2015 (12) TMI 388 - AT - Income Tax

Accrual of income - receipts of amount by sister concerns of the assessee as maintenance charges - whether lease agreement entered into between the assessee company and its tenant was a colourable devise to divert receipts/income to the other company to avoid tax liability in its hands - CIT(A) deleted the addition - Held that - It is not in dispute that both the assessee company and its subsidiary company, providing maintenance services to the tenant of the assessee s property, are two separate entities and income-tax assessees. The learned first appellate authority after considering the balance sheets of both the companies has arrived at a finding that the assessee company purchased the land and constructed the bare building at plot No. 7 Sector 127, Taj Express way, Noida and charged rent for the land and bare construction of building under an agreement entered into between the assessee company and the tenants. It is also born out on record that maintenance charges, whatsoever, were paid by the tenant to another company namely, M/s. IHDP Home Interiors Exports Parks Pvt. Ltd. under a separate agreement. It is also not in dispute that the lifts, generator, fire equipments etc. installed in the premises were not owned by assessee company, but by the other company who rendered maintenance services and received the maintenance charges CIT(A) appears to have committed no error while holding that there is no reason to include the income of maintenance charges earned by M/s. IHDP Home Interiors Exports Parks Pvt. Ltd who is a separate assessee, in the hands of the assessee-company. - Decided against revenue

Summary

Issues:
1. Whether the deletion of addition of a specific amount by the Ld. CIT(A) was justified?
2. Whether the subsidiary company's receipt of maintenance charges was rightfully included in the income of the assessee?

Analysis:

Issue 1:
The Revenue appealed against the deletion of an addition of Rs. 2,72,74,672/- by the Ld. CIT(A). The Revenue contended that the lease agreement between the assessee and its tenant was a scheme to divert income to another company to evade tax, citing legal precedents. The AO added the amount to the assessee's income, alleging collusive practices. However, the Ld. CIT(A) found the companies involved to be separate entities, with the subsidiary providing maintenance services under a separate agreement. The Ld. CIT(A) considered balance sheets, audited accounts, and tax returns of both companies, concluding no income diversion. The Tribunal upheld the Ld. CIT(A)'s decision, noting the absence of collusion and the separate nature of the entities involved.

Issue 2:
The second issue revolved around whether the subsidiary company's maintenance charges should be included in the assessee's income. The Tribunal found that the assessee and its subsidiary were distinct entities. The subsidiary provided maintenance services under a separate agreement, owning the necessary equipment. The Tribunal noted that the assessments of both companies in subsequent years were accepted by the AO. The Tribunal observed that the agreements were not collusive, as alleged by the Revenue. Considering these facts, the Tribunal upheld the Ld. CIT(A)'s decision to delete the addition of Rs. 2,72,74,672/-, as the subsidiary's income should not be attributed to the assessee. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s order.

In conclusion, the Tribunal found no grounds to interfere with the Ld. CIT(A)'s decision, as the subsidiary's income was rightfully excluded from the assessee's total income, and no collusion was established.