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TMI Blog2014 (9) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... thing on record to suggest that sub-leasing the property to KPPL did not make business sense. Relying upon CIT Vs. Walfort Share & Stock Brokers (P) Ltd. [2010 (7) TMI 15 - SUPREME COURT] - there is no basis for the AO to come to a conclusion that it was KPPL which was interested in the BMP Contract, but could not participate in the tendering process initiated by the BMP because KPPL was managed and owned substantially by Sri. D.K. Shivakumar, who was the Hon’ble Minister for Urban Development in the Government of Karnataka between the years 2002 and 2004 - the conclusions of the AO that the assessee was brought in as an intermediary only to win the contract and transfer it back to KPPL immediately and therefore the transaction in the books of the assessee has to be ignored and the losses claimed against it disallowed, cannot be sustained - The loss as claimed by the Assessee is to be allowed – Decided in favour of assessee. - ITA Nos.152 to 156/Bang/2014 - - - Dated:- 28-8-2014 - SHRI N.V. VASUDEVAN AND SHRI JASON P. BOAZ, JJ. For the Appellant : Shri Zain Ahmed Khan, C.A. For the Respondent : Shri Farahat Hussain Qureshi, CIT-II(DR) ORDER Per: Bench: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 2007 7339500 7 May 2007 7339500 4. The property taken on lease consisted of land to the extent of 8161.90 sq.m. and the structure thereon from 1st to 7th floors built on the said land, excluding the ground floor. The assessee was given a licence agreement to refurbish, operate and maintain the building for the period of lease. The assessee also had a right to sub-let the premises taken on lease. 5. The assessee sub-let the premises taken on lease from BMP to a company by name Kausthubha Projects Pvt. Ltd. (KPPL). The terms of the sub-lease are contained in the agreement dated 1.3.2006. As per this agreement, the premises taken on lease by the assessee from BMP was sub-let to KPPL. The monthly rents payable by KPPL is set out in Schedule 2 to the agreement dated 1.3.2006. It is not in dispute that the rents payable by the sub-lessee to the assessee are much greater than what the assessee as a lessee had to pay to BMP. The sub-lease was to commence from the date of agreement and was for a period of 29 years. 6. As we have already seen, the payment of rent by the assessee to BMP was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Concession payment amount payable/paid to BBMP (Rs) (2) Receivable/received from KPPL as per original and supplementary agreement (Rs.) (3) Difference (Rs.) (4) Amount claimed in the return of income (Rs.) (5) 2006-07 - - - - 2007-08 29322842 - 29322842 29322842 2008-09 31924476 30000000 1924476 31924476 2009-10 35091548 31500000 3591548 35091548 2010-11 36671376 33075002 3596374 36671376 2011-12 38330194 34728750 3601444 38330194 10. The AO called upon the assessee to show cause as to why the aforesaid excess claim of expenditure relating to payments made to BBMP should not be disallowed. The assessee, in rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.4 22 7.6 15.59 0.04 D S Venkatanaryana Setty 22.15 7.8 22.15 7.8 22.15 7.8 17.12 0.4 22 7.8 17.12 0.04 DCPL - - - - - - 24.69 74.5 - - 24.69 74.5 Total of the above persons 88.60 31.00 88.60 31.00 88.60 31.00 90.71 76.10 88 31.00 90.71 76.10 DJPL: DAVANAM JEWELLERS PRIVATE LTD. KPPL: KAUSTHUBHA PROJECTS PVT LTD. DCPL: DAVANAM CONSTRUCTIONS PRIVATE LTD. 11. From the above share holding pattern, the AO was of the view that the Assessee and the sub-tenant were rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the contract and transfer it back to KPPL immediately. Therefore, the transaction in the books of the assessee has to be ignored and the losses claimed against it disallowed. Accordingly, for all the assessment years, the difference between the amount paid by the assessee to BMP and the amount received from KPPL was disallowed by the AO. 12. On appeal by the assessee, the CIT(A) confirmed the order of the AO, observing as under:- 8. I notice from records that the appellants other sister concern M/s Davanam Constructions Pvt Ltd in Notes forming part of Accounts for the year ended 31st March 2007 in Schedule-L has mentioned that:- The Company has taken a Demand Loan from Andhra Bank, Bangalore amounting to ₹ 28 crores. Pursuant to an agreement with Mr D K Shivakumar and Mr D K Kempegowda, the Company has passed on the liabilities to the extent of CTS-2 (69% and 10%) of the respective shares in favour of Mr D K Shivakumar and Mr D Kempegowda respectively on the understanding that the said Demand Loan will be repaid by them. Consequently, the company has accounted interest attributable to its share alone. In the event of the aforesaid parties do not dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Original Instalment Arrears Total 2011-12 3,65,76,954 34,95,000 4,00,71,954 3,82,88,448 (17,83,506) 2012-13 3,84,05,802 34,95,000 4,19,00,802 4,02,02,868 (16,97,934) 2013-14 4,03,26,092 - 4,03,26,092 4,22,13,012 18,86,920 2014-15 4,23,42,396 - 4,23,42,396 4,43,23,664 19,18,268 15. It was submitted that it was clear that even as per the revised lease terms the Assessee stood to make profits from FY 2013-14 after completion of payment of arrears along with interest. To that effect, the argument of the Ld. AO that the terms of sub-lease were fixed in a manner so as to cause losses to the Assessee year after year lacks any merit and the addition made ought to be quashed. 16. It was pointed out that fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly in the lease with BMP, whose jurisdiction fell under the Ministry of Urban Development, it used the assessee as a medium or channel to overcome the procedural difficulties in winning the contract in its own name. The lessor is BMP and such motive cannot be attributed to BMP. The conclusions of the AO are also not correct for the reason that the rent paid by the Assessee to BMP would be higher only for the initial 5 years (20 quarterly installments of rent) when the arrears of rent of ₹ 1,16,50,000 towards arrears of rent for the period from Nov., 2005 to March, 2008 is added to the originally agreed rent between the Assessee and BMP. The AO has not disputed that the liability for the increased rent is relatable to the period relevant to AY 07-08 to 2011-12. In such circumstances the claim of the Assessee that after the expiry of the period for which the assessee had to pay the arrears of rent from Nov. 2005 to Apr. 2008 in 20 equal quarterly instalments, the amounts payable by it to BMP will be less than what the assessee would receive from the sub-tenant KPPL is correct. Therefore it cannot be said that the transaction was commercially not a viable transaction and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement/arrangement. The right of the parties to enter into transactions according to their free will and choice has always been protected, the only rider being that both the professed intention and the real intention should be the same. Any transaction in which the professed intention and the intention gathered from the documentation are the same must be considered to be genuine. 20. The principle, as explained by the Hon ble Supreme Court as above, if applied to the fact of the present case; it can safely be concluded that the professed intention and the intention gathered from the documentation are the same and the transaction of sub-lease must therefore be considered as genuine. The revenue has proceeded on an erroneous basis that the assessee was used only as a layer or a vehicle for obtaining the lease and to transfer it. There is no basis for the AO to come to a conclusion that it was KPPL which was interested in the BMP Contract, but could not participate in the tendering process initiated by the BMP because KPPL was managed and owned substantially by Sri.D.K.Shivakumar, who was the Hon ble Minister for Urban Development in the Government of Karnataka between the years 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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