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2019 (3) TMI 331 - AT - Income TaxIncome from House property - lease rental income - assessee company was not legal owner of the property which lease rental income were shown in its accounts - Addition on protective basis - standard deduction on lease rent - HELD THAT - Said rental income is taxable in the hands of M/s. Ambience Hotels and Resorts Pvt.Ltd., as there is no transfer of capital asset to assessee. Thus protective assessment made in hands of assessee to the extent of income received from lease of shops/spaces as per agreement dated 31.03.2008 deserves to be deleted. Assessee cannot be allowed to claim standard deduction under such circumstances in returned income in respect of rental income earned from such premises. - Decided against revenue Income from house property - Appeal of Ambience Hotels and Resorts Pvt.Ltd - applicability of section 60 - Taxability of lease rentals arising out of retail shops and retail spaces owned by assessee - actual transfer of assets - rental income from retail spaces and retail shops owned by assessee, which was collected by M/s.Ambience Developers and Infrastructure Pvt.Ltd. by virtue of agreement dated 31/03/2008 - HELD THAT - Section 60 contemplates income arising to transferee which should be taxed in the hands of transferor in the event there is no actual transfer of assets from which such income accrued. This fiction under section 60 operates irrespective of whether the concerned transfer is irrevocable or not. Thus essential condition is that there should be no transfer of asset from which such income arises. There are various decisions of Hon ble Supreme Court and Hon ble High Court s, wherein, relation of property from which income arises has been considered to be an essential condition for applicability of section 60. Unable to concur with argument advanced by Ld.AR for taxing rental income received from leased premises in the hands of M/s.Ambience Developers and Infrastructure Pvt.Ltd., when such assets are owned and held by assessee. The exception argued by Ld.AR is no longer available to assessee, by virtue of strict interpretation of section 60-63 of the Act. Uphold view of CIT (A) that income from leasing of shops/retail spaces has to be assessed in the hands of assessee under the head, Income from House Property , after allowing statutory deductions under section 24 of the Act. Addition u/s 14A - HELD THAT - Admittedly, assessee during the year has earned dividend. Further, there is substantial investment made by assessee in its subsidiaries during the year. We agree with the submissions advanced by Ld. CIT DR that the ratio laid down by Hon ble Supreme Court in case of Maxop Investment vs. CIT 2018 (3) TMI 805 - SUPREME COURT OF INDIA would be applicable under such circumstances. In our opinion disallowance cannot exceed dividend earned during the year. Therefore we restrict disallowance to the extent of dividend earned.
Issues Involved:
1. Deletion of addition on account of lease rental income on a protective basis. 2. Taxability of lease rentals received from retail spaces. 3. Applicability of Section 60 of the Income Tax Act. 4. Legal ownership and beneficial ownership of the property. 5. Allowance of business expenses if income is taxed under "Income from Business and Profession". 6. Disallowance under Section 14A read with Rule 8D(2)(iii). Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Lease Rental Income on a Protective Basis: The Revenue's appeals for AY 2009-10 and 2011-12 challenged the deletion of additions made on a protective basis regarding lease rental income. The Tribunal observed that the lease rental income should be taxed in the hands of the actual owner, M/s. Ambience Hotels and Resorts Pvt. Ltd., and not the assessee, as there was no transfer of property. The Tribunal upheld the CIT(A)'s decision to delete the protective addition in the assessee's hands, directing the AO to tax the rental income in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. 2. Taxability of Lease Rentals Received from Retail Spaces: The assessee's appeals for AY 2010-11 contested the CIT(A)'s decision to tax the lease rentals in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. The Tribunal held that the lease rental income should be assessed in the hands of the actual owner, M/s. Ambience Hotels and Resorts Pvt. Ltd., and not the assessee, as the agreement did not transfer the property to the assessee. Thus, the income from leasing of shops/retail spaces was to be taxed under "Income from House Property" in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. 3. Applicability of Section 60 of the Income Tax Act: The Revenue argued that the arrangement between the assessee and its sister concern should be taxed under Section 60, as it involved the transfer of income without transferring the asset. The Tribunal referred to the legislative history and judicial interpretations of Section 60, concluding that it applies when the asset remains with the transferor, and only the income is transferred. Since the property was not transferred to the assessee, Section 60 was applicable, and the rental income should be taxed in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. 4. Legal Ownership and Beneficial Ownership of the Property: The assessee contended that it had beneficial ownership of the property due to the agreement and the interest-free deposit paid. However, the Tribunal noted that legal ownership is crucial for taxing income under "Income from House Property." Since M/s. Ambience Hotels and Resorts Pvt. Ltd. remained the legal owner, the rental income was taxable in its hands, not the assessee's. 5. Allowance of Business Expenses if Income is Taxed under "Income from Business and Profession": The assessee argued that if the lease rental income is taxed under "Income from Business and Profession," business expenses should be allowed. The Tribunal did not accept this argument, as the income was to be taxed under "Income from House Property" in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd., and not the assessee. 6. Disallowance under Section 14A read with Rule 8D(2)(iii): In the assessee's appeal for AY 2010-11, the issue of disallowance under Section 14A was raised. The Tribunal observed that the assessee had made significant investments and earned dividend income. Referring to the Supreme Court's decision in Maxopp Investment Ltd. vs. CIT, the Tribunal held that disallowance should not exceed the dividend earned. Thus, the disallowance was restricted to the extent of the dividend income received by the assessee. Conclusion: The Tribunal dismissed the Revenue's appeals for AY 2009-10 and 2011-12, upholding the deletion of protective additions. The assessee's appeals for AY 2010-11 were partly allowed concerning the disallowance under Section 14A, but the primary issue of taxing lease rental income was decided against the assessee, confirming that the income should be taxed in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. under "Income from House Property."
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