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Asstt. Commissioner of Income Tax,Circle-7(1), New Delhi vs. M/s Intercontinental Hotels Group India Pvt. Ltd.,11th floor, Building No. 10,Tower C, DLF Cyber City, DLF Phase-II, Gurgaon - 1220022
February, 08th 2013
                                                                 ITA NO. 3586/Del/2012


                   IN THE INCOME TAX APPELLATE TRIBUNAL
                         DELHI BENCH "C", NEW DELHI
                BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
                                         AND
                 SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
                            I.T.A. No. 3586/Del/2012

                                  A.Y. : 2007-08
Asstt. Commissioner of Income Tax,        vs. M/s Intercontinental Hotels Group
Circle-7(1),                                  India Pvt. Ltd.,
New Delhi                                     11th floor, Building No. 10,
                                              Tower `C', DLF Cyber City, DLF
                                              Phase-II, Gurgaon - 1220022
                                              (PAN/GIR NO. : AAGCS7613G)
(Appellant )                                  (Respondent )

             Assessee by                   :   Sh. S.K. Agarwal, CA
            Department by                  :   Sh. Satpal Singh, Sr. D.R.


                                        ORDER
PER SHAMIM YAHYA: AM
      This appeal by the Revenue is directed against the order of the
Ld. Commissioner of Income Tax (Appeals)-X, New Delhi dated
27.4.2010 pertaining to assessment year 2007-08.

2.    The      grounds raised read as under:-

      1)           The Ld. Commissioner of Income Tax (A) erred in law
                   and   facts    of    the    case   in   allowing   a   relief   of
                   `28,93,539/-        out of total addition of ` 46,11,658/-
                   made by Assessing Officer on account of professional
                   and consultancy fee.

      2)           The Ld. Commissioner of Income Tax (A) erred in law
                   and facts of the case in deleting the addition of `

                                          1
                                                           ITA NO. 3586/Del/2012





                  2013366/- made by the Assessing Officer on account
                  of advertisement and sales promotion.

     3)           The appellant craves leave to amend, modify, alter or
                  forego any ground of appeal at any time before or
                  during the hearing of this appeal.

Apropos ground no. (1)

3.   During the assessment proceedings assessee was asked to
submit the details of legal and professional fee paid and TDS deducted
thereon.     The details filed by the assessee contained            following
expenses claimed as revenue expenses.

     i)      Payment to Control Risk Group           ` 48,87,931/-

     ii)     Consultancy fee for office space        ` 8,76,642/-

     Assessee was required to submit why this expenditure should be
treated as revenue expenditure as the same provided enduring benefit
to the assessee.           Assessing Officer    was not satisfied with the
assessee's     response.      He held that 20% of total expenses i.e.
`1152915/- was allowable as revenue expense and balance amount i.e.
80% of total expense (` 46,11,658) was disallowed added to the
assessee's income.

4.   Upon assessee's appeal Ld. Commissioner of Income Tax (A)
observed that assessee's business model          providing various support
services to its parent company located         in USA.   The      concerned
Services     Agreement clearly provides that the assessee company
would be reimbursed the expenditure incurred with a markup of 8%.
That in the course of service provided to the parent company which is


                                      2
                                                             ITA NO. 3586/Del/2012


in the hotel business, the assessee has availed the services of Control
Risk Group, Singapore in order to carryout the due diligence and risk
analysis of the target hotels.    Therefore, Ld. Commissioner of Income
Tax (A) held that these expenses are incurred in the normal course of
business and accordingly, are revenue in nature.         Ld. Commissioner
of Income Tax (A) noted that the Assessing Officer has mentioned due
diligence exercise undertaken by M/s Control Risk Group, Singapore
would create a reliable data base for use in future, thereby providing
enduring benefit to the assessee.          However, Ld. Commissioner of
Income Tax (A) opined that this logic of the Assessing Officer ignores
the nature of business of the assessee.          He observed that assessee
was undertaking this exercise as part of its service agreement with its
parent company.        Secondly, every due         diligence undertaken in
respect of potential target hotels may not result in actual business.
Thus, Ld. Commissioner of Income Tax (A) held that the conclusion
drawn by the Assessing Officer to hold that this expenditure as capital
in nature cannot be sustained.     However, Ld. Commissioner of Income
Tax (A) held that assessee has failed to deduct the TDS in respect of
amount of ` 17,18,069/- paid to M/s Control Risk Group and the same
was liable to be disallowed.

4.1   As regards consultancy fee for office space. Ld. Commissioner of
Income Tax (A) observed that this is brokerage paid for arranging
office space. He held that there is no doubt that brokerage paid for
arranging   office   does   not   create   any    enduring    benefit.        Ld.
Commissioner of Income Tax (A) observed that it was not a case of the
Assessing Officer that the impugned premises was purchased during
the year.   It was only a case of rental of office      space for a limited



                                     3
                                                           ITA NO. 3586/Del/2012


period. Therefore, he held that expenditure would qualify as revenue
expenditure and the same should be allowed in the year of incurrence.

