Oberoi Hotels Private Limited Vs DCIT (ITAT Kolkata)
Summary: The Income Tax Appellate Tribunal, Kolkata, in Oberoi Hotels Private Limited Vs DCIT, decided cross-appeals for Assessment Year 2011-12 concerning taxation of foreign hotel management fees, disallowance under Section 14A read with Rule 8D, and adjustments to book profit under Section 115JB of the Income-tax Act, 1961. The assessee received management fees of ₹5,07,14,598 from Hotel Meena House Oberoi, Cairo, and claimed the net income of ₹4,81,25,619 as exempt under Article 24 of the India-United Arab Republic Double Taxation Avoidance Agreement. The Assessing Officer denied the exemption because the assessee had not established that the income was actually taxed in the foreign jurisdiction. The Tribunal held that the Cairo hotel management operations constituted a permanent establishment under Article 5(2)(a), and the related business profits were covered by Article 7 read with Article 24 of the treaty. Since the treaty provided exemption in India for such income, subject to its inclusion for rate purposes, the Tribunal directed deletion of the ₹4,81,25,619 addition.
The Tribunal also considered the assessee’s consistent treatment of foreign management income in earlier and subsequent assessment years. The exemption had been accepted in proceedings relating to Assessment Years 1980-81 and 1982-83 and continued to be recognised in subsequent assessments. The Revenue had not challenged the earlier appellate determination or demonstrated any material change in circumstances. Applying the principle of consistency, the Tribunal held that the Assessing Officer was unjustified in disturbing the settled treatment of the Cairo management fees. However, the assessee did not press its grounds challenging the deemed dividend addition of ₹8,83,34,283 under Section 2(22)(e), and those grounds were dismissed.
In the Revenue’s appeal, the Tribunal examined an additional disallowance of ₹1,70,13,453 under Section 14A read with Rule 8D(2)(iii). The assessee had already voluntarily disallowed interest expenditure of ₹4,80,85,102 and demat charges of ₹11,50,944, aggregating to ₹4,92,36,046. The Tribunal observed that the assessee’s method of allocating common administrative expenses according to income distribution had been accepted in earlier assessment years and was consistent with the approach previously approved by the appellate authorities. Nevertheless, both parties accepted that applying this methodology resulted in an additional disallowance of ₹19,40,000. Accordingly, the Tribunal sustained ₹19,40,000 and upheld deletion of the remaining ₹1,50,73,453. The Revenue’s ground was therefore partly allowed.
On the remaining issues, the Tribunal upheld deletion of two adjustments made while computing book profit under Section 115JB. The first concerned a wealth tax provision of ₹13,17,000, which the Tribunal held could not be added back as income tax payable under Explanation 1(a) to Section 115JB. The second concerned ₹1,68,98,472 representing reversal of a provision for diminution in the value of investments originally created in Assessment Year 2007-08. After considering the earlier computation and the absence of any resulting tax impact, the Tribunal affirmed the Commissioner (Appeals)’s deletion of this adjustment. Consequently, both the assessee’s appeal and the Revenue’s appeal were partly allowed.
List of Cases Discussed:
1. Radhasoami Satsang v. CIT, [1992] 193 ITR 321 (Supreme Court): Relied upon for the principle that where a fundamental aspect has been consistently accepted in earlier assessment years and there is no material change in facts or law, departure from that settled position is ordinarily unjustified.
2. Sun Pharma Laboratories Ltd., ITA No. 712/Ahd/2019 (ITAT Ahmedabad), decision dated 9 October 2024: Referred to in the appellate order for the proposition that the relevant adjustment under Explanation 1(a) to Section 115JB concerns income tax paid or payable, not wealth tax.
3. CIT Vs ACC Ltd., 185 taxmann.com 815 (Bombay High Court): Cited in support of deletion of the wealth tax adjustment while computing book profit under Section 115JB.
4. Caterpillar India Pvt. Ltd. Vs DCIT, 80 taxmann.com 325 (ITAT Chennai): Cited in support of the treatment of wealth tax while computing book profit under Section 115JB.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
These are cross appeals preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 19.02.2025 for the AY 2011-12.
2. We first take up the appeal of the assessee wherein the grounds raised are as under:-
1. For that the National Faceless Appellate Centre (“the NFAC”) has erred in treating the advances received from Oberoi Plaza Private Limited and Oberoi Investments Private Limited as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961 (“the Act”).
2. For that the NFAC erred in not considering that the NBFC certificate of Oberoi Investments Private Limited and that the advances were received from Oberoi Investments Private Limited in its ordinary course of its business and hence the deeming provisions of section 2(22)(e) of the Act are not applicable to such advances and hence the addition under section 2(22)(e) of the Act is liable to be deleted.
