M/S.Escapade Resorts P.Ltd, Cochin vs Assessee

1 ITA No. 170/Coch/2014

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN

Before Shri N.R.S. Ganesan (JM) and Shri Chandra Poojari (AM)

I.T.A No. 170/Coch/2014 (Assessment year 2009-10)

M/s Escapade Resorts (P) Ltd vs The ACIT, Cir.1(1) Casino Hotel Kochi Willingdon Island, Kochi-3 PAN : AAACE5978L (Appellant) (Respondent)

Appellant by : Shri P.K. Sasidharan Respondent by : Shri M Anil Kumar, CIT / Shri K.K. John

Date of hearing : 24-12-2014 Date of pronouncement : 09-01-2015

ORDER

Per N.R.S. Ganesan (JM)

This appeal of the assessee is directed against the order of the

Administrative Commissioner dated 31-03-2014 and pertains to

assessment year 2009-10.

2. Shri P.K. Sasidharan, the ld.representative for the assessee

submitted that the assessing officer by an order u/s 143(3) of the Act

allowed the claim of the assessee u/s 80IB of the Act. However, the 2 ITA No. 170/Coch/2014

Administrative Commissioner found that the assessee is not eligible for

deduction u/s 80IB for the year under consideration. Referring to the

approval granted by the DGIT (Exemption), the copy of which is available

at page 6 of the paper book, the ld.representative submitted that the

approval was granted with effect from 12-04-1999 which is relevant for the

assessment year 2000-01. The assessee is eligible for exemption for 10

assessment years. Therefore for the year under consideration, according

to the ld.representative, the assessee is eligible for exemption.

3. Referring to section 80IA as it stood at the relevant point of time, the

ld.representative submitted that the assessee was initially entitled for

deduction u/s 80IA of the Act. According to the ld.representative, by

Finance Act, 1999 with effect from 01-04-2000, section 80IA, as it was

then existed was substituted by sections 80IA and 80IB. For the purpose

of this appeal, according to the ld.representative, the provisions of section

80IA as it stood at the relevant point of time is relevant since the approval

granted by the DGIT (Exemption) was on the basis of the provisions of

section 80IA as it stood then.

4. Referring to section 80IA(4)(iiia) of the Act, as it stood at the relevant

point of time, the ld.representative submitted that the assessee's eligible

business is entitled for exemption u/s 80IA of the Act since the hotel is 3 ITA No. 170/Coch/2014

situated in the hilly area. Referring to sub clause (v) of section 80IA(4), the

ld.representative submitted that approval by the prescribed authority is an

essential precondition for claiming deduction u/s 80IA. The prescribed

authority, according to the ld.representative, is the DGIT (Exemption).

According to the ld.representative, section 80IA(4)(iiia) and section

80iA(4)(v) provides for twin condition to be fulfilled for the purpose of

claiming deduction u/s 80IA of the Act. According to the ld.representative,

mere starting a hotel is not sufficient for claiming deduction u/s 80IA. The

approval of the DGIT(Exemption) is an essential pre-condition. Therefore,

according to the ld.representative, the initial year for grant of deduction u/s

80IA shall be the year for which the approval was granted by the DGIT

(Exemption). Since the DGIT (Exemption) specifically says that the

approval was with effect from assessment year 2000-01, according to the

ld.representative, the assessee is eligible for exemption for the year under

consideration. Referring to section 80IA(6)(ii), the ld.representative

submitted that the assessee is eligible for exemption for 10 assessment

years for claiming deduction u/s 80IA of the Act. Referring to sub clause

(iv) of section 80IA(6), the ld.representative submitted that the words

"consecutive assessment years" have been omitted in sub clause (ii) of

section 80IA(6). The Administrative Commissioner by referring to section

80IB of the Act which was subsequently introduced to substitute the then

existing section 80IA observed that the assessee is eligible for exemption 4 ITA No. 170/Coch/2014

