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TMI Blog1993 (12) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... f Smt. Indira Devi. The assessees admitted property income from the above properties in respect of the rent collected from individual tenants for the period from 1st April, 1982 to 31st Dec., 1982, i.e., for the period prior to the leasing of the properties and for the balance period of 1st Jan., 1983 to 31st March, 1983 admitted lease income under the head 'income from property' in their respective hands. The assessment was completed on that basis for the asst. yr. 1983-84. However, for the asst. yr. 1984- 85, the Assessing Officer was of the view that the lease agreement with the company was a smoke screen to reduce the tax liability. Whereas the individual tenants were paying higher rents to the company, the lessors were content with receiving the lease rent quantified at a very low figure. The rentals in the neighbourhood are really high—as high as Rs. 5 per sq.ft. whereas it is only half as much for the assessees' building by way of lease rent. Therefore, under the provisions of s. 23(1)(a), he took the fair rental value of these buildings in the place of the lease rent admitted by the assessees and completed the assessments. The assessees carried the matter in appeal. 3. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income than the lease amounts by overlooking the fact that for the immediately preceding asst. yr. 1983-84, he had only computed the income on the basis of lease agreement. Though in his previous orders the Assessing Officer had questioned the genuineness, validity, correctness and the viability of the lease agreement in the fresh assessments he had given up this stand but then he would not give any weightage to such factors or he would consider such factors as not relevant for the purpose of estimating the income under s. 23(1)(b) of IT Act [corrected as 23(1)(a) in his order under s. 154 dt. 28th July, 1989]. The CIT(A) further noticed that the Assessing Officer was of the view that whatever arrangements an assessee may make for providing suitable legal frame work for smooth transaction in enjoyment of his property and income its legal heirs and family members are not to be taken cognizance of. As he did not approve of the approach of the Assessing Officer to the whole issue, he concluded that as long as the said lease agreement dt. 31st Dec., 1983 does not get rejected for proper reasons, the income from the said properties which formed the part of the subject-matter of the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the tenants to the company in the period covered by the lease agreement and also the fact that the company had to discharge several obligations in connection with the lease agreement. 6. The assessee has furnished the following documents: 1. Memorandum and Articles of Association of Rajadhani Hotels and Tourist Enterprises Pvt. Ltd. (The Company); 2. Lease Deed entered into between G.R. Ramesan and B. Indira Devi and the company dt. 1st Jan., 1983; 3. Note showing object of formation of the company and lease and connected statements; 4. Assessment order dt. 29th Sept., 1984 in the case of the company and statement of income/loss, P L account, etc., for asst. yr. 1984-85 (year ending 30th Sept., 1983); 5. Assessment order dt. 17th June, 1985 of the company and statement of income/loss, P L account etc. for asst. yr. 1985-86 (year ending 30th Sept.,1984) 6. Assessment order dt. 30th May, 1986 in the case of the company and statement of income/loss, P L account etc. for the asst. yr. 1986-87 (year ending 30th Sept., 1985); 7. Statement of Income in the case of Shri G. Rameshan for asst. yr. 1984-85; 8. Copy of assessment order dt. 18th March, 1987 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a lot of expenditure including the remuneration for the services rendered by the directors and the assessee by the arrangement with the company had assured income for a period of 11 years and 9 months. Further by these arrangements there is no loss to the Revenue because in the assessment of the assessees, apart from the lease rent, the remuneration received from the company in substantial sums and also the sitting fees get assessed. In fact, the assessee has furnished before the CIT(A) a statement showing the net income earned by the company and the taxable income received by the assessees including the directors' remuneration and the statement showed that there has not been any serious detriment to the interest of the Revenue. Further, when rights and liabilities are governed by an agreement, which has not been jettisoned for want of genuineness or validity, etc., it is the agreement that should have the binding force and govern the relations. Hence, the argument of Shri Abraham, the learned Departmental Representative, based on the principles laid down in McDowell Co. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) by Justice O. Chinnappa Reddy cannot be applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to movable properties in the lease deed. Shri Abraham explained that there were furniture in the Tourist Lodge portion and alongwith the premises, the furniture were also given to the lessee and such furniture represented movable properties. That may be so, but we do not find any separate hire charges having been mentioned in the lease deed. It is a composite lease and there is no way to find out the hire charges with reference to the furniture. Leasing of the premises alongwith furniture and fitting are not uncommon and there is nothing wrong in the lease income being assessed under the head 'property'. Hence, this ground is rejected. 10. Another ground of appeal raised is as follows: "The CIT(A) ought to have appreciated the fact that perquisite is worked out in salary income and not under house property." The assessees as managing directors are staying in the residential house, one of the subject-matter of the lease agreement. In the course of appeal before the CIT(A), the Assessing Officer in his letter dt. 27th Sept., 1988 had asked for fixing the rent of the residential building occupied by the assessee directors. The CIT(A) directed the Assessing Officer to comput ..... X X X X Extracts X X X X X X X X Extracts X X X X
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