3. For that the NFAC erred in not considering the Memorandum of Association of Oberoi Plaza Private Limited and Oberoi Investments Private Limited wherein money lending is one of the objects of the Company and since advances were given as a part of regular business activity of the lender companies, provisions of section 2(22)(e) of the Act are not applicable and hence the order passed by the NFAC is liable to be set aside and the addition is liable to be deleted.
4. For that the NFAC erred in confirming the addition of INR 4,81,25,619 made by the Assessing Officer on account of management fees received from Hotel Meena House Oberoi, Cairo as taxable income in India without granting any relief under Article 24 of India-United Arab Republic Double Taxation Avoidance Agreement (“India-UAR DTAA”) and hence the order passed by the NFAC is ex-facie bad in law and liable to be set aside.
5. For that the NFAC erred in wrongly referring to the order of Learned Commissioner of Income Tax (Appeals) (“CIT(A)”) for AY 1980-81 and 1981-82 and holding that issue involved and decided in such order of Learned CIT(A) is different. Further, the NFAC erred in not appreciating that the Learned CIT(A) had adjudicated the issue of taxation of income earned in UAR and held the same to be not taxable in India in view of Article 24 of India-UAR DTAA and thus the order passed by the NFAC is incorrect and liable to be set aside.
3. The issue raised in Ground Nos. 1 to 3 relates to the addition of Rs.8,83,34,283/- made by the AO by way of deemed dividend u/s 2(22)(e) of the Act. This ground was not pressed by the ld. AR at the time of hearing and is therefore dismissed.
4. The issue raised in Ground Nos. 4 to 5 relates to the benefit of exemption claimed by the assessee in relation to the management fees received from the Hotel Meena House Oberoi, Cairo in terms of Article 24 of the India-UAR DTAA.
5. The facts relating to this issue are that, during the year the assessee had received sum of Rs.5,07,14,598/- by way of management fees from Hotel Meena House Oberoi, Cairo, against which it had allocated pro-rata expenses of Rs.25,88,979/- and the net amount of Rs.4,81,25,619/- was claimed as exempt in terms of Article 24 of the DTAA between India-UAR. According to the AO, the assessee was unable to provide any evidence that the impugned sum had been taxed in UAR and therefore he added the net sum of Rs.4,81,25,619/- to the total income of the assessee. The action of the AO was confirmed by the ld. CIT(A).
6. The ld. AR brought to our notice that this issue first arose in their own case in AYs 1980-81 & 1982-83 wherein the AAC had examined the management agreement with the Cairo Hotel and having regard to Article 24 of the DTAA, it was held that, the income arising in UAR is exempt from taxation in India. He submitted that, subsequent to this appellate order, the Revenue had all along been accepting the assessee’s contention that the management fees received from UAR was not liable to tax in India. The Ld. AR further brought to our notice that, in assessee’s own case for AY 2009-10, the AO had accepted that management fees was exempt from tax but had only enhanced the common expenses allocable to the management fees, which was deleted by this Tribunal. The ld. AR also submitted that, the management fees were continued to be received year on year basis in the subsequent years as well and the AO had accepted the assessee’s claim of exemption under the DTAA with UAR in all the income-tax assessments completed u/s 143(3) of the Act. The AR therefore prayed for deletion of the impugned addition.
7. Per contra, the ld. DR for the Revenue supported the findings of the ld. CIT(A) that the appellate orders relied upon by the assessee was not rendered in the context of exemption of management fees but only manner of allocation of expenses. He thus does not want us to interfere with the order of ld. CIT(A).
8. We have heard the rival submissions and perused the material placed before us. It is observed that the assessee has been deriving income from management of hotel at Cairo which constitutes ‘business profits’ of the assessee. It was brought to our notice that, the ‘place of management’ constitutes ‘permanent establishment’ under Article 5(2)(a) of the DTAA and therefore the assessee has a permanent establishment in UAR. In terms of Article 7 of the DTAA between India and UAR, the profits derived by the resident of a contracting state (India) through a permanent establishment in the Other State (UAR) may be taxed in the other State (UAR). Now, Article 24 of the DTAA sets out the method for elimination of double taxation in the Country of Residence (India) and the relevant portion of the Article 24 is reproduced below:-
ARTICLE 24
EXEMPTION AND CREDIT METHODS
1. Where a person being a resident of a Contracting State derives income from the other Contracting State and that income, in accordance with the provisions of this Convention, shall be taxable only in that other Contracting State, or may be taxed in that other Contracting State, the first-mentioned State shall, subject to the provisions of paragraph (2) exempt such income from tax but may, in calculating tax on the remaining income of that person, apply the rate of tax which would have been applicable if the exempted income had not been so exempted.
