TaxTMI 
TaxTMI 
2015 (7) TMI 45
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....een laid that provisions of section 194I of the Act do not depend upon any specific nomenclature; 2. The Ld. CIT(A) has erred in law and on facts in reducing the Short Term Capital Gain to Rs. 44,64,266/- from Rs. 63,83,256/- without appreciating the fact that the assessee failed to furnish authenticated proof regarding apportionment of land and building; 2.1 The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the cost of transfer was already allowed to the assessee while calculation during the assessment proceedings; 3. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal." 3. The grounds raised in the assessee's appeal are as under: "1. The CIT(Appeals) has in view of the facts and circumstances of the case and in law, erred in upholding disallowance of the expenditure of Rs. 21,60,000/- u/s 40(a)(ia) on account of license fees to SRK Travels & Tours Pvt. Ltd. 2. The CIT (Appeals) has in view of the facts and circumstances of the case, has erred and in law and on facts in upholding that there is a short deduction of tax by the assessee/ap....
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....ssee had paid licence fees amounting to Rs. 2,87,49,591/- to various parties as per following details: AMOUNT TDS-DEPOSIT 1 Delhi Warehousing Pvt. Ltd. 13,701,000.00 3,104,648.00 2 Other 500.00 - 3 Ashok Jain 41,660.00 858.00 4 Sudhir Mulji 637,305.00 13,128.00 5 Francis Wacziarg 4,357,502.00 98,742.00 6 Sheela Nath 81,830.00 1,686.00 7 Metheson Bosanquet Ent Ltd 303,676.00 6, 881.00 8 Smt. Vidyalatha Reddy 708,696.00 160,590.00 9 Smt. Rama Reddy 354,347.00 80,295.00 10 Smt. Srilatta Reddy 354.347.00 80,295.00 11 Meera Kulkarni 6,153,504.00 139,438.00 12 Mountain Valley Spring Ind. Pvt. Ltd. 212,909.49 4,825.00 13 AT Chengapa 14,105.00 291.00 14 Sagari Dalia Changapa 14,105.00 291.00 15 Poonama Romana Aooanna 14,105.00 291.00 16 SRK Travel And Tour 1,800,000.00 40,788.00 TOTAL 28,749,591.49 3,733,047.00 6. On the basis of above details the AO asked the assessee to clarify as to why TDS was deducted at differe....
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....avel & Tours Pvt. Ltd., M/s Delhi Warehousing Pvt. Ltd. and Mr. Francis Wacziarg. The AO reproduced the material clauses of those agreements at para 4.4 of the assessment order dated 28.12.2010, for the cost of repetition, the same are not reproduced herein. The AO observed that the details and clauses of agreements entered into by the assessee with the aforesaid parties revealed that in all cases the assessee had acquired the right to use property vide all the agreements entered into with each party, and that the model, manner and clauses of each and every agreement on record are the same. He also observed that the Revenue Sharing clause was same in the license agreement entered into with the above said parties. The AO also noted that in some cases viz. Delhi Warehousing Pvt. Ltd., the assessee deducted TDS u/s 194 I of the Act and in some other cases viz. Ms. Meera Kulkarni, M/s SRK Tours & Travels Pvt. Ltd. and Mr. Francis Wacziarg, TDS was deducted u/s 194C of the Act. The AO asked the assessee to explain the reason for differentiation between the TDS rates as the applicable rates should have been u/s 194 I of the Act, whereas the assessee had deducted TDS u/s 194C of the Act. ....
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....allowance has been made by the Ld. Assessing Officer u/s 40(a)(ia) of the Income Tax Act, 1961 (the Act) on the plea that the TDS should be made on the payment so made by the appellant as per provisions of section 194 I (Rent) and not as per section 194C (Payment to Contractors). Detail of various payments made as licence fees and tax deducted thereon is given hereunder: Name of the parties to whom payment made Licence fees paid (Rs.) TDS deducted (Rs.) Rate of TDS (in %) Delhi Warehousing Pvt. Ltd. 1,37,01,0001/- 31,04,6481/- 22.66 Francis Wacziarg 43,57,502/- 98,742/- 2.27 Meera Kulkarni 61,53,504/- 1,39,438/- 2.27 SRK Travels & Tours Pvt. Ltd. 18,00,000/- 40,788/- 2.27 Ashok Jain 41,660/- 858/- 2.06 Sudhir MulJi 6,37,305/- 13,128/- 2.06 Sheela Nath 81,830/- 1,686/- 2.06 Mathesons Bosanquet Ent. Ltd. 3,03,6761- 6,881/- 2.27 Smt. Vidyalatha Reddy 7,08,696/- 160,590/- 22.66 Smt. Rama Reddy 3,54,347/- 80,295/- 22.66 Smt. Srilatta Reddy 3,54,347/- 80,295/- 22.66 Mountain Valley Spring Ind. Pvt.....
