2010 (7) TMI 438 - AT - Income Tax

Rental income - determination of annual letting value of the property - held by the Tribunal that the agreement between the assessee and M/s Minicon having been treated as sham and the rental income received by M/s Minicon in respect of the property having been treated as rent received by the assessee - rental income already declared by M/s Minicon in its return of income was duly assessed in the hands of the said company and even the credit for taxes paid on the said income as claimed by the said company was also allowed - claim of the assessee for such credit thus beyond the scope of rectification permissible u/s 154 Appeal dismissed

Summary

Issues Involved:
1. Assessee's claim for credit on account of taxes paid by M/s Minicon Insulated Wire (P.) Ltd. (Minicon) on the rental income.
2. Applicability of the Supreme Court decision in the case of Bachu Lal Kapoor.
3. Determination of whether the issue is rectifiable under section 154 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assessee's Claim for Credit on Account of Taxes Paid by M/s Minicon
The assessee, a company, let out its premises to M/s Minicon under an agreement dated 29.5.1995. The annual rent was Rs. 6.40 lacs, with a one-time security deposit of Rs. 29.50 lacs. M/s Minicon sublet the premises and earned substantial income, which was significantly higher than the rent paid to the assessee. The Assessing Officer (A.O.) deemed the agreement between the assessee and M/s Minicon as sham, alleging it was intended to divert taxable income. Consequently, the A.O. added the entire rent received by M/s Minicon to the assessee's income, a decision upheld by the CIT(A) and the Tribunal. The assessee later applied under section 154 to claim credit for taxes paid by M/s Minicon on this rental income, but the A.O. rejected the applications, stating that M/s Minicon, an independent corporate body, had already claimed credit for these taxes.

2. Applicability of the Supreme Court Decision in Bachu Lal Kapoor
The assessee relied on the Supreme Court decision in Bachu Lal Kapoor, arguing that the Department must make appropriate adjustments when income is assessed in the hands of the "wrong person." However, the CIT(A) rejected this reliance, noting that the facts in Bachu Lal Kapoor were different, involving the taxability of income between an individual and a Hindu Undivided Family (HUF) under the 1922 Act, which had specific provisions (section 14(1)) against double taxation. The CIT(A) emphasized that no similar provisions exist in the 1961 Act to prevent the income of one company from being taxed in another's hands.

3. Rectification under Section 154
The CIT(A) concluded that there was no apparent mistake on record that could be rectified under section 154. The Tribunal agreed, noting that the issue was highly debatable and beyond the scope of section 154. The Tribunal also highlighted that the rental income was assessed in both the assessee's and M/s Minicon's hands, and credit for taxes paid was already given to M/s Minicon. Given these circumstances, the Tribunal upheld the CIT(A)'s decision, dismissing the appeals filed by the assessee.

Conclusion:
The Tribunal dismissed the appeals, agreeing with the CIT(A) that the assessee's claim for tax credit was not supported by the Supreme Court decision in Bachu Lal Kapoor and was beyond the rectification scope of section 154. The Tribunal emphasized that the income in question was already assessed and taxed in M/s Minicon's hands, and allowing credit to the assessee would result in double credit for the same taxes.