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2016 (11) TMI 965 - CALCUTTA HIGH COURT

2016 (11) TMI 965 - CALCUTTA HIGH COURT - [2016] 387 ITR 201 - Deduction u/s 80HHD - whether the reserve amounting to a sum of ₹ 44,68,966/- was properly utilized - Held that:- It is not in dispute that HRL has set up a new hotel which commenced business on April 1, 2002, i.e. to say in the same financial year in which the money was invested. It is also not in dispute that the prescribed authority has granted approval to HRL. The proceeds of the issue could be used for running of the new h .....

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on March 28, 2003, shows that the funds were required by HRL for further diversification and expansion of the existing business. - Expansion and diversification, according to us, are both activities pertaining to running of a hotel or any business for that matter. It could not, therefore, have been said that the reserve of a sum of ₹ 44,68,966/- was utilised by the assessee for a purpose not authorised by the statute.In that view of the matter, the addition was unwarranted altogether .....

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any part of the money due and owing by HRL to the assessee was spent for any personal business of any of the directors. Thus the addition made by the Assessing Officer and upheld by the CIT(A) and the learned Tribunal are not sustainable - Decided against revenue - Rental income received - assessable as business income and not under the head ‘house property’ - Held that:- Hotel is obviously a business of the assessee. Terrace of that hotel was utilised for the purpose of installing a tower a .....

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f the hotel should also be similarly treated. The assessee is not prepared to have his income from hotel assessed as income arising out of house property. Therefore, the view taken by the learned Tribunal is a correct view. - Decided against assessee - ITA No. 20 of 2009 - Dated:- 23-6-2016 - Girish Chandra Gupta And Asha Arora, JJ. For the Appellant : Mr. J. P. KHAITAN, MR.SANJOY BHOWMIK,ADVOCATE For the Respondent : MR. R. N. BANDYOPADHYAY, MS.SOMA CHATTERJEE ORDER The Court : The appeal is di .....

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peal of the revenue and dismissed the cross objection filed by the assessee. The appeal preferred by the assessee was partly allowed. The assessee has come up in appeal. The following questions were formulated on 1st July, 2010 when the appeal was admitted by this Court:- (a) Whether on a true and proper interpretation of sub-section (4) of section 80HHD of the Income Tax Act, 1961, the Tribunal was justified in law in upholding the addition of ₹ 44,68,966/- and its purported findings in t .....

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tified in law in holding that the rental income received from Spice Cell Ltd. was assessable as business income and not under the head house property and in not following its orders for the assessment years 2001-02 and 2002-03 ? The learned Tribunal upheld the addition of a sum of ₹ 44,68,966/- for the following reasons. We have carefully considered the issue. It is seen from the details given at pages 36,37 of the Paper Book that the foreign exchange reserve was utilized by the assessee d .....

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India which affected the hotel occupancy ratio and the overall performance of the hotel. It is also very clear from the minutes of the meeting of the Board of Directors of the Hospitality Resorts Ltd. held on 28-03-2003 that the assessee had subscribed for ₹ 9.5 crore equity shares for Hospitality Resorts Ltd. allotted @ ₹ 1 per share at a premium of ₹ 1 each. It is very clear from the page one of the aforestated minutes of he meeting of Hospitality Resorts Ltd. that the funds .....

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fore, see no reason to interfere with the decision of the lower authorities. The grounds no.1 and 2 of the appeal of the assessee are rejected. The learned Tribunal did not notice the fact that as on 1st April, 2002, the assessee had a credit balance with HRL for a sum of ₹ 17.38 crores. Subsequent to 1st April, 2002, the assessee made payments on behalf of the HRL to the extent of ₹ 2.15 crores. The total thus worked out to a sum of ₹ 19.53 crores which was more or less adjust .....

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capital of HRL, according to the assessee, included a sum of ₹ 44,68,966/- conforming to the reserve or part thereof created by the assessee under sub-section 4 of Section 80HHD. The question for consideration was whether the reserve amounting to a sum of ₹ 44,68,966/- was properly utilized? Under clause (a) to sub-section (4) of section 80HHD, the reserve has to be utilised in any of the six ways appearing in clauses (a) to (f) of subsection (4). Clause (a) provides for constructio .....

