AI Structured Summary
Not yet generated for this judgment
Judgment
K.L. Manjunath, J.—This appeal is by the assessee challenging the concurrent findings of the assessing officer Commissioner of Income Tax (Appeals), Bangalore, and the order passed by the Income Tax Appellate Tribunal, Bangalore Bench in ITA. No. 19/Bang/98 for the assessment year 1989-90,
The assessee is a company registered under the Indian Companies Act, 1956. The assesses filed the return of income on 31.12.1989 and the same was processed u/s 143(1)(a) of the Income Tax Act (for short the ''Act). The assessee is indulged in the hotel business activities. One such establishment was in Bangalore under the name and style "East West Hotel Ltd.", at Residency Road, Bangalore. The said hotel has been given to the Indian Hotels Company limited under an agreement dated 1.6.-1997 for an initial period of 33 years and giving option to renew the same for a further period of 33 yearn The said agreement is entered into under the name and style of "Licence Agreement". The assessee contended that the amount received by it from Indian Hotels Company Limited has to he treated as its business income. The contention of the assessee was rejected by the assessing officer on the pound that the assessee is not getting any business income from East West Hotels and the same has been leased out by the assessee in favour of M/s Indian Hotels Company Limited and any amount received by the assessee from such company has to be treated as the income from other sources and not a business income. Accordingly, an order of assessment was passed.
Aggrieved by the order passed by the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), contending that the assessing officer did not consider the pith and substance of the licence agreement entered into between the assessee and M/s Indian Hotels Company limited. It is further contended that since the Indian Hotels Company Limited is managing the hotel of the assessee, such transaction cannot be treated as a lease transaction and the income received by the assessee has to be treated as an income from the business of the assessee. However the Commissioner of Income tax rejected the contention raised by the assessee and confirmed the orders passed by the assessing officer and disposed of the appeal.
Aggrieved by the same, the assessee filed a second appeal before the Income Tax Appellate Tribunal, Bangalore Bench, which also dismissed the appeal holding that the transaction between the assessee and M/s Indian Hotels Company limited is in the nature of lease and cannot be held that the assessee herein is running the hotel and any income from such hotel building has to be treated as a business income of the assessee.
Aggrieved by the concurrent findings of all the authorities below, this appeal is filed by the assesses raising the following question of law,
Whether on the facts and in the circumstances of the case, the authorities below were right in holding the transaction between the assessee with the Indian Hotels Company Limited is in the nature of lease and not a licence and that the amount received by the assessee from the M/s Indian Hotels Company Limited has to be treated as an income from other sources and not as business income.
We have heard the learned Counsel for the appellant and the respondent
The teamed counsel reiterated the grounds urged before the authorities below and relying upon the judgment of the Bombay High Court (2006) 152 Taxman 611 Bom in the case of Commissioner of Income Tax v. Mohiddin Hotels (P) Ltd., contends that the facts involved in the aforesaid case and facts involved in the present case are one and the same. In such circumstances, the Division Bench of the Bombay High Court has held that the income from the said hotel has to be treated as business income and not an income from the house property. Therefore, he requests the Court to allow the appeal.
Per contra, the learned Counsel for the revenue contends that the judgment of the Bombay High Court is not applicable to the foots of the present case since the Bombay High Court did not consider the principle laid down by the Hon''ble Supreme Court in the case of Universal Plast Limited Etc. Vs. Commissioner of Income Tax, Calcutta, . According to him, if the principle laid down by the Hon''ble Supreme Court in the aforesaid judgment bad been properly applied by the Bombay High Court and if the, Bombay High Court had considered the terms and conditions of the document therein, it would not have reached such a conclusion. He further contends that on facts, the facts in the Mohiddin Hotels Limited and the facts involved in the present case are quite different and therefore the said judgment cannot be applied to consider the case of the assessee.
In addition to that the learned Counsel also relied upon a Division Bench judgment of this Court reported in Dharak Ltd. Vs. Commissioner of Income Tax, in the case; of Dharak Limited v. Commissioner of Income Tax. Relying upon these two judgments and relying upon the agreement produced by the assessee along with the appeal memo and the supplemental agreement thereon, contends that it cannot be treated that the assessee has not given up its business and the assessee has no intention to resume the hotel business of the present unit and the amount received by the assessee from Indian Hotels Company Limited has to be treated as a business income. Therefore, he requests the Court to dismiss the appeal
Having heard the learned Counsel for the parties, we notice the following undisputed facts in this case.
