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TMI Blog2021 (2) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... ut not a rental income, which is assessable under the head income from house property . AO as well as the CIT(A) were grossly erred in assessing license fee under the head income from house property and hence, we reverse the findings of the CIT(A) and direct the AO to assess license fee under the head income from business or profession as claimed by the assessee. - Decided in favour of assessee. - ITA No. 3155/CHNY/2018 - - - Dated:- 8-2-2021 - SHRI DUVVURU RL REDDY , JUDICIAL MEMBER AND SHRI G. MANJUNATHA , ACCOUNTANT MEMBER Appellant by : Shri S. Sridhar, Advocate Respondent by : Shri Suresh Periasamy, JCIT ORDER Per G. MANJUNATHA , AM : This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-1, Chennai, dated 30.07.2018 and pertains to assessment year 2014-15. 2. The assessee has raised the following grounds of appeal:- 1. The order of the Commissioner of Income Tax (Appeals) - 1, Chennai dated 30.07.2018 in l.T.A.No.545/CIT(A)-1/2016-17 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals) erred in sustaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Hotels was given a license to operate hotel for a period of 40 years with a right to renew the agreement for further 30 years on revenue sharing basis. The assessee has considered revenue received from licensing the hotel to M/s.Oriental Hotels Ltd., under the head Income from business of profession . The AO was not convinced with the explanation furnished by the assessee and according to him, as per the terms of Memorandum of Understanding (MoU) between the assessee and Oriental Hotels Ltd., the assessee has let out a fully furnished hotel accommodation and hence income received from letting out property is nothing but rent, which is assessable under the head Income from House Property . To arrive at such conclusion, the AO has referred to the Memorandum of Association of the assessee company and noted that the main object of the assessee is to run the hotel and not letting out property for earning rental income. Therefore, by referring to the decisions of the Hon ble Supreme Court in the case of Chennai Properties and Investments Ltd., vs. CIT, (2015) 56 taxmann.com 956 and Rayala Corporation (P) Ltd., vs. ACIT, 72 taxmann.com 149, held that the main object of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity was to run a hotel, but the assessee has ceased to carry on any business activity in respect of said hotel, upon signing the MoU with Oriental Hotels Ltd., and hence, it cannot be said that the assessee has carried out the business activity of running a hotel to consider license fee under the head income from business or profession . Being aggrieved by the CIT(A) order, the assessee is in appeal before us. 5. The ld.AR for the assessee submitted that the ld.CIT(A) had erred in confirming assessment of income earned by the assessee under Memorandum of Understanding with M/s. Oriental Hotels Ltd., under the head income from house property as against income assessed under the head income from business or profession without appreciating the fact that, the assessee has entered into a Memorandum of Understanding to run a hotel in collaboration with another company, which is having expertise in running and maintaining five star hotels. The ld.AR further submitted that the lower authorities were grossly erred in not considering the business structure of the assessee as per which, the assessee has constructed fully furnished five star hotel with all amenities including license t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the parties is not a simple agreement for letting out of premises on monthly fixed rent, but an arrangement for continuing the running business, which was earlier carried on by the assessee as its main business activity. Further, even after the hotel was licensed to another operator, the business model of the assessee was not changed. Therefore, we are of the considered view that AO as well as the ld.CIT(A) were erred in coming to the conclusion that the license fee derived by the assessee by licensing a fully furnished hotel to another company for operating said hotel for a period of 40 years, cannot be considered as rental income, which is assessable under the head income from house property . 8. We, further, noted that the AO as well as the ld.CIT(A) have taken support from the decisions of the Hon ble Supreme court in the case of Chennai Properties and Investments Ltd vs. CIT and Rayala Coporation (P) Ltd vs. ACIT, supra, to come to a conclusion that if the main objects of the assessee is to let out premises on rent, then income derived from letting out premises is assessable under the head income from business or profession'. We have gone through the reasons given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the licence agreement and the nature of the respective obligations as contained in the licence agreement which is also placed on record. 6. The licence agreement is dated 11 th of December, 2000. It is stated that the licensor is desirous of appointing a hotel operator who would operate the hotel inconformity with standards comparable to hotels of similar standard and standing and consistent with the facilities provided in hotels of similar class upon the terms and conditions set out in the agreement. Thereafter, Article III of the agreement provides that the licensor covenants and agrees that the licensor shall permit the licensee to operate the hotel in accordance with the terms of the agreement. That the licence is granted authorising the licensee to operate the hotel is recited in several other provisions of the agreement. In Article VI, it is also stated that on expiry of the seven year period of agreement or on termination of the same, the licensee shall cease to have any right on the operation of the hotel and the licensor shall have full right to operate the hotel. Clause-1 of Item-IV of Article X entitles the licensor to inspect the operations of the hotel w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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