5.   Against the above order the Revenue is in appeal before us.

6.   We have heard the rival contentions in light of the material
produced and precedent relied upon.          We      find that in this case
assessee business model is        concerned of providing various support
services to its parent company located in USA.           The said     Service
Agreement      clearly     provides that assessee company would be
reimbursed the expenditure incurred with the markup of 8%.              In the
course of rendering services to its parent company which            is in the
hotel business, the assessee has availed the services of Control Risk
Group, Singapore in order to carryout the due           diligence and      risk
analysis with the target hotels.          Thus, we     agree with the Ld.
Commissioner of Income Tax (A) that these expenses are incurred in
the normal course of the business of the assessee and accordingly are
revenue in nature.       We find that Assessing Officer's decision that the
due diligence exercise undertaken by M/s Control Risk Group,
Singapore would create reliable data base for use in future, thereby
providing enduring benefit to the assessee is not sustainable.
Assessee has undertaken all these activities as part of its services
agreement with its parent company.          Thus, we agree with the Ld.
Commissioner of Income Tax (A) that the conclusion           drawn by the
Assessing Officer that these expenses are capital in nature cannot be
sustained.

7.   As regards the issue of treatment of brokerage paid for obtaining
office space    and treatment of the same as 80% being capital
expenditure, we find that Assessing Officer's case has no cogency. The




                                      4
                                                          ITA NO. 3586/Del/2012


brokerage has been paid for arranging the office space. It is not the
case that the premises is purchased during the year.         It was only a
case of rental of office space for a limited period.   Hence, it cannot be
said that the same created enduring benefit.      Accordingly, we do not
find any infirmity in the order of the Ld. Commissioner of Income Tax
(A) on this issue and accordingly we uphold the same.

Apropos ground no. 2

8.     On this issue Assessing Officer     observed that advertisement
expenses incurred by the assessee were prima-facie capital in nature.
Assessee submitted that this was a routine expenditure incurred on
the marketing, sale and distribution of its services.    It was submitted
that no capital asset or right or benefit of enduring nature was created
out of this expenditure.   However, Assessing Officer opined that the
same expenditure was capital in nature. He held that the aforesaid
expenditure amounting to ` 26,84,488/- was capital in nature.
However,     25%       amounting to ` 6,71,122/- was            allowed as
depreciation.

9.     Upon assessee's appeal     Ld. Commissioner of Income Tax (A)
noted that the expenditure was incurred on advertisement in print and
electronic media and for hosting/sponsoring certain conventions and
conferences and other minor expenses on calendar printing, posters
etc.   The total expenditure under this head was ` 26.84 lakhs, which
roughly works out to 1.9% of the total turnover (` 14.01 crores).          Ld.
Commissioner of Income Tax (A) gave a finding that from the nature of
the expenses incurred, he found that none of these expenses give rise
to benefit of enduring nature which would extend         beyond the year
under consideration.       He found that there is no element of brand

                                    5
                                                           ITA NO. 3586/Del/2012


building or acquisition of a brand by incurring such expense. He further
observed that Assessing Officer's other allegation is that the brand
name "Inter-continental" and "Crown Plaza" are owned by the
assessee and therefore, by incurring      expenditure on advertisement,
the brand value is being enhanced.       Ld. Commissioner of Income Tax
(A) observed that this not true because the brands are in fact owned
by the overseas group entity, which separately claims royalty for grant
of such licence of brands at different managed hotels.        Moreover, he
observed that even this expenditure of advertisement and sales
promotions has been reimbursed by the overseas group entity on cost
plus basis.   Furthermore, Ld. Commissioner of Income Tax (A) in this
regard, placed reliance upon the decision of the Hon'ble Delhi High
Court in the case of C.I.T. vs. Salora International 306 ITR 199, C.I.T. vs.
Citi Financial Consumer Fin. Ltd. 335 ITR 29 and C.I.T. vs. Casio India
Ltd. 335 ITR 196.    In light of the above, Ld. Commissioner of Income
Tax (A) held that Assessing Officer's action to treat the expenditure
incurred under advertisement and sales promotions as capital in
nature cannot be sustained.       Therefore, he directed the Assessing
Officer   to allow the expenditure amounting to ` 20,13,366/- as
revenue expenditure.

10.   Against the above order the Revenue is in appeal before us.

11.   We have heard the rival contentions in light of the material
produced and precedent relied upon.      We find that the expenditure on
advertisement was in print and electronic media and for hosting /
sponsoring certain conventions and conferences and similar other
expenditure on calendar printing, posters etc. We note that the total
expenditure works out approximately 1.9% of the total expenditure.


                                     6
                                                        ITA NO. 3586/Del/2012


we are in agreement with the Ld. Commissioner of Income Tax (A) that
there is no element of brand building or acquisition of brand by
incurring such expenses.     The concerned brands were not owned by
the assessee, but it belongs to the assessee's overseas group entity.
Assessee has been reimbursed the entire advertisement and sale
promotion expenses by the overseas group entity on cost plus basis.
Under the circumstances, we do not find any infirmity in the order of
the Ld. Commissioner of Income Tax (A) in holding that these expenses
are revenue in nature. We also find that the case law relied upon by
the Ld. Commissioner of Income Tax (A) are germane to the issue and
supports the case of the assessee.

12.   In the result, the appeal filed by the Revenue stands dismissed.

      Order pronounced in the open court on 08/2/2013.

      Sd/-                                              Sd/-

         YADAV]
 [RAJPAL YADAV]                                 [SHAMIM YAHYA]
JUDICIAL MEMBER                             ACCOUNTANT MEMBER

Date 08/2/2013
"SRBHATNAGAR"
Copy forwarded to: -
1.    Appellant 2.     Respondent           3.    CIT   4.     CIT (A)
5.    DR, ITAT
                            TRUE COPY
                                                  By Order,


                                                    Assistant Registrar,
                                                    ITAT, Delhi Benches




                                     7
    ITA NO. 3586/Del/2012




8
 
 
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