ITC HOTELS v. DEPUTY COMMISSIONER OF INCOME TAX & ANR
[Citation -2007-LL-0212-3]

Citation 2007-LL-0212-3
Appellant Name ITC HOTELS
Respondent Name DEPUTY COMMISSIONER OF INCOME TAX & ANR.
Court ITAT
Relevant Act Income-tax
Date of Order 12/02/2007
Assessment Year 1995-96 & 1998-99
Judgment View Judgment
Keyword Tags disallowance of depreciation • provident fund contribution • test of enduring benefit • reopening of assessment • unabsorbed depreciation • industrial undertaking • deduct tax at source • exchange fluctuation • capital expenditure • computing deduction • change of opinion • service of notice • levy of interest • overriding title • payment in cash • revenue account • service charge • management fee • actual deposit • approved hotel • bearer cheque • staff welfare • grace period • welfare fund • res judicata • nil income • maharaja
Bot Summary: The assessee s contention that under s. 32 of the IT Act, 1961, depreciation is available to an assessee in respect of assets used in the business was not accepted by the AO. The availability of quantum of depreciation depends on whether the assets have been used for less than or more than 180 days and the assets sold/discarded in the second half of the relevant previous years have been used by the assessee in its business for more than 180 days. As in the past, during the relevant assessment year, the assessee collected service charges amounting to Rs. 89,29,312 at 10 per cent of the bills raised on banquets and Manor club, Victoria room for disbursement to the banquet employees of the assessee. The learned counsel for assessee further pointed out that for the first time in the present assessment year the AO came to the conclusion that service charges collected by the assessee constituted income of the assessee. The learned counsel for assessee further contended that the learned CIT(A), and the AO did not appreciate that the services charges collected by the assessee were diverted by overriding title in favour of the employees and the assessee had no title or control over the amount of service charges. Since service charges were not received by the assessee o n its own, no income arose to the assessee from the same. The assessee claimed that they are only custodian/trustee for the service charges and no income arises to the assessee from service charges as the same were diverted by overriding title in favour of the employees and that the assessee did not have any control over the amount of service charges. The assessee had claimed Rs. 11,16,28,859 as deduction under s. 80HHD. The AO allowed deduction on the basis of the assessee s income from its entire business as a whole and whereas the assessee s claim is on the basis of income from each eligible hotel of the assessee.


These appeals are by assessee directed against orders of learned CIT(A)-I, Bangalore, dt. 27th Dec., 2004 and 10th Dec., 2004 for asst. yrs. 1995-96 and 1998-99 respectively. We have heard both sides and perused records. Let us now first deal with appeal for asst. yr. 1998-99 (ITA No. 365/Bang/2005). In first issue, disallowance of depreciation to extent of Rs. 37,037 is challenged by assessee. AO disallowed depreciation to extent of Rs. 37,037 by reducing opening WDV of various block of assets by value of assets sold/discarded during year. assessee s contention that under s. 32 of IT Act, 1961, depreciation is available to assessee in respect of assets used in business was not accepted by AO. availability of quantum of depreciation depends on whether assets have been used for less than or more than 180 days and assets sold/discarded in second half of relevant previous years have been used by assessee in its business for more than 180 days. Therefore, it was contended that value received for same is reduced from opening WDV. This being factual position, we are of view that assessee cannot be deprived of its claim of depreciation in relation to assets sold/discarded in spite of such assets used in its business. AO is directed to verify same and pass suitable orders. It is ordered accordingly. next issue arises under s. 43B of Act. AO disallowed sum of R s . 11,04,010 being amount of provident fund contribution from management for month of March,1998 on account of late deposit. due date of deposit under relevant law was 20th April, 1998 including grace period of 5 days. actual deposit was made on 27th April, 1998. Therefore, AO disallowed amount. assessee claimed that since deposit was made well before filing of return of income, assessee could not be visited with mischief of s. 43B of Act. aforesaid facts are not in dispute. It is true that there is delay of 7 days in depositing amount under relevant statute. However, amounts had been deposited much before due date for filing of return. Gauhati High Court, in case of CIT vs. Assam Tribune (2002) 253 ITR 93 (Gau), held that where contributions towards PF etc., have been paid before filing of return by assessee, amounts would be deductible. Therefore, we find force in contention of assessee. AO is directed to allow same. next issue relates to disallowance of Rs. 9,570 on