TaxTMI 
TaxTMI 
1989 (1) TMI 171
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....ting the services of the Inter-Continental Group and in providing technical services to ssure modern and efficient hotel management and operating methods for the Inter-Continental Group, all in the interest of facilitating and increasing international travel and trade. East India Hotels Limited, an Indian Hotel Corporation having its Offices at 17,Chowringhee Road,Calcutta(hereinafter referred to asEast India) which owns and operates Hotel Oberoi Inter-Continental inNew Delhi. There is another Indian Hotel Corporation known as the India Hotel Company Ltd., having its principal place of business atBombayand which runs Taj Group of Hotels (hereinafter referred to as Indian Hotels Co.). the IHC entered into membership and services agreements withEast Indiaand Indian Hotels Co., by virtue of which the two hotels companies inIndiawere permitted to use the name "Inter Continental" along with the names of their respective hotels Oberoi Inter Continental,New Delhiand Taj Inter Continental,Bombay. The membership and services agreement of IHC with East India was entered into on 8th Aug., 1962 of ten yeas which term could be extended for a further term of ten years at the option of either par....
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....on and at its instance the Tribunal made a reference to the Hon'ble Delhi High Court vide statement of the case dt.10th Jan., 1984in R.A.Nos. 699-704/Del/83. 4. By the Finance Act, 1976, cls. (V) (vi) and (vii) were added to s. 9(1) w.e.f.1st June, 1976. We are not concerned with cl. (V) in the present case. Clause (vi) makes income by way of royalty to be deemed to accrue or arise inIndia. Explanation (2) to s. 9(1) (vi) defines 'royalty'. the proviso and Expln. 1 to s. 9(1) (vi) are in the following terms: "Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consist of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, dawning or specification relating to any patent, invention, model, design, secret formula or processor trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central government. Expln. 1: for the purpose of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall b....
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....al of the IAC, computed the income of assessee IHC as follows: . "Membership fee receipts . (1) From Indian Hotels Co. Ltd.,Bombay U.S. $ 1,55,433 (2) East India Hotel Ltd.,Calcutta U.S. $ 70,000 . . U.S. $ 2,25,433 . Concession rate of US $ has been from Economic Times dt.21st Dec., 1983at US$ 9.555 is equal to Rs. 100. Total receipts of US $ 2,25,433 would amount to Rs. 23,59,320. Rs. 23,59,320 . By applying the flat rate 5% as per Tribunal's decision the net income works out to Rs. 1,17,966. Rs. 1,17,966 . Less: Deduction under s. 80VV as claimed Rs. 5,000 . Total income Rs. 1,12,966 8. The learned CIT, after giving a notice dt. 16th Oct., 1985 passed an order under s. 263 holding that the assessment order was erroneous in so far a it was prejudicial to the interests of the Revenue since the assessment of income in respect of royalty for the use of the property, name "intercontinental" had been taxed at the rate of 50 per cent (sic) of the total receipts and 95 per cent had been treated as exempt in terms of s. 9(1) of the IT Act, 1961. According to him the ITO did not take i....
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....26th Sept., 1988from the Department of Tourism, govt., ofIndiain which it had been stated that "the extension to the collaboration granted vide Ministry of Industry, Deptt., of Industrial Development (Sevetariat of Industrial Approvals) letter No. EC. II/73(85)/451(84) dt.13th March, 1985is in continuation of the approval granted by the Deptt., of Tourism vide letter No. 5II (24) 66 dt.8th Aug., 1967and is in accordance with the terms and conditions approved vide this letter". Reliance was also placed on the decision of the Hon'ble Gujarat High Court in Meteor Satellite Ltd vs. ITO (1980) 121 ITR 311 (Guj). As far as the taxability of 5 per cent of the receipts from East India is concerned, the learned CIT(A) took the view that the matter had been set at rest by the Tribunal's order dt.8th March, 1983for the asst. yr. 1971-72 to 1976-77 and so only 5 per cent of $ 70,000 could be taxed. However, so far as India Hotels Co., is concerned, the learned CIT(A) took the same view as had been taken by the CIT under s. 263 for the asst. yr. 1984-85. He held that: (i) The approval given by the Govt, ofIndiain March, 1985 was not an extension of the earlier agreement as there had been lar....
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.... disposed off by the present common order, the Stay Petition becomes infarctions. We would order accordingly. 14. On merits in these appeals, Shri Kandari took us through the various agreements etc., and the provisions of s. 9(1)(vi) and (vii) of the IT Act, 1961 in support of the assessee's case. He referred to Words and Phrases (Permanent Edition) page 596 and to the decision of the Hon'ble Rajasthan High Court in Sethi Marble Stone vs. State ofRajasthan AIR1958 Raj 143 regarding the definition of "Royalty" and again to Words and Pharases (IInd Edition) page 354 for the same purpose. Reference was also made by Shri Kandari to the following orders of the Tribunal in the cases of the assessee: (i) order dt.4th Jan., 1980ofDelhiBench 'A' in ITA No. 630 and C.O. No. 62/(Bom)/79 for 1973-74. (ii) Order dt. 8th March, 1983 of Delhi Bench 'A' in ITA No. 3555/Del/80, ITA Nos. 714, 715, 881, 2983/Del/81 and C.O. No. 294/Del/80 and C.O. Nos. 113, 114, 124, 125 and 272/Del/81 for asst. yrs. 1971-72 to 1976-77. 15. On the other hand, Smt. Manjari Kacker, the learned Departmental Representative strongly supported the orders of the CIT(A) for the asst. yrs. 1984-85 and 1985-86 resp....
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....ility as deemed income would have to be examined under s. 9(1) (vii). 17. We have already noticed above that so far asEast Indiais concerned, the Department has rested satisfied with the view that only 5 per cent of the receipts are to be treated as taxable (deemed income). Even the assessee has accepted the same position. This is clear not only from the grounds of appeal of the assessee for the assessment years under consideration but also from the submissions made on behalf of the assessee before us. It is not the case put forward before us that even in the case of East India even 5 per cent receipts representing royalty, are not treatable and taxable as deemed income under s. 9(1) (vi) and that the proviso to s. 9(1) (vi) applies. 18. Income by way of royalty is not be deemed to accrue or arise in India so as to be taxable under s. 9(1) (vi) if in terms of the proviso thereto, such income is payable in pursuance of any agreement made before 1st April, 1976, and the agreement is approved by the Central Government. The proviso, therefore, does not say that the agreement should be approved by the Central Government before1st April, 1976. It only reefers to approval which coul....
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....ccording to Shri Kandhari, the proviso does not make it obligatory for Central Government's approval to be before 1st April, 1976 and so accordingly to the principle of harmonious construction, what Expln. 1 implies is that the subsequent agreement should be in accordance with or in pursuance of the earlier agreement which should have been approved by the Central Government before 1st apparel, 1976. We are inclined to accept that view on deeper consideration. If the view canvassed on behalf of the Department were to be taken, the language of the Expln. 1 could have been simpler. A perusal of the agreement dt.16th May, 1985show that it is described as supplemental to the Membership Agreement dt.29th Nov., 1968. The entire agreement dt. 29th Nov., 1968 (Art II) makes specific mention that the parties agreed jointly to approach the Government of India for extension of the period of the agreement to a total of 20 year from the date on which it first came into force (31st Dec., 1972). It is pertinent to notice here that the approval of the Government of India, Department of Tourism had been obtained on 8th Aug., 1967 and cl. (xii) of that approval also referred to the 20 years term in t....