Commissioner Of Income Tax, ... vs United Hotels Limited
2008 Latest Caselaw 1810 Del

*              THE HIGH COURT OF DELHI AT NEW DELHI

%                                Judgment delivered on: 03.10.2008

+                           ITA No. 1147/2008


COMMISSIONER OF INCOME TAX
DELHI-VI                                              ...... Appellant
                   -versus-

UNITED HOTELS LTD                                      ..... Respondent

Advocates who appeared in this case:

For the Appellant           :    Mr R. D. Jolly
For the Respondent          :    Mr Ajay Vohra, Ms Kavita Jha & Mr Sriram
                                 Krishna

CORAM :-

HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether the Reporters of local papers may be allowed to see the judgment ?

2. To be referred to Reporters or not ?

3. Whether the judgment should be reported in the Digest ?

BADAR DURREZ AHMED, J (ORAL)

1. This appeal under Section 260A of the Income Tax Act, 1961

is directed against the order dated 30.01.2008 passed by the Income

Tax Appellate Tribunal in ITA No. 996/Del/2005 pertaining to the

assessment year 2001-02.

2. The assessee runs a hotel business. It paid an amount of Rs

1.19 crores to Megapode Airlines Limited (MAL) towards annual

entitlement fee in terms of the agreement executed between them on

29.12.1999. The said agreement was for the purpose of availing

certain fixed flying hours annually at discounted rates on charter hire

basis of a Jet Aircraft for use by the assessee's directors, executives,

hotel guests and employees. Under the agreement the assessee was

entitled to avail of a maximum of 35 flying hours in a year to be

provided by the jet belonging to MAL for an annual fixed charge of

Rs 1.19 crores plus variable costs at the rate of Rs 65,000/- per

flying hour as against the market rate of Rs 1.25 lacs per hour. The

assessee was committed to the payment of fixed charges as indicated

above irrespective of the fact as to whether the assessee utilized any

of the flying hours or not. In the present case, the assessee was not

able to utilize the flying hours, however the said sum of Rs 1.19

crores became due to MAL from the assessee on account of the

annual fixed charges. The said sum was paid by the assessee to the

MAL.

3. The Assessing Officer did not allow this amount as a

deduction on the plea that there was no utilization of the flying hours

and secondly, that the payment was made to MAL which was an

associate concern of the assessee and the objective was to reduce the

income of the assessee. The Tribunal considered both these aspects

and came to the conclusion that the assessee was liable to pay annual

fixed charges as per the terms of the agreement irrespective of the

hours actually utilized by it. The Tribunal also noted that the

agreement was entered into by the assessee for its business purposes

and it was in the interest of the assessee to have entered into such an

agreement. It was observed that the assessee, being a five star hotel,

in order to give better facilities to its premier customers had added

the facility of charter flights. As such, the expenditure was incurred

in the course of carrying on business. The Tribunal held that the

same could not be disallowed. The Tribunal also returned a finding

that there was commercial expediency for entering into such an

agreement and that the assessee had negotiated the flying rates at a

concessional price. Consequently, it was held that the said

expenditure was incurred wholly and fully for the purpose of

business while computing the income chargeable under the head

'profit and gains of business' under Section 37 (1) of the said Act.

4. With regard to the second aspect of the matter, the Tribunal

observed that disallowance under Section 40 A (2) could only be

made if the revenue had discharged its burden of proving that the

expenditure so incurred was excessive or unreasonable having

regard to the fair market value of the goods, services or the facilities

for which the payment was made. The Tribunal noted that no

finding has been recorded by the Assessing Officer to show that

similar facilities were available to the assessee at a lower price or

that the assessee had made excessive payments. Consequently, in

the absence of the such findings the Tribunal concluded that the

provision of Section 40 A (2) could not be invoked for disallowing

the said expenditure.

5. We note that although the two findings are in favour of the

assessee, the Tribunal has remanded the matter to the Assessing

Officer with certain directions, in as much as, the break-up of the

expenditure of Rs 1.19 crores had not been furnished during the

course of the assessment proceedings.

6. In these circumstances, we do not see any reason to interfere

with the impugned order passed by the Tribunal. In any event, no

substantial question of law arises for our consideration. The appeal

is dismissed.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER, J

October 03, 2008 mk