account of overages and shortages. AO disallowed amount on ground that assessee could not provide any details or explanation for aforesaid charge. AO found that sum of Rs. 9,570 was debited in P&L a/c on account of overages and shortages under head Miscellaneous expenses . When such break-up is given, it is for assessee to furnish details with reasons as to why amount is to be allowed. Considering this aspect, we do not find any infirmity in order of learned CIT(A) in confirming additions. It is ordered accordingly. next issue relates to disallowance of sum of Rs. 10 lakhs on account of technical and consultancy fees, which pertains to Lallgarh Palace, paid by assessee to Maharaja Ganga Singhji Trust for use of marble installed in central courtyard. This amount was disallowed on ground that expenditure did not relate to technical consultancy and expenditure was capital in nature and could not be said to have been incurred to facilitate trading operations. learned counsel for assessee submitted that AO did not appreciate that payment was made at one time was not relevant to determine nature of expenditure. assessee acquired such right to use marble in central part of Lallgarh Palace. Therefore, same was allowable as revenue expenditure. assessee is already running hotel at portion of Lallgarh Palace under license from Maharaja Ganga Singhji Charitable Trust. assessee acquired right to use marble in central courtyard of s i d Lallgarh Palace under MoU with view to carry on its business of hoteliering more efficiently and profitably. incurrence of impugned expenditure of Rs. 10 lakhs did not result in any addition to fixed capital of assessee. learned counsel for assessee relied on decision of Hon ble Supreme Court in case of Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113: (1980) 124 ITR 1 (SC). On other hand, learned Departmental Representative Smt. Swati Patil, fully supported orders of authorities below. She further submitted that by virtue of MoU, assessee had acquired right to use central courtyard of Lallgarh Palace apart from right to use marble installed in central courtyard. assessee has, thus, acquired advantage of enduring benefit. Therefore, expenditure would fall in capital field. expenditure could not be said to have been incurred to facilitate trading operations of assessee. decision relied on by learned counsel for assessee is not applicable to facts of case. She, therefore, contended that orders of authorities below have to be upheld. We have heard rival submissions and perused records. It is admitted fact that aforesaid consideration of Rs. 10 lakhs was paid by assessee for license to use marble installed in central courtyard of Lallgarh Palace. Further, this amount was debited to technical and consultancy fee and claimed as revenue deduction. However, it is seen that this amount has been paid to Maharaja Ganga Singhji Charitable Trust. Right to use courtyard was obtained on basis of MoU. Further, it is admitted fact that in same palace assessee was running hotel. assessee acquired right to use marble in central courtyard with view to carry on its business of hotelier more efficiently and profitably. Therefore, in our view, expenses of Rs. 10 lakhs did not result in any addition to fixed capital of assessee. Hon ble Supreme Court, in case of Empire Jute Co. Ltd. (supra), while laying down test for determining what constitutes capital expenditure and what constitutes revenue, held as under: "There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none less, be on revenue account and t h e test of enduring benefit may break down. It is not every advantage of enduring nature acquired by assessee that brings case within principle laid down in this test. What is material to consider is nature of advantage in commercial sense and it is only where advantage is in capital field that expenditure would be disallowable on application of this test. If advantage consists merely in facilitating assessee s trading operations or enabling management and conduct of assessee s business to be carried on more efficiently or more profitably while leaving fixed capital to be carried on more efficiently or more profitably while leaving fixed capital untouched, expenditure would be on revenue account, even though advantage may endure for indefinite future. test of enduring benefit is, therefore, not certain or conclusive test and it cannot be applied blindly and mechanically without regard to particular facts and circumstances of given case." ratio decidendi of above case is that where advantage gained by incurring expenditure consists merely in facilitating assessee s trading operations or enabling management and conduct of assessee s business to be carried on more efficiently or more profitably while leaving fixed capital untouched, expenditure would be on revenue account, even though advantage may endure for indefinite future. Therefore, we hold that assessee is entitled to relief as claimed for. It is ordered accordingly. Now let us consider next issue in appeal for asst. yr. 1998-99. assessee is collecting service charges at 10 per