1993 (3) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Whether the lease rent from Shivsagar Estates (plots A to F) accrued to individual co-owners or an association of persons.
2. Whether the income derived from leasing out plot H and advancing loans to Metropolitan Hotels Ltd. is assessable as an association of persons.
3. Whether the Tribunal was correct in holding that income must be forgone before its accrual to avoid taxation.

Summary:

Issue 1: Lease Rent from Shivsagar Estates (Plots A to F)
The court addressed whether the lease rent from Shivsagar Estates (plots A to F) accrued to individual co-owners or an association of persons. The Tribunal had previously determined that the sixty-five co-owners had specific and definite shares, lacking the necessary ingredients for forming an association of persons. This decision was upheld by the High Court in a prior case (CIT v. Shivsagar Estates (AOP) [1993] 201 ITR 953). Following this precedent, the court affirmed that the lease rent accrued to individual co-owners, not an association of persons, answering in favor of the assessee and against the Revenue.

Issue 2: Income from Leasing Plot H and Loan Advances to Metropolitan Hotels Ltd.
The court examined whether income from leasing plot H and advancing loans to Metropolitan Hotels Ltd. should be assessed as an association of persons. The Tribunal upheld the status of an association of persons for plot H, considering the joint loan taken by the co-owners and the integrated operation to exploit the plot commercially. However, the court distinguished between the lease rent and interest income, ruling that the lease rent should be assessed individually, while the interest on loans should be assessed as an association of persons.

Issue 3: Doctrine of Real Income and Waiver of Income
The court evaluated whether the income must be forgone before its accrual to avoid taxation. The assessee argued that the doctrine of real income should apply, citing commercial expediency and bilateral agreements waiving the lease rent and interest due to Metropolitan Hotels Ltd.'s financial difficulties. The court agreed, referencing the Supreme Court's decision in Shoorji Vallabhdas and Co. [1962] 46 ITR 144, which supports the doctrine of real income. The court concluded that the waiver was a prudent business decision, and thus, no income from plot H should be included in the assessee's total income.

Conclusion:
1. The lease rent from Shivsagar Estates (plots A to F) accrued to individual co-owners, not an association of persons.
2. The income from leasing plot H should be assessed individually, while the interest on loans to Metropolitan Hotels Ltd. should be assessed as an association of persons.
3. The doctrine of real income applies, and the income waived due to commercial expediency should not be included in the assessee's total income.