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TaxTMI 
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2015 (7) TMI 45
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....nd 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/appellant on the amount of Rs. 21,60,000/- and erred in upholding the disallowance of the same. 3. T....
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....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 different rates when nature of payment was essentially in the form of license fee and TDS should have been made as per the provisions of section 194 I of the Act and not as per section 194C of the Act as was made by the assessee in several cases. In response, the assessee furnished another table containing details of licen....
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....n 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. The assessee vide letter dated 09.12.2010 explained that TDS had been made u/s 194C where agreements entered were revenue sharing agreement being purely contractual in nature as in the case of Ms. Meera Kulkarni, M/s SRK Tours & Travels, Mr. Francis Wacziarg whereas where the agreement was only for usage of space, the rates applied were as per section 194 I of the Act as in the case of M/s Delhi Warehousing Pvt. Ltd. The AO however did not accept the contention of the assessee by observing that the clauses of each agreement were identically worded in so far as revenue ....
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..../- 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. Ltd. 2,12,909/- 4,825/- 2.27 A T Changapa 14,105/- 291/- 2.06 Sagari Dalia Changapa 14,105/- 291/- 2.06 Poonama Romana Aooanna 14,105/- 291/- 2.06 The appellant who is having expertise in marketing, supervising and running of hotels, entered into business arrangements with; among other. (a) Delhi Warehousing Private Limited, New Delhi (In short DWPL) - Owner of Neemrana Fort Palace - a heritage hotel at Village Neemrana, Rajasthan: DWPL is running the same palace as hotel in the name & style of Neemrana Fort Palace (in short Palace) and also got the approval of running the same as 'a heritage hotel' on its own since 1992. DWPL has got the approval from Director General of Income Tax (Exemption), Calcutta in terms of provisions of clause (iii) sub- secti....
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.... 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 appellant for supervising/running/operating them as hotels. Here also the appellant has got all the rooms from FW ready to be used as hotels. Here also 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 properties as hotels. Here also the appellant is not the tenant of FW and is not using these properties for their own use and also has not taken these properties on lease from FW Neither FW has given these properties on lease to the appellant. Similarly, here also, the appellant is sharing the revenue from the said hotels like a profit sharing agreement which is purely a business arrangement....
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....unt 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 profits whichever is more subject to 33 Lakhs etc. It is important to see that the calculations for revenue sharing are more or less similar in natures in all agreements. As a sample we are producing the clause on revenue sharing as per agreement with Mrs. Meera Kulkarni: 2. "Books of Accounts & revenue sharing" 2.1 It is agreed that "The Party of the Second Part" shall keep and maintain all necessary statutory records and financial books of accounts wherein true, accurate and regular accounts of receipts and payments of the hotel expenditure as well as of all the assets, investments and liabilities of the said hotel are recorded. The accounting year for the said hotel under the agreement shall be financial year which starts from the 1st day of April and ends on 31st day of March each year. 2.2 It has been expressly agreed between the Parties, that the "The Party of the First Part is entitles to minimum guaranteed amount of Rs. 1,50....
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....ied out by the owners of the properties. It is noted that all the agreements with different parties are for different revenue share depending on location, potential etc of the properties. The amount paid in terms of these agreements is debited to 'Licence Fees' Account. The amount paid in terms of these agreements for various periods is not a fixed sum of money as in the case of income from house property. All these are business contracts and payment is being made as share of revenue and thus provisions of Tax Deduction at Source (TDS) as contained in Chapter XVII of the Act are not applicable on the payments made by the appellant to various parties. It is neither covered u/s 194C nor u/s 194 I of the Act. It is clear that none of the owner of properties is a contractor of the appellant and on the contrary the appellant is putting its efforts including managing the affairs and running their properties as hotels based on the professional expertise of the Appellant. The transactions thus are not covered u/s 194C of the Act. Thus appellant need not deduct the tax at source u/s 194C for the payment made to them in terms of agreement for sharing of revenue. It is also no....
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....the ITA No. 1340/Del/08 for Assessment Year 2003-04 against the appeal made by Assessing Officer. We are submitting herewith the copies of the same for your kind consideration. Thus when such income is not taxable as rental income under the head income from house property, provisions u/s 194 I of the Act is not applicable at all. The appellant has relied on Judgment of Kamat Hotels (I) Ltd. vs. ITO [2001] 78 ITD 241 (Mum), wherein similar facts has emerged and Hon'ble ITAT has ruled that TDS provisions u/s 194 I is not applicable to the assessee. However the appellant is deducting tax at source as per mutual agreement with the various parties, wherein DWPL, has requested to deduct tax @ 20% on payment basis so that it can relieved from payment of advance tax, while others requested for deduction of tax at 2% of contractual payments. It is not the intention of the assessee to deduct tax at a lower rate or at a higher rate. The appellant is not at all liable for TDS on these payments. It is deducting tax as per mutual agreement with the parties. There is no provision in the Act which restricts the appellant not to deduct TDS on behalf of the other parties. In fact, the appell....
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....PL will be paid 15% of gross operating profits and accordingly Rs. 1,37,01,000/- was paid during the year. (b) As per agreement, Mrs. Meera Kulkarni is entitled to minimum guaranteed amount of Rs.l,50,000/- or 30% of gross operating profits, to be calculated every quarter, whichever is higher and accordingly Rs. 61,53,504/- was paid during the year. (c) In the case of Mr. Francis Wacziarg, he is entitled to minimum guaranteed amount of Rs. 15,00,000/- or 20% of Gross Operating Profit whichever is higher and accordingly Rs. 39,37,502/- was paid during the year. (d) In the case of Mountain Valley Springs Private Ltd. it is entitled to 30% of Annual Turnover and accordingly Rs. 2,12,909/- was paid during the year. (e) Mr. Sudhir Mulji is entitled to 20% of the Gross Operating Profits and accordingly Rs. 6,37,305/- was paid during the year. (f) Mathesons Bosanquft Enterprises Ltd. is entitled to 20% of Gross Operating Profits and accordingly Rs. 3,03,676/- was paid during the year. All the agreements between the appellant on the one hand that other parties except SRK Travels & Tour Pvt. Ltd. contains the following important clause: "It is hereby agreed that both parties sha....
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....04 in the case of income received by Francis Wacziarg from the appellant company, Hon'ble Delhi High Court in ITA No. 338/2011 in its decision dt. 08/11/2011 in the case of CIT vs. M/s Francis Wacziarg have held that: "Even otherwise, we find that CIT(Appeals) has given detailed factual finding why income earned by the assessee from the three properties is taxable under the head 'income from business or profession' and not under the head 'income from house property'. The reasoning given by the assessing officer is cryptic and she has not considered the relevant aspects. On the basis of findings recorded by her, it is not possible to hold that the finding of fact recorded by the CIT(Appeals)/Tribunal are unfounded or unreasonable. In any case, the said findings are not perverse and are based on documents and material placed on record. The reasoning is cogent and well explained. Therefore, we do not find that any question of law arises on the first aspect and we are not inclined to frame any substantial question of law whether the income earned by the respondent assessee is taxable under the head 'income from house property'. In the above decisio....
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....ent of the party in the business affairs being run in the property and license fee paid is also fixed amount and not proportionate to the business income and the license fee paid is solely for the use of land and building, therefore, the payments made are in the nature income of house property and not in the nature of income from business carried out. In view of the above the payments made being in the nature of income by way of rent, therefore, the appellant is liable to deduct tax on account of the said payments to the party under Sec 194 I. 6.6 Since there is short deduction of TDS by the appellant u/s 194 I as shown by the A.O. in respect of the above payments to SRK Travels & Tours Pvt. Ltd. to the extent of Rs. 21,60,000/-, therefore, the A.O. is justified in disallowing the above payment made by the appellant u/s 40(a)(ia). The AR of appellant also submitted that disallowance u/s 40(a)(ia) does not cover short deduction of TDS or deduction of TDS under wrong head due to difference of opinion or any other reasons. The above submission of the appellant is not sustainable because Chapter XVII-B contains specific provisions of TDS at different rates in respect of different nat....
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.... Revenue Sharing Arrangements. It was submitted that the Hon'ble Jurisdictional High Court has decided an identical issue in the case of CIT Vs Francis Wacziarg for the assessment year 2003-04 and held that the income received by Mr. Francis Wacziarg from the assessee was "income from business or profession" and not under the head 'income from house property'. It was further submitted that the ld. CIT(A) was fully justified in deleting the arbitrary addition made by the AO in respect of the disallowance made u/s 40(a)(ia) of the Act. As regards to the disallowance of Rs. 21,60,000/- sustained by the ld. CIT(A), the ld. Counsel for the assessee submitted that the licence fees payable to M/s SRK Travels & Tours Pvt. Ltd. was minimum of Rs. 12,00,000/- or 15% of Gross Operating Profit whichever was higher subject to maximum of Rs. 18,00,000/- per annum. It was contended that at the most the disallowance to the extent of Rs. 18,00,000/- could have been made, therefore, the ld. CIT(A) was not justified in sustaining the disallowance of Rs. 21,60,000/-. The reliance was placed on the judgment of the Hon'ble Jurisdictional High Court in the case of CIT Vs Francis Waczirag 353 ITR 157. 12....