cent of bills raised on Banquet and Manor Club Victoria Room. These receipts were not included in turnover of assessee. AO noticed that assessee is charging 10 per cent in respect of bills raised for utilization facility in banquet hall in addition to tips, which have been mentioned as "Add paid out". According to AO, bills include food and beverages supplied and also hall charges. Further, AO held that assessee was under obligation to deduct tax at source under s. 194C of IT Act in respect of payments made by assessee to captains for disbursement of service charges to employees. Therefore, there was investigation caused by Revenue in this matter and subsequently assessee was confronted with details of investigation. assessee made various representations before AO relying on Supreme Court decision as well as CBDT circulars. However, AO had allowed only 59.5 per cent of total service charges collected which was under head amount disbursed to banquet employees through banquet captains and remaining was treated as income of assessee. assessee carried matter before learned CIT(A). assessee had also filed written submissions before learned CIT(A) dt. 22nd Jan., 2002. learned CIT(A), after going through written submissions and contentions of assessee confirmed part of disallowance made by AO. He was also of view that even service charges to extent of 59.5 per cent allowed by AO needs to be looked into. He, therefore, issued notice under s. 251(2) of IT Act dt. 3rd Feb., 2003 to assessee, proposing enhancement of Rs. 53,12,940 being 59.5 per cent of service charges. In response to same, assessee had filed supplementary submissions dt. 17th March,2003 and 23rd May,2003. learned CIT(A) also called for report from AO. Accordingly, AO had filed report dt. 1st Nov., 2004. learned CIT(A) finally came to conclusion that assessee has not been able to substantiate contention of having disbursed whole sum received under head service charges . He further held that provisions of s. 40A(3) are applicable as concluded by AO as amounts have been paid to Captains by bearer cheques which tantamount to payment in cash in violation of provisions of s. 40A(3). Still aggrieved, assessee filed appeal before this Tribunal raising several grounds in respect of various heads under which claim was disallowed. learned counsel for assessee submitted that assessee is unit of 5 star hotels located in various parts of country. In line with industry practice followed by assessee over years, assessee recovers service charges in banquet bills raised on customers for and on behalf of banquet employees. service charges so collected are handed over to banquet employees to extent recovered for breakages. impugned service charges are not accounted as part of turnover of assessee. assessee maintains memoranda record in respect of receipt and disbursement thereof. service charges collected are disbursed in following manner: (i) 10 per cent to labour union for staff welfare. (ii) 10 per cent credited against breakages. (iii) 0.5 per cent credited against cafeteria subsidy. (iv) 20 per cent disbursed to staff of hotel other than banquet employees. (v) 59.5 per cent disbursed amongst banquet employees through banquet captain. learned counsel for assessee further pointed out that banquet captains might, depending on requirement of function, have to engage casual employees to help employees in preparing/attending to function. There is no privity of contract between assessee and casual workers. Banquet employees are expected to pay casual workers out of their share of service charges. As in past, during relevant assessment year, assessee collected service charges amounting to Rs. 89,29,312 at 10 per cent of bills raised on banquets and Manor club, Victoria room for disbursement to banquet employees of assessee. learned counsel for assessee further pointed out that for first time in present assessment year AO came to conclusion that service charges collected by assessee constituted income of assessee. AO, while allowing deduction for 59.5 per cent of total collections disbursed to banquet staff, did not allow any deduction for balance of 40.5 per cent on ground that same was inadmissible. During assessment proceedings, assessee was asked to produce bills of captains of banquet. learned counsel for assessee further submitted that in line with customary practice prevailing in hotel industry, assessee facilities, collection and disbursement of tips/service charges amongst its employees rendering services in banquets by being medium for collection and disbursal thereof. service charges, so collected and passed on to employees, are nothing, but tips, which customers may choose to pay directly to employees of hotel. aforesaid position, namely, that service charges collected by appellant are for and on behalf of employee, except to extent of recovery for breakage, has been accepted over years. AO for first time during relevant previous year, has disturbed settled position in this regard on mere change of opinion without pointing out any change in facts. Such action, it was submitted, was not