TaxTMI 
TaxTMI 
2023 (6) TMI 1027
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....d its income to the tune of Rs. (-) 54,52,184/- and offered the 'revenue receipts' from the operation of "Hotel" under the head "Business Income", therefore, the Assessing Officer (AO) by issuing notice 13.02.2017 under section 142(1) of the Act along with questionnaire, show-caused the Assessee to furnish the detailed reasons with justification for filing of the revised return. 2.1 In response, the Assessee vide letter dated 24.11.2017, claimed as under: "The Assessee company has appointed an expert & experienced operating management agency M/s Four Seasons Hospitality Pvt. Ltd for carrying the business from the said premises in consideration of management license basis. The Assessee company has generated revenue on account of management licence fee Rs. 76,00,494/- which has been offered to tax unde head "Income From House Property". With reference to terms & conditions of the aforementioned management agency agreement between the Assessee Company and Four Seasons Hospitality Pvt. Ltd, it is apparent that there is no relationship of Owner/Tenant nor is any fixed amount received or receivable by the Assessee. The Assessee receives percentage of the revenue which fluctua....
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.... d. That Assessee company in A.Y 2010-11, appointed an expert & experienced operating management agency M/s Four Seasons Hospitality Pvt. Ltd for managing the business from the said premises in consideration of management license basis. (Copy of Agreement has already been filed). e. That during the A 2015-16 the assessee company has generated revenue on account of management license fees of Rs. 76,00,494/- which has been disclosed in the Audited Accounts under the head" Revenue from Operations". f. That the assessee company had installed the furniture and fitting in the said resort and in AY 2007-08 the resort was put to use and the assessee company was itself operating the resort before the assessee company appointed an expert & experienced operating management agency M/s Four Seasons Hospitality Pvt. Ltd for managing the business. Thus all the necessary amenities together with the building was already in place at the resort at the time of appointment of the management agency M/s Four Seasons Hospitality Pvt. Ltd. g. That the Assessee since inception has disclosed the Revenue from Operations as "Business Revenue", duly accepted by the authorities ....
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.... initial period of 2 years to be extended by a further period of 4 years. It further specifies that in case it is not renewed for the further period of 4 year, the Assessee shall enter into a Management Agreement with Seasons for a minimum of 9 years. The agreement between the parties is thus for considerably long period and clearly reveals that the Assessee did not have any intention to run the business itself. It is also noted that the employees have been employed by Seasons and report to Seasons and this has admitted by the Assessee in its letter dated 14.12.207 in response to a specific query raised by this office. 3.9 As per Point 9 of the agreement, Seasons is required to invest between Rs. 100-150 lakhs towards capital & pre-opening expenses (capital cost). This clearly reveals that the Assessee did not even have the full hotel in operation when it entered into the Agreement and required a party to complete the hotel as well as resort. This is corroborated by the Assessee's submission dated 14.12.2017 where it has been stated as under: - "We are attaching the balance sheet of FY 2008-09 Indicating that a part of the resort (Emphasis supplied) disclosed as C....
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.... been given to Seasons for being run. 3.14 In the instant case, as per Clause 5.1, the Assessee is receiving a percentage of the net revenue generated from the business. But that cannot be the sole deciding factor to conclude that the amount received by the Assessee is rental income or business income. The percentage of the net revenue payable to the Assessee is only a basis/ formula for calculation of rent. 3.15 It is a well settled proposition of law that the substance will prevail over the form. In the instant case, as discussed above, it is clear that intention of the Assessee was to let out the property and it cannot be considered that the Assessee was exploiting the property for its commercial business purposes. The management license fees of Rs. 76,00,494/- will thus be assessed under the head 'Income from House Property' as declared by the Assessee in the original return. I am satisfied that the Assessee has furnished inaccurate particulars of income and hence, penalty proceedings u/s 271(1)(c) of the 1.T. Act, 1961 are initiated on this point." 2.5 The AO, consequently assessed the management license fees of Rs. 67,00,494/- as income under the ....
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....t was registered with Service tax department for renting of immovable properties and in the service tax return the appellant has shown its income from renting activities. * In AY 2013 - 14, the CIT (A) upheld the treatment of income as rental income. The matter is pending for decision with ITAT. * In AY 2014-15, there was no scrutiny assessment. * In AY 2015-16, the appellant declared this license fee as rental income in the original return filed on 27/9/2015. Later on, it revised the return on 1/6/2016 and showed this income as income from business. * In the assessment order AY 2015-16, the AO has discussed the agreement for management license fee in detail. He has given clear findings that all hotel business is carried on by the third-party which has shown it as business income. The appellant has not carried out any business operation nor has it incurred any expenditure on the business. The agreement is for a very long period subject to renewal and further extension. * There is one single agreement to let out the hotel building along with furniture and equipments which are inseparable parts of the building. * The license fee p....
