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TMI Blog2016 (4) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... ls in the manner specified above. The sharing of the revenue clearly demonstrates that no services were to be rendered by M/s.AB Hotels to the assessee. In fact it was assessee who had undertaken to promote the brand and assessee received various payments from the persons who got into franchise agreement with assessee and all such payments to the assessee were made after deducting TDS by such franchises. Thus, the year under consideration under the aforesaid MOU, assessee earned a total sum of ₹ 1,78,75,045/- and in accordance with the aforesaid letter dated 23.20.2007, an amount of ₹ 44,68,763/- paid to M/s A.B. Hotels Ltd. was in the share of revenue of M/s A.B. Hotels Ltd. and as such, tax was not required to be deducted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had also filed a letter dated 23.10.2007 written by Dr. R. Kapur, Managing Director, Radison Hotel Delhi which is reproduced in the page 2 of the assessment order, agreeing for revised terms; ........... 50% of the revenue will be adjusted towards expenditure of RHW and the balance 50% will be shared in the ratio of 50:50 between A B Hotels RHW. The salary of Chef Vakeel Ahmed will be borne by A B Hotels. 2.3. The ld. AO accordingly held as under; 3.3 The assessee had deducted tax source on all payments made to A B Hotels Ltd. but for royalty. In view of the above, the assessee had clearly violated the provisions of section 194J of the IT Act and thus the expenditure on account of fee for profit sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited (see page 3-4 of the Paper Book) who was the owner of the brand The Great Kabab Factory to form a joint venture for the development and franchise of the brand The Great Kabab Factory (hereinafter referred to as MOU ). 4.5. It is submitted that, subsequently the terms and conditions of the aforesaid MOU were revised vide letter dated 23.10.2007 (see pages 5-6 of the Paper Book). 4.6. It is submitted that, pursuant to the above MOU, the assessee entered into various franchsie agreements and management agreements for inter alia setting up of restaurants under the brand The Great Kabab Factory , one of such i.e. between M/s Bestech Hospitalities (P) Ltd. and M/s RWH Hotel Management Services Ltd. is placed at pages 7.27 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced is reliance on the decision of Hon ble Supreme Court in the case of CIT VS B.M. Kharwar reported in 72 ITR 603 (SC), where it was held that, legal relation alone can determine the taxability of the receipts arising from the transaction. He contended that in the year under consideration all what had happened was under the MOU dated 27.03.2000, read with letter dated 23.10.2007, revenue was shared in respect of the joint venture between the assessee and M/s A.B. Hotels Ltd. for development and franchise of The Great Kabab Factory (TGKF) Brand. The Ld.AR submitted that this would also be evident from the agreement dated 7.12.2004 between M/s Bestech Hospitalities (P) ltd. and M/s RHW Hotel Management Services Ltd. (pages 7.-27 of Paper B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litator to get this income and pass it on to AB Hotels Ltd. The payer has deducted TDS on full amount which was dully accounted for by the assessee. In respect of the granting of franchise, assessee was to receive from each franchise the following sums: - Development Fee: ₹ 10 lakhs, in total, to be collected upon signing of the agreement and in later stages of development subject to negotiations. - The Royalty Fee: 2.5% of the gross sales. - Management Incentive Fee: 6% - 7.5% of the GOP 6.3. That aforesaid fee received by the joint venture was to be shared between the assessee and M/s A.B. Hotels Ltd. It is submitted that out of the Development Fee, Royalty and the Management Incentive Fee, 20% was allocated towards expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al sum of ₹ 1,78,75,045/- and in accordance with the aforesaid letter dated 23.20.2007, an amount of ₹ 44,68,763/- paid to M/s A.B. Hotels Ltd. was in the share of revenue of M/s A.B. Hotels Ltd. and as such, tax was not required to be deducted in terms of section 194J of the Act and such disallowance made under section 40(a)(ia) is unwarranted and unsustainable in law. 6.6. On the basis of the above discussions and findings, we are of the considered opinion that the income paid by the assessee was only a pass through arrangement and the contention of the Revenue that such payment made by the assessee to M/s.AB Hotels Ltd., is Royalty , stands rejected. Accordingly the ground raised by the assessee is allowed. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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