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....erations of running the Palace as hotel owned by DWPL. DWPL is the owner of the Palace which is already being run as hotel by them. The appellant has got all the rooms from DWPL ready to be used as hotels. All rooms are fully furnished and having all facilities for the purpose of running them as hotel including air conditioners, generators, Crockery, EPABX machines, fax machines, refrigerator, telephone facilities, computers, televisions, bed sheets, blankets, bath towels, face towels, meals/beverages etc. etc. These are being used for running the property as a hotel. It may be noted that DWPL is an associate concern of the appellant. Directors of the appellant are also the directors in DWPL. (b) Francis Wacziarg, New Delhi (In short FW) - Owner of (a) The Verandah in the Forest, Barr House, Matheran 410102, District Raigarh, Maharashtra, (b) Two properties at Ramgarh, in the name & style of The Ramgarh Bungalows, Ramgarh Malla, Kumaon Hills, District Nainital 263 137, Uttaranchal, and (c) Hotel De L 'Orient, 17, Rue Romain Rolland, Pondicherry 605001. While FW is running the Matheran Property as hotel on its own, the other two properties are given by him to the appell....
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....not the contractor of the appellant but as stated in earlier case also, the appellant is carrying out operations of running the property owned by SRK as hotel. It can be seen that the agreements with different parties are for sharing of revenue and are commercial in nature. For instance: (a) In case of agreement with DWPL, DWPL will be paid 15% of gross operating profits, which is calculated as per specified formula as specified in the Agreement; (b) In case of Mrs. Meera Kulkarni, she is entitled to minimum guaranteed amount of Rs. 1,50,000/- or 30% of gross operating profits, to be calculated every quarter, whichever is higher; (c) In case of SRK Travel & Tours Pvt. Ltd., SRK shall get for the first three years, a minimum guaranteed amount of Rs. 12 Lakhs or 15% of the gross operating profits whichever is more subject to maximum of Rs. 18 Lakhs per year, for the following 4 years-a minimum guaranteed amount of Rs. 18 Lakhs or 17.5% of the gross operating profits, whichever is more subject to maximum of Rs. 24 Lakhs and for the subsequent 5 years-for the first three years, a minimum guaranteed amount of Rs. 24 Lakhs or 19.5% of the gross operating profit....
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....art" in the course of business. ii) Taxes and sales/services of food, beverages, liquor and smokes and other items/ served/sold/luxury taxes, hotel receipts taxes pertaining to the business of the said hotels levied or leviable by the Central Government, State Government or any local authority, now or in future to the extent included in sales. 2.6 Quarter "Quarter" shall mean the period of three months commencing from April 1st of each year and ending on June 30th and the subsequent even periods. The aforesaid calculation is based on business proposition and totally based on profits of the business. The calculation is to be certified by a qualified chartered accountant and has nothing to do with any rental payment. Fixed sum in some of the agreements as mentioned in this agreement is made to ensure that even if there is no/less receipt in any quarter, a minimum sum is paid to ensure to major repair/ maintenance, addition in rooms/services etc. should not suffer for smooth running of the hotel as these are to be carried out by the owners of the properties. It is noted that all the agreements with different parties are for different revenue share d....
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.... under u/s 194C as the owners of the properties are not contractors. When both provisions of the Act are not applicable, then provisions u/s 40(a)(ia) of the Act is also not applicable to the appellant. Further it can also be seen that the intention of parties is also not to give or take the property on rent or on lease. It has already been settled that the transactions between the appellant and other parties are business transactions and income there from cannot be taxed under the head 'Income from House Property' in the hands of the recipient. In this regard, in the matter of M/s Francis Wacziarg, Hon'ble C1T(A)-XXVI, New Delhi vide their Order dated 18-01-2008 in appeal no. 187/06-07 for Assessment year 2003-04, it has been held that licence fees received by Francis Wacziarg from the Neemrana Hotels Pvt. Ltd. is income which should be assessed as business income and not under the head as 'income from house property' as made by the Assessing Officer. The Order of CIT(A)-XXVI, New Delhi has been upheld by the Jurisdictional ITAT in their Order dated 23-042010 in the ITA No. 1340/Del/08 for Assessment Year 2003-04 against the appeal made by Assessing Of....
