2017 (8) TMI 557 - AT - Income Tax

Taxation in the hands of power of attorney - sale consideration of the land belonging to Shri Sultan Meena but taxed in the hands of assessee who is admittedly Power of Attorney holder of Shri Sultan Meena land owner - Held that - Supreme Court in the case of Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra 2004 (8) TMI 688 - Supreme Court Of India has held that a power of attorney is not an instrument of transfer in regard to any right, title or interest in any immovable property. The power of attorney is a creation of an agency whereby the grantor authorizes the grantee to do acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done and by him. Even if it is assumed that the assessee has received money and not handed over the same to the land owner such receipt is a liability not an income so far the assessee is concerned. Since, the Revenue has not brought any material on record suggesting that this power of attorney was executed in lieu of a consideration. In the absence of such material, purely, on the basis of presumption and suspicion tax liability cannot be fastened on such receipt on the assessee. - Decided in favour of assessee. Receipts earned from brokerage income - income from other sources or business & profession - Held that - In both the years the income of the assessee in respect of brokerage is accepted by the Department, we find that AO has not made any inquiry from the persons from whom the assessee had received brokerage/commission. Under these facts, the AO was not justified in rejecting the claim of the assessee of earning brokerage/commission. Therefore, we direct the AO to treat the same as business receipt of the assessee and allow the expenditure made thereon. Hence, we deleted the addition made by the AO by treating the brokerage receipts as income from other sources and disallowing the expenditure incurred thereon. Hence, the net profit declared at ₹ 5,77,816.65 be treated as net profit from business of brokerage. Thus, this ground of assessee s appeal is also allowed.

Summary

Issues Involved:
1. Treatment of ?7,50,000/- as "income from other sources" instead of "business & profession".
2. Disallowance of ?1,76,583/- claimed as business expenses.
3. Treatment of land sale transaction and related income of ?2,69,37,000/-.

Issue-wise Detailed Analysis:

1. Treatment of ?7,50,000/- as "income from other sources" instead of "business & profession":
The assessee argued that the income of ?7,50,000/- should be treated as brokerage income under "business & profession" rather than "income from other sources". The assessee maintained proper books of accounts, provided details of individuals from whom brokerage was earned, and had been declaring such income in previous years, which was accepted by the department. The Tribunal found that the assessee had been consistently showing brokerage income in earlier years, and the department had accepted this. The AO did not make any inquiries from the persons listed by the assessee. Therefore, the Tribunal directed the AO to treat the ?7,50,000/- as business income and allow the related expenses. The net profit declared at ?5,77,816.65 was to be treated as net profit from business of brokerage.

2. Disallowance of ?1,76,583/- claimed as business expenses:
The assessee claimed expenses of ?1,76,583/- incurred on business receipts. The AO disallowed these expenses on the ground that the specific particulars of land transactions were not provided and the payments received in cash were not verifiable. The Tribunal found that the assessee had provided sufficient details regarding the transactions and the parties involved. Since the AO did not conduct any inquiries to verify the claims, the Tribunal directed the AO to allow the expenses claimed by the assessee.

3. Treatment of land sale transaction and related income of ?2,69,37,000/-:
The main issue was whether the sale consideration of ?2,69,37,000/- from the land belonging to Shri Sultan Meena could be taxed in the hands of the assessee, who was the Power of Attorney holder. The assessee provided evidence, including the power of attorney and revenue records, showing that the land was owned by Shri Sultan Meena and the assessee acted as an agent. The AO doubted the transaction due to the non-production of Shri Sultan Meena and the lack of receipt by the owner. The Tribunal noted that there was no material evidence suggesting that the assessee received the sale consideration as the owner. The Tribunal referred to the judgment of the Hon'ble Madras High Court in the case of C. Sugumaran, which held that a power of attorney does not transfer ownership. The Tribunal concluded that the receipt of money by the assessee, if not handed over to the landowner, would be a liability and not income. Therefore, the Tribunal directed the AO to delete the addition of ?2,69,37,000/- and take action against the real owner as per law.

Conclusion:
The Tribunal allowed the appeal of the assessee, treating the ?7,50,000/- as business income, allowing the expenses of ?1,76,583/-, and deleting the addition of ?2,69,37,000/- while directing the AO to take action against the real owner of the land. The order was pronounced in the open court on July 10, 2017.