Delhi High Court
Commissioner Of Income Tax, ... vs M/S. C.J. International Hotels ... on 18 November, 2010
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ITA No.42 of 2009, ITA No.62 of 2009, ITA No.536 of 2009, ITA
No.539 of 2009, ITA No. 540 of 2009, ITA No.1254 of 2010, ITA
No.1255 of 2010, ITA No.1685 of 2010 and ITA No.1756 of 2010
% Decision Delivered On: 18th November, 2010.
1) ITA No.42 of 2009
COMMISSIONER OF INCOME TAX, CIRCLE 3(1), NEW DELHI
. . . Appellant
through : Ms. Suruchi Aggarwal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL HOTELS LTD . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
2) ITA No.62 of 2009
COMMISSIONER OF INCOME TAX, CIRCLE 3(1), NEW DELHI
. . . Appellant
through : Ms. Suruchi Aggarwal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL HOTELS LTD . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
3) ITA No.536 of 2009
COMMISSIONER OF INCOME TAX . . . Appellant
through : Ms. Suruchi Aggarwal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL HOTELS LTD. . . .Respondent
ITA Nos.42, 62, 536, 539, 540, 1685/2009, 1254, 1255, 1756/2010 Page 1 of 10
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
4) ITA No.539 of 2009
COMMISSIONER OF INCOME TAX . . . Appellant
through : Ms. Suruchi Aggarwal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
5) ITA No.540 of 2009
COMMISSIONER OF INCOME TAX . . . Appellant
through : Ms. Suruchi Aggarwal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
6) ITA No.1254 of 2009
COMMISSIONER OF INCOME TAX . . . Appellant
through : Ms. P.L. Bansal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL HOTELS LTD. . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
7) ITA No.1255 of 2009
COMMISSIONER OF INCOME TAX . . . Appellant
through : Ms. P.L. Bansal, Advocate
ITA Nos.42, 62, 536, 539, 540, 1685/2009, 1254, 1255, 1756/2010 Page 2 of 10
VERSUS
M/s. C.J. INTERNATIONAL HOTELS LTD. . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
8) ITA No.1685 of 2009
COMMISSIONER OF INCOME TAX . . . Appellant
through : Ms. P.L. Bansal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL HOTELS LTD. . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
9) ITA No.1756 of 2009
COMMISSIONER OF INCOME TAX . . . Appellant
through : Ms. P.L. Bansal, Advocate
VERSUS
M/s. C.J. INTERNATIONAL HOTELS LTD. . . .Respondent
through: Mr. M.S. Syali, Sr. Advocate with
Ms. Husnal Syali and Ms. Mahua
Kalra, Advocates
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE SURESH KAIT
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J. (ORAL)
1. CM No.15141/2010 in ITA No.1255/2010
Exemption is allowed, subject to just exceptions.
CM stands disposed of.
2. CM No.15140/2010 in ITA No.1254/2010 & CM No.15142/2010 in
ITA No.1255/2010
For the reasons stated in these applications, delay in refilling the
appeals is condoned.
Applications stand disposed of.
ITA Nos.42, 62, 536, 539, 540 of 2009, ITA Nos.1254, 1255, 1685
and 1756 of 2010
3. Admit on the following substantial questions of law, which arises
for consideration in all these cases.
"Whether the ITAT has not erred on facts and in law in
directing the Assessing Officer not to charge the annual
letting value of the West Tower under the head income from
house property since the principle of res-judicata does not
apply in income-tax proceedings?"
4. With the consent of the learned counsel for the parties, we have
heard the matter finally at this stage itself. The facts in brief
leading to the aforesaid question of law may be recapitulated first.
The assessee company is running a five star hotel known as Hotel
Le-Meridian Windsor Place, New Delhi. The lawn on which the
hotel is constructed belongs to NDMC and NDMC has executed a
license deed in favour of the assessee granting licence for a period
of 99 years for the running of the aforesaid hotel. After taking the
said lawn on licence on the terms executed in the licence deed,
the assessee had constructed the said hotel. Adjacent to the
hotel, there is another building constructed on this very lawn,
which is known as West Tower. This building is located in the
same compound in which the Hotel building is located.
Admittedly, this building is not used for hotel business of the
assessee, but the apartments of this building were given on sub-
licence basis to different parties for carrying on business as
specified on the sub-licence agreements. The licence agreement
which was entered into between the assessee and the NDMC
permits the assessee to sub-licence the portion of the premises. It
is on the basis of this authorization given in the licence deed that
the assessee has sub-licenced offices and apartments in the West
Tower to the various parties. The sub-licences given to these
parties are for a period of 9 years and 11 months, which is
renewable at the request for the sub-licensees. The assessee is
not charging any rent lease or licence fee from these parties
instead, the assessee has received interest free security deposits
in the year of original sub-licence, which receipt was shown by the
assessee company as unsecured loan in its balance sheet. The
sub-licence deeds, which are executed by the assessee with the
sub-licensees also permit the sub-licensees to transfer the same to
any other person on payment of transfer charges to the assessee
company. Thus, the sub-licensee is entitled to transfer the said
sub-licence to third party as well. However, at the time of transfer
of the said sub-licence, certain transfer charges are payable to the
assessee company. It is not in dispute that whenever these
transfer charges are received by the assessee on transfer of sub-
licence by the sub-licensee in favour of the third party, the
assessee is showing these transfer charges as its income and is
offering the same for tax.
