Relief for Dodla International: License fee for the licensing of a fully furnished hotel together with the license to run the hotel, which is taxable as “other income”: ITAT [Read Order]
– – February 14, 2021 at 11:54 a.m.
The Income tax appeals court (ITAT) Chennai ruled on February 8th that the license fee an appraiser receives for licensing a fully furnished hotel along with a license to operate the hotel is a business receipt under the heading “Business income”, but not under a rental income to be assessed under the heading “Income from home ownership”.
The Assessee M / s Dodla International operates a hotel. The Assessee built a hotel in Trivandrum in 2008 and continued to operate the hotel until July 31, 2009. However, as of August 1, 2009, the Assessee had concluded a license agreement with M / s. Oriental Hotels Ltd. (Taj Group of Hotels), under which Oriental Hotels obtained a license to operate the hotel for a period of 40 years with the right to extend the contract for an additional 30 years on a revenue-sharing basis. The assessee has the income from the licensing of the hotel to M / s.Oriental Hotels Ltd. under the heading “Income from business or occupation”. The appraiser was aware of the declaration made by the appraisee in accordance with the provisions of “Memorandum of Understanding“(MoU) between the Assessee and Oriental Hotels Ltd., the Assessee has rented fully furnished hotel accommodation and therefore the income from the rental of real estate is nothing more than rents which are to be valued under the heading” Income from home ownership ” Appraiser also referred to the appraiser’s charter, noting that the appraiser’s primary objective is to run the hotel and not rent the property for rental income.
Justice member Duvvuru RL Reddy and accounting member G. Manjunatha supported themselves in the case of M / s.Palmshore Hotels (P) Ltd. on the decision of the Hon’ble High Court of Kerala, stating, “We believe that the AO as well as the ld.CIT (A) A serious mistake was made in assessing the royalty under the heading “Income from Homeownership”. Therefore, we are reversing the findings of the CIT (A) and instructing the AO to claim the license fee under the heading “Income from Business or Occupation” as indicated by the Assessee. “