2013 (11) TMI 303 - AT - Income Tax

Taxability of the income in the hands of AOP (joint lessees) or in the hands of company formed with the sole purpose of management of the said piece of plots on behalf of the Joint Lessees (present assessee) - income from (a) Income from house property; (b) Income from capital gains; (c) Income from other sources; Held that - For all the services provided by the assessee to the Joint Lessees, the assessee was receiving management charges which have rightly been declared in its return of income. We find force in the contention of the Counsel that the assessee cannot be held responsible for the failure of returning income by the Joint Lessees. Liability of filing the return clearly laid upon the Joint Lessees - Joint Lessees have filed the return as Joint Lessees of Industrial Estates in the status of AOP for Assessment Year 2008-09 and 2009-2010. If the Joint Lessees did not file return for Assessment Year 2005-06, 2006-07 & 2007-08, it was for the Revenue Authorities to explore other possible ways as per the provisions of law to assess the income in the hands of the Joint Lessees. Be that as it may, these incomes cannot be taxed in the hands of the assessee by any stretch of imagination Decided against the Revenue.

Summary

Issues:
Three separate appeals by Revenue against CIT(A) orders for Assessment Years 2005-06, 2006-07, and 2007-08 involving income from house property, capital gains, and other sources.

Analysis:

Issue 1: Income from House Property
The assessee, a Private Limited Company, managed industrial state properties under a Lease Agreement with Joint Lessees forming an Association of Persons (A.O.P.). The CIT(A) held that the rental income belonged to the Joint Lessees, not the assessee, as it was managing the properties on their behalf. The CIT(A) deleted the addition under the head income from house property, ruling in favor of the assessee.

Issue 2: Capital Gains
The CIT(A) also ruled in favor of the assessee regarding the additions made under the head of capital gains. The CIT(A) found that the investments and other income were not to be taxed in the hands of the assessee, as it was not the legal or beneficial owner of the property. The CIT(A) observed that the Joint Lessees had separate returns of income and deleted the additions made under capital gains.

Issue 3: Other Sources of Income
The Assessing Officer (AO) added the entire rental income, capital gains, and investments under the head income from other sources, as the assessee did not declare these incomes in its return. However, the CIT(A) held that the Joint Lessees had the responsibility to file returns, not the assessee. The AO's observations in the subsequent assessment years showed that the Joint Lessees had filed returns as an A.O.P., leading to the conclusion that the income could not be taxed in the hands of the assessee. The ITAT confirmed the CIT(A)'s decision, dismissing all three appeals filed by the Revenue.

In conclusion, the ITAT upheld the CIT(A)'s decision, emphasizing that the assessee could not be held responsible for the Joint Lessees' failure to file returns. The ITAT confirmed that the income from house property, capital gains, and other sources could not be taxed in the hands of the assessee, as it was managing the properties on behalf of the Joint Lessees.