warranted. learned counsel for assessee further submitted that learned CIT(A) did not appreciate facts properly and reiterated points that have been raised in written submissions filed before learned CIT(A). entire sum as claimed by assessee has to be allowed. learned counsel for assessee further submitted that though principle of res judicata is not applicable to income-tax proceedings, in assessee s case, this issue had already been settled and facts are similar and identical in previous years. It is not fair on part of AO and learned CIT(A) to disturb same during present assessment year. He relied on decision of Hon ble Supreme Court in case of Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267: (1992) 193 ITR 321 (SC). learned counsel for assessee further contended that learned CIT(A), and AO did not appreciate that services charges collected by assessee were diverted by overriding title in favour of employees and assessee had no title or control over amount of service charges. assessee was only custodian/trustee for service charges. assessee is merely conduit or channel in processing and hence, accounts have neither receipt nor payment in its books. Since service charges were not received by assessee o n its own, no income arose to assessee from same. He finally concluded that orders of authorities below are not in accordance with law and claim of assessee has to be accepted. On other hand, learned Departmental Representative Smt. Swati Patil contended that service charges collected by assessee @ 10 per cent of bills are receipts of assessee and should have been included in receipts of assessee because they are not tips in nature. Tips have also been received separately which have been shown in statement under separate head add paid out . She further submitted that decision of Supreme Court relied upon by assessee is not applicable to assessee as facts are distinguishable and decision relates to tips and not to service charges. assessee suppressed receipts and provisions of s. 271(1)(c) are attracted. Payments have been made to captains by bearer cheque against provisions of s. 40A(3). Payments made to captains are in nature of contract payments for which provision of s. 194C is attracted, which has been violated by assessee. Deduction to extent of 40.5 per cent out of service charges on account of welfare, breakage, caf , guest-house allowance are provisions and are inadmissible deductions and disbursement of 20 per cent on account of staff is not proved with evidence. As such 40.5 per cent of service charge is either inadmissible deduction or disallowable on account of no evidence. learned Departmental Representative further submitted that figures of service charges were supplied thrice and none of figures tallied, because assessee has kept service charges out of its books of account and has not accounted in its books. Even heads do not tally. She further submitted that statement of assessee in reply dt. 4th Dec., 2000 proves that assessee is very much aware of implications of law and admits that service charges are receipts of assessee. CBDT Circular No. 313, dt. 4th Sept., 1987 is not applicable to this case as circular was issued in connection with Hotels Receipts Tax Act, 1980 under different circumstances and assessee had failed to produce any evidence regarding any agreement between hotel, employees, captains and union. She also took us to order of learned CIT(A) and contended that learned CIT(A) had meticulously considered various other facts while restricting relief granted to assessee by AO. Therefore, she argued that order of learned CIT(A) has to be upheld. We have heard rival submissions and perused records. It is case of assessee that it is customary practice prevailing in hotel industry for facilitating collections and disbursement of tips/service charges amongst its employees rendering service in banquet by being minimum for collection and disbursal thereof. aforesaid position of receiving service charges/collection by assessee, are for and on behalf of employees, except to extent of recovery of breakages, has been accepted over years. This fact is not disputed by Revenue. AO, for first time, disturbed settled position in this regard. It is also pointed out by learned counsel for assessee that this is nothing but mere change of opinion without pointing out any change in facts. In case of Radhasoami Satsang (supra), apex Court was pleased to hold as under: "Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being unit, what was decided in one year might not apply in following year; where fundamental aspect permeating through different assessment years has been found as fact one way or other and parties have allowed that position to be sustained by not challenging order, it would not be at all appropriate to allow position to be changed in subsequent year." In case in hand, facts are similar to previous assessment years. It has been submitted that fact that service charges collected by assessee are diverted by overriding title in favour of banquet employees, has been accepted by Revenue not only in case of assessee but