2015 (4) TMI 1274 - AT - Income Tax

Saloon income not eligible for tax deduction under section 80IB(7)(a)

The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) that the income from the saloon business activity within a hotel did not ... Allowability of deduction u/s 80IB(7)(a) - income earned out of “saloon” business activity of the assessee - HELD THAT:- The core activity of the hotel business include a hiring of rooms, halls, restaurant, bar etc. integral or core activity of the hotel business the saloon section also would have started along with hotel prior to the March, 2001. There are no facts on the records regarding the profile of the customers to the said saloon activities. It is not the case of the assessee that the users of the saloon are only the inmates of the hotel and the same is not open to the outsiders. In that case, where the saloon is not closed for the outsiders, the ‘saloon’ cannot be said to be the integral part of the hotel activity. The same should be considered on indifferent business activity. We have also analyzed if the saloon activities i.e. hair dressing, hair dying, trading of the Lakme products this saloon by way of franchisee agreement are akin to the restaurant and bar sections of the said hotel business. In our opinion, the hair dressing/dying etc being related to cosmetics, shall not be equated to the food and drinking sections. These are necessities of the hotel business unlike saloon section which is merely desirable to hotel business. From this point of view also, the saloon section cannot be described having close nexus to the hotel activities. Therefore, the receipts from the ‘saloon’ section are not ‘derived from’ the hotel business. Regarding learned counsel’s argument relating to relying on the cited orders of the Tribunal, we find the same is misplaced. It is not the case that the AO denied deduction in respect of the eligible hotel receipts of the assessee. What is denied only in respect of a source of income i.e. saloon activity. Therefore, cited judgments by the assessee’s counsel are misplaced. Thus, relevant arguments of the Ld. Counsel are dismissed. Therefore, we are of the considered opinion that for above reasons also, the order of the Ld. CIT (A) fair and reasonable and it does not call for any interference. There is no issue raised before us by the assessee about the jurisdiction, qua the provisions of section 154 of the Act. Therefore, we are desist from entering into relevant debate - Decided against assessee. Issues:Allowability of deduction u/s 80IB(7)(a) of the Income-tax Act in respect of income earned from the 'saloon' business activity.Detailed Analysis:1. The primary issue in this judgment revolves around the eligibility of the assessee for deduction u/s 80IB(7)(a) of the Income-tax Act concerning income derived from the 'saloon' business activity. The assessee, engaged in the hotel business, claimed that income from the saloon section should be considered as profit and gain derived from the hotel business, thus qualifying for the deduction.2. The facts reveal that the assessee, operating a three-star hotel, entered into a franchise agreement with 'Lakme' to start a saloon activity within the hotel premises. The assessee claimed deduction u/s 80IB(7)(a) for the income generated from this new saloon business. However, the Assessing Officer (AO) later denied this deduction through a rectification order under section 154 of the Act.3. The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO's decision, leading the matter to the Tribunal. The CIT (A) reasoned that the saloon income could not be considered as profits derived from the hotel business, citing the Supreme Court's decision in Sterling Foods, which emphasizes the direct nexus between the income and the qualifying business activity.4. The Tribunal considered the arguments presented by both parties. The assessee contended that the saloon business was an integral part of the hotel operations, attracting customers and catering to their needs. However, the Revenue argued that the saloon section, started after the hotel's establishment, was not essential to the core hotel business and its receipts were not directly linked to the hotel operations.5. The Tribunal analyzed the situation, emphasizing that the saloon section, unlike essential hotel services like restaurants and bars, did not have a direct nexus to the core hotel activities. It concluded that the saloon receipts were not derived from the hotel business, as required for claiming deductions under section 80IB(7)(a).6. The Tribunal dismissed the assessee's reliance on previous judgments, clarifying that the denial of deduction was specific to the saloon income and did not affect the eligibility of other hotel-related receipts. Consequently, the Tribunal upheld the CIT (A)'s decision, dismissing all grounds raised by the assessee for both assessment years.7. Ultimately, the Tribunal found no reason to interfere with the CIT (A)'s order, deeming it fair and reasonable. The judgment concluded by dismissing the appeals of the assessee for both A.Ys. 2006-07 & 2007-08, with no jurisdictional issues raised for further debate.This detailed analysis highlights the key arguments, legal interpretations, and conclusions drawn by the Tribunal in addressing the issues related to the deduction claim under section 80IB(7)(a) of the Income-tax Act for income derived from the saloon business activity.