Iapl/213/2015 Of Bir Hotels Pvt. Ltd v. Assistant Commissioner Of Income Tax And Anr

Court No. - 35 Case :- INCOME TAX APPEAL No. - 213 of 2015 Appellant :- Bir Hotels Pvt. Ltd.Respondent :- Assistant Commissioner Of Income Tax And Anr.Counsel for Appellant :- Suyash AgarwalCounsel for Respondent :- C.S.C. It,Manu Ghildyal,Praveen Kumar AND case :- INCOME TAX APPEAL No. - 214 of 2015 Appellant :- Bir Hotels Pvt. Ltd.Respondent :- Assistant Commissioner Of Income Tax And Anr.Counsel for Appellant :- Suyash AgarwalCounsel for Respondent :- C.S.C. It,Praveen Kumar AND Case :- INCOME TAX APPEAL No. - 70 of 2017 Appellant :- Bir Hotels Pvt. Ltd.Respondent :- Asstt.Commissioner Of Income Tax And AnotherCounsel for Appellant :- Suyash AgarwalCounsel for Respondent :- C.S.C.,Praveen Kumar AND Case :- INCOME TAX APPEAL No. - 259 of 2016 Appellant :- Bir Hotels Pvt. Ltd. AllahabadRespondent :- Asst. Commissioner Of Income Tax Range-Ii And AnotherCounsel for Appellant :- Suyash AgarwalCounsel for Respondent :- S.C.,Praveen Kumar AND Case :- INCOME TAX APPEAL No. - 57 of 2017 Appellant :- Bir Hotels Pvt. Ltd.Respondent :- Asstt.Commissioner Of Income Tax And AnotherCounsel for Appellant :- Suyash AgarwalCounsel for Respondent :- C.S.C.,Praveen Kumar Hon'ble Bharati Sapru,J.Hon'ble Rohit Ranjan Agarwal,J. Heard Sri Suyash Agrawal, learned counsel for theappellant-assessee and Shri Manu Ghildyal and ShriPraveen Kumar, learned counsel for the department. Since the facts and the issue involved in all these appeals is identical, all the appeals are being heard together anddisposed of by a common order which is being passed inIncome Tax Appeal No.213 of 2015, treating as a leadingcase. This appeal under Section 260A of the Income Tax Act, (hereinafter referred to as the 'Act') has been filed by theassessee against the order of the Tribunal dated22.04.2015. The appeal has been admitted on 31.08.2015on the following questions of law:- (i). Whether the Tribunal is legally justified in denying the deduction under Section80IB (7)(a) of the Income Tax Act on the income from the saloon section by theappellant-hotel? (ii) Whether after holding the saloon activity as desirbale and CIT (A) holding it to bean integral part of the Hotel business which finding holds goods, the Tribunal is legallyjustified in holding that the receipts from saloon business are not derived from the hotelbusiness? We have heard learned counsel for both the sides at lengthand have also perused the material on record as well as theoriginal record summoned before us. Upon production of record we have also examined thecontract or the agreement of franchisee between theassessee and Lakme saloon. The undisputed facts of the case are that the hotel businesswas initiated by the assessee in the year 2001 and hadbecome operational from then without having the saloonbusiness. The saloon business came into existencesubsequently by virtue of a franchisee agreement with theLakme in the year under consideration. The assessee seeks to contend that like the restaurantsection or the bar section, the saloon section was also to beconsidered as an integral part of the business of the hotel as it also connected to the general needs of the people andas a result thereof it would also become eligible to claimdeduction on the receipts derived from the saloon bar,which was to be treated as part of the receipt of the hotelbusiness. Learned counsel for the department has sought to argueotherwise and has argued that in order to consider thereceipts of saloon business to be part and parcel of thehotel business, it would be necessary that the receipts soobtained should have a direct nexus to the core businessactivity of the hotel and only then they would be eligiblefor deduction. The assessee seeks to contend that like the restaurantsection or the bar section, the saloon section was also to beconsidered as an integral part of the business of the hotel as it also connected to the general needs of the people andas a result thereof it would also become eligible to claimdeduction on the receipts derived from the saloon bar,which was to be treated as part of the receipt of the hotelbusiness. Learned counsel for the department has sought to argueotherwise and has argued that in order to consider thereceipts of saloon business to be part and parcel of thehotel business, it would be necessary that the receipts soobtained should have a direct nexus to the core businessactivity of the hotel and only then they would be eligiblefor deduction. It is a matter of record that the saloon section startedfunctioning in the year 2005-06 whereas hotel is alreadyfunctioning from the year 2001 as a licencesed three starhotel. Upon examination, it comes to the light that the corebusiness of the hotel business was the hiring of rooms,halls, restaurant, bar etc, but it could not be said that