also for entire hotel industry. Therefore, such position should not be allowed to be disturbed without there being change in facts and unless facts are different in this year. assessee claimed that they are only custodian/trustee for service charges and no income arises to assessee from service charges as same were diverted by overriding title in favour of employees and that assessee did not have any control over amount of service charges. All these aspects were not properly considered by AO as well as learned CIT(A). From facts, it is seen that assessee had given details of practice adopted by various units for disbursement of service charges collected. As regards Windsor Manor, Bangalore, 59.5 per cent of service charges collected were handed over to banquet employees for distribution amongst various workers. Banquet employees (employees of hotel) are allotted to different points of assessee on basis of their seniority. Casual workers were also engaged by captains according to need. They are also paid fixed amount on daily basis at end of each month. Casual workers are provided subsidized meals at hotel cafeteria against coupon purchased by banquet captains. Banquet captain recovers charges received from management. He also makes payment to casual staff, agreed payment plus incentive. balance amount is divided amongst captain, stewards etc. on basis of their points. Regarding Chola Sheraton, Chennai, appellant had submitted that total disbursement to staff is 55 per cent of banquet service charges on same basis as Windsor Manor, Bangalore. adjustments made by management are on account of breakages (15 per cent), payment to room service staff (12.5 per cent) and staff welfare fund (17.5 cent), payment to room service staff (12.5 per cent) and staff welfare fund (17.5 per cent). It has also been submitted that disbursement to staff has been made by account payee cheques. Regarding Rajputana Palace, Jaipur it has been submitted that disbursement to staff is 80 per cent of total receipts. Adjustments made by management are on account of welfare fund (10 per cent) and breakage (10 per cent). It has been pointed out that total amount received by banquet captain is divided equally among banquet staff. actual amount received by each employee may differ based on number of functions in which worker had served during particular period. Regarding Mughal Sheraton, Agra, it has been submitted that 100 per cent of banquet service charges collected is disbursed to staff. Service charges are described as banquet tips in this unit. learned counsel for assessee had also cited instances of functions in this unit where no service charges were levied by assessee in Welcome Group Vadodara, Baroda. Adjustment on account of breakage only is made and balance amount is distributed directly to banquet staff and not through banquet captain. In Umed Bhavan, Kota, no adjustment is made out of banquet service charges. assessee had cited certain instances where no service charges were collected. It has been submitted that in Lallgarh Palace, Bikaner and Bay Island, Port Blair no service charges were collected. It has been argued that fact that Bikaner and Port Blair hotels do not collect service charges rebuts AO s presumption that payment of banquet service charges is not voluntary. As regards various items of adjustments assessee has submitted that AO never raised specific query regarding admissibility of any particular ite m . assessee has also objected to AO s observation that deductions on account of contribution to welfare fund, breakage, cafeteria subsidy etc., are mere provisions. It has been pointed out that gross breakage as reduced by breakage credited on account of service charges has been debited to P&L a/c. However it has been admitted that at Windsor Manor, Bangalore, breakages recovered out of banquet service charges was not set off against gross breakage. learned counsel for assessee has also submitted that adjustments towards cafeteria subsidy are also genuine. Regarding amount paid to non-banquet staff assessee has submitted that AO never called for related documents like agreement with staff union for verification. From facts it is seen that AO has not doubted actual disbursement to non-banquet staff and doubt is restricted only to existence of any agreement with union. It has been pointed out that disbursement is restricted only to Windsor Manor, Bangalore (20 per cent) and Chola Sheraton, Chennai (12.5 per cent). In no other hotel, there is any disbursement to non-banquet staff. As regards welfare fund it has been submitted that such funds have been set up at hotel Windsor Manor, Chola Sheraton and Rajputana Palace at insistence of local union. effective control and management of fund is with staff who contribute fund that is utilized for various employee welfare activities. We have had benefit of going through P&L a/c of assessee. Service charges received are not treated as revenue in books. But it is transferred to holding account called banquet tips account . At end of month, 10 per cent of total service charges collected are credited to its