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....l), Calcutta [1971] 82 ITR 363 has observed that: "Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which he might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter." No such disallowance has been by made the Ld. AOs in earlier years. The appellant therefore prays to delete the disallowances made u/s 40(a)(ia) of the Act as the provisions of section 40(a)(ia) are not applicable to the appellant on the licence fees paid as detailed hereinabove." 10. The ld. CIT(A) after considering the submissions of the assessee sustained the addition of Rs. 21,60,000/- by observing in paras 6.3 to 6.6 of the impugned order which are reproduced verbatim as under: "6.3 From the agreements between the appellant and the above parties it is evident that except the agreement with SRK Travels & Tours Pvt. Ltd., all the remaining agreements are more or less similarly worded having mostly identical clauses. The agreements with the parties are for sharing of revenue as under: (a) As per agreement, ....
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....om business carried on in a house property. However in the instant case the payments made to the parties are not fixed amounts but income from business of running hotel on the basis of revenue sharing agreements. In view of the payments actually made on the basis of revenue sharing agreements and involvement of the parties in the day to day running of the business in the property, it is evident that nature of payments made by the appellant to the parties are not in the nature of income by way of rent. In view of the above, the payments made by the appellant to the parties would not come under the purview of Sec 194 I. Therefore, the A.O. is not justified in making the disallowance on the ground that there is shortdeduction of TDS by the appellant under Sec 194 I. The reasoning given the A.O. is that because TDS was made @ 22.66% in the case of DWPL, therefore, the license fee paid to the remaining-parties is also liable for TDS u/s 194 I. The above reasoning given by the A.O. is not based on proper appreciation of relevant aspects. Rate of TDS made by the assessee do not determine the nature of payment. It is the nature of payment that determines the rate at which TDS should be mad....
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.... in that property. The license fee payable to the party during the relevant period is minimum of Rs. 12,00,000/- or 15% of gross operating profit whichever is higher subject to maximum of Rs. 18,00,000/- per annum. Therefore, unlike other agreements there is a maximum ceiling of Rs. 18 Lakhs. The license fee is payable simply because the property is let out and the requirement of the appellant company to maintain proper accounts is simply because the party is otherwise entitled to license fee of 15% of Gross Operating Profit subject to minimum ceiling of Rs. 12 Lakhs and maximum ceiling of Rs. 18 Lakhs. In any case simply because the party is entitled to certain percentage of Gross Operating Profit subject to maximum and minimum ceiling, do not make the income, a business income. Because there is no involvement in the business of running of the hotel. Further the payments are also subject to ceilings i.e. the party will not be entitled beyond the maximum ceiling. Therefore, irrespective of higher business income, the party will get only Rs. 18 lakhs. Further, during the period the license fee actually paid was Rs. 18 lakhs, which is the fixed maximum amount. The fixed amount actual....
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....s. 21,60,000/-." 11. Now both the parties are in appeal. The department is in appeal against the relief granted to the assessee and the assessee is in appeal against the sustenance of the addition. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee was having Revenue Sharing Arrangements with other parties, so TDS was not required to be deducted u/s 194 I of the Act, since it was a business transaction and the assessee itself deducted the TDS u/s 194C of the Act because the assessee was required to pay portion of the Gross Operating Profit to the various parties. It was further stated that in the hands of the recipient the income was treated as business income (a reference was made to page nos. 349 to 351 of the assessee's paper book). It was further submitted that the ld. CIT(A) also accepted that all the agreements between the assessee and the other parties except SRK Travels & Tours Pvt. Ltd. were for different revenue sharing and there was no involvements of the party in the day to day running of the business in the property. It was further stated that the payments made to the parties were not....
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....at the payments on the basis of sharing of revenue would not come under the purview of section 194 I of the Act. However, in respect of SRK Travels & Tours Pvt. Ltd., the ld. CIT(A) categorically stated that as per the agreement dated 23.06.2005, it was evident that there was no involvement of the said party in the management and day to day running of the business affairs of the hotel in that property. Therefore, the payment made by the assessee was in the nature of rent and the assessee was liable to deduct TDS u/s 194 I of the Act. The ld. CIT(A) held that as the assessee short deducted the TDS, the disallowance u/s 40(a)(ia) of the Act amounting to Rs. 21,60,000/- was justified. In the present case, the maximum amount payable to M/s SRK Travels & Tours Pvt. Ltd. was Rs. 18,00,000/-, therefore, the disallowance could have been made to that extent only. It is also noticed from the details of the licence fees paid as mentioned by the AO at page nos. 2 & 3 of the assessment order that the assessee paid a sum of Rs. 18,00,000/- to M/s SRK Travels & Tours Pvt. Ltd. during the financial year relevant to the assessment year under consideration. We, therefore, considering the totality of....
