TMI Blog2023 (6) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... and re-compute the liability. Disallowing the claim of set off of brought forward unabsorbed depreciation losses of earlier years - In view of our decision in treating the receipts as income under the head Business Income , Assessee shall be eligible for unabsorbed depreciation as claimed for. AO is directed to allow the set off of the unabsorbed depreciation. Appeal filed by the Assessee stands allowed. - I.T.A. No. 4613/Del/2019 - - - Dated:- 20-6-2023 - Shri Anil Chaturvedi, AM And Shri N. K. Choudhry, JM For the Appellant : Shri R.S. Singhvi, Ld. CA And Sh. Satyajeet Goel, Ld. CA For the Respondent : Shri Shankar Lal Verma, Sr.DR ORDER PER N. K. CHOUDHRY, JUDICIAL MEMBER: The Assessee/Appellant herein has preferred this appeal against the order dated 22.03.2019 impugned herein passed by Ld. Commissioner of Income Tax (Appeals)-2, New Delhi {in short Ld. Commissioner) } u/s 250 of the Income Tax Act 1961 (in short the Act ) for AY 2015-16. 2. In the instant case, the Assessee declared its income at Rs. (-) 10,17,441/- by filing its original return of income on dated 27.09.2015, wherein the revenue receipts generated from operations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y has inadvertently offered such income under house property which should be considered under business profession. Hence, the computation was revised to correctly offer such income to tax under the head 'business income. {Highlighted by us for clarity} 2.2 The AO further show-caused the Assessee, as to why the receipts from M/s Four Seasons Hospitality Pvt. Ltd. which has been declared as Income from Business Profession in its revised return, should not be assessed under the head Income from House Property as per original return. 2.3 In response, the Assessee by filling its reply dated 07.12.2017 made following submissions : Your goodself has issued a show cause as to why receipts from four seasons hospitality pvt. ltd should not be treated as income under the head Income from House property . In response to your show cause, we on behalf of the assessee submit as under: a. That the main object being perused by the company is to carry out the business of hotel/resort in building developed by the Company at Tarudhan Valley Golf Home Project, Village Dadu, Tehsil-Tauru, District - Mewat (Haryana). b. That the said resort was constructed and com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent contract to Four Seasons, which is being interpreted to mean a Rental Agreement. We object to the said Interpretation but even then in view the judgments cited the same would still constitute Business Income....... k. Further the courts have had occasion to examine whether Rental income is assessable as Income From Business OR Property. The Assessee placed reliance on the following judgments... 2.4 The AO though considered the submissions of the Assessee referred to above, however, did not find the same as tenable and by examining the agreement dated 01.07.2009 entered into between the Assessee and M/s Four Seasons Hospitality Pvt. Ltd. (In short Four Seasons ), concluded as under: 3.8 In the instant case, it is undisputed that the accounting for daily collections made from the guests and also the day to day expenses on running the hotel are not being done not by the Assessee buy by M/s Four Seasons Hospitality Pvt. Ltd. (hereinafter referred to as Seasons) This is evident from Para 5 (Page 6) of the agreement which states that the business will be carried out by Seasons. Further at point (a) on page 7 - it has been specified that Seasons shall provide complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being permissible, such license shall be transferred by Coronet to Seasons. 3.11 Further as per Point 12 B 4. (Page 12) of the agreement, Seasons is required to fully indemnify Coronet against all damages, risks, losses, penalties, fines etc. arising out of the Business or from its own conduct or from the conduct of its employees or third parties during the subsistence of the Agreement. As per Point 12 B 6. Seasons is responsible and liable for observing all rules and regulations for all the workers/ employees engaged by it for carrying out the Business including contract workers/employees. 3.12 As per Point 14 (Page 14) of the agreement, all the taxes and levies related to running and operating of the Business including but not limited to VAT, luxury tax, service tax, excise, etc. (only for the hotel, conference and F B) shall be the responsibility or Seasons and Coronet shall not be pay or liable for the same. 3.13 The various clauses of the agreement (as discussed above) clearly reveals that the entire hotel with all machinery, fixtures furnishings have been handed over to Seasons and it is Seasons which is running the entire business in its own name, obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty by observing as under: The appellant is the owner of a hotel resort and was running the hotel business till 2009. The appellant had been running in loss. After that, the appellant entered into an agreement for management license fee with a third party - Four Seasons Hospitality to run the hotel and pay license fee to the appellant at a fixed percentage of net business revenue. The appellant has rented entire hotel along with furniture and fixtures to the third party. No business is, henceforth, carried on by the appellant itself. In AY 2012-13, the appellant disclosed the income from license fee as business income which was accepted by the AO. The assessment order has been enclosed. In AY 2013-14, the assessing officer discussed the case in detail and found that the appellant was not carrying on any business. It was only sharing the revenue earned by the business carried on by the third party Four Seasons Hospitality. The appellant had declared this license fee as rental income in the original return. Later on, during assessment proceedings, it filed a revised computation of income showing income from business instead of rental income. The same was rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of Rs. 51,36,730/- being carry forward from earlier years, remanded the same to the AO for examination under eligible unabsorbed claims brought forward from earlier years, when the business has actually been carried out by the Assessee and the same can be allowed as per law. 5. The Assessee being aggrieved against the upholding of the addition qua revenue from House Property and not allowing the claim of setting off of brought forward unabsorbed depreciation of earlier years, filed the present appeal before the Tribunal. 