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TMI Blog2014 (7) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... IL) as income from property and not as business income. i) On the facts and in the circumstances of the case and in law, the CIT (A) erred in merely following the decision of the predecessor taken by him in the appeal for the AY 2006-2007 and dismissing the claim of the appellant that management fees (Royalty) received from Kamat Hotels (India) Limited was assessable as income from business and not as income from House property. ii) The Ld CIT (A) erred in failing to appreciate that; a) The income of Rs. 79,03,394/- received from KHIL by way of royalty for managing the appellant's hotel business in terms of the Business Contract Agreement did 1.4.1994, was taxable as income from business as accepted by the AO in earlier years from AYs 1995-96 to 2005-2006. b) The judgment of the Supreme Court in the case of Rahasoami vs. CIT [1992] 193 ITR 321 supported the appellant's case and the action of the AO in taking different view is contrary to the rule of consistency insofar as the income received by the appellant under the business contract agreement dated 1.4.1994 as accepted in all earlier years was for efficient and effective management of the appellant hotel and not an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l carried out by the assessee itself before entering the agreement was given to KHIL. An interest free security was also obtained from KHIL, which was refundable after completion of period entered into between the parties. The assessee was sharing a revenue at the rate of 1% of the revenue earned by the KHIL on account of running of hotel owned by the assessee. Though the CIT(A) has recorded the facts in his order that M/s KHIL was allowed to renovate the hotel or reconstruct the same from his own funds, but it does not mean that the character of asset owned by the assessee has been changed. The fact is that the assessee owned hotel, which was run by the assessee before entering into the agreement. Whatever the requirement of the hotel was there, the same was made by KHIL with its own fund as agreed upon. The character of the asset was that the entire hotel which was run by the assessee itself earlier was given under the agreement to M/s KHIL to run the hotel. Therefore, in our considered view, this was an exploitation of commercial asset for business purpose and whatever the receipts are received from exploiting of commercial asset for business use are to be treated as business re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon‟ble Supreme Court has held that if it is found that the main intention is for letting out the property or any part thereof, the same must be considered as rental income or income from property. In this case it is observed that if the main intention is to exploit the immovable property by way of complex commercial activities, it must be held as business income. The ratio of this decision, in our considered view, is applicable in the present facts of the case as the assessee has given the property for exploiting by way of complex commercial activities in the year of 1994 and from assessment year 1995-96 to 2005-06, the department has accepted the contention of the assessee holding that the receipt on account of leasing to KHIL are business receipt. 14.2 This is also a matter of fact that there was no fixed rate as the assessee was earning/receiving only 1% of the gross revenue receipts. From this fact, it is amply proved that the commercial asset was used by the assessee, and, therefore, any commercial receipt has to be treated as business receipt. It is further seen that as per agreement entered into between the assessee and M/s KHIL, the hotel premises will be handed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iddin Hotels Pvt. Ltd. (supra). Therefore, for this reason also, we are of the view that the receipt from M/s KHIL on account of leasing the hotel was business receipt. There is no dispute that the assessee is owner of the hotel given on lease to M/s KHIL. All the licenses and permissions are in the name of assessee. This is also a fact that the assessee was running its hotel itself before giving to M/s KHIL. Accordingly, in our considered view, the receipts received from KHIL are business receipt. Therefore, we allow this ground of the assessee and direct the AO to treat the business receipt against income from property treated by him." 6. Considering the above settled nature of the issue, we are of the opinion that the receipts received from KHIL constitute business receipts. Therefore, respectfully following the above cited order of the ITAT as well as following the principle of consistency, the ground no.1 raised by the assessee is allowed. 7. Ground no.2 relates to the disallowance u/s 14A read with Rule 8D. In this regard, Ld Counsel filed a chart to demonstrate that an identical issue was adjudicated by the Tribunal in various cases i.e., (i) Garware Wall Ropes Ltd vs Add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure has been incurred in relation to the exempt income then principle of apportionment embedded in section 14A has no application. The object of section 14A is not allowing to reduce tax payable on the non exempt income by deducting the expenditure incurred to earn the exempt income. In the case in hand it is not the case of the revenue that the assessee has incurred any direct expenditure or any interest expenditure for earning the exempt income or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which is taxable. For attracting the provisions of section 14A- "there should be proximate cause for disallowance which has relationship with the tax Garware Wall Ropes Limited, exempt income as held by the Hon'ble Supreme Court in case of CIT Vs. Walfort Share and Stock Brokers P. Ltd. ( 326 ITR 1). Therefore, there should be a proximate relationship between the expenditure and the income which does not form part of the total income. In the case in hand the assessee has claimed that no expenditure has been incurred for earning the exempt income, therefore, it was inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax Vs. Transmarine Corporation (CA No.5470 of 2011) and hence ought to have sustained the addition". 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in reducing disallowance u/s.14A of the Act r.w.r. 8D to Rs. 10,00,000/- from Rs. 21,40,262/- disallowed by the AO and also failed to interpret the provisions of section 14A of the Income Tax Act 1961 in its right perspective and true meaning. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in directing the A,O. to restrict the disallowance to Rs. 1,00,000/-, with appreciating that in the case of M/s. Godrej and Boyce Manufacturing Co. L Vs. DCTT (328 TTR 81) (supra)., their Lordships had upheld the contention of Union of India that Rule 8D is reasonable in its nature". 13. Ground no.1 and 2 relate to the taxability of management fee (Royalty) received by the assessee from Kamat Hotels (India) Ltd. In this regard, Ld Counsel mentioned that these are the alternate grounds to the issue in dispute i.e., whether the income from the hotel should be taxed as income from business or income from house property. Ld Counsel further mentioned that since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty for managing the appellant's hotel business in terms of the Business Contract Agreement did 1.4.1994, was taxable as income from business as accepted by the AO in earlier years from AYs 1995-96 to 2005-2006. d) The judgment of the Supreme Court in the case of Rahasoami vs. CIT [1992] 193 ITR 321 supported the appellant's case and the action of the AO in taking different view is contrary to the rule of consistency insofar as the income received by the appellant under the business contract agreement dated 1.4.1994 as accepted in all earlier years was for efficient and effective management of the appellant hotel and not an agreement for licence or lease or rent, and the income was related to the turnover of the Hotel. Further, the appellant continued in the business of hotels and restaurants, which facts were duly considered and accepted by department in all the earlier assessments from AY 1995-96 to 2005-06 and there is no change in the facts and circumstances in the year under appeal. c) For the grounds taken by the appellant in the appeal before the ITAT for AY 2006-2007, the appellant submits that the income received by it from KHIL is rightly assessable as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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