staff welfare account. It is case of assessee that based on mutual understanding between management and staff union, 20 per cent of charges collected is disbursed to permanent staff (w.e.f. 16th Sept., 1997), 0.5 per cent is credited to staff meals expenses account, 10 per cent is credited to breakage account. At end of year, amount in breakage is credited to expenses account. Remaining 59.5 per cent given to banquet captains by way of cheques. amount so collected by banquet captains is utilized for further distribution for all banquet employees. Further, from records, it is seen that issue relating to tips/service charges has been subject-matter before Asstt. Labour Commissioner. Paper book filed by assessee No. IIA, at pp. 7-10 relevant correspondence has been filed and perused. By letter dt. 19th Sept., 1997, personnel manager of Windsor Sheraton & Towers stated as under: "This has reference to tripartite discussion held in your presence on various dates on above subject. You will kindly appreciate that we have participated in proceedings without prejudice to our rights and contentions contained in our letter dt. 28th July, 1997. However in response to suggestion made by you during discussion, it is agreed that management will withhold 20 per cent of service charges collected by staff on their behalf w.e.f. 15th Sept., 1997. modalities of distribution of this amount will be agreed upon at later date and that present dispute before you can be closed as warranting no further conciliation/consideration. In event of union not agreeing to above, our contention vide our letter dt. 28th July, 1997 will stand revived." This clarifies that there was union problem relating to disbursement o f tips collected from customers and there was reconciliation before Asstt. Labour Commissioner. Therefore, existence of staff union cannot also be doubted. During first appellate proceedings, assessee had filed affidavits of S/Shri Mohan Rao, Joseph Reeves and S. Sankar, who had stated in affidavits as under: I, S. Mohan Rao, deponent above named hereby solemnly affirm and state as under: That I was working as banquet captain at Hotel Windsor Manor Sheraton & Towers owned by ITC Hotels Ltd. during financial year 1997-98. That I was called by AO of ITC Hotels Ltd. in course of assessment proceedings of said company and my statement was recorded on 9th March, 2001. I had stated in said statement that charging of service charges was compulsory as part of billing. I have no direct knowledge of policy and practice followed in this regard since my role did not extend to pre-function negotiation of rates with clients. I wish to clarify that aforesaid statement was based on my understanding of system prevalent only in Hotel Windsor Manor Sheraton & Towers which is one of several hotels owned by M/s ITC Hotels Ltd. I have since been informed by company s management that there are several hotels belonging to company which do provide banquet service without charging banquet service charge and also that there have been several functions at Hotel Windsor Manor Sheraton & Towers both prior to my taking over and subsequent to my handing over charge as banquet captain, where no service charges have been collected. I had no knowledge of this fact since it was not part of my assignment as banquet captain of one hotel to know for sure as to what is billing policy of company vis-a-vis its customers. I confirm that part of service charges is adjusted by company towards breakages, payment to other staff of hotel (pursuant to tripartite settlement with workers) and contribution towards staff welfare fund. balance amount received by me was distributed in cash among regular and casual banquet staff employed by me from time to time, according to requirements of functions, on basis of customary method which is in practice for several years. That I further confirm that amount received by me out of banquet service charges has been paid to persons named in memoranda record maintained by me and also that company or its management has no control over said memoranda record, which as per practice of trade, is maintained by banquet captain." "I, Joseph Reeves deponent abovenamed hereby solemnly affirm and state as under: That I was working as banquet captain at Hotel Chola Sheraton, Chennai, owned by ITC Hotels Ltd., during financial year 1997-98. That I am aware that management of hotel collects service charges on banquet functions for further distribution among banquet staff. That as per understanding between service staff and management, 55 per cent (fifty-five per cent) of amount received as banquet service charge is distributed among banquet service staff including casual workers engaged in banquets and balance is adjusted by management towards breakage (15 per cent), room service staff (12.5 per cent) and contribution to staff welfare fund (17.5 per cent). That during financial year 1997-98 I had received aggregate sum of Rs. 5,66,411 from management towards banquet service charges and that entire sum so received by me was distributed among banquet service staff." "I, S. Sankar deponent