2023 (2) TMI 204 - AT - Income Tax

Deduction u/s 80-ID - income from subletting is shown as income derived from the business of hotel located in the specified area - mere approval is not sufficient as the conditions precedent laid down in sub-section (2) of section 80-ID are not satisfied. Accordingly, he treated the income as income from other sources - CIT-A allowed deduction - HELD THAT - AO did not consider the fact that as per clause no.6 of the said agreement the business is to be run by the two parties in a coordinate manner and receive their respective share of income from the gross revenue of the hotel and allied services provided. CIT(A) has considered that the Revenue Sharing Agreement has some clauses of inclusion and exclusion of some of the revenues as contractually agreed between the parties for sharing of the income from the hotel which cannot be interpreted to mean that it is letting of property when it is based on the total revenue from the hotel and services. We agree with the finding of the CIT(A). Assessee has submitted report of Chartered Accountant in Form-10CCBBA certifying that the assessee satisfied all the conditions for claiming deduction under section 80-ID of the Act. No adverse comment in this regard has been made by the Ld. AO. We, therefore, uphold the finding of the Ld. CIT(A) that the income shown by the assessee is assessable as income from business and that the expenses claimed by the assessee thereagainst is an allowable deduction. It is also to be noted that the Revenue itself has accepted the claim of the assessee in AYs 2012-13 and 2014-15 - The facts remaining the same for the AY under consideration a different view is not tenable. Finding no substance in the appeal of the Revenue and no infirmity in the order of the Ld. CIT(A), we reject the Revenue s appeal.

Summary

Issues Involved:
1. Classification of Rs. 1,74,00,000/- as business receipts or income from other sources.
2. Eligibility for deduction under section 80-ID of the Income Tax Act, 1961.
3. Engagement in the hotel business as per the main object clause of the Memorandum of Association (MOA).
4. Applicability of the Chennai Properties and Investments Ltd. v. CIT judgment.
5. Principle of consistency in tax treatment.
6. Allowance of expenses claimed by the assessee.

Issue-wise Detailed Analysis:

1. Classification of Rs. 1,74,00,000/- as Business Receipts or Income from Other Sources:
The Revenue contended that the receipts of Rs. 1,74,00,000/- should be treated as income from other sources since the assessee sublet the hotel property to M/s. Highest Cruises & Entertainment Pvt. Ltd. However, the CIT(A) found that the Revenue Sharing Agreement indicated coordinated business activities between the assessee and M/s. Highest Cruises & Entertainment Pvt. Ltd., justifying the classification of the receipts as business income. The Tribunal upheld this finding, agreeing that the agreement's clauses on revenue sharing from hotel operations supported the classification as business income.

2. Eligibility for Deduction under Section 80-ID:
The AO rejected the deduction under section 80-ID, arguing that the assessee did not meet the conditions specified, particularly as the assessee was not directly engaged in the hotel business. The CIT(A) found that the assessee had complied with all conditions for the deduction, supported by a Chartered Accountant's certification in Form-10CCBBA. The Tribunal confirmed this, noting no adverse findings from the AO regarding the compliance with section 80-ID conditions, thus allowing the deduction.

3. Engagement in the Hotel Business as per the Main Object Clause of the MOA:
The Revenue argued that the main object clause of the MOA did not support the assessee's engagement in the hotel business. The CIT(A) and the Tribunal found that the assessee's activities, including obtaining a three-star rating and engaging in promotional activities, demonstrated active engagement in the hotel business, aligning with the business income classification and eligibility for section 80-ID deduction.

4. Applicability of the Chennai Properties and Investments Ltd. v. CIT Judgment:
The Revenue argued that the CIT(A) erred in relying on the Chennai Properties and Investments Ltd. v. CIT judgment. The CIT(A) and the Tribunal found that the facts of the case were sufficiently analogous to justify reliance on this precedent, supporting the classification of the income as business receipts.

5. Principle of Consistency in Tax Treatment:
The CIT(A) noted that the Revenue had previously accepted the assessee's treatment of similar receipts as business income in AYs 2012-13 and 2013-14, invoking the principle of consistency. The Tribunal agreed, emphasizing that no new facts justified a deviation from the earlier accepted treatment.

6. Allowance of Expenses Claimed by the Assessee:
The AO did not explicitly disallow the expenses claimed by the assessee. The CIT(A) found that the expenses were inextricably linked to the business operations and were thus allowable. The Tribunal upheld this, noting that since the income was classified as business income, the related expenses were deductible.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s findings that the receipts were business income, the assessee was eligible for the section 80-ID deduction, and the expenses claimed were allowable. The principle of consistency and compliance with statutory conditions supported these conclusions.