6. The Ld. Authorized Representative (AR) Mr. R.S. Singhvi, Ld. CA at the outset claimed that the Assessee s Accountant in the original return of income filed, on mistaken belief inadvertently shown the revenue from operations of Hotel as rental income which was later on shown as income from Business by revising its return of income and therefore cannot be taken a base for treatment of the revenue as rental income from house property, without determining the real status of income. The Assessee in response to the show-cause notice dated 01.12.2017 issued by the AO clearly replied that the main object being perused by the Company is to carry out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Mr. Shankar Lal Verma claimed that both the authorities below have extensively dealt with the peculiar facts and circumstances of the case and it is admitted fact that the Assessee itself has deducted the TDS under section 194 (1) of the Act which deals with the rental income and thus goes to show that the Assessee has earned rental income from House Property and therefore, no interference is warranted in the decision of the authorities below in treating the revenue receipts as rental income from house property . 8. We have heard the parties and perused the material available on record. The main issue in the instant appeal relates to the treatment of revenue receipts by the Assessee from operation of Resort/Hotel by M/s Four Seasons, as business income. 8.1 The Assessee claimed that it has constructed and started a resort for commercial activities at Tarudham Valley, Golf Homes, Village Dadu, Tahsil Tauru, District Mewat, Haryana in the AY 2007-08. Subsequently, the Assessee in the AY 2010-11 appointed M/s Four Seasons as an expert being experienced operating Management Agency for managing the business from the said premises in consideration of management license basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a such a determination would depend upon circumstances of each case and the matter has to be examined on the facts of each case. Hence, coming to the instant case, we have to examine the object of the Assessee company. II. The Intention of making the lease. III. Consideration involved, 8.6 In order to understand intention of the Assessee for making agreement for operation of hotel by Four Seasons and consideration involved, we have to see the main objects of the assessee, which reads as under: To carry on the business of merchants, suppliers, importers, exporters, hirers, lessors, lessees, consultants and manufacturers of materials, provisions required by hotels, motels, boarding and lodging houses, hospitals, nursing homes, restaurants, canteens, guest houses, including but not limited to human resources, carpets, crockery and cutlery, linen, soap, furniture, motor vehicles, kitchen equipment, Utensils, laundry chemicals and equipments, air conditioning plants, medicines, X-ray and other hospital equipments, food and beverages supplies (raw and cooked) printing and packaging, bottling, and other engineering and operating stores and other capital goods as require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto revenue sharing agreement with that company in terms of which, it was entitled to 20% of gross operating profit, such share of property would be assessed as Business Income . 8.9 The Hon ble High Court of Mumbai in the case of Raja Hotels Pvt. Ltd. (2019) 107 taxmann.com 287 (Bom) also came across with a identical issue/situation wherein the Assessee was not receiving any rent amount, but was receiving 1% of the total revenue earned by the company to whom the hotel was given for commercial exploitations and the Assessee did not get any fixed amount as rent. The Hon ble High Court approved the view of the Tribunal in treating the income from 1% of the revenue earned by the by the Assessee from hotel operator, as Business Income but not the rental income from House Property . 8.10 The Ld. Commissioner in sustaining the action of the AO in treating the revenue receipts from the revenue generated by Four Seasons as rental income under the head Income from House Property also relied upon the judgment of the Hon ble Apex Court in the case of Sultan (supra). In Sultan s case, the Hon ble Apex Court also clarified that object clause would not be the determinative factor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-2022 passed in ITA no. 7418/Del/2018 remitted the identical issue qua revenue receipt claimed as business income, as involved in this case to the file of the AO and directed to consider the revised claim of the Assessee in accordance with law. As the Assessee was running into losses and therefore made a contract with M/s Four Seasons w.e.f. 01.07.2009 for running the business of Hotel on revenue sharing basis. Even otherwise, if we consider that the Assessee has let out Hotel to M/s Four Seasons, then also the same would amount to the systematic business activities as held by the Hon ble Apex court in Chennai Properties (supra). 8.13 Coming to the objection raised by the authorities below to the revised return filed by the Assessee on the ground that the Assessee itself has shown the Income from House Property as rental income . We observe that simply if the Assessee has made any incorrect claim, which is not in accordance with law that cannot be made a base for making an addition /taxing the Assessee. The very purpose of income tax proceedings, is to correctly assess the tax liability of Assessee in accordance with law but not taking the refuge of mistake committed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment executed by Assessee with M/s Four Seasons, not a single term or condition reflects the essence of rent agreement. The Assessee had received the receipts/income from the revenue generated by M/s Four Seasons on fluctuation basis and undisputedly has not received any fixed amount, which can be termed as rental income , hence, we do not have any hesitation to hold that the revenue receipts generated by the Assessee from M/s Four seasons, are undoubtedly income from the Business and therefore, should be treated under the head Business Income but not as rental income from House Property as determined by the authorities below. Consequently the AO is directed to delete the addition on this issue and re-compute the liability. 9. Coming to the 2nd addition on account of not allowing the claim of set off of brought forward unabsorbed depreciation losses of earlier years. In view of our decision in treating the receipts as income under the head Business Income , the Assessee shall be eligible for unabsorbed depreciation as claimed for. Consequently, the AO is directed to allow the set off of the unabsorbed depreciation. 10. In the result, appeal filed by the Assessee stan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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