abovenamed hereby solemnly affirm and state as under: That I am working as Unit Financial Controller at Hotel Vadodara, Baroda, licensed by ITC Hotels Ltd., and otherwise competent to swear this affidavit. That I am aware that management of hotel collects service charges on banquet functions on behalf of service staff for further distribution among banquet staff. That as per understanding between service staff and management, t h e entire amount received as banquet service charge, after deduction, in respect of actual breakage during banquet functions, is distributed among banquet service staff including casual workers engaged in banquets. That during financial year 1997-98 management had distributed aggregate sum of Rs. 3,72,906 towards banquet service charge directly to banquet employees." On considering facts and details discussed above, we are of view that authorities below did not deal with these facts in proper perspective though they are available on record with them. Further, other related documents filed before us need to be looked into by AO to arrive at just decision on case. decisions relied on by assessee also cannot be ignored by Revenue. Therefore, this issue is remanded to AO who will reconsider same afresh after giving adequate opportunity to assessee and decide issue as indicated above. next issue in asst. yr. 1998-99 is with regard to deduction under s. 80-I (sic 80-IA) of Act. assessee s case is that income by way of profit/loss from exchange fluctuation, insurance claims, interest on KEB deposit, NSC and scrap sales have to be taken into account while computing deduction under s. 80-IA of Act. assessee s case is that wording under s. 80-IA is profit and gains derived from any business of industrial undertaking or hotel in contradistinction to wording profit and gains derived from industrial undertaking in s. 80-I and that term profits and gains derived from business encompasses above receipts. After hearing rival submissions, we find that issue has been considered by Cuttack Bench of Tribunal in case of Asstt. CIT vs. Maxcare Laboratories Ltd. (2005) 92 TTJ (Ctk) 179: (2005) 92 ITD 11 (Ctk), ITO vs. Kiran Enterprises (2005) 92 TTJ (Chd) 104, ITA No. 1195/Del/2002, dt. 30th Nov., 2005. Respectfully following same, this ground of assessee is allowed. AO is directed to recompute deduction in line with ratio of decision in case of Maxcare Laboratories Ltd. (supra). last ground of assessee is regarding computation of deduction under s. 80HHD of IT Act. assessee had claimed Rs. 11,16,28,859 as deduction under s. 80HHD. AO allowed deduction on basis of assessee s income from its entire business as whole and whereas assessee s claim is on basis of income from each eligible hotel of assessee. issue on hand has been considered by B Bench of this Tribunal in assessee s own case in ITA No. 280/Bang/2001 and CO No. 27/Bang/2001 dt. 30th Oct., 2001. Bench had observed that assessee owned some hotels and in respect of them turnover and profits are accounted for in books of account of assessee. second category of hotels are those, which are run on licence by assessee. In these hotels also turnover and profits vest with assessee on payment of license fee to owner of property, which is calculated at percentage of turnover. third category is hotels, which are managed by assessee. assessee company received management fee only from owner. owner accounts for turnover and profits and claims exemption under s. 80HHD. After considering facts of case, this Bench had observed in para 16 as follows: "16. computation provisions in sub-s. (3) of s. 80HHD of Act are in nature of machinery provisions and have to be read as necessary adjunct to sub-s. (1) of section. Sub-s. (3) only quantifies or amplifies deduction admissible to person or entity which is laid down in sub-s. (1) of s. 80HHD of Act. Thus, quantification of deduction has necessarily to be with reference to profits from business of operating approved hotel. Sub-s. (3) of s. 80HHD of Act cannot, in our opinion, be read in isolation, that is, de hors sub-s. (1) of that section. This is further fortified from fact that sub- s. (3) commences with words for purposes of sub-s. (1) . (i) words business appearing in s. 80HHD(3) of Act have to be mandatorily read in context of earlier provision of sub-s. (1), word has to be given meaning according to context in which term is used. word used in sub-s. (3) of s. 80HHD of Act has to be read as meaning business of approved hotel. Giving any other meaning would render provision of sub-s. (1) superfluous. If we interpret term business in s. 80HHD to mean aggregate of profits derived from all hotels owned and operated by assessee, whether approved or unapproved by DOT, such interpretation would ignore mandatory prescription in sub-s. (1) of that section." In para 18 Tribunal concluded as follows: "18. We hold that deduction under s. 80HHD of Act has to be claimed and allowed for each approved hotel individually qua profits derived from that hotel. No deduction is admissible in respect of profits derived from hotels not approved for purposes of this