1985 (1) TMI 87 - AT - Income Tax

Issues Involved:

1. Assessment of property income for Gajria Electrical Industries Co. (P.) Ltd.
2. Validity of transactions between Gajria Electrical Industries Co. (P.) Ltd. and Neelam Traders.
3. Determination of income received by Gajria Electrical Industries Co. (P.) Ltd. from Neelam Traders.
4. Application of Section 23 of the Income-tax Act, 1961.
5. Consideration of Neelam Traders as a benami entity.
6. Reliance on precedent cases and tribunal orders.

Issue-wise Detailed Analysis:

1. Assessment of Property Income for Gajria Electrical Industries Co. (P.) Ltd.:

The primary issue was whether the income from the property 'Mistry Bhavan' should be based on the rent received directly by the assessee from Neelam Traders (Rs. 27,832) or on the higher amount received by Neelam Traders from sub-letting to International Computers Ltd. (ICL) (Rs. 1,07,385). The Income Tax Officer (ITO) computed the property income based on the higher amount, while the Commissioner (Appeals) directed the ITO to base it on the actual rent received by the assessee from Neelam Traders.

2. Validity of Transactions Between Gajria Electrical Industries Co. (P.) Ltd. and Neelam Traders:

The Tribunal examined the transactions and agreements between the assessee and Neelam Traders. The Commissioner (Appeals) had accepted the transactions as genuine, citing no evidence of financing by the appellant and the absence of benamidari. However, the Tribunal found discrepancies and lack of evidence supporting the genuineness of these transactions, highlighting that Neelam Traders was interposed between the assessee and ICL without a substantial reason.

3. Determination of Income Received by Gajria Electrical Industries Co. (P.) Ltd. from Neelam Traders:

The Tribunal concluded that the entire amount of Rs. 1,07,385 received by Neelam Traders from ICL should be considered as the property income of the assessee. It was emphasized that the real tenant was ICL, and the rent paid by ICL should be deemed receivable by the assessee, despite any interposition of Neelam Traders.

4. Application of Section 23 of the Income-tax Act, 1961:

The Tribunal applied Section 23(1)(b) of the Act, which pertains to the annual rent received or receivable by the owner. It was determined that the expression 'receivable' includes the actual rent paid by the tenant, ICL, to Neelam Traders, which should be considered as income of the assessee.

5. Consideration of Neelam Traders as a Benami Entity:

The Tribunal noted that the ITO did not explicitly state that Neelam Traders was a benami entity of the assessee. However, it was inferred that Neelam Traders was used to divert income and avoid taxation. The Tribunal dismissed the Commissioner (Appeals)'s focus on benami requirements, emphasizing that the interposition of Neelam Traders was a tax evasion tactic.

6. Reliance on Precedent Cases and Tribunal Orders:

The Tribunal addressed the reliance on precedent cases and tribunal orders, particularly those involving Chandra Trading Co. and Latesh Kumar & Co. It was clarified that these cases did not negate the Tribunal's conclusions and did not support the assessee's claim. The Tribunal upheld the ITO's assessment method and reversed the Commissioner (Appeals)'s order, restoring the ITO's computation of property income.

Conclusion:

The Tribunal concluded that the property income of Gajria Electrical Industries Co. (P.) Ltd. should be based on the higher amount received by Neelam Traders from ICL, amounting to Rs. 1,07,385. The interposition of Neelam Traders was deemed a strategy for income diversion and tax evasion, and the Tribunal emphasized the correct application of Section 23(1)(b) of the Income-tax Act, 1961. The Commissioner (Appeals)'s order was reversed, and the ITO's assessment was restored.

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