8.1. Having regard to the above, we find that the AAC had rightly held in assessee’s own case for AYs 1980-81 & 1982-83 that the management fees received from the permanent establishment in UAR was not liable to tax in India and is includible only for rate purposes. It is observed that the decision of AAC in assessee’s own case had attained finality and no further appeal was preferred by the Revenue against the same. It is also seen that the Revenue has all along accepted the claim of exemption of management fees under Article 7 read with Article 24 of the DTAA in all the preceding AYs as well as the succeeding AYs as well. The ld. DR was unable to controvert this admitted factual position. According to us therefore, the AO was unjustified in disturbing the settled viewand the ld. CIT(A) wrongly upheld the denialof the exemption of management fees. For the aforesaid reasons, we direct the AO to delete the addition of Rs.4,81,25,619/-. This ground is therefore allowed.
9. We now take up the Revenue’s appeal in ITA No.1565/Kol/2025 wherein the following grounds have been raised:
1. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of income of Rs. 1,70,13,453/- on account of disallowance of expenditure u/s. 14A of the Income Tax though the disallowance was computed as per the method prescribed in Rule 8D of the Income Tax Rules, 1961 and the assessee has earned exempt income out of the investments made.
2. That on the facts and circumstances of the case and in law, Ld. CIT (A) has erred in deleting the adjustment of book profit of Rs. 13,17,000/- on account of wealth tax payable in the computation of book profit u/s 115JB of the Income-tax Act, 1961 ignoring that any provision to meet its liability is not liable to be deducted while computing book profit as per section 115JB(2)(c) of the Income-tax Act, 1961.
3. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the adjustment of provision for diminution in value of investment of Rs. 1,68,98,472/- in the computation of book profit u/s 115JB of the Income-tax Act, 1961 ignoring that any provision to meet its liability is not liable to be deducted while computing book profit as per section 115JB(2)(c) of the Income-tax Act, 1961.
10. The issue raised in Ground No. 1 relates to the deletion of disallowance made by the AO u/s 14A of the Act.
11. The facts relating to this issue are that, the assessee had derived exempt income by way of dividend and capital gains from the investments held during the year. Against this exempt income, the assessee had voluntarily disallowed the entire interest cost of Rs.4,80,85,102/- and also allocated & disallowed demat charges of Rs.11,50,944/-, resulting the aggregate disallowance of Rs.4,92,36,046/-. The AO observed that, since the assessee had already disallowed the entire interest cost, Rule 8D(2)(ii) was not required to be invoked. However, as because, no indirect or administrative expenses were added back, the AO applied Rule 8D(2)(iii) and made further disallowance of Rs.1,70,13,453/-.
12. In the appellate proceedings, the ld. CIT(A) observed that similar disallowance was made by the AO in AYs 2009-10 & 2015-16 which was deleted by his predecessor and no further appeal was filed by the Revenue and therefore he deleted the further disallowance made by the AO u/s 14A of the Act.
13. The ld. DR appearing for the Revenue argued that since the assessee had not offered any disallowance on account of common expenses, the AO had rightly invoked Rule 8D(2)(iii). He further submitted that, the assessee in AYs 2009-10 & 2015-16 had formulated an expense schedule and allocated the common expenses on the basis of income distribution, in which the direct operating expenses and hotel expenses, as per the separate audited accounts were excluded and the head office (HO) expenses were allocated. He pointed out that, the assessee had furnished this methodology before the ld. CIT(A) in the relevant year as well, in terms of which the further indirect administrative expenses allocable to exempt income worked out to Rs.19,40,000/-. He thus submitted that, the disallowance to the extent of Rs.19,40,000/- ought to be otherwise upheld.
14. Per contra, the ld. AR supported the findings of the ld. CIT(A). He also fairly stated that, following the methodology approved in AYs 2009-10 & 2015-16, the further disallowance u/s 14A would work out to Rs.19,40,000/-.
