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RHW Hotel Management Services Ltd. Versus Deputy Commissioner of Income tax, Circle-1 (1) , New Delhi

2016 (4) TMI 580 - ITAT DELHI

TDS u/s 194J - expenditure incurred on payments made to M/s A.B. Hotels Ltd. under the memorandum of understanding with M/s A.B. Hotels Ltd - non deduction of tds - disallowance u/s 40(a)(ia) - Held that:- The assessee was not to receive any serviced from AB Hotels Ltd. AB Hotels owned the brand namely, “The Great Kabab Factory”, which was to be promoted by the assessee through providing franchises to various persons in India. The assessee was to charge fees from various persons who wanted to us .....

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h franchises.

Thus, the year under consideration under the aforesaid MOU, assessee earned a total sum of ₹ 1,78,75,045/- and in accordance with the aforesaid letter dated 23.20.2007, an amount of ₹ 44,68,763/- paid to M/s A.B. Hotels Ltd. was in the share of revenue of M/s A.B. Hotels Ltd. and as such, tax was not required to be deducted in terms of section 194J of the Act and such disallowance made under section 40(a)(ia) is unwarranted and unsustainable in law. - Decided .....

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below are as under; 2.1. The assessee filed its return of income on 30.09.2009 declaring a total income of ₹ 1,64,18,893/-. In doing so, it declared in the profit and loss account on the credit side, income of ₹ 1,78,75,045/- and, on the debit side sum of ₹ 44,68,763/. The assessee had claimed royalty and commission of ₹ 56,97,904/-. Out of total expenditure of ₹ 56,97,904/-, revenue sharing with A.B. Hotels amounted to ₹ 44,68,763/- and finder fee paid, amou .....

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ng for revised terms; ........... • 50% of the revenue will be adjusted towards expenditure of RHW and the balance 50% will be shared in the ratio of 50:50 between A B Hotels & RHW. • The salary of Chef Vakeel Ahmed will be borne by A B Hotels. 2.3. The ld. AO accordingly held as under; 3.3 The assessee had deducted tax source on all payments made to A B Hotels Ltd. but for royalty. In view of the above, the assessee had clearly violated the provisions of section 194J of the IT Act .....

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ncurred on payments made to M/s A.B. Hotels Ltd. under the memorandum of understanding with M/s A.B. Hotels Ltd. dated 27.03.2000 (see pages 17-18 of the Paper Book) and disallowed by the learned AO by invoking the provisions of section 194J of the Act read with section 40(a)(ia) of the Act. 4.2. Ld. AR submitted that, assessee was incorporated as a joint venture company of M/s Radisson Hotel International Inc. and Unitech Group, and has been engaged in the business of promoting a brand and basi .....

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orandum of Understanding with A.B. Hotels Limited (see page 3-4 of the Paper Book) who was the owner of the brand The Great Kabab Factory to form a joint venture for the development and franchise of the brand The Great Kabab Factory (hereinafter referred to as MOU ). 4.5. It is submitted that, subsequently the terms and conditions of the aforesaid MOU were revised vide letter dated 23.10.2007 (see pages 5-6 of the Paper Book). 4.6. It is submitted that, pursuant to the above MOU, the assessee en .....

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he aforesaid sum, share of the M/s A.B. Hotels Ltd. under the joint venture was calculated (as envisaged in the MOU dated 27.03.2000 read with letter dated 23.10.2007) at ₹ 44,68,763/- (see pages 28-32 of the Paper Book). 4.8. The ld. AR submitted that, assuming that, sum paid under the revenue sharing arrangement is expenditure, then too application of section 194J of the Act is highly misconceived. 4.9. It was thus submitted mere fact under the MOU between the assessee and M/s A.B. Hotel .....

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el, Delhi and is paid the share of fee being the royalty to utilize the name of Radisson Hotel Delhi is factually incorrect. 4.11. From the substance of the transaction, it is seen, that share of M/s A.B. Hotels Ltd. were never the income of the assessee. Ld.AR placed is reliance on the decision of Hon ble Supreme Court in the case of CIT VS B.M. Kharwar reported in 72 ITR 603 (SC), where it was held that, legal relation alone can determine the taxability of the receipts arising from the transac .....

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27 of Paper Book) wherein it would be seen that in respect of the income so generated no services are being provided by Radisson Hotels, Delhi. 5. On the other hand Ld.DR places his reliance on the decision of the authorities below. 6. We have perused the record placed before us, the order of the authorities below and the judgments relied upon by the parties. 6.1. In the instant case payment made of ₹ 44,68,763/- by the assessee to M/s A.B. Hotels was not for the purpose of acquisition of .....

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ory always remained with M/s A.B. Hotels Pvt. Ltd., and franchises who were introduced by the assessee were using the Brand The Great Kabab Factoyr i.e. they were operating under the brand The Great Kabab Factory for its own. 6.2. The remittance by the assessee to AB hotels Ltd., was only a diversion of , on which AB hotels Ltd., had an overriding title. Such income to the extent of share of AB Hotels, never accrued to the assessee in its own rights. The assessee acted merely as a facilitator to .....

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aforesaid fee received by the joint venture was to be shared between the assessee and M/s A.B. Hotels Ltd. It is submitted that out of the Development Fee, Royalty and the Management Incentive Fee, 20% was allocated towards expenditure to be borne by assessee, and balance of 80% was to be shared equally between M/s. AB hotels Ltd and assessee. It is submitted that this initial arrangement of the revenue sharing was modified by the letter dated 23.10.2007 which provided as under: • 50% of th .....

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