only for the consecutive assessment years. According to the

ld.rperesentative, the words "consecutive assessment years have been

specifically omitted in section 80IA(6)(ii) of the Act. Referring to section

80IA(12) of the Act, more particularly sub clause (i) of clause (c), the

ld.representative submitted that the initial assessment year has been

defined as the year in which the business of hotel starts functioning. But

mere functioning of the hotel is not eligible for exemption u/s deduction u/s

80IA. The approval from the DGIT (Exemption) is one of the preconditions

provided for claiming exemption. Therefore, according to the

ld.representative, the initial assessment year shall be the year in which the

approval was granted by the DGIT (Exemption) and not the assessment

year in which the assessee started functioning the hotel. Therefore,

according to the ld.representative, the Administrative Commissioner is not

justified in revising the order of the assessing officer by exercising his

jurisdiction u/s 263 of the Act.

5. On the contrary, Shri M Anil Kumar, the ld.DR submitted that initial

assessment year has been defined in section 80IA(12)(c) of the Act. As

per this section, the initial assessment year is the year in which the

business of hotel starts functioning. Referring to section 80IA(6) of the Act,

the ld.DR submitted that the number of assessment years referred to in

sub section (1) shall be that including the initial assessment year. 5 ITA No. 170/Coch/2014

Therefore, for the purpose of claiming deduction the initial assessment

year is the year in which the assessee started functioning its hotel and not

the year in which the approval was granted. According to the ld.rDR,

though approval is one of the pre-conditions to be fulfilled for grant of

deduction u/s 80IA of the Act, the initial assessment year for claiming the

deduction shall be the year in which the assessee started functioning its

hotel. According to the ld.DR, since the legislature has defined initial

assessment year as the year in which the business of hotel started

functioning, the date of approval granted by DGIT (Exemption) cannot be

taken as the initial assessment year. Therefore, according to the ld.DR,

the CIT has rightly revised the order of the assessing officer.

6. We have considered the rival submissions on either side and also

perused the material available on record. From the material available on

record it appears that the assessee started its hotel business from the

assessment year 1999-2000. This is not in dispute. If the initial

assessment year for claiming deduction u/s 80IA is taken as 1999-2000,

then the ten assessment years expired by assessment year 2008-09.

Therefore, the assessee may not be eligible for exemption for the year

under consideration. If we take the initial assessment year as 2000-01

from the year in which the approval was granted by the prescribed

authority, viz. DGIT (Exemption), then the assessee may be eligible for 6 ITA No. 170/Coch/2014

deduction u/s 80IA of the Act. Thus, the actual dispute confines only to

the issue as to what was the initial assessment year for which the

assessee was eligible for claiming deduction u/s 80IA of the Act? In other

words, whether the initial assessment year is the year in which the

assessee started functioning its business or the year in which the

prescribed authority granted approval u/s 80IA of the Act for the claiming

deduction u/s 80IA of the Act?

7. We have carefully gone through the provisions of section 80IA as it

stood at the relevant point of time, which reads as follows:

"80-IA (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services or construction and development of housing projects or operating an industrial park or commercial production or refining of mineral oil in the North Eastern Region or in any part of India on or after the 1st day of April, 1997 (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6).

(2) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

(3) (i) to (iii) xxxxxxxxxxxxxxxxxxxxxxxxxxx

(iiia) the business of the hotel, located in a hilly are or a rural area or a place of pilgrimage or such other place s the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify for the 7 ITA No. 170/Coch/2014

purpose of this clause, starts functioning at any time during the period 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 any hotel located at a place within the municipal jurisdiction (whether known s a municipality, municipal corporation, notified area committee, town area committee or a cantonment board or by any other name) of Calcutta, Chennai, Delhi and Mumbai;

(iv) to (iva) xxxxxxxxxxxxxxxxxxxxxxxxxx

(v) the hotel is for the time being approved by the prescribed authority.