It is not in dispute that from many decades the assessee herein was running the hotel in question under the name and style of Best West Hotel Limited at Residency road, Bangalore. It is also not in dispute that the hotel was closed over a period of 17 months and thereafter the assessee herein has entered into an agreement on 1,6.1997 with M/s Indian Hotels Company Limited for a period of 33 years. The assessee has permitted the M/s Indian Hotels Company Limited to run the hotel along with the licence of the assessee subject to the payment of licence fee,
Paragraph 5.1 of the agreement reads as hereunder:
5.1. In consideration of the licence hereby granted, IHCL shall pay to EWH the following licence fee
MINIMUM PERCENTAGE GUARANTEED OF NEW SALES OR ANNUAL LICENCE PER YEAR FEE
During period of the repair work is carried out (commencing from the appointed date up to the reopening date) NIL NIL
For the first year of hotel operation (commencing from the Rs. 20 lakhs; reopening date) 10 OR Whichever is higher For the second year to the sixth year of hotel Rs. 24 lakhs; operation 10 OR Whichever is higher For the seventh year to the fifteenth year of Rs 24 lakhs; hotel operation 12.5 OR Whichever in higher From sixteenth year onwards of hotel Rs. 24 lakhs; operations 14 OR Whichever is higher
While computing the licence fee the parties have also computed the licence fee to be paid during the extended period of agreement.
The Clause 3.1 of the agreement reads that,
The licence shall be for a period of thirty three years commencing form the appointed dale.
Clause 3.2 (i) reads that,
After expiry of 33 years, option open to the M/s Indian Hotels Company Limited to extend it for a further period of 33 years.
Clause 3.2(ii) reads that,
M/s Indian Hotels Company Limited after the expiry of 66 years has further option to renew it for the second time for a further period of thirty three years.
From the above clause, it is dear that if the Indian Hotels Company limited intended to renew the lease period, it has an option to renew the same for a further period of 33 years. In addition to that, supplemental agreement produced along with the appeal memo discloses that the assessee herein has permitted the Indian Hotels Company limited to assign its rights in favour of Gateway Hotel on an enhanced licence fee. Therefore, it is clear that when the assessee herein has no intention to resume its business in the premises in question, at least for a minimum period of 33 years and which can be extended up to 99 years. On facts it is not in dispute that the assessee herein was running the hotel business in the same premises for few decades prior to permitting the Indian Hotels Company Limited in the year 1987. When the assessee has permitted the person who is in occupation of the building to renew the licence for a total period of 99 years, we are afraid that the assessee has an Intention to resume/restart the business and intention of the assessee was only to permit the Indian Hotels Company Limited to manage the affairs of the Hold on behalf of the assessee.
When we consider the clauses of the agreement, it discloses that it is more in the nature of lease deed and not a licence given for a temporary period with an intention to resume its business of Hotel in the premises in question. The Hon''ble Supreme Court in Universal Plast Limited case had an occasion to consider the general principle relating to income from teasing out the assets of the business by an assessee. The four conditions are imposed therein to arrive at a conclusion whether such transaction and the income received has to be treated as a lease amount or licence fee and whether the licence has been temporarily assigned to any other persona to carry on the business with an intention of reviving it. It is no doubt true that the Bombay High Court in Mohiddin Hotels (P) Ltd., had held that after construction and furnishing of a hotel, the same had leased the property for a period of twenty years in favour of Salgaokars, still held that the principles laid down in Universal Plast Limited by the Apex Court has no application to the facts of the case therein. In all respects, we cannot follow the views expressed by the Bombay High Court in Mohiddin Hotels (P) Ltd., considering the nature of transaction in this case.
Considering the facts of this case and considering the nature of document produced by the assessee before us and considering the entire pith and substance of the documents, we hold that the transaction is in the nature of lease and the intention of the assessee is not revive/restart business and to hold that it was leased for a temporary period. Therefore, we cannot come to the conclusion that the assessee has been managing the hotel through M/s Indian Hotels Company Limited. In the result, the question of law trained is answered against the assessee and the appeal is dismissed.