TaxTMI 
TaxTMI 
2016 (3) TMI 369
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....t, 1961 ("Act") has erred in disallowing the receipts earned by the Assessee under various heads of income which have a direct nexus to the business activities of the Assessee and without considering the fact that the same is eligible for a deduction u/s. 80IB(7)(a) of the Act. 2. On the facts and circumstance of the case the learned CIT(A) has erred in disallowing the entire amount of other income derived from the business of the assessee without considering the fact that the portion of other income has already been offered to tax in the Return of Income filed for the Assessment Year 2007-08. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 4. First we shall consider the facts for the assessment year 2007-08 and adjudicate the issues therein which will be binding on the other assessment years namely 2008-09 and 2010-11. 5. The brief facts in respect of the assessment year 2007-08 are as follows: The assessee is a private limited company which is engaged in the business of running hotel by the....
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.... the CIT(A) is justified in disallowing the entire amount of other income derived from the business of the assessee without considering the fact that the interest income on Fixed Deposit of Rs. 237,410 has already been offered to tax in the Return of Income filed for the Assessment Year 2007-08. ii) Whether the CIT(A) is justified in excluding 'other income' earned by the assessee company for the purpose of deduction u/s. 80IB(7)(a) of the Act. During the assessment year 2007-08, the following income earned by the assessee company was grouped under the head "other income" and the detailed split up of the other income earned by the assessee company are as follows: Sl. No Particulars Nature of Income Amount (INR) 1. Interest Income Interest on Fixed Deposit from SIB (Kumarakom) 237,410 2. Rent Received from Heritage Shop Curio Shop 180,000 3. Rent on Amenities to M/s. Kumarakom Water Transport Pvt. Ltd. Housekeeping and restaurant service 120,000 4. Revenue from Staff Mess Revenue from staff mess used by the Guest drivers 7,139 5. Revenue from Staff Telephone Revenue from telephone used by staff 90,....
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....e provisions of section 80-IB of the Act, deduction is available to profits and gains "derived from" the specific business. The phrase derived from used in section 80-IB is highlighted for reference below- "Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section." 9.4 Further, sub-section (7) to section 80IB reads as follows: "(7) The amount of deduction in the case of any hotel shall be - (a) fifty percent of the profits and gains derived from the business of such hotel for a period of ten consecutive years........... 9.5 The Institute of Chartered Accountants of India ("ICAI") has prescribed Technical Guide on Audit in Hotel Industry. The guide provides for key revenue generation activities in case of hotel industr....
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.... of material damage from staff etc. Disposal of empties/sale of scrap Thus it can be seen from the above that, rent received by the assessee of Rs. 180,000/- from Heritage Shop which represents rental income from Curio Shop and of Rs. 120,000/- for the space and amenities given to Kumarakom Water Transport Pvt. Ltd. will fall within the key revenue generation category of 'Space Rentals' and 'Arcade revenue' and 'Housekeeping bill' for a hotel industry. Revenue from staff mess of Rs. 7,139/- will also fall within the key revenue generation category of 'Food and Beverages' for a hotel industry. Revenue from staff telephone of R.90,048/- will fall within the key revenue category of 'Communication revenue (both telephone & internet)' as per ICAI guidelines. Income from club cultural program/DJ of Rs. 475,216/- will fall within the key revenue generation category of Club use revenue. Further the sale of used packing materials, recovery of material damage from staff etc. will fall within the key revenue category of 'Disposal of empties/sale of scrap' as per the ICAI guidelines. Thus it can be seen that the other income earne....
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....s nothing but a part and parcel of the manufacturing process of the industrial undertaking. These receipts cannot be said to be independent income of the manufacturing activities of the undertakings of the assessee and thus could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction u/s. 80-IB. These were gains derived from industrial undertakings and so entitled for the purpose of computing deduction u/s. 80-IB. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing deducting u/s. 80-IB." 9.10 In the instant case, the following income which has been classified as 'other income' in the books of account:- i) Rent received from Heritage Shop. ii) Rent received for the space and amenities given to Kumarakom Water Transport Pvt. Ltd. iii) Revenue from staff mess used by guest driver....