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....lley, Golf Homes, Village Dadu Tahsil, Taura, District Mewat, Haryana, which was constructed and completed in FY. 2006-07 and thereafter was put to use for commercial activities from FY 2006-07 (AY 2007-08) onwards itself. 6.1 Subsequently the Assessee in AY 2010-11 appointed an experienced and operating management Agency M/s Four Seasons being expert for managing the business from the said premises on a consideration of management license basis and during the AY 2015-16 under consideration, generated revenue of Rs. 76,00,494/- as management license fees, which though was shown in the original return of income as rental income, however, in the revised return of income, has been shown as "Income from Business". 6.2 Before appointing, an expert agency M/s Four Seasons for managing the business, the Assessee had installed all the furniture and fittings in the resort in AY 2007-08 itself, thus, all the necessary amenities together with building were already in place at the Hotel/Resort at the time of appointment of M/s Four Seasons and since inception of the resort, the Assessee has disclosed the revenue from operations as "Business Revenue" which has duly been accepted by the au....
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....Seasons , the duration of the term of agreement was initially for two years commencing from the effective date with option for renewal of the same for four years. Further consideration which M/s Four Seasons for carrying out the business from Hotel premises, was supposed to pay to the Assessee, has been set forth as under: 1st Year : 10% of the net revenue generated from the business. 2nd Year : 15% of the net revenue generated from the business. 3rd Year : till six year 20% of the net revenue generated from business 8.2 The Assessee as per agreement was also entitled to receive Rs. 50 per room from Four seasons, on uses basis for using the club facility of health club, gym and sports area but excluding the Spa. 8.3 From the agreement, it also appears that the Assessee was not supposed to get any fixed amount but infact sharing the revenue on fluctuation basis and therefore question emerge as to whether the Assessee earned income from "Business" or rental income from "House property" 8.4 The Hon'ble Apex Court in the case of Chennai Properties and Investments Ltd. Vs. CIT (2015) 56 taxmann.com 456 (SC) and Rayala Corporation Pvt. Ltd. Vs. ACIT (2016) 72 t....
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....nchise, and to carry on the business of, hotel, resort, restaurant, conference center, motel, holiday camp, leisure center, caravan site, café, tavern, beer house, boarding and lodging house keepers, serviced apartments, clubs, baths; dressing room, laundries, reading, writing and newspaper rooms, libraries, grounds and places of amusements and recreation, sport, entertainment, health spas, health clubs and health centers, yoga centers, massage parlours, beauty parlours, beauty saloons, gymnasiums, swimming pools, physiotherapy centers for body and beauty care in India or in any other part of the world and to do all acts and things, Including but not limited to acquisition by purchase, lease, exchange, hire, or otherwise any land and/or property and/or building for any tenure or any interest therein and to erect, construct and/or develop, or cause such erection, construction and/or development of, buildings, complexes or works of every description on the said land to carry on the abovesaid business of the Company." 8.7 From the objects of the Assessee, it is clear that the main purpose for establishing the Assessee's company is not for "renting business" but infact is for....
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....ness is letting or not. 8.11 In our considered view, no doubt, object clause is not a determinative factor, however, it cannot be sidelined completely but should be given weightage in interpreting the main activities of an Assessee. It is an admitted fact that the accounts of the Assessee are audited and Notes No.1 (II) of the Audit report, specifies the revenue recognition as under: "Revenue comprises from sales, food and beverages and allied services relating to hotel operations including other general charges received from hotel services. Revenue is recognized on rendering of services. Expenses are accounted for on accrual basis." 8.12 It is not in controversy in this case that in the year under consideration, the Assessee has received 20% of the net revenue generated from the business carried out by M/s Four Seasons and neither there is any relationship of owner/tenant nor any fixed amount received as "rent" by the Assessee. The Assessee received percentage of the revenue which fluctuates from month to month and has different heads/source of revenue including Golf Course, Food & Beverages, and Rooms etc. Further as per agreement, M/s Four Season....
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....that no tax shall be levied or collected except by the authorities of law. The Hon'ble Allahabad High Court in the case of P.T. Sheonath Prasad Sharma Vs. CIT 66 ITR page 647 (Alld.) reminded that Income Tax Officer is empowered to assess the income of the Assessee and determine the tax payable therein in accordance with law but not otherwise. The Hon'ble High Court further reminded that just because the Assessee has shown the receipt as income in his return, it does not make him liable to tax thereon, upon a receipt which is not taxable in law, it is also open to the Assessee to take the case in appeal or revision thereafter. Further, the Assessee is within his right in requiring the Appellate or Revisional Authorities to examine the validity of assessment of tax on receipt, which is admitted by him but not taxable in law. 8.15 The Hon'ble Apex Court in the case of DIT Vs. Puranmal & Sons 96 ITR 390 (SC) also clearly held that a person cannot be taxed on the principle of estoppels. 8.16 From the judgments referred to above, it is clear that the purpose of assessment proceedings before the taxing authority is to assess correctly the tax liability of Assessee in accordance wit....