2017 (8) TMI 667 - SC - Income Tax

Bogus lease - Determine the annual letting value of the property to the sub-lessee on the basis of the municipal valuation - double taxation - HC allowed the Revenue s appeal and held that the nature of leases executed by the assessee being bogus and structures being raised by the assessee himself and it would be proper to include the net rental value to the income of the assessee - Held that - Going by the nature of transaction a clear finding of fact is arrived at by the authorities below that a devise was made by the appellant herein to show lesser income at his hand and because of this reason only he purportedly entered into a lease agreement with his wife son and daughter-in-law in respect of the aforesaid property of which he is paying by letting them at a very nominal rates and allowing his family members to sub-let the same at a much higher rents. In these circumstances these findings of fact cannot be interfered with in the present appeals. It has been held by this Court in Income Tax Officer v Ch. Atchaiah 1995 (12) TMI 1 - SUPREME Court that the Assessing Authority has a right to tax the right person . Once it is found that the income in fact belongs to the appellant he was the right person for taxing the said income it was permissible for the Income Tax Authorities to tax the said income at the hands of the assessee. At the same time we also find that the Income Tax Authorities have read the same income at the hands of the wife son and daughter-in-law of the assessee as well who as per the department itself wrong person . There would be double taxation on the same income at the hands of two persons. In these circumstances it will always be open to the wife son and daughter-in-law of the assessee to seek redressal of the taxation of income at their hands in appropriate proceedings.

Summary

Issues:
Income tax assessment for Assessment Year 1998-99 based on property lease to family members who sub-leased it at higher rentals, validity of assessment under Section 143(3) of Income Tax Act, 1961, appeal before Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal (ITAT), High Court's decision on including net rental value in appellant's income, double taxation concern.

Analysis:
The appellant filed an income tax return for Assessment Year 1998-99, declaring a total income of ?67,200. The Deputy Commissioner of Income Tax assessed the appellant's property under Section 143(3) of the Income Tax Act, treating rent received by the lessees as the appellant's income at ?7,98,000, resulting in an assessed income of ?6,38,400 after repairs deduction. The Commissioner of Income Tax (Appeals) and ITAT upheld and partially allowed the appeal respectively. The High Court allowed the Revenue's appeal, stating that the ITAT found the leases to be bogus and structures raised by the appellant himself, justifying inclusion of net rental value in the appellant's income.

The Supreme Court noted that a clear finding of fact was established that the appellant devised a method to show lesser income by leasing the property to family members who sub-leased it at higher rents, leading to the inclusion of the net rental value in the appellant's income. Referring to precedent, the Court affirmed the Assessing Authority's right to tax the "right person" when income belongs to the appellant. However, the Court also observed that the same income was taxed at the hands of the appellant's family members, constituting double taxation. The Court highlighted that the family members could seek redressal for the taxation of income in appropriate proceedings to avoid double taxation.

In conclusion, the Supreme Court disposed of the appeals, acknowledging the factual findings regarding the appellant's income and the potential issue of double taxation on the same income. The Court affirmed the inclusion of the net rental value in the appellant's income while recognizing the possibility for the family members to address the taxation of income at their end to avoid double taxation.