COMMISSIONER OF INCOME TAX Vs. UNITED HOTELS LTD.

JUDGEMENT

(1.) The Respondent/Assessee is engaged in the business of running five star hotels. In the present case, we are concerned with the Ambassador Hotel situated at Sujan Singh Park, New Delhi which is also managed by the Respondent/Assessee. This appeal pertains to the Assessment Year 2006-2007. In this year, the Assessing Officer has disallowed the expenditure of 91,70,962/- incurred by the Assessee which was in the form of payment made to M/s Megapode Airlines Ltd. ( Now known as Taj Airlines Ltd.) . As per the Respondent/Assessee, this payment was made under the agreement dated 29.12.1999 with the said company doing the business of air taxi operator. The agreement was arrived at between the Assessee and the said air taxi operator as per which the Assessee was entitled to utilize 35 hours on its aircraft with discounted charges for flying hours utilized by the Assessee. The discounted charges were fixed at 65,000/- per flying hours normally as against 25 lacs. The Assessee had paid a sum of 153.3 lacs as annual fixed chargers and received a refund of 6.60 lacs for excess fixed cost recovered and for the use of part of entitlement by the taxi air operator which was not actually utilized by the Assessee. It was in this manner balance amount of 91.71 lacs was shown as expenditure debited in the profit and loss account. The Assessing Officer was of the opinion that the agreement did not contain any clause as per which the aircraft was to be utilized by the Assessee for its guests and premier clients to avail of these facilities. Therefore, there was no commercial expediency in the said agreement. He was also of the opinion that the taxi operator was the subsidiary of the Assessee and, therefore, this agreement was merely a device to make payment to the said taxi operator to reduce its tax liability. Therefore, according to the Assessing Officer, this expenditure was also not allowable under Section 40A(2)(b) of the Income tax Act. He thus passed the order disallowing the aforesaid expenditure. The Assessee had challenged this order before the CIT(A) which set aside the order of the Assessing Officer and had deleted the aforesaid additions holding that the agreement entered into between the Assessee and the said tax operator availing fixed flying hours for its guest and premier clients and therefore, it was incurred for the purposes of business. The view of the Assessing Officer that the expenditure was not liable under Section 40A(2)(b) of the Income Tax Act was also not accepted by the CIT(A). The ITAT has upheld the order of the CIT(A) and thereby dismissed the appeal of the Revenue. Against this order of the ITAT, the present appeal is preferred.

(2.) The facts appearing on the record reveal that in respect of Assessment Year 2001-2002 also the similar payments were made by the Assessee under the same agreement to the taxi operator on identical grounds, the Assessing Officer had disallowed the expenditure. The Tribunal had set aside the order of the Assessing Officer observing as under:

(3.) An appeal was preferred by the Revenue against the aforesaid order of the ITAT which was also dismissed by this Court vide judgment dated 03.10.2008 which is reported as, (2009) 177 TAXMAN 417(Del) while holding that no substantial questions of law arise, this Court observed as under: