AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 13
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....3. Brief facts of the case are that the company is managed by three Directors namely Mr. Matthias Helmut Schwaighofer, Mr. Vikram Sundarji and Mr. Vivekanand Pednekar. 99% of the shares are held by Mr.Matthias Helmut Schwaighofer promoter of the company. The project is totally financed out of share capital amounting to Rs. 3,72,46,000/-. The resort consists of buildings of Rs. 198.00 lacs, furniture, fixtures & fittings of Rs. 36.06 lacs and plant & machinery of Rs. 36.85 lacs. The cost of plant & machinery and fixtures & fittings is 25% of the cost of project. The cost of furnishing is very high so as to cater to international tourists. Since the promoter of the project Mr. Matthias Helmut Schwaighofer is a foreign national, he cannot stay in India for managing such a small project. He hired the services of Shunya Project Consultancy Pvt. Ltd. The Shunya Project Consultancy Pvt. Ltd is managed by Mr. Vikram Sundarji and Mr. Vivekanand Pednekar who have a vast experience in managing the resorts. There is a management agreement dated 01.12.2008 wherein the Shunya Project Consultancy Pvt. Ltd have been appointed as 'Mangers' and have taken the responsibility of marketing the ....
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...., resorts and boarding and lodging house. 6. He, therefore, opined that on the facts and circumstances of the case, there was not even an iota of a doubt that the assessee company always intended to do business of hotels, which is also clear from its conduct. Its income depends on the profitability of the hotels as he is a sharer of the profits. Since the hotel did not make any profits, the assessee did not receive any money. There is also no doubt about the usage of the hotel building as the same is admittedly being used for running of the hotel and depreciation is an allowable expense on the hotel buildings. Further, the general mandate under the Income Tax Act is to tax real income and when the real income was workable, in his opinion, the Assessing Officer was not justified in completing assessment on notional basis. Accordingly, he directed the Assessing Officer to treat the income of the assessee as 'business income' and not 'income from house property' and allow the benefit of depreciation accordingly. 7. Being aggrieved by this order of the Commissioner of Income Tax (Appeals), the Revenue is in appeal before us. 8. The Departmental Representative fully j....
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....ning the hotel business. S possessed the necessary know-how and trained staff for carrying on the business of running a hotel. There was an earlier agreement between the assessee and S dated February 23, 1984, subsequently modified by agreement dated January 2, 1985, whereby S were to be appointed as managers to manage, run and carry on the business of hotel then under construction on the terms and conditions set out therein. The agreement inter alia recorded that S were appointed as managers to manage, run and carry on the business of hotel for a period of 20 years commencing from February 1, 1987; that S alone shall be entitled to terminate the agreement after the expiry of a period of 10 years by giving one year's prior notice in writing to the assessee; that S shall pay a fixed amount of Rs. 7,80,000 per annum for the first 10 years and Rs. 10,20,000 per annum for the next five years and Rs. 12,00,000 per annum for the next five years; that S shall be in charge of the entire management, running and working of the hotel without any interference from the assessee; that S shall be entitled to make additions, alterations and/or improvements to the hotel so as to run it profitab....
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....agreement. The fact that all licences, permissions and no objection certificates required for running hotel were to be obtained in the name of the assessee was a pointer to the aspect that the assessee intended to exploit the business asset (the hotel). The income of Rs. 7,80,000 received from S in the hands of the assessee was income from business under section 28 of the Income-tax Act, 1961." 10. Relying on the decisions, it was the submission of the Authorized Representative of the assessee that the assessee was in the business of running a hotel, the management of which was given to M/s. Shunya Projects Consultancy Pvt. Ltd. on profit sharing basis of 60% and 40% as per the agreement dated 01/12/2008. He further submitted that in the assessment year 2006-07, an assessment was made u/s. 143(3) of the Act, the income from the same hotels was assessed as 'business income' of the assessee. Therefore, it was his contention that in the subsequent years, the Assessing Officer was not justified in treating the income from the said hotels as 'income from house property'. 11. After considering the rival submissions and perusing the material on record, we find that in th....
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....sessee intended to exploit the property and not the business assets but the intention of the parties has to be gathered from the overall facts and not the isolated circumstances. We find that the Authorized Representative of the assessee has submitted that prior to entering into the agreement dated 01/12/2008, the assessee was already using these properties as hotels and the income shown from these hotels was assessed in the assessment year 2006-07 in the assessment made u/s. 143(3) of the Act by the Assessing Officer as the 'business income' of the assessee. Further, we find from the reading of the agreement dated 01/12/2008 that it does not provide for any rental income for the year, but provides for sharing of profit in the ratio of 60% and 40%. Further, the hotels which were given for management for a period of 10 years to M/s. Shunya Projects Consultancy Pvt. Ltd. were fully furnished by the assessee with Air Conditioners, generators, crockery, computers, telephone etc. and also all incidental expenses such as insurance, repairs and maintenance were also borne by the assessee. 12 In the above facts and circumstances of the case, in our considered view the inference dr....