2012 (12) TMI 566 - AT - Income Tax

Nature of Income Whether the royalty income has to be considered as business income or as income from other sources - Assessee had handed over its Hotel management and control on royalty basis treat it as business income AO held that the royalty was nothing but payment received by the assessee on letting out of the hotel premises treat as income from other sources - Held that - It is a case of commercial exploitation of the assets owned by the assessee. Moreover we also note that both in the earlier years and subsequent years the department had accepted the income as business income and therefore the doctrine of consistency is also in favour of the assessee. Appeal decides in favour of assessee Addition on account of cash deposit in bank u/s 68 Assessee contended that cash deposit being money deposit by partner towards capital AO s ground was that there is time gap between cash withdrawal from partners bank account and deposit in assessee account Held that - As the introducing partner is doing his own business also and is regularly assessed to tax and cash withdrawals as well as introduction of cash in the firm are reflected in his accounts about which no dispute has been raised. Therefore merely on the ground that there was time lag between the cash withdrawals and the deposits addition cannot be justified as there is no legal bar on a person keeping money in cash. There is also no material placed on record to show that the cash withdrawals by partner had been used for some other purpose and were not available for cash deposits in the bank account of the firm. Appeal decides in favour of assessee Addition on account of cash deposit in current account u/s 68 Assessee had handed over its hotel business on royalty basis Said account in the name of hotel and hold by such another person who manage the control of hotel Held that - Such bank account had been duly disclosed in the balance sheet of Hotel and maintained separate P&L Account and Balance sheet for Hotel which he was running as per conducting agreement on payment of royalty. Therefore no justification of such addition by AO. Appeal decides in favour of assessee

Summary

Issues involved:
1. Nature of income received by the assessee from "Hotel Derby" - Business income or income from other sources.
2. Addition of Rs.3,27,500/- under section 68 of the Act.
3. Addition of Rs.13,96,200/- being cash deposit in the current A/c. No.CA/01/800132 in the name of "Hotel Derby" with Corporation Bank, Ulhasnagar Branch.

Issue 1: Nature of income from "Hotel Derby"
The dispute revolved around the nature of income received by the assessee from "Hotel Derby." The AO treated the royalty income as income from other sources, considering it as payment received for letting out the hotel premises. The assessee contended that the income arose from the commercial exploitation of assets and should be considered as business income. CIT(A) agreed with the assessee, citing the judgment of the Hon'ble High Court of Calcutta. The Tribunal upheld CIT(A)'s decision, stating that the income resulted from the commercial exploitation of assets owned by the assessee, supporting the claim of business income.

Issue 2: Addition under section 68 of the Act
The AO added Rs.3,27,500/- under section 68 of the Act due to a cash deposit in the assessee's bank account, questioning the nexus between cash withdrawals and deposits. The assessee explained that the amount was introduced by a partner towards his capital, with withdrawals and deposits duly recorded in the partner's books of account. CIT(A) accepted the explanation, noting the partner's regular tax assessments and deleted the addition. The Tribunal upheld CIT(A)'s decision, emphasizing that the cash withdrawals and deposits were accounted for, and the partner's tax compliance supported the explanation.

Issue 3: Cash deposit in the current A/c. of "Hotel Derby"
The AO added Rs.13,96,200/- as unexplained income due to cash deposit in the current account of "Hotel Derby." The assessee clarified that the account was managed by another party under a conducting agreement and was duly reflected in the balance sheet. CIT(A) found the account details submitted by the party and deleted the addition. The Tribunal upheld this decision, highlighting that the account was disclosed in the balance sheet, and the managing party was regularly assessed to tax, indicating no grounds for the addition.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the decisions of CIT(A) in all three disputes, emphasizing the proper consideration of facts, explanations provided, and supporting evidence presented in each case.