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2017 (12) TMI 789 - AT - Income TaxAddition on account of lease rental income - whether the assessee is the legal owner of the property in line with section 60? - addition on protective basis - nature of income - business income or house property - arrangement of transferring of shops and retail space by AHRPL to ADIPL - Held that - When we peruse the recitals of the Agreement (supra) reproduced above particularly clause 4, it goes to unequivocally prove that the second party to the Agreement (supra), namely, ADIPL is entitled to receive the rent or the charges from the tenants/occupants during the currency of this agreement. When ADIPL has got rights and interest in the property in question by virtue of the Agreement (supra) w.e.f. 31.03.2008 then it is estopped by its own act and conduct from showing the income from the rental of the shops and rental space in its hands for the earlier period prior to 31.03.2008. In the given circumstances, the ld. CIT (A) has rightly upheld the addition in the hands of AHRPL under the head income from house property When substantive addition qua the same amount of ₹ 6,27,84,240/- has already been made in case of AHRPL, there is no question confirming the protective addition of ₹ 6,27,84,240/- in case of ADIPL by the ld. CIT (A) because one income cannot be taxed twice.- Decided against revenue
Issues Involved:
1. Taxability of lease rental income. 2. Application of Section 60 of the Income Tax Act, 1961. 3. Beneficial ownership and the right to manage and carry on business. 4. Disallowance under Section 14A of the Income Tax Act, 1961. Detailed Analysis: 1. Taxability of Lease Rental Income: The primary issue revolves around the taxability of lease rental income from retail spaces. The Assessing Officer (AO) added lease rental income to the income of M/s Ambience Hotels & Resorts Pvt. Ltd. (AHRPL) under "income from house property," asserting that AHRPL is the legal owner of the property. The CIT(A) deleted this addition, holding that such income should be taxed in the hands of Ambience Developers and Infrastructure Pvt. Ltd. (ADIPL) based on an agreement dated 31.03.2008. The Tribunal upheld the CIT(A)’s decision, stating that the substantive addition of lease rent is to be made in the hands of AHRPL, as per the coordinate bench's decision dated 07.07.2017. Consequently, the Tribunal allowed the Revenue's appeals for AY 2009-10 to 2012-13 regarding the taxability of lease rent in AHRPL's hands and dismissed the Revenue's appeals and cross-objections of the assessee for the same years in ADIPL's case. 2. Application of Section 60 of the Income Tax Act, 1961: The Revenue argued that the CIT(A) erred in deleting the addition under Section 60, which deals with the transfer of income where there is no transfer of the asset. The Tribunal found that the agreement between AHRPL and ADIPL, which granted ADIPL the right to lease and manage the retail spaces, did not involve a transfer of ownership but was a right to manage and carry on business. Therefore, the Tribunal agreed with the CIT(A) that the income should be taxed in AHRPL's hands. 3. Beneficial Ownership and Right to Manage and Carry on Business: ADIPL contended that it should be taxed on the lease rental income based on beneficial ownership principles, citing the Supreme Court's decision in CIT vs. Poddar Cement Pvt. Ltd. The Tribunal rejected this argument, stating that the agreement was a business arrangement and not a transfer of ownership. The Tribunal emphasized that AHRPL, as the legal owner, claimed TDS without offering the corresponding income for taxation, indicating an attempt to evade tax. 4. Disallowance under Section 14A of the Income Tax Act, 1961: For AY 2010-11, the AO made a disallowance under Section 14A, which was restricted by the CIT(A) to 0.5% of the investments that yielded dividend income, citing the Delhi High Court's decision in ACG India Ltd Vs. ACIT. The Tribunal upheld the CIT(A)'s decision, finding no error. For AY 2012-13, the CIT(A) deleted the disallowance under Section 14A as no exempt income was received during the year. The Tribunal confirmed this deletion, referring to the Delhi High Court's decision in Cheminvest Ltd Vs. CIT, which states that no disallowance under Section 14A can be made if no exempt income is earned. Conclusion: The Tribunal's judgment primarily focused on the correct entity to be taxed for the lease rental income and the application of Section 60. It upheld the substantive addition of lease rental income in AHRPL's hands and dismissed the protective addition in ADIPL's hands. Additionally, the Tribunal confirmed the CIT(A)'s decisions regarding disallowances under Section 14A, aligning with relevant judicial precedents. The overall decision ensures that the lease rental income is appropriately taxed and disallowances are correctly applied based on the actual receipt of exempt income.
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