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g on the business of- (i) setting up and running of new hotels approved by the prescribed authority; or (ii) providing such new facility for the growth of tourism in India, as the Central Government may, by notification in the Official Gazette, specify. It is not in dispute that the assessee has invested a sum of ₹ 19 crores in the share capital of HRL. The assessee is seeking to take advantage only to the extent of ₹ 44,68,966/-. The case of the assessee is that the aforesaid sum ha .....

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commenced business on April 1, 2002, i.e. to say in the same financial year in which the money was invested. It is also not in dispute that the prescribed authority has granted approval to HRL. The proceeds of the issue could be used for running of the new hotels under sub-clause (a) and could also have been used for the purpose of providing new facility for the growth of tourism in India. The learned Tribunal did not record any finding that the money invested by the assessee or any part thereo .....

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any business for that matter. It could not, therefore, have been said that the reserve of a sum of ₹ 44,68,966/- was utilised by the assessee for a purpose not authorised by the statute. In that view of the matter, the addition was unwarranted altogether and the finding in that regard is arbitrary and perverse. The second question formulated is as follows: (b) Whether the Tribunal was justified in law in upholding the addition of notional interest of ₹ 40,89,045/- made by the Assessi .....

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interest amounting to ₹ 40,89,045/- @13% on the above amount is added back to the total income of the assessee for the year. The aforesaid opinion was formed by the Assessing Officer because- During the year the assessee company has debited interest on loan (Secured & Unsecured) amounting to ₹ 2,11,65,052/-. The rate of interest appears more or less 13%. On the other hand the assessee has shown a recoverable outstanding balance of advance to a subsidiary of the assessee company .....

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less the assessee could have charged interest in law, the addition made by the Assessing Officer cannot be supported. Mr. Khaitan, learned Senior Advocate, drew our attention to sub-section (4) of section 55 of the Transfer of Property Act, which provides as follows: (4) The seller is entitled8 (a) to the rents and profits of the property till the ownership thereof passes to the buyer; (b) where the ownership of the property has passed to the buyer before payment of the whole of the purchase-mon .....

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and the seller as would appear from section 55 of the Transfer of Property Act, which provides as follows: 55. Rights and liabilities of buyer and seller.- In the absence of a contract to the contrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold. He submitted that the Assessing Officer has not pointed out any contract between the buyer .....

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interested in the well being and development of its subsidiary. Even otherwise, consideration is fixed by taking into account all aspects of the matter. It is not that the assessee was not aware that the recovery of the sale proceeds is likely to take sometime. So, keeping that in view, the sale price was fixed. He submitted that it cannot in any event be contended that the assessee has suffered any loss. Mr. Bandopadhyay, learned Advocate appearing for the revenue, has not disputed that neithe .....

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interest or there was any stipulation not to pay interest. We cannot make any speculation either in that regard. We may, therefore, not be inclined to rest our judgment only on this part of the submission of Mr. Khaitan. It can also be pointed out that liability to pay interest is there in the absence of a contract to the contrary. In other words, liability to pay interest is there unless the seller has agreed not to claim interest and the buyer has agreed not to pay interest. The other part of .....

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ing Officer had disallowed a part of the expenditure incurred by the assessee on account of interest. That was not the case. The case was that the Assessing Officer made an addition because the assessee had omitted to charge interest from HRL. Mr. Khaitan cited a judgment in the case of S.A. Builders Ltd. -vs- CIT(Appeals) & Anr., reported in (2007) 288 ITR 1 (SC), wherein the following views were taken: We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. [ .....

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ome-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. We wish to make it clear that it is not our opinion th .....

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ny other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." Mr. Bandopadhyay has not been able to find out anything from any of the judgments of the Assessi .....

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the learned Tribunal are not sustainable. Therefore, the question no.[b] is answered in favour of the assessee and against the revenue. The third and the last question formulated at the time of admission of the appeal is as follows: [c] Whether the Tribunal was justified in law in holding that the rental income received from Spice Cell Ltd. was assessable as business income and not under the head house property and in not following its orders for the assessment years 2001-02 and 2002-03? The vie .....

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