the property and not the business asset as held by the Bombay High Court in the case of CIT vs. Mohiddin Hotels Pvt. Ltd. and another. Accordingly, he treated the income from hotels as 'income from house property' in place of .....

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basis. Commissioner of Income Tax (Appeals) further observed that as per the terms of agreement between the assessee company and M/s. Shunya Project Consultancy Pvt. Ltd., all the rooms in the hotels were furnished by the assessee company which included air conditioners, generators, crockery, computers, telephones, bed-sheets, blankets, face towels etc. Even the incidental expenses like insurance, repairs and maintenance etc. were borne by the assessee company. Further, there are common Director .....

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ssessee company always intended to do business of hotels, which is also clear from its conduct. Its income depends on the profitability of the hotels as he is a sharer of the profits. Since the hotel did not make any profits, the assessee did not receive any money. There is also no doubt about the usage of the hotel building as the same is admittedly being used for running of the hotel and depreciation is an allowable expense on the hotel buildings. Further, the general mandate under the Income .....

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partmental Representative fully justified the order of the Assessing Officer whereas the Authorized Representative of the assessee relied on the decision of the Hon'ble Supreme Court in the case of Chennai Properties and Investments Ltd. Vs. CIT reported in 373 ITR 673 (SC) and submitted that the Hon'ble Supreme Court has held as under:- "The main object of the assessee-company, as stated in its memorandum of association, was to acquire and hold the properties known as "Chennai .....

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Officer, however, refused to tax it as business income and instead treated it as income from house property and taxed it accordingly under that head. The assessee appealed before the Commissioner (Appeals) who held it to be income from business and the Appellate Tribunal declined to interfere with the order of the Commissioner (Appeals). The Department appealed to the High Court which held that the income derived by letting out of the properties would not be income from business but could be ass .....

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9 (Bom.) , wherein it was held as under:- "An agreement dated February 1, 1987, was entered into between the asses-see and a company, S. The agreement recited that the assessee had recently completed construction of a building comprised of a ground floor and three upper floors on a plot of land situated in the town of Vasco da Gama with a view to running a hotel therein. The hotel at the time of the execution of the agreement was ready for the purpose of commissioning the hotel business. S .....

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he business of hotel for a period of 20 years commencing from February 1, 1987; that S alone shall be entitled to terminate the agreement after the expiry of a period of 10 years by giving one year's prior notice in writing to the assessee; that S shall pay a fixed amount of ₹ 7,80,000 per annum for the first 10 years and ₹ 10,20,000 per annum for the next five years and ₹ 12,00,000 per annum for the next five years; that S shall be in charge of the entire management, runni .....

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cy of the agreement; that S shall bring in their own staff for running the hotel and also for keeping and maintaining the said hotel in good condition, subject to natural wear and tear; that the assessee shall pay property tax, house tax or any other taxes, levies and public charges; that S shall have the right to replace the fittings, fixtures and any installations in the hotel in the event of their becoming unserviceable or unfit for use due to normal wear and tear; that the assessee did not h .....

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tings and items of machinery and other equipment affixed to and/or existing in the said building after intimation to the assessee; that S shall not be liable to render accounts to the assessee and that the agreement was not intended to transfer the hotel to S, but to improve the management thereof, so as to run it efficiently and profitably. The Assessing Officer treated the income received by the assessee in the previous year relevant to the assessment year 1990-91 from S in the form of guarant .....

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mplete with fittings and fixtures and ready for commencing the business was apparent from the agreement. The fact that all licences, permissions and no objection certificates required for running hotel were to be obtained in the name of the assessee was a pointer to the aspect that the assessee intended to exploit the business asset (the hotel). The income of ₹ 7,80,000 received from S in the hands of the assessee was income from business under section 28 of the Income-tax Act, 1961." .....

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the assessee. Therefore, it was his contention that in the subsequent years, the Assessing Officer was not justified in treating the income from the said hotels as 'income from house property'. 11. After considering the rival submissions and perusing the material on record, we find that in the instant case, the assessee is the owner of Mandrem Hotel at Kajuvaro and Siolim Hotel at Noivaro. All the rooms of the hotels are fully furnished by the assessee company. The assessee by entering i .....

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r to the assessee as revenue sharing in respect of each hotel. The assessee was to incur the expenses for insuring the properties against all liabilities. According to the assessee, no income was earned by running these two hotels by M/s. Shunya Projects Consultancy Pvt. Ltd. as managers. No income was paid to the assessee and therefore, no income was declared in the return of income filed by it. However, depreciation on these two hotels was claimed by the assessee. The Assessing Officer had tre .....

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not started the business and therefore, the intention of the assessee was not to exploit the assets as business assets but to earn rental income, and therefore, assessed the income from these properties under the head 'income from the house property'. We find from the reading of the order of the Hon'ble Bombay High Court in the case of Mohiddin Hotels P. Ltd. (supra) that the Hon'ble High Court has observed that the period for which the business assets are let out is always a rel .....

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01/12/2008, the assessee was already using these properties as hotels and the income shown from these hotels was assessed in the assessment year 2006-07 in the assessment made u/s. 143(3) of the Act by the Assessing Officer as the 'business income' of the assessee. Further, we find from the reading of the agreement dated 01/12/2008 that it does not provide for any rental income for the year, but provides for sharing of profit in the ratio of 60% and 40%. Further, the hotels which were g .....

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l therefrom is not justified. Our this view also finds support from the decision of the Hon'ble Bombay High Court in the case of Mohiddin Hotels P. Ltd. (supra), wherein the Hon'ble High Court in the similar facts and circumstances of the case has held that when the agreement did not relate to a bare tenement but was in respect of the hotel, the hotel was complete with fittings and fixtures and ready for commencing the business, all licences, permissions and no objection certificates req .....

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