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.... instead of Rs. 21,60,000/- sustained by the ld. CIT(A). 14. The next issue vide Ground Nos. 2 & 2.1 of the departmental appeal and Ground No. 6 of the assessee's appeal relates to the deletion/sustenance of addition made by the AO on account of Short Term Capital Gains. 15. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee sold a property situated at A-53, Nizamuddin, New Delhi and declared a Short Term Capital Gain of Rs. 3,990,385/-. The AO asked the assessee to furnish the full details alongwith agreements and related documents thereof. In response the assessee furnished the working of 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 16. From the above details and the copies of sales deed and purchase agreements, the AO noticed that the assessee had sold the Land and Building for Rs. 2.70 crores which was acquired by it during the financial year 2006-07 for Rs. ....
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....us building is eligible for depreciation. For convenience, the appellant bifurcated its total cost into land at Rs. 197.50 Lakhs and into building at Rs. 21,97,720/-. The bifurcation of cost into land & building has been made based on discussion took place between with the various professional involved in finalization of deal at that time though the appellant could not locate basis/document for bifurcation of total cost into land and into building. Since the property was having very old construction, the appellant considered the land cost for ground and first floor at Rs. 1, 97,50,000/- (viz. Rs. 98,75,000/- each floor) and balance is kept in building account. No objections have ever been raised for this apportionment of total cost into land and into building by RSM & Co., Chartered Accountants, the statutory auditor/tax auditor of the appellant who have been the statutory audit report and tax audit report. As concept of block of asset u/s 32 of the Act is mandatory, and since the appellant is eligible for depreciation on building, the appellant recorded cost of building into 'building' block of asset in depreciation schedule and charged depreciation at the rates applicab....
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....depreciation for the financial year 2006-07 during which the building cost is capitalized into building block of asset and for the financial year 200708, during which the property is sold deleting the proportionate sale value of building which the appellant has taken in depreciation schedule. Thus she cannot take short term capital gain on cost, and also reduction in value of building block of asset, which she has not touched. (b) Allow full cost of purchase including stamp duty, brokerage etc, as stated hereinabove in the cost acquisition of the property sold. The Ld. AO has taken the cost of land & building at Rs. 200 Lakhs, purchased during financial year 2006-07 as compared to actual total cost incurred by the appellant of Rs. 219.47 Lakhs as per details stated herein above. She cannot disregard the audited books of account for the financial year 2006-07 without invoking the provisions of section 147/148 of the Act by reassessing the income of the appellant for financial year 2006-07 relevant to assessment year 2007-08, which she has not done. Thus Ld. AO has illegally reduced the cost of property to Rs. 200 Lakhs from Rs. 219.47 Lakhs, which the appellant is hereby praying....
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.... into 'building' block of asset in "depreciation schedule" and charged depreciation at the rates applicable. He further observed that as the property was sold within 3 years period, therefore, Short Term Capital Gain arising on sale of land portion was shown by the assessee. According to the ld. CIT(A) the AO was not justified in taking purchase cost of property at Rs. 2 crores only by ignoring other cost of Rs. 19,47,720/- including stamp duty of Rs. 10 lakhs and corporation tax of Rs. 6 lakhs which was appearing on the face of the sale deed, brokerage expenses, legal expenses etc. which the assessee had incurred in the course of purchase of the aforesaid property and the detail of which were submitted to the AO during the course of assessment proceedings and was also shown in the balance sheet filed alongwith Income Tax Return for the assessment year 2007-08. The ld. CIT(A) also pointed out that the Clause 16 of the agreement says that all the expenses of the corporation tax, stamp duty, registration fee, etc. had been borne and paid by the vendee. He, therefore, held that the AO was not justified in working out the capital gain without bifurcating the gain into land and building....
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....iterated the observations made in the assessment order and also submitted that the assessee bifurcated the cost in land and building without any basis and the ld. CIT(A) also deleted the addition made by the AO without appreciating the facts in the right prospective. It was further stated that the ld. CIT(A) was not justified while accepting the bifurcation of the cost into land and building as shown by the assessee. 22. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the ld. CIT(A) was not justified in sustaining the addition of Rs. 4,73,881/-. 23. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the AO while working out the capital gain considered the purchase value at Rs. 2 crores and ignored the other expenses of Rs. 19,47,720/- incurred by the assessee which included stamp duty of Rs. 10 lakhs, corporation tax of Rs. 6 lakhs and other expenses amounting to Rs. 3,47,720/- on account of brokerage expenses, legal expenses etc. Those expenses were incurred by the assessee in a....