5. The Assessing Officer (AO) found that almost all the sub-licensees
had transferred their sub-licenses and various other persons were,
thus, occupying these premises. Those persons have entered into
the agreement with the sub-licensees as per which they were
paying rents to the sub-licensees. It is also an admitted fact that
the rents/licence fees received by the sub-licensees on these
transfers to the occupiers has been shown as rental income and
taxed at the hands of sub-licensees under the head „income from
house property‟.
6. The AO, however, asked the assessee to explain why property
known as West Tower be not fixed on its annual letting value as
per which Section 23 of the Income Tax Act (hereinafter referred
to as „the Act‟). To put it otherwise, the AO wanted to fix annual
letting value in respect of the said West Tower sub-licensed by the
assessee by fixing its notional value and charging the tax
thereupon under the head „income from house property‟. It is for
this reason that the aforesaid show cause notice was issued. The
assessee in reply to the said notice raised various objections to
the aforesaid proposed move of the AO. Some of these objections
included:
a) The assessee was only a licensee in respect of the
aforesaid premises and the actual owner was NDMC.
Thus, the assessee was not the „owner‟ of the premises.
Therefore, provisions of Section 23 of the Act are not
applicable.
b) It was also highlighted that in the previous years, the
aforesaid arrangement as disclosed by the assessee was
accepted by the AO and therefore, on the principle of
consistency, such a move on the part of the AO in fixing
the annual letting value of the West Tower, when no
actual rent/licence fee was received by the assessee, was
not proper.
c) The assessee had entered into sub-licence deeds in
respect of those portions and it could not be deemed as
„letting‟ of the property and for this reason also
provisions of Section 22 of the Act would not be
applicable, as the assessee continued to be in the legal
occupation and possession.
d) The use of the premises by the sub-licensees was to
assist the assessee company in getting hotel
accommodation booked for the guests, delegates of the
sub-licensees, apart from the increase in catering and
restaurants‟ activities used by the sub-licensees.
Therefore, the use of certain portion by the sub-licensees
was not for the purpose of or for the benefit of the
business of the assessee company.
7. The AO, however, did not accept the aforesaid explanation
furnished by the assessee. He was of the view that the license
agreement with the NDMC was for a period of 99 years with the
right of constructing and developing the property which makes the
assessee company owner of the property. He also opined that the
assessee company had sub-licensed the offices and apartments to
various persons, some of whom had further sub-licensed the
same; the assessee was not charging any rent, fees etc. on the
sub-licensing of these properties, except interest free security
deposits which were taken by the assessee at the time of sub-
licence agreement. Therefore, it was proper, in such
circumstances, to fix notional annual letting value of the premises
and to charge tax thereupon insofar as the assessee is concerned.
8. We may also point out that in ITA No.1254 of 2010, which pertains
to the Assessment Year 1999-2000 originally no such addition was
made. However, reassessment proceedings were started by
issuance of notice under Section 143(2) read with Section 147 of
the Act and the Tribunal quashed those reassessment
proceedings. It is not necessary to go into the question as to
whether reassessment proceedings were initiated or not inasmuch
as on merit itself we have decided that such an addition was not
proper.
9. The AO thereafter took into consideration the rent/licence fee,
which was paid by the occupiers to the sub-licensees to whom the
assessee had sub-licensed the premises. The AO on that basis
calculated first care fee average and treated the same as annual
letting value of the said West Tower and added the same under
the head "income from house property".
10. The assessee preferred appeal against this order before the CIT
(A). In this appeal, the assessee took an additional ground
predicated on the provisions of Section 27(iii) read with 269 UA (f)
(ii) of the Act and submitted that under those provisions, it would
be a sub-licensee as deemed owner would be charged to tax in his
hands. The CIT(A) considered this argument, which was purely a
legal argument based on the interpretation of the aforesaid
Sections on admitted facts on record, but did not accept the
aforesaid pled. After considering other submissions of the
appellant, which were raised before the AO, the CIT(A) upheld the
order of the AO on this ground. In this scenario, the assessee
preferred further appeal before the Income Tax Appellate Tribunal
(hereinafter referred to as „the Tribunal‟). This time, before the
Tribunal, the assessee succeeded in its attempt to demonstrate
that the assessee could not be liable to pay any such tax fixing
letting value on notional basis when, in fact, no such amount of
rent/licence fee was received by the assessee. The Tribunal
examined the licence agreement entered into between the NDMC
and the assessee on the basis of which it has come to the
conclusion that it is the NDMC, which is the "owner of the
premises and remains to be the owner of the premises in
question". The Tribunal has further accepted the submissions of
the assessee that in view of the provisions of Section 27 (iii) of the
Act, it is the sub-licensee who would be "deemed owner" of those
premises which the sub-licensees whereof transferred to the
present occupiers and those occupiers are paying rent/licence fee
to the sub-licensees. On that basis, the Tribunal has set aside the
addition made by the AO and deleted this component of income
holding that the same would not be chargeable to tax.
11. This is how the Department has filed the appeals pertaining to
different assessment years. As pointed out above, though the
issues before the AO, CIT (A) as well as the Tribunal were
numerous, in these appeals primarily one question of law which is
formulated and reproduced above has been pressed by the
Department.
12. For the aforesaid reasons, we are of the view that the approach of
the Tribunal in deciding the aforesaid issue is perfectly justified.
There is no reason to interfere with the same. We clarify that the
assessee would not be entitled to depreciation on this purpose.
We, thus, answer the question of law in favour of the assessee and
against the Revenue, as a result thereof all these appeals are
dismissed.
(A.K. SIKRI)
JUDGE
(SURESH KAIT)
JUDGE
NOVEMBER 18, 2010
pmc
