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2021 (8) TMI 1140 - AT - Income TaxUnderstatement of income - treatment of lease transactions as sales transaction - - Transfer of property under lease - Lease deed is unregistered one - efficacy of registration of lease deed and the impact of the same when it is unregistered one - HELD THAT - Hon ble Kerala High Court in the case of CIT v. C.F.Raju 2006 (6) TMI 509 - KERALA HIGH COURT had followed the judgment of case of Anthony v. K.C.Ittoop Sons 2000 (7) TMI 970 - SUPREME COURT and held that even though the lease deed is unregistered, the same would not stand in the way to determine whether there is in fact a lease. In the instant case, the assessee is a statutory body constituted u/s 5 of Karnataka Industrial Areas Development (IIADB Act), 1966. The KIADB Act, 1966 is a special Act, which provides for expeditious acquisition of land for industrial and infrastructure purposes. The Income Tax Authorities has not doubted the legal effect of the lease deed (being unregistered one). When the lease is transfer of right to enjoy the property, such transfer can be made expressly or by implication. The mere fact that it is an unregistered lease deed would not stand in the way to determine whether in fact it was a transfer of property under lease - Appeal filed by the assessee is allowed.
Issues:
1. Understatement of income in lease transactions. 2. Treatment of lease rentals in accounting. 3. Efficacy of registration of lease deed. Issue 1: Understatement of income in lease transactions The Assessing Officer (A.O.) noted an understatement of income amounting to ?5.81 crore by the assessee in lease transactions. The A.O. added ?1.74 crore to the net profit, considering excess deposit collected. The CIT(A) upheld this addition, but the Tribunal reversed it, stating that lease transactions did not amount to a sale of land. The Tribunal emphasized that the lease did not confer absolute ownership to the allottee until a conveyance deed was executed. The consistent accounting method followed by the assessee over time was deemed acceptable, resulting in the deletion of the addition. Issue 2: Treatment of lease rentals in accounting The Hon'ble High Court of Karnataka set aside the Tribunal's order and remanded the case for fresh consideration. The Court raised a substantial question of law regarding the deletion of ?1.74 crores by the Tribunal. The Court highlighted that the revenue claimed the lease relied upon by the Tribunal was unregistered, which had not been considered. The case was sent back to the Tribunal for a fresh review of the substantial question of law. The Tribunal, upon rehearing, relied on precedents to establish that the registration status of a lease deed did not affect the determination of whether a lease transaction had occurred. The Tribunal also noted that the other issues decided in the earlier order were not set aside, leading to the allowance of the appeal by the assessee. Issue 3: Efficacy of registration of lease deed The Tribunal, after considering the impact of registration of the lease deed, referred to the judgment of the Hon'ble Kerala High Court and the Apex Court. It was emphasized that even though the lease deed was unregistered, it did not hinder the determination of whether a lease had taken place. The Tribunal noted that the legal effect of the unregistered lease deed was not doubted by the Income Tax Authorities. The Tribunal held that the unregistered nature of the lease deed did not prevent the determination of whether there was a transfer of property under lease, citing relevant legal precedents. In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the consistent accounting treatment of lease rentals and the legal effect of the unregistered lease deed in determining the nature of the transaction. The judgment highlighted the importance of considering the substance of transactions over formalities such as registration status in lease agreements.
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