The Income Tax Appellate Tribunal (ITAT) Chennai on February 8 ruled that license fee received by an assessee for licensing a fully furnished hotel along with a license to run the hotel is a business receipt, which is assessable under the head ‘income from business or profession’ but not a rental income, which is assessable under the head ‘income from house property’.
The assessee M/s Dodla International is engaged in the business of running a hotel. The assessee had constructed a hotel at Trivandrum in the year 2008 and further operated the hotel up to 31.07.2009. But, from 01.08.2009, the assessee had entered into a license agreement with M/s. Oriental Hotels Ltd., (Taj Group of Hotels) under which, Oriental Hotels was given a license to operate the hotel for a period of 40 years with a right to renew the agreement for further 30 years on a revenue-sharing basis. The assessee has considered revenue received from licensing the hotel to M/s.Oriental Hotels Ltd., under the head ‘Income from the business or profession’. The Assessing Officer was not convinced with the explanation furnished by the assessee and according to him, as per the terms of ‘Memorandum of Understanding’ (MoU) between the assessee and Oriental Hotels Ltd., the assessee has let out a fully furnished hotel accommodation and hence income received from letting out property is nothing but rent, which is assessable under the head ‘Income from House Property’. The Assessing Officer also referred to the Memorandum of Association of the assessee company and noted that the main object of the assessee is to run the hotel and not letting out the property for earning rental income.
Judicial member Duvvuru RL Reddy and Accountant Member G. Manjunatha relied on the decision of the Hon’ble High Court of Kerala in the case of M/s.Palmshore Hotels (P) Ltd. and held, “we are of the considered view that the AO as well as the ld.CIT(A) was grossly erred in assessing license fee under the head ‘income from house property’ and hence, we reverse the findings of the CIT(A) and direct the AO to assess license fee under the head ‘income from business or profession’ as claimed by the assessee.”
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