15. After hearing the rival contentions and perusing the material placed before us, it is seen that the limited issue before us relates to the allocation of indirect common expenses relatable to earning of dividend income u/s 14A of the Act. In the given facts before us, it is observed that, the ld. CIT(A) in assessee’s own case for AYs 2009-10 & 2015-16 had approved the assessee’s methodology of allocating the expenses on the basis of income distribution finding it to be fair & reasonable in terms of Section 14A(2) read with Rule 8D(1). It is not in dispute that the order of the ld. CIT(A) had attained finality and no further appeal was preferred by the Revenue on this issue. It was also brought to our notice that, this methodology of the assessee was accepted and followed by the AO in the assessment order passed u/s 143(3) for AY 2020-21. According to us therefore, in absence of there being any change in facts or the position of law, the decision of the Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321, would apply in the given facts of the case. Accordingly, as the fundamental aspect coming through different assessment years has been accepted, it would be unjustified to disturb the same. At the same time, we find that the ld. DR has rightly pointed out that, if the methodology of allocating the expenses relatable to dividend income, as upheld in AYs 2009-10 & 2015-16, is followed, then the further disallowance would work out to Rs.19,40,000/-. The Ld. AR did not oppose this submission. We thus retain the disallowance to the extent of Rs.19,40,000/- and the deletion of balance sum of Rs.1,50,73,453/- is upheld. This ground is thus partly allowed.
16. The issue raised in Ground No. 2 relates to the Ld. CIT(A)’s action of deleting the addition made by the AO on account of provision for wealth tax of Rs.13,17,000/- while assessing book profit u/s 115JB of the Act.
17. We have Heard both the parties and perused the materials on record. It is observed that the Ld. CIT(A) had deleted the impugned adjustment made to the book profit u/s 115JB, by observing as under:-
“11.2 I have perused the assessment order, grounds of appeal, submission filed by the appellant carefully. I find that as per Explanation1(a) to section 115JB of the Act only the amount of income tax paid or payable to be added in the profit for the purpose of 115JB of the Act. In this regard I find that the Hon’ble ITAT, Ahmedabad in recent decision dated 09/10/2024 in the case of Sun Pharma Laboratories Ltd ITA No.712/Ahd/2019 held that the clause (a) of Section 115JB of the Act clearly talks on the Income Tax paid or payable only liable to be included for the purpose of book profit u/s. 115JB of the Act. Thus, the addition made by the AO to Wealth Tax paid is liable to be deleted. In view of the above discussion, the addition made by the AO is deleted and ground raised by the appellant is allowed.”
18. The above findings of the ld. CIT(A) are found to be supported by the decisions of the Hon’ble Bombay High Court in the case of CIT Vs ACC Ltd (185 taxmann.com 815) and ITAT, Chennai in the case of Caterpillar India Pvt Ltd Vs DCIT (80 taxmann.com 325). We therefore see no reason to interfere with the order of Ld. CIT(A) and thus dismiss this ground of appeal.
19. The issue raised in Ground No. 3 relates to the action of ld. CIT(A) deleting the addition made by the AO on account of provision for diminution in value of investments written back amounting to Rs.1,68,98,472/-. The AO is noted to have observed that the assessee had created the provision for diminution in value of investments in AY 2007-08 and though the assessee had added back the same while computing income under normal provisions but it was not added back while computing book profit u/s 115JB of the Act. The AO therefore was of the view that the write back of such provision was taxable u/s 115JB in the year of reversal and therefore added the same to the book profit assessed u/s 115JB of the Act.
20. In the appellate proceedings, the ld. CIT(A) is found to have examined this issue and thereafter deleted the addition. The relevant operative portion of the order reads as under:-
“I have perused the assessment order, grounds of appeal, submission filed by the appellant carefully. I find that the AO has made the addition on the ground that in AY 2007-08 (i.e. the relevant year for which the provision of Rs.1,68,98,472/- pertains) the appellant had not made adjustment in the book profit but the adjustment was made in the computation of income only. However, the appellant contended that the said provision is amended through finance Act 2009 with retrospective effect from 01/04/2001. I find that that said amendment is made through finance Act 2008 with retrospective effect from 01/04/2001. However, the contention of the appellant is found to be acceptable for not making the adjustment in book profit for AY 2007-08. Further the appellant contended that there is no tax impact because of the above adjustment to book profit. Considering the submission filed by the appellant, the addition made by the AO is hereby deleted and ground of appeal is allowed.”
21. The Ld. AR has placed before us the relevant computation of income for AY 2007-08 at Pages 52 to 53 of the paper book and it is seen that the provision for diminution in value of investments was added back in the revised computation of income. It was also shown to us that, irrespective whether the provision was added back in AY 2007-08 or not, there was no impact on the taxable income for that year and thus if the treated as added back, the effect would remain the same. The ld. DR was unable to controvert this submission of the assessee. We therefore are in agreement with the above findings of ld. CIT(A) deleting the impugned adjustment made by the AO. We accordingly dismiss this ground of the Revenue.
22. In the result, both the appeal of the assessee and the Revenue are partly allowed.
Order pronounced on 11.09.2026.