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....ition of Rs. 23,92,871/- on account of Short Term Capital Gain as under: Property purchased for Rs. 20000000 Property Sold for Rs. 27000000 Gross Gain Rs. 7000000 Less: Cost of Transfer (As claimed by the assessee) Rs. 616744 Rs. 6383256 Less: Grain declared by the assessee Rs. 3990385 Difference Rs. 23,92,871 17. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: "The appellant has purchased basement & ground floor of the property bearing no. A-53, Nizamuddin East, New Delhi110013 for a total cost of Rs. 2,19,47,720/- on 26-05-2006 as detailed hereunder: Amount as per Sale Deed Rs. 2,00,00,000/- Cost of stamp duty/Corporation tax Rs. 16,00,000/- Paid to Ms. Anjali K Verma & Associates, Advocates for finalizing MOU etc. Rs. 11,000/- Brokerage paid to Mr. Praman Kapoor Rs. 3,36,720/- Total Cost Rs. 2,19,47,720/- Complete details were furnished to the Ld. AO towards cost of the property. Even stamp paper cost is appeared on the face of the 'sale deed'. ....
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....mping cost paid as per The Stamp Duty Act, 1952 which is appearing on the face of the sale deed, brokerage expenses, legal expenses etc, which the appellant has incurred in the course of purchase of the aforesaid property, the detail of which is submitted to the Ld. AO by the appellant in the course of assessment proceedings. When the Ld. AO has accepted building block of asset for depreciation purpose 'and also accepted cost of building in depreciation schedule both for the financial year 2006-07 and 2007-08 and also accepted depreciation schedule for 2007-08 wherein proportionate sale value of building is reduced, she cannot again recompute short term capital gain on building. It has resulted in wrong computation of short term capital gain on building and also reduction in depreciation for financial year 2007-08 relevant to assessment year 2008-09 (by reducing the value of building block of asset). Further for depreciable assets, section 50 of the Act is applicable, which she has totally ignored. She has even not cared to give a natural justice to the appellant and taxing one transaction (i.e. proportionate value in sale of building) for two times-firstly as....
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....e ld. CIT(A) after considering the submissions of the assessee observed that the assessee purchased basement & ground floor of the property bearing no. A-53, Nizamuddin East, New Delhi for the cost of Rs. 2,19,47,720/- on 26.05.2006, the same was sold on 09.07.2007 for a total lump sum payment of Rs. 2,70,00,000/- and the assessee also incurred total expenditure of Rs. 6,16,744/- towards cost of transfer. The ld. CIT(A) pointed out that the assessee worked out the capital gain as under: Sale Consideration Cost of Transfer Net Sale Consideration Gain Land 19750000 24296373 555988 23740385 3990385 Building 2197720 2703627 60756 2642871 445151 21947720 27000000 616744 26383256 4435536 19. The ld. CIT(A) mentioned that the AO had not accepted the aforesaid working of the assessee by observing that there was no apportionment of cost between land and building either in the purchase agreement or in the sale deed. The ld. CIT(A) observed that in the assessment year 2007-08 when the property was purchased the assessee bifurcated the total cost into land at Rs. 197.50 lakhs and....
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....vernment for the year 2007 and also far below the value shown by the assessee. Accordingly, the ld. CIT(A) did not accept the aforesaid valuation report of M/s Kapil & Associates. The ld. CIT(A) bifurcated the sale value between land and building on the basis of unit rate of cost of construction for the year 2007 as per notification of Circle rate as under: Cost of Purchase (1) [As worked out by the appellant] Sale Consideration (2) Cost of Transfer (3) Net Sale Consideration [(4)=1-2] Gain [(5)=4-1] Land 1,97,50,000/- 2,47,80,310/- 5,66,034/- 2,42,14,266/- 44,64,266/- Building 21,97,720/- 22,19,690/- 50,700/- 21,68,990/- (-)28,730/- {Rs. 11,870/- x 187 sq mts (circle rates for the year 2007)} Total 2,19,47,720/- 2,70,00,000/- 6,16,744 2,63,83,256/- 44,35,536/- 20. Since the capital gain shown by the assessee was at Rs. 39,90,385/. The ld. CIT(A) directed the AO to make the addition on account of Short Term Capital Gain at Rs. 4,73,881/- (Rs. 44,64,266/- - Rs. 39,90,385/-) instead of Rs. 23,92,871/-. The ld. CIT(A) also....