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TMI Blog2023 (6) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/- and offered the 'revenue receipts' from the operation of "Hotel" under the head "Business Income", therefore, the Assessing Officer (AO) by issuing notice 13.02.2017 under section 142(1) of the Act along with questionnaire, show-caused the Assessee to furnish the detailed reasons with justification for filing of the revised return. 2.1 In response, the Assessee vide letter dated 24.11.2017, claimed as under: "The Assessee company has appointed an expert & experienced operating management agency M/s Four Seasons Hospitality Pvt. Ltd for carrying the business from the said premises in consideration of management license basis. The Assessee company has generated revenue on account of management licence fee Rs. 76,00,494/- which has been offered to tax unde head "Income From House Property". With reference to terms & conditions of the aforementioned management agency agreement between the Assessee Company and Four Seasons Hospitality Pvt. Ltd, it is apparent that there is no relationship of Owner/Tenant nor is any fixed amount received or receivable by the Assessee. The Assessee receives percentage of the revenue which fluctuates from month to month and has different terms for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy M/s Four Seasons Hospitality Pvt. Ltd for managing the business from the said premises in consideration of management license basis. (Copy of Agreement has already been filed). e. That during the A 2015-16 the assessee company has generated revenue on account of management license fees of Rs. 76,00,494/- which has been disclosed in the Audited Accounts under the head" Revenue from Operations". f. That the assessee company had installed the furniture and fitting in the said resort and in AY 2007-08 the resort was put to use and the assessee company was itself operating the resort before the assessee company appointed an expert & experienced operating management agency M/s Four Seasons Hospitality Pvt. Ltd for managing the business. Thus all the necessary amenities together with the building was already in place at the resort at the time of appointment of the management agency M/s Four Seasons Hospitality Pvt. Ltd. g. That the Assessee since inception has disclosed the Revenue from Operations as "Business Revenue", duly accepted by the authorities in earlier years. The predecessor has after detailed scrutiny of the Agreement assessed the same as Business in AY 2012- 13. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee shall enter into a Management Agreement with Seasons for a minimum of 9 years. The agreement between the parties is thus for considerably long period and clearly reveals that the Assessee did not have any intention to run the business itself. It is also noted that the employees have been employed by Seasons and report to Seasons and this has admitted by the Assessee in its letter dated 14.12.207 in response to a specific query raised by this office. 3.9 As per Point 9 of the agreement, Seasons is required to invest between Rs. 100-150 lakhs towards capital & pre-opening expenses (capital cost). This clearly reveals that the Assessee did not even have the full hotel in operation when it entered into the Agreement and required a party to complete the hotel as well as resort. This is corroborated by the Assessee's submission dated 14.12.2017 where it has been stated as under: - "We are attaching the balance sheet of FY 2008-09 Indicating that a part of the resort (Emphasis supplied) disclosed as Capital Work in Progress has been capitalized and put to use during the said financial year" The fact that a huge investment was required to be made by Seasons and it had to be ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to conclude that the amount received by the Assessee is rental income or business income. The percentage of the net revenue payable to the Assessee is only a basis/ formula for calculation of rent. 3.15 It is a well settled proposition of law that the substance will prevail over the form. In the instant case, as discussed above, it is clear that intention of the Assessee was to let out the property and it cannot be considered that the Assessee was exploiting the property for its commercial business purposes. The management license fees of Rs. 76,00,494/- will thus be assessed under the head 'Income from House Property' as declared by the Assessee in the original return. I am satisfied that the Assessee has furnished inaccurate particulars of income and hence, penalty proceedings u/s 271(1)(c) of the 1.T. Act, 1961 are initiated on this point." 2.5 The AO, consequently assessed the management license fees of Rs. 67,00,494/- as income under the head "House Property" as declared by the Assessee in the original return of income and also disallowed an amount of Rs. 28,51,200/- paid to the Director, being not incurred for the purpose of the business and consequently added in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is pending for decision with ITAT. * In AY 2014-15, there was no scrutiny assessment. * In AY 2015-16, the appellant declared this license fee as rental income in the original return filed on 27/9/2015. Later on, it revised the return on 1/6/2016 and showed this income as income from business. * In the assessment order AY 2015-16, the AO has discussed the agreement for management license fee in detail. He has given clear findings that all hotel business is carried on by the third-party which has shown it as business income. The appellant has not carried out any business operation nor has it incurred any expenditure on the business. The agreement is for a very long period subject to renewal and further extension. * There is one single agreement to let out the hotel building along with furniture and equipments which are inseparable parts of the building. * The license fee paid by the third-party is shown as rentals and TDS under section 194 I has been deducted. 6.2 It is quite misleading to say that the appellant was running the business itself which is not borne out from the facts. Merely, claim of expenses in accounts does not prove that the appellant has carried on th ..... 