2016 (9) TMI 1472 - AT - Income Tax

Assessment of holding and subsidiary company - addition of income - Held that - In the case of the assessee, we note that the income of ₹ 6 crore has already been taxed in the hands of the holding company during last year. Therefore, the same could not be taxed again in the hands of the subsidiary company during this year. Addition being the compensation received on account of store deposit under the Transfer Agreement as business income - Held that - The amount of ₹ 42,75,600/- was paid by the holding company directly to the landlord, i.e., M/s Regency Park Property Management Services Pvt. Ltd on behalf of the assessee. Since the payment was made directly by the holding company and not through the assessee, the entry did not find place in the accounts of the assessee. In the books of the account of the holding company, it is reflected as security deposit. Subsequently, it was transferred from the security deposit to the assessee s account in the next year. Therefore, the amount being advance given by the holding company directly to the landlord on behalf of the assessee, was transferred to the assessee s account subsequently. We also note that no profit element is involved in this transaction which is in fact an advance given to the assessee through the security deposit route and deserve to be deleted. Accordingly, we delete the addition - Decided in favour of assessee

Summary

Issues:
1. Addition of ?6 crores payable by Nelia Retail Pvt. Ltd. to Sports Station Pvt. Ltd. as income.
2. Compensation received on account of "store deposit" under the Transfer Agreement as business income.

Analysis:

Issue 1:
The Assessee challenged the addition of ?6 crores payable by Nelia Retail Pvt. Ltd. to Sports Station Pvt. Ltd. as income. The Assessee contended that the amount had already been taxed in the hands of the holding company, rendering the addition illegal. The Tribunal admitted the additional ground raised by the Assessee, citing relevant case law. The Tribunal observed that the income had been taxed in the hands of the holding company in the previous assessment year, and hence, taxing it again in the hands of the subsidiary was unjustified. Relying on various legal precedents, the Tribunal held that the addition made by the Assessing Officer was illegal and decided in favor of the Assessee, deleting the addition of ?6 crores.

Issue 2:
Regarding the compensation of ?42,75,600 received on account of "store deposit" under the Transfer Agreement as business income, the Tribunal found that the amount was an advance given by the holding company directly to the landlord on behalf of the Assessee. As the payment was not reflected in the Assessee's accounts initially, the Tribunal noted that no profit element was involved in the transaction. The Tribunal concluded that the amount was transferred to the Assessee's account subsequently and deserved to be deleted as income. Therefore, the Tribunal allowed the ground related to this issue in favor of the Assessee.

In conclusion, the Tribunal allowed the Assessee's appeal, deleting both the addition of ?6 crores and the compensation of ?42,75,600 as income. The judgment was pronounced on 29-09-2016 by the Appellate Tribunal ITAT New Delhi.