2017 (7) TMI 1351 - AT - Income Tax

Correct head of income - franchise fees charged by the appellant - income from house property or business income - HELD THAT - As decided in the Judgment of this Court in the case of Tamil Nadu Toursim Development Corporation Ltd., Vs. Deputy Commissioner of Income Tax reported in 2014 (9) TMI 431 - MADRAS HIGH COURT . Hence, in view of the above, the appeals are liable to be dismissed. The questions of law framed are answered against the appellant - Appeals filed by the assessee are dismissed.

Summary

Issues:
Appeal against confirmation of disallowance of franchise fees claimed under section 24 of the Income Tax Act for assessment years 2007-08 and 2012-13.

Analysis:
1. The appeals were filed against orders of the Commissioner of Income Tax (Appeals) concerning the disallowance of franchise fees under section 24 of the Income Tax Act for the assessment years 2007-08 and 2012-13. The primary contention raised by the assessee was the alleged error in confirming the disallowance by the CIT(A).

2. The Assessing Officer reopened the assessment for the year 2007-08 under section 147 of the Act and determined the total assessed income of the assessee after various additions. The franchise fees claimed by the assessee were disallowed during the assessment process. The CIT(A) partly allowed the appeal filed by the assessee.

3. The main issue in both appeals was whether the franchise fees claimed by the assessee should be allowed as a deduction under section 24 of the Act. Both parties agreed that the issue was decided against the assessee in previous assessments based on the decision of the Jurisdictional High Court.

4. The Tribunal examined the franchise agreements submitted by the assessee and considered the nature of the income derived from franchise fees. The Tribunal noted that the franchise agreements indicated the assessee's continued involvement in tourism activities through franchisees, leading to the conclusion that the income was in the nature of business income, not income from house property.

5. Referring to relevant case law, the Tribunal emphasized that the income derived from franchise fees was a result of granting special rights or privileges to franchisees for conducting business on the assessee's property. Therefore, the income was rightly classified as business income, and the deduction claimed under section 24 was disallowed for both assessment years.

6. The Tribunal upheld the decisions of the Assessing Officer and the CIT(A) based on the interpretation of the franchise agreements and the nature of the income earned. Following the precedent set by the Madras High Court in similar cases, the Tribunal dismissed the appeals and confirmed the disallowance of franchise fees claimed by the assessee for both assessment years.

In conclusion, the Tribunal dismissed the appeals, upholding the disallowance of franchise fees claimed by the assessee for the assessment years 2007-08 and 2012-13 based on the nature of the income derived from franchise agreements and relevant legal interpretations.