2016 (8) TMI 98 - HC - Income Tax

Addition being the difference between the annual lease rent receivable and received - assessee paid the full amount of lease rent of ₹ 1,18,42,200/- and the three companies, the lessor, the assessee and the sub-lessee were sister concerns - Held that - There is no denial of the fact that the bona fide of the transaction was never in dispute. There is evidence to show that the assessee resolved to remit the sum of ₹ 1.5 crore. There is also evidence to show that the assessee received only a sum of ₹ 75 lakhs. In that view of the matter, the addition of the sum of ₹ 1.5 crore, made by the Assessing Officer and upheld by the CIT(A) was rightly deleted by the learned Tribunal. In that view of the matter, the question formulated is answered in the affirmative and against the revenue.

Summary

Issues:
Challenge to judgment by Income Tax Appellate Tribunal regarding addition of lease rent difference in assessment year 2002-03.

Analysis:
The High Court of Calcutta deliberated on the appeal challenging the judgment of the Income Tax Appellate Tribunal regarding the addition of lease rent difference in the assessment year 2002-03. The core issue revolved around the deletion of an addition of ?1.5 crores, being the difference between the annual lease rent receivable and received, while the assessee paid the full amount of lease rent. The Assessing Officer added ?1.5 crores to the total income of the assessee, contending that the lease rent accrued to the assessee-company as per the agreement. The CIT(A) supported this view, emphasizing that the agreement between the lessor and lessee could not be modified by a resolution. However, the Tribunal, in a subsequent appeal, deleted the addition based on the resolution passed by the Board of Directors, altering the conditions of the agreement in the financial interest of the company.

The Court examined the arguments put forth by both parties. The revenue-appellant contended that the reduction in rent was not genuine as the assessee did not seek a proportionate reduction from the head lessor. Conversely, the respondent argued that the genuineness of the transaction was never in question, citing a Supreme Court judgment emphasizing bona fide transactions. Additionally, reference was made to Section 63 of the Contract Act, highlighting the promisee's right to dispense with or remit performance of a promise.

Ultimately, the Court upheld the Tribunal's decision to delete the addition of ?1.5 crores. It noted the absence of dispute regarding the bona fide nature of the transaction and the evidence supporting the resolution to remit the sum. As the assessee received only ?75 lakhs instead of the full amount, the addition made by the Assessing Officer and upheld by the CIT(A) was deemed unjustified. Consequently, the appeal was dismissed, with each party bearing their own costs.