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2016 (1) TMI 407 - AT - Income TaxAddition on account of deemed lease rent - diversion of income by overriding title - Held that - Assuming for moment that the assessee was the owner of the impugned flat therefore liable to be taxed at the annual let out value, as mentioned elsewhere, there was a specific charge on the property prior to the purchase of the said property by the assessee and by way of this charge Shri Samir Bojwani received the lease rent from the licencee M/s. Accor Radha Krishna Corporate Service Private Limited. Thus, if there is a iota of doubt that the impugned ALV should be taxed in the hands of the assessee, it is a clear case of diversion of income by overriding title. In our understanding of the facts, there is no need for going into the assumptions as in the purchase Deed itself, it is clearly mentioned that the assessee will get the physical possession of the said premise only after 31.10.2007. Therefore, there is no question of any accrual of rent during the year under consideration. The facts of the case are squarely covered by the decision of the Privy Council in the case of Raja Bejoy Singh Budhuria Vs CIT Bengal (1933 (3) TMI 20 - THE PRIVY COUNCIL) and also by the decision of CIT Vs Sitaldas Tirathdas 1960 (11) TMI 17 - SUPREME Court . In both these cases, there was a charge for maintenance created against the assessee. In the case before us too, as evident from the above discussion, the lease rent was to go to Shri Sameer Bojwani by virtue of the specific clauses of Leave and Licence Agreement dated 27.11.2004. Since it stood pre-created against the assessee and in keeping with the enunciation by the Privy Council in Raja Bejoy Singh Budhuria (supra), the income must not be deemed to have reached the assessee, since it was actually earned by Shri Samir Bojwani. Therefore, the case of the present assessee falls squarely within the ratio of Raja Bejoy Singh Budhuria (supra) as considered in Sitaldas Tirathdas (supra). - Decided in favour of assessee. Addition on deemed interest earned by the assessee - Held that - As mentioned elsewhere, the security deposit was taken by Shri Samir Bojwani pursuant to the Leave and Licence Agreement entred by him with M/s. Accor Radha Krishna Corporate Service Private Limited and since as mentioned elsewhere, the assessee could not have earned the rent during the impugned assessment year. We do not find any logic in taxing deemed interest in the hands of the assessee. The AO is directed to delete the same. The findings of the Ld. CIT(A) are accordingly reversed.- Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 44 lakhs on account of deemed lease rent. 2. Addition of Rs. 1.32 lakhs being deemed interest earned by the assessee. Detailed Analysis: 1. Addition of Rs. 44 lakhs on Account of Deemed Lease Rent The primary issue pertains to the addition of Rs. 44 lakhs as deemed lease rent under the head "Income from House Property." The assessee purchased flats in a building called Samshiba for Rs. 3.75 crores. The Assessing Officer (AO) found that the assessee had not shown any income under "Income from House Property" and issued a show cause notice. The assessee responded, explaining that the flats were purchased subject to a pre-existing Leave & License Agreement between the vendor and a licensee, which entitled the vendor to retain the license fees for a period of 22 months, ending on 30th November 2006. The assessee argued that since the income was never received by her and was paid directly to the vendor, it could not be taxed in her hands. The AO, however, added Rs. 44 lakhs to the assessee's income, considering it as deemed rent. The CIT(A) upheld this addition, but the Tribunal found that the income was diverted by overriding title to the vendor before it could reach the assessee. Citing the principles laid down in Raja Bejoy Singh Budhuria Vs CIT Bengal and CIT Vs Sitaldas Tirathdas, the Tribunal concluded that the income never reached the assessee and directed the AO to delete the addition of Rs. 44 lakhs. 2. Addition of Rs. 1.32 lakhs Being Deemed Interest Earned by the Assessee The second issue concerns the addition of Rs. 1.32 lakhs as deemed interest on a security deposit of Rs. 12,00,000/-. The CIT(A) observed that since the assessee is now the owner of the property, interest on the security deposit should be taxed in her hands. However, the Tribunal found this addition to be illogical, given that the assessee could not have earned the rent during the impugned assessment year due to the pre-existing Leave & License Agreement. The Tribunal directed the AO to delete the addition of Rs. 1.32 lakhs, reversing the findings of the CIT(A). Conclusion In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the AO to delete both the additions of Rs. 44 lakhs and Rs. 1.32 lakhs. The Tribunal's decision was based on the principle of diversion of income by overriding title, as well as the specific clauses of the agreements involved, which clearly indicated that the income never reached the assessee. The order was pronounced in the open court on 21st October, 2015.
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