9911796707
TMI Blog1998 (6) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... Auditor's of the company) or in June 1978 as contended by the assessee before the departmental authorities, due to labour problems and other connected difficulties. However, M/s Fonseca (P.) Ltd., was running a hotel with 23 rooms at No. 1, Man Singh Road, New Delhi. Originally, this hotel is stated to have been run by one J.E.D. Fonseca under the private limited company viz., M/s Fonseca (P.) Ltd. This property is stated to have been an evacue property held by the Director of Estates, in the Ministry of Works Housing, Govt. of India. The property had however been leased out to Sri Fonseca for the purpose of doing business. This lease between Sri Fonseca and the Government is stated to have expired in 1968, which was however not renewed by the Government. However, the hotel was allowed to continue without any specific agreement or lease. In 1970, the shares of M/s Fonseca (P.) Ltd., were purchased by Sri A.K. Johar (60) and the assessee-company viz., Spences Hotel (P.) Ltd. (4096). The hotel business was continued for five years by the assessee-company and Sri Johar through the private limited company M/s Fonseca (P.) Ltd. On 13-3-1975, a Memorandum of Agreement was reached betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was confirmed by the Bombay High Court on 20-3-1979. In accordance with this arbitration, the balance amount was paid by IHCL to the assessee group and the assessee appropriated its 40% share therein minus amounts already received by it. It has already been stated that in assessment year 1978-79, the amount of Rs. 4.75 lakhs received by the assessee from IHCL during that year, was treated by the Assessing Officer as taxable income. In the first appeal, however, the appellate authority deleted the inclusion of this amount and held by way of a passing remark that the amount though deleted for this year could be assessed in either assessment year 1976-77 (during which year the memorandum of agreement had been arrived at between the parties) or in assessment year 1980-81 (during which year the final payment was made consequent upon the arbitration). This decision of the first appellate authority for assessment year 1978-79 was accepted by both the department as well as the assessee. So far as the assessment year 1980-81 is concerned, in the first, assessment that was made on the assessee, the balance of Rs. 3.97 lakhs pertaining to assessee's share, was brought to tax. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njoyment of the asset by the assessee and its associate to IHCL, The Assessing Officer also discussed in that connection that the very fact that the IHCL had entered into an agreement and made investment in the property clearly indicated that the assessee might have given IHCL the impression that the assessee and its associate were in possession and enjoyment of the property. He also discussed that taking over the shares of the company M/s Fonesca (P.) Ltd., was only the means to take over the possession and enjoyment of the building at No.1, Man Singh Road, New Delhi. He further more noted that the assessee and its associate not only handed over the possession and enjoyment of the building to IHCL but also withdrew their disputes with regard to the building at the end of Director of Estates, consequent upon which alone the possession of the building could be handed over to IHCL. The Assessing Officer thus held that the entire payments received by the assessee and its associate from IHCL, though ultimately not on account of transfer of shares of M/s Fonesco(P.) Ltd., were however indeed connected with handing over of the possession and Control of the undertaking of M/s Fonseca Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f M/s Fonseca (P.) Ltd., the purchase of which had duly been paid for by the assessee, capital gains tax would certainly be leviable on such transfer. In support of his contention that such new issue an be raised by the DR even at the Tribunal stage, he has tried to rely on a recent judgment of the Supreme Court in the case of Bhavana Chemicals Ltd. v. CIT[1998]231 ITR 507/99 Taxman. The learned counsel for the assessee appearing before us has on the other hand, strongly contested the contention of the DR. By drawing our attention to the balance sheet of the assessee-company for the relevant year and also to certain portions of the order of the ITAT dated 23-9-1988 in ITA No. 1656 (Bang.)/85, he has tried to show that the shares of M/s Fonseca (P.) Ltd., were never actually transferred. He thus contends that what actually was transferred was merely an intangible right as held by the learned CIT(A) for which there was no cost. 6. On a close examination of the facts of the case, we are inclined to agree with the contention of the learned counsel for the assessee on the issue as to whether any transfer of shares of M/s Fonseca (P.) Ltd., did actually take place or not. All the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile of the Assessing Officer, we are of the clear opinion that the issue relating to sale of shares of M/s Fonseca Pvt. Ltd., cannot be raised at all at this stage. As regards the taxability of the receipts under the award, both the lower authorities have held that the receipt was connected with parting by the assessee of its intangible rights of possession and enjoyment of the property belonging to M/s Fonseca Pvt. Ltd. It appears that both the lower authorities pierced the corporate veil and held that even without transfer of shares of M/s Fonseca Pvt. Ltd. to IHCL, its rights in the property at No. 1, Man Singh Road, New Delhi was handed over by the shareholders of that company, one of such shareholders being the assessee-company before us. A perusal of the award also supports this contention. Certainly, IHCL received certain benefits by way of transfer of certain rights in the property at No. 1, Man Singh Road, although the said property didn't belong to M/s Fonseca Pvt. Ltd., or even its shareholders in the true legal sense. The payment of as high a sum as Rs. 25 lakhs is on that account alone. We are however unable to agree with the finding of the learned CIT(A) that in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement dated 13-3-1975. The facts of the case also show that almost immediately after arriving at this memorandum, the assessee and its associates handed over the possession of the property in favour of IHCL, which started developing the same into a full-fledged five star hotel. We therefore hold that the transfer of the intangible rights belonging to the assessee did take place in assessment year 1976-77 and not in assessment year 1980-81. Ultimately therefore, we uphold the order of the CIT(A) in deleting the capital gains from the assessment of the assessee for assessment year 1980-81 on this ground alone. 