2011 (7) TMI 107 - HC - Income Tax

Tax liability - Sham and bogus transaction - Since, one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Minicon is a sham transaction - In these circumstances , the decision of the Tribunal in holding that the amounts received by Minicon on account of letting out the premises were liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon was a sham and bogus transaction cannot be accepted - Decided in favour of assessee.

Summary

Issues:
1. Validity of the reopening of assessment
2. Characterization of income from letting out premises under different heads of income

Analysis:

Issue (A): Validity of the reopening of assessment
The appellant raised a question regarding the validity of the reopening of assessment. The Income Tax Appellate Tribunal (ITAT) held that the reopening of assessment was valid. However, the High Court disagreed with this finding and ruled in favor of the appellant. The Court emphasized that if the amounts received by an intermediary have already been taxed in the hands of the intermediary, taxing the same amount again in the hands of the assessee would amount to double taxation, which is impermissible in law. The Court cited a previous case to support this reasoning, where it was held that in the absence of evidence showing that the transaction was not genuine, the amounts received by an intermediary cannot be assessed in the hands of the assessee. Therefore, the Court concluded that the ITAT was not justified in holding that the reopening of assessment was valid.

Issue (B): Characterization of income from letting out premises
The second issue raised by the appellant related to the characterization of income received from letting out premises under different heads of income. The ITAT had held that the leave and licence agreement between the appellant and another party was a sham transaction, and the amounts received by the other party from letting out the premises to third parties should be assessed in the hands of the appellant. However, the High Court disagreed with this finding as well. The Court noted that apart from one director being common between the appellant and the other party, there was no evidence to suggest that the transaction was not genuine. Therefore, the Court held that the amounts received by the other party on letting out the premises should not be assessed in the hands of the appellant. Consequently, the Court ruled in favor of the appellant on this issue.

Issue (C): Characterization of income under specific heads
Regarding the characterization of income received from letting out premises under specific heads of income, the appellant did not press this question in view of the Court's decision on Issue (B). Therefore, the Court did not provide a detailed analysis of this issue.

In conclusion, the High Court held that the reopening of assessment was not valid and that the amounts received by the other party from letting out the premises should not be taxed in the hands of the appellant. The Court disposed of the appeal accordingly, with no order as to costs.