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M/s Four Seasons being expert for managing the business from the said premises on a consideration of management license basis and during the AY 2015-16 under consideration, generated revenue of Rs. 76,00,494/- as management license fees, which though was shown in the original return of income as rental income, however, in the revised return of income, has been shown as "Income from Business". 6.2 Before appointing, an expert agency M/s Four Seasons for managing the business, the Assessee had installed all the furniture and fittings in the resort in AY 2007-08 itself, thus, all the necessary amenities together with building were already in place at the Hotel/Resort at the time of appointment of M/s Four Seasons and since inception of the resort, the Assessee has disclosed the revenue from operations as "Business Revenue" which has duly been accepted by the authorities for the earlier years and even otherwise in the AY 2012-13, a detailed scrutiny of the assessment was done and the revenue from operation of business has been assessed as "income from Business" but not as "income from House Property". The Assessee further claimed that there is no fixed amount for giving the building/r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 10% of the net revenue generated from the business. 2nd Year : 15% of the net revenue generated from the business. 3rd Year : till six year 20% of the net revenue generated from business 8.2 The Assessee as per agreement was also entitled to receive Rs. 50 per room from Four seasons, on uses basis for using the club facility of health club, gym and sports area but excluding the Spa. 8.3 From the agreement, it also appears that the Assessee was not supposed to get any fixed amount but infact sharing the revenue on fluctuation basis and therefore question emerge as to whether the Assessee earned income from "Business" or rental income from "House property" 8.4 The Hon'ble Apex Court in the case of Chennai Properties and Investments Ltd. Vs. CIT (2015) 56 taxmann.com 456 (SC) and Rayala Corporation Pvt. Ltd. Vs. ACIT (2016) 72 taxmann.com 149 (SC) clearly held that if Assessee is having House Property and by way of business, it is giving the property on rent and receiving rent from the said property as its business, the said income even if in the nature of the rent, should be treated as "Business Income". 8.5 The Hon'ble Apex Court in the case of Raj Dadarkar & Associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth spas, health clubs and health centers, yoga centers, massage parlours, beauty parlours, beauty saloons, gymnasiums, swimming pools, physiotherapy centers for body and beauty care in India or in any other part of the world and to do all acts and things, Including but not limited to acquisition by purchase, lease, exchange, hire, or otherwise any land and/or property and/or building for any tenure or any interest therein and to erect, construct and/or develop, or cause such erection, construction and/or development of, buildings, complexes or works of every description on the said land to carry on the abovesaid business of the Company." 8.7 From the objects of the Assessee, it is clear that the main purpose for establishing the Assessee's company is not for "renting business" but infact is for various types of businesses. Further, it is a fact that the Assessee since 2007-08 was running commercial activities from the hotel premises and on dated 01.07.2009 relevant for A.Y. 2010- 11 entered into an agreement with M/s Four Seasons for running the Resort/Hotel on revenue sharing basis which fluctuates according to the sale from Business. May be the Assessee has given possession o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e comprises from sales, food and beverages and allied services relating to hotel operations including other general charges received from hotel services. Revenue is recognized on rendering of services. Expenses are accounted for on accrual basis." 8.12 It is not in controversy in this case that in the year under consideration, the Assessee has received 20% of the net revenue generated from the business carried out by M/s Four Seasons and neither there is any relationship of owner/tenant nor any fixed amount received as "rent" by the Assessee. The Assessee received percentage of the revenue which fluctuates from month to month and has different heads/source of revenue including Golf Course, Food & Beverages, and Rooms etc. Further as per agreement, M/s Four Seasons was involved in day to day management of business affairs of the Hotel. In case M/s Four Seasons had generated "NIL" revenue then the Assessee also would have not entitled to get any amount whatsoever. Rent is depend upon the use of property rented, whereas "revenue sharing" is linked to business and therefore, the agreement for rent and business distinguish each other. It is a fact that Assessee company was incorpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he receipt as income in his return, it does not make him liable to tax thereon, upon a receipt which is not taxable in law, it is also open to the Assessee to take the case in appeal or revision thereafter. Further, the Assessee is within his right in requiring the Appellate or Revisional Authorities to examine the validity of assessment of tax on receipt, which is admitted by him but not taxable in law. 8.15 The Hon'ble Apex Court in the case of DIT Vs. Puranmal & Sons 96 ITR 390 (SC) also clearly held that a person cannot be taxed on the principle of estoppels. 8.16 From the judgments referred to above, it is clear that the purpose of assessment proceedings before the taxing authority is to assess correctly the tax liability of Assessee in accordance with law. No tax can be levied on the principle of estoppels. Just because the Assessee has shown the receipt/income in wrong head it does not make him liable to tax thereon. If the Assessee has shown a receipt under the wrong head, it is always open to the Assessee to take the case in appeal or in revision and thereafter within his right in requiring the appellate or revisional authority to examine the validity of assessment of ta ..... 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