TMI Blog2022 (1) TMI 1387X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the instant year itself, the amount received is an revenue receipt - HELD THAT:- The argument of the assessee is that income not at all accrued to the assessee, as such, incentive cannot be taxed in the hands of the assessee in the year under consideration. In our opinion, the assessee is following mercantile system of accounting. The assessee treated the expenditure as an asset and claimed depreciation on it and charged it to P L account. However, corresponding incentive received by the assessee towards brand building has been shown as liability which is against the provisions of Section 5 of the Act. Accordingly, AO rightly brought it to tax. The assessee cannot postpone it on the reason that it is liability and there is likelihood of repaying the amount in a phased manner after 5th of every year in case agreement is prematurely terminated. If the assessee refunds back to the payer, then it could be claimed as deduction in the year in which was paid back by the assessee. Decided against assessee. - ITA No. 156/Bang/2017 - - - Dated:- 20-1-2022 - Shri NV Vasudevan, Vice President And Shri Chandra Poojari, Accountant Member For the Appellant : Shri Sudhir Prabhu, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the expenditure is capital or revenue expenditure is not relevant to the application of provisions of sections 30 to 36 of the Act. However, it is relevant only in the case falling u/s. 37(1) of the Act. Therefore, the approach of the AO in considering the claim of assessee under sections 30 to 36 is altogether different from one applicable to claim u/s. 37(1) of the Act. Therefore, the mere fact that a claim which is not fit under any of the provisions of sections 30 to 36, will not automatically make a claim u/s. 37(1) of the Act. Thus, the expenses which are permitted as a deduction u/s. 37(1) is that the expenditure incurred for the purpose of carrying on business of the assessee i.e., to enable the assessee to carry and earn profit in that business. It is not enough that incurring of expenditure was in the course of business or arises out of or concerned with or made out of the profit of the business, but it must also be for the purpose of earning profits of the business. For this purpose, we rely on the judgment of the Hon ble Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros., 41 ITR 350 (SC). 6. Before us, the main contention of the ld. AR is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o treating the incentive deposit received for rebranding of the hotel as income of the assessee. 11. During the Assessment proceedings, the AO found that the assessee has received a sum of $2,50,000 equivalent INR 1.15,45.000 towards rebranding expenditure of the Hotel business from InterContinental Hotel Group (IHG) as income of the Company as incentive deposit. The assessee submitted before the AO that as per the Management Agreement dated November 26, 2009 entered between the assessee company and IHG, the incentive amount needs to be repaid to the owner at the time of breach of any obligations as per the agreement and on termination of the agreement before the expiry of ten full operating years based on the repayment determined as per the management agreement. It was further contended that the assessee has accounted this amount under Current Liability as there is possibility of repayment of the whole amount in case of premature termination of the management agreement within five years from the date of entering into agreement. It was also argued that assessee is recognizing the incentive over the period of the agreement based on the terms of the management agreement on success ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses and it is not a kind of reimbursement. It was argued that it is a liability as the assessee is under obligation to repay back in case of premature termination after fifth year of operating year. The assessee has received this amount of Rs.1,15,45,000/- and from sixth operating year which is F.Y. 2014-15 corresponding to A.Y. 2015-16 has offered 20% of this amount, being Rs.31,29,540/- as income for that year. The assessee, therefore, concluded that it is offering the income as per the terms of agreement based on its entitlement and when its right to retain the amount is established as per the management agreement dated 26.11.2009 entered between the assessee and IHG. 15. On appeal, the CIT(Appeals) observed that in the instant case the assessee has received this amount of Rs.1,15,45,000/- (equivalent to US $2,50,000/-) as incentive for rebranding of the Crowne Plaza. It has a Hotel in the name of The Oterra at Bangalore for which it has entered into a management tie-up with Inter-continental Hotel Group IHG, Gurgaon and therefore, w.e.f. 16.02.2010 the same is renamed as Crowne Plaza. He observed that it is correct to say that mere receipt of any amount doesn't ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng was not claimed as revenue expenditure, however it has been capitalised and only depreciation has been claimed. As such the amount received by the assessee towards rebranding cannot be considered as income of the assessee and income received by the assessee is only a liability. Attention was drawn to Note No.9 to the Accounts at page 88 of the PB which reads as follows:- 9 Change In Management of hotel IHG group has taken over the Management of the Hotel Business of the Company hitherto known by brand name of 'The Oterra' during February 2010. Pursuant to the same the Company is operating in the new brand name 'Crowne Plaza'. In view of the same the branding expenses incurred for the earlier brand name of Rs.31,94,075/- and Website development cost of Rs 1,40,43,489/- has been charged off in the books. The Company incurred certain expenditure of Rs 1,11,12,359/- during the year towards rebranding and refurnishing of the existing Hotel Infrastructure to be in line with the requirements of IHG Group in accordance with the management agreement. The same has been capitalised in view of the increase in useful economic benefit of the asset beyond its origina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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