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TMI Blog2014 (2) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts received from KHIL are business receipt – Thus, the AO is directed to treat the business receipt against income from property – Decided in favour of Assessee. - IT Appeal Nos. 6636 & 6676 (Mum.) of 2011 - - - Dated:- 13-9-2013 - R.K.GUPTA AND RAJENDRA SINGH, JJ. For the Appellant : J.D. Mistry. For the Respondent : Deepak Kumar Sinha. ORDER:- PER : R.K. Gupta This common order shall govern the disposal of two appeals, which have been filed by the assessee as well as by Department against the order passed by the learned CIT(A), Mumbai for assessment year 2006-07. 2. Since common issues are involved in both the cases, therefore, for the sake of convenience, both the cases have been heard and disposed of by this consolidated order. 3. The first issue in appeal of the assessee (i.e. ITA No.6676/M/2011) is against confirming the disallowance of interest under Section 36(1)(iii) of the Act. This ground has four part i.e. Ground 1(i) to (iv). 4. Learned counsel of the assessee stated that all the grounds are covered by the order of the Tribunal in the case of assessee itself for earlier years, copy of which has also been filed. 5. On the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hicle, which is raised by the assessee by ground No.1(iii), it is seen that similar issue came before the Tribunal for earlier year 2005-06 and the Tribunal while deciding the appeal of the assessee in ITA No.2676/M/2009, vide order dated 29-3-2011, has set aside the issue to the file of the AO. Accordingly, we set aside this issue to the file of the AO for passing a fresh order in the light of the decision of the Tribunal in the case of assessee itself for assessment year 2005-06. 8.4 In respect to disallowance of interest of rs.8,67,731/- paid to Satara Sahakari Bank on loan taken for financing business, raised by the assessee by ground No.1 (iv), it is seen that similar issue came before the Tribunal for assessment year 2005-06 and the Tribunal has set aside the issue to the file of the AO for passing a fresh order. Accordingly we also set aside this issue to the file of the AO for passing a fresh order in the light of the decision of the Tribunal for assessment year 2005-06. 9. Ground No.2 is against confirming the order of the AO that the management fees received from Kamat Hotels (India) Ltd (KHIL) is taxable as income from house property and not as business income. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, he rejected this contention. While rejecting the contention of the assessee, various decisions have been considered by the CIT(A) in his order. The contention of the assessee that from assessment year 1995-96 to 2005-06, the regular receipt has been accepted as business receipt. The CIT(A) after analyzing the assessment order for earlier years, found that in those years relevant facts were not considered, therefore, it cannot be said that earlier assessment orders should be followed. The CIT(A) by observing that the entire hotel was given to M/s KHIL under the agreement for running the hotel business. Power of Attorney was given to the management of M/s KHIL not only to manage the hotel but also to carry out renovations, remove employees, obtain licenses and permissions. There was no aspect of management in the running of the impugned property, which was retained by the assessee pursuant to the said agreement. It is interesting to note that vide an addendum to the agreement dated 31st of August, 1995, KHIL was given permission to reconstruct the entire hotel on the reason that while carrying out renovations, irreparable damage had occurred to the foundations of the property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of period entered into between the parties. The assessee was sharing a revenue at the rate of 1% of the revenue earned by the KHIL on account of running of hotel owned by the assessee. Though the CIT(A) has recorded the facts in his order that M/s KHIL was allowed to renovate the hotel or reconstruct the same from his own funds, but it does not mean that the character of asset owned by the assessee has been changed. The fact is that the assessee owned hotel, which was run by the assessee before entering into the agreement. Whatever the requirement of the hotel was there, the same was made by KHIL with its own fund as agreed upon. The character of the asset was that the entire hotel which was run by the assessee itself earlier was given under the agreement to M/s KHIL to run the hotel. Therefore, in our considered view, this was an exploitation of commercial asset for business purpose and whatever the receipts are received from exploiting of commercial asset for business use are to be treated as business receipts. When the assessee was running this hotel, the receipts from the hotel were shown as business receipts and they were accepted. After giving to KHIL i.e. in the year 1994, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income or income from property. In this case it is observed that if the main intention is to exploit the immovable property by way of complex commercial activities, it must be held as business income. The ratio of this decision, in our considered view, is applicable in the present facts of the case as the assessee has given the property for exploiting by way of complex commercial activities in the year of 1994 and from assessment year 1995-96 to 2005-06, the department has accepted the contention of the assessee holding that the receipt on account of leasing to KHIL are business receipt. 14.2 This is also a matter of fact that there was no fixed rate as the assessee was earning/receiving only 1% of the gross revenue receipts. From this fact, it is amply proved that the commercial asset was used by the assessee, and, therefore, any commercial receipt has to be treated as business receipt. It is further seen that as per agreement entered into between the assessee and M/s KHIL, the hotel premises will be handed over to the assessee and the assessee is liable to pay all the expenditures incurred by M/s KHIL on its construction and renovation as per formula agreed upon. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the hotel given on lease to M/s KHIL. All the licenses and permissions are in the name of assessee. This is also a fact that the assessee was running its hotel itself before giving to M/s KHIL. Accordingly, in our considered view, the receipts received from KHIL are business receipt. Therefore, we allow this ground of the assessee and direct the AO to treat the business receipt against income from property treated by him. 15. Ground No.3 is alternate ground to ground No.2. 15.1 Since we have allowed ground No.2 in favour of the assessee, therefore, ground No.3 does not require any adjudication upon. 16. Ground No.4 is against disallowance made under Section 14A read with Rule 8D. 16.1 Rule 8D is not applicable for the year under consideration as held by the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT, reported in (2010) 328 ITR 81 (Bom). Therefore, this issue is set aside to the file of the AO to decide afresh after affording opportunity of being heard to the assessee without applying rule 8D. 17. Thus, appeal of the assessee is allowed in part and partly for statistical purposes. 18. Now, we will take up appeal of the department ..... X X X X Extracts X X X X X X X X Extracts X X X X
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