thesaloon section was the core activity of the hotel business. The Tribunal while examining the facts has also come tothe conclusion that there was no material on recordregarding the nature of customers who came and utilisethe saloon activities. The facilities of saloon were notconfined to the indoor inmates of the hotel but facilitieswere extended to outsiders also and therefore, could not besaid that the saloon business is an integral part of the hotelactivity. The Tribunal while examining the matter has also come to the conclusion that the business of hair styling, haircutting and beauty treatment being related to cosmetics, cannot be equated with the essential part of the hotelbusiness such as providing food and refreshment to the inmates of the hotel and, therefore, has come to theconclusion that it cannot be said that the saloon businesswas an integral part of the hotel activities and, therefore,also has come to the conclusion that receipts from thesaloon sections are not derived from the hotel business. While considering the case on facts, the authorities belowhave examined the contract or franchisee agreement of theassessee with M/s. HLL, which has a separate and distinctidentity from the hotel business of the appellant. The authorities below have also examined the decision ofthe Hon'ble Apex Court in the case of CIT vs. SterlingFoods reported in (1999) 237 ITR 579 (SC), wherein theApex Court has inter alia held that the word "derivedfrom" restricts the qualifying profits to the profits directlyarising from the particular activity and not the receiptsunrelated to the eligible business. There must be, for theapplication of the word "derived from", a direct nexusbetween profits and gains and the industrial undertakings. The authorities below therefore, came to the conclusionthat because the appellant was not fulfilling any of therequisite conditions and the income was not directlyderived from the business and had no direct nexus, thebenefit of section 80IB (7)(a) of the Income Tax Act, 1961was rightly denied. As such the assessee clearly was noteligible for it. The relevant part of the provisions ofsection 80IB (7)(a) of the Act is quoted below: "(7) (a) The amount of deduction in the case of any hotel shall be— (a) fifty per cent of the profits and gains derived from the business of such hotel for aperiod of ten consecutive years beginning from the initial assessment year as is locatedin a hilly area or a rural area or a place of pilgrimage or such other place as theCentral Government may, having regard to the need for development of infrastructurefor tourism in any place and other relevant considerations, specify by notification in theOfficial Gazette and such hotel starts functioning at any time during the periodbeginning on the 1st day of April, 1990 and ending on the 31st day of March, 1994 or "(7) (a) The amount of deduction in the case of any hotel shall be— (a) fifty per cent of the profits and gains derived from the business of such hotel for aperiod of ten consecutive years beginning from the initial assessment year as is locatedin a hilly area or a rural area or a place of pilgrimage or such other place as theCentral Government may, having regard to the need for development of infrastructurefor tourism in any place and other relevant considerations, specify by notification in theOfficial Gazette and such hotel starts functioning at any time during the periodbeginning on the 1st day of April, 1990 and ending on the 31st day of March, 1994 or beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2001: Provided that nothing contained in this clause shall apply to a hotel located at a placewithin the municipal jurisdiction (whether known as a municipality, municipalcorporation, notified area committee or a cantonment board or by any other name) ofCalcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or afterthe 1st day of April, 1997 and before the 31st day of March, 2001: Provided further that the said hotel is approved by the prescribed authority for thepurpose of this clause in accordance with the rules made under this Act and where thesaid hotel is approved by the prescribed authority before the 31st day of March, 1992,shall be deemed to have been approved by the prescribed authority for the purpose ofthis section in relation to the assessment year commencing on the 1st day of April,1991; (b)...... (c)...... Having heard the learned counsel for both sides andhaving examined the record as well as the order passed bythe authority below, we are of the considered opinion thatthe assessee failed to establish that the saloon businesswas the part and parcel of the core activity of the hotelbusiness. The questions of law are, therefore, answered in favour ofthe department and against the assessee. The appeal fails and is accordingly dismissed. Order Date :- 7.8.2019pks/rk