9. Thereafter comes the other aspect of the mother as to whether the assessee can be considered to have been carrying on its earlier business or any business at all during the assessment year under consideration. As described earlier, the assessee-company was running a reputed hotel at Calcutta which was closed some time in September 1977 (June 1978, according to the assessee before the IT authorities). Thereafter, the assessee-company took on lease/rent a small house at premise No. 662, I Stage, Indiranagar, Bangalore. It is contended by the assessee that this house was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends and relatives of the Managing Director of the assessee. The Assessing Officer held that running a private guest house exclusively for friends and relatives and not for public lodging or hotel business would not constitute a business activity. Ultimately, he held that the assessee was not having any hotel business in Bangalore and what was called a private guest house was in fact only the Director's house. He also discussed that the assessee had not furnished any details or particulars to prove that the house had necessary and required infrastructure to run the hotel business. About the alternative contention regarding the running a hotel in London in partnership with some other concern, the Assessing Officer noted that the assessee had not made it clear as to how the running of the hotel at London might be considered to be the assessee's own business activity. In the first appellate order, now impugned before us, the CIT(A) states that he had seen the register belonging to the private lodging house which indicated that regular lodging business was carried on by the assessee, regular receipts were issued and the reason why licence was not renewed was that no licence would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a century-old, reputed hotel. The said business was completely closed down in September, 1977. For running a fresh hotel business at Bangalore, it would have been necessary for the assessee surely to take licence from the Municipal authorities as well as from the Health Department. The facts of the case clearly show that such licences were not there at all. Hence, merely running a lodging business cannot at all be equated to running of full-fledged hotel business. There was also a gap between the closure of the hotel business at Calcutta and starting of the new business at Bangalore. We are of the opinion that the old business of the assessee with regard to the hotel at Calcutta got totally closed down and the business of running a lodging house or guest house at Bangalore is completely a new business. There are no indications anywhere to show that there were interlacing of funds, management and other inputs between the old business and the new business. So far as the alternative contention of the assessee regarding a restaurant at London is concerned, we are of the opinion that firstly running of such business by the assessee itself is not clearly established factually and sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest of Rs. 94,074 was not liable for taxation in the relevant assessment year. It is contended by the learned counsel for the assessee by relying on a judgment of the Supreme Court in the case of Hindustan Housing Land Development Trust Ltd. [1984] 161 ITR 524, that inasmuch as interest accrues on year to year basis, only the interest pertaining to this year should have been included within the income of the assessee for this year. On this issue, the CIT(A) has held that the Accrual of interest came only as a result of the decree of the Bombay High Court dated 20-3-1979 approving the award dated 17-3-1979. He therefore concluded that the entire interest income arose to the assessee in the assessment year 1980-81 alone. We are also in agreement with the finding of the learned CIT(A). In the original Memorandum of Agreement, it was clearly stated that there will be moratorium on interest for two years from the date of signing the agreement and thereafter the question of payment of interest would arise. In the award again, an additional amount of Rs. 3,75,000 was ordered in favour of the assessee and its associate to cover any claims including interest. We are therefore of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. So far as the appeal in ITA No. 2285 (Bang.)/90 for Assessment year 1980-81 is concerned, the assessee was aggrieved by the order giving effect to the earlier order of the CIT(A) dated 12-3-1990 in ITA No. 105/ DC-Spl. R.IV/CIT(A-III)/89-90. The CIT(A) states that while giving effect to this order, the Assessing Officer- started the computation with a figure of total income as per the order dated 31-10-1989 at Rs. 12,91,188 which included interest amount of Rs. 1,65,000. The assessee contended before the CIT(A) that actually the amount of interest was Rs. 94,074 and not Rs. 1,65,000. On verification of the figures, the CIT(A) directed the Assessing Officer to adopt the figure of Rs. 94,074. The CIT(A) has also directed the Assessing Officer to adopt the correct figure of carried forward losses in accordance with his earliest order for the same year. The Department challenges this order of the CIT(A). As discussed by us above, for this very assessment year, we reverse the decision of the CIT(A) in directing the Assessing Officer to allow the set off of carried forward business loss. The same would however not hold good for unabsorbed depreciation, as discussed above. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