section. losses suffered in approved/unapproved hotels have to be ignored for purposes of s. 80HHD of Act. assessee s basis of claiming deduction under s. 80HHD of Act is legal and is tenable." Respectfully following this order of co-ordinate Bench we allow claim of assessee. This ground of appeal of assessee is allowed. Now, we deal with ITA No. 364/Bang/2005 for asst. yr. 1995-96. first issue that arises for our consideration in this appeal is whether reopening of assessment is bad in law. This issue forms ground Nos. 1 to 1.4 of assessee s grounds of appeal. Ground Nos. 2 to 2.3 are dismissed as not pressed. Ground Nos. 3 and 4 are on issue of bringing to tax part of receipt pertaining to banquet service charges. Ground No. 5 is on issue of computation of deduction under s. 80-IA. Ground No. 6 is on issue of computation of relief under s. 80HHD. Ground No. 7 is against levy of interest under s. 234B of Act. We first consider issue of reopening. brief facts are as follows: assessee is engaged in business of running hotels. For previous year ended 31st March, 1995 relevant to asst. yr. 1995-96, assessee filed return declaring Nil income after setting off of unabsorbed depreciation for earlier years. return was processed under s. 143(1)(a). (i). Notice under s. 148 dt. 22nd Jan., 2001 was issued to assessee for reopening assessment. In response, assessee filed objections. He also filed return of income under protest on 26th Feb., 2001. AO as well as CIT(A) recorded that AO had subsequently noticed that notice under s. 148 dt. 22nd Jan., 2001 was done without previous approval of CIT as required under s. 151 of Act. Thus vide order-sheet dt. 28th March, 2002, it has been recorded that proceedings initiated under s. 147 by notice under s. 148 issued on 22nd Jan., 2001 were dropped. findings of AO as well as learned CIT(A) are that this notice under s. 148 dt. 22nd Jan., 2001 was ab initio void for reason that no approval was obtained from CIT as required under s. 151 prior to issue of notice. (ii). On 28th March, 2002 it is stated by AO that fresh notice was issued under s. 148. version of AO is that representative of assessee who was present in office of AO on 28th March, 2002 refused to accept notice and under these circumstances, this notice of reopening was dispatched on 28th March, 2002 itself. assessee s version is that no employee of assessee was present in AO s office on that date and that one of its employees from Delhi had called AO from Delhi to furnish certain clarifications regarding asst. yrs. 1996-97 and 1997-98 and during course of such tele-conversation, AO had requested employee of assessee to send somebody to receive notice and had also pointed out that no employee of assessee, who was residing at Bangalore, was authorized to receive notice on behalf of assessee and that it was requested that notice may be dispatched. (iii). assessee claims that it had not received any notice under s. 148 dt. 28th March, 2002. On going through records and on hearing both parties, we find that in this case there is no proof of service of notice under s. 148. All that CIT(A) could gather from remand report and examination of files is that notice under s. 148 dt. 28th March, 2002 has been dispatched as per order-sheet noting of even date. only other evidence, other than order-sheet noting is post office receipt dt. 1st April, 2002 of having received uninsured unregistered parcel. There is nothing on record to show that this notice has been served on assessee. Order-sheet noting and postal receipt of dispatch cannot be considered as evidence in support of fact that notice has been served. Thus our factual finding is that claim of assessee that it had not received any notice, has not been disproved by Revenue by submitting adequate proof of service of notice. (iv). Sec. 148 reads as follows: "148. Before making assessment, reassessment or recomputation under s. 147, AO shall serve on assessee notice .." plain reading of section clearly shows that AO cannot assume jurisdiction without service of notice on proper person. We draw strength from decision of Kerala High Court in case of P.N. Sasikumar vs. CIT (1988) 69 CTR (Ker) 78: (1988) 170 ITR 80 (Ker) in support of our finding. (v). assessee, in this case, had raised preliminary objection that no notice under s. 148 was served on him and no effort was made by Revenue t o address this specific averment of assessee. Thus on facts and circumstances of case we have to quash order dt. 28th March, 2002 passed by AO under s. 144 r/w s. 147 of Act for asst. yr. 1995-96 for reason that no notice under s. 148 reopening assessment in terms of s. 147 was served on assessee. As we have cancelled assessments on ground that reopening itself i s bad in law, we do not find it necessary to dispose of other grounds of appeal for reason that it would be academic exercise. In result, appeal of assessee for asst. yr. 1998-99 is allowed in part to extent indicated above and appeal for asst. yr. 1995-96 is allowed. *** ITC HOTELS v. DEPUTY COMMISSIONER OF INCOME TAX & ANR.
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