(4A) to 5(i)(id)xxxxxxxxxxxxxxxxxxxxxxxx

(iia) in the case of hotel referred sub clause (iiia) of section 4, fifty per cent of the profits and gains derived from the business of such hotel:

Provided that the said hotel is approved by the prescribed authority for the purposes of this clause in accordance with the rules made under this Act;

(iii) to (vi) xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

(6) The number of assessment years referred to in sub-section (1) shall, including the initial assessment year, be-

(i) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

(ii) ten in the case of an assessee, not being a co-operative society, deriving profits and gains from an industrial undertaking specified in sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (iv) of sub-section (2) or located in an industrially backward district of Category A specified in sub-clause (c) of clause (iv) of that sub-section;

(iia) to (12)(b) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

(c) "initial assessment year"-

(1) In the case of an industrial undertaking or cold storaqe plant or ship or hotel, means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brutht5 into use or the business of the hotel starts functioning;

8 ITA No. 170/Coch/2014 (2) to (6) xxxxxxxxxxxxxxx

(ca) to (g) xxxxxxxxxxxxxxxxxxxxxxxxxxx"

8. From the above provision it is obvious that the assessee is eligible

for deduction u/s 80IA (now section 80IB) for ten assessment years from

the initial assessment year. Initial assessment year has been defined in

section 80IA(12)(c)(i) of the Act. From this it is obvious that the initial

assessment year is the year in which the business of hotel started

functioning. It does not say that the year in which the approval was

granted by the prescribed authority. Of course, the approval of the

prescribed authority is also one of the pre-conditions for claiming deduction

u/s 80IA of the Act in view of section 80IA(4)(v) of the Act. Section 80IA(6)

clearly sys that the number of assessment years referred to in sub section

(1) shall be including the initial assessment year. Therefore, for the

purpose of taking the initial assessment year, the approval of the

prescribed authority may not be relevant. The assessee may not be

eligible for deduction u/s 80IA if the approval of the prescribed authority

was not obtained for the initial assessment year. But that does not mean

that the initial assessment year has to be excluded from the provisions of

the Act. Taxation statute has to be interpreted on the basis of plain

language employed by the legislature. The authorities / courts have no

power to insert or delete any word in the statute as enacted by the 9 ITA No. 170/Coch/2014

Parliament. Of course, a harmonious reading has to be made to give

effect to all the provisions of the Act without omitting any clauses of the

sub clauses in the Act. A harmonious reading of the Act clearly says that

though the approval of the prescribed authority, viz. the DGIT(Exemption)

is a pre-condition, the initial assessment year shall be the year in which the

assessee hotel started functioning for the purpose of computing ten

assessment years for grant of deduction u/s 80IA of the Act. If the

assessee could not obtain the approval of the prescribed authority, viz.

DGIT (Exemption) for any of the years after started functioning of the hotel,

then the assessee may not be eligible for deduction u/s 80IA for those

assessment years. The assessee can claim deduction only in respect of

the remaining assessment year from the year in which the approval was

granted by the prescribed authority. A harmonious reading of section 80IA

as it stood at the relevant point of time and the provisions of section 80IB,

as it stands now, this Tribunal is of the considered opinion that the initial

assessment year is the year in which the assessee started functioning of

the hotel and not the year in which the approval was granted by the

prescribed authority.

9. In view of the above, this Tribunal is of the considered opinion that

the Administrative Commissioner has rightly exercised his revisional

jurisdiction since grant of deduction u/s 80IB was not only erroneous but 10 ITA No. 170/Coch/2014

also prejudicial to the interest of revenue. Hence, the order of the

Administrative Commissioner is confirmed.

10. In the result, the appeal of the assessee stands dismissed.

Order pronounced in the open court on this 09th January, 2015.

Sd/- sd/- (Chandra Poojari) (N.R.S. Ganesan) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cochin, Dt : 09th January, 2015 pk/- copy to:

1. M/s Escapade Resorts (P) Ltd, Casino Hotel, Willingdon Island, Kochi-3

2. The ACIT, Cir.1(1), Kochi

3. The Commissioner of Income-tax-I, Kochi (True copy) By order

Asstt. Registrar, Income-tax Appellate Tribunal, Cochin Bench