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TMI Blog2018 (10) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... idered by the CIT (A) after the AO’s order, on remand in the earlier round. This court is also of the opinion that like in Dalmia, the facts in Rungamatee, clearly showed that the transaction by which the assets were handed over possession were not just for their management, but preparatory to their sale. The purchaser took possession of the assets from the owner and managed them till conveyance, the subsequent year. This court is of opinion that the main judgment of the ITAT took note of the authority in Poddar Cement (supra). The ITAT also had before it, the reasoning of the CIT (A) who had noticed all the judgments cited by the assessees – which found place in the written note submitted to the ITAT in their appeal. Therefore, it cannot be said that the tribunal ignored or overlooked material facts or law. Furthermore- perhaps crucially, the lower authorities concurrently found that ADI, despite reporting the lease income in its hands, declared loss for the year under consideration in its return whereas AHR declared profits. In these circumstances, their view was that the arrangement was made to avoid incidence of tax in AHR’s hands. No infirmity in the impugned orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27,84,240/- from ADI s income and assessed it in its hands, on protective basis by making a substantive addition in respect of the income of AHR. Thus, the AO assessed AHR s total income at ₹ 4,41,54,580/- under Section 143(3) read with Section 263 of the Act. Both ADI and AHR appealed to the CIT who dismissed their pleas. 3. Aggrieved the said two assessees approached the ITAT. By its order dated 07.07.2017, the ITAT after noticing the contentions made by the two assessees before it, and considering the agreement of 31.03.2008, entered into between two of them i.e. ADI and AHR, held as follows: 14. 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 shopsand rental space in its hands for the earlier period prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the Revenue is also dismissed having been become infructuous. 4. The assessees had approached this court but withdrew the appeals on the plea that they had preferred rectification application and that in the event of their plea not being accepted, the liberty be reserved. Accordingly, their appeals were dismissed as withdrawn. 5. The miscellaneous applications under Section 254(2), filed by the ADI and AHR were on identical terms. These applications relied upon the judgment in Honda Siel Ltd. v. Commissioner of Income Tax, 295 ITR 466 (SC) and urged that the decision cited before the ITAT in its main order of 07.07.2017 had not considered the written synopsis. The assessee highlighted that the so-called transfer which was the basis for bringing to tax the rental income, in fact was not a transfer of assets but that the consideration of ₹ 75 crores was paid for obtaining the right to manage and carrying on business. In this regard, the assessees relied upon Commissioner of Income Tax v. Rungamatee Tea Industries, (1993) 199 ITR 282 (Cal); Rayala Corporation Pvt. Ltd. v. Assistant CIT, (2014) 363 ITR 630 (Mad.) and also on the decisions for the propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees had the right to organize their businesses in the terms best suited to their model of commerce. It was highlighted that the judgment of the Supreme Court in CIT v. Poddar Cement Ltd., 226 ITR 625 , had considered the expression owner in the context of Section 22 where the assessee did not have the title over a property which was otherwise in his possession and enjoyment. It was contended that the court took note of the commercial realities and held that the person entitled to enjoy the income from the property was liable to tax but not the legal or registered owner. Any arrangement by which any individual or person comes in possession of the property with right to enjoyment, ought to be treated as the owner rather than a titular or nominal owner. 8. Dr. Rakesh Gupta, learned counsel also urged the purport of the amendment to the Act by the Finance Act of 1987, which extended the definition of transfer under Section 2(47). It was submitted that this proposition was urged but the same was completely overlooked by the ITAT in its main orders. Given the mandate of the Supreme Court s ruling in Honda Siel Ltd. (supra), rectification had to be resorted. 9. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. In the present case, the Tribunal was justified in exercising its powers under section 254 (2) when it was pointed out to the Tribunal that the judgment of the coordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. For the aforestated reasons, the impugned judgment of the High Court is set aside and the order passed by the Tribunal allowing the rectification application filed by the assessee is restored. 11. Learned counsel for the revenue urged that the original assessment, had accepted at face value cost the transaction based on which ADI declared the rental income as its own. This led to the Commissioner exercising his power under Section 263. The revisional order was the subject matter of appeal to the ITAT, which noted that the hotel (owned by the AHR) needed funds for its project and ADI had spared funds. Both the companies therefore, entered into an agreement whereby ADI gave inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain judgment of 07.07.2017. Analysis and Findings 14. A close analysis of the facts reveals that in A.Y. 2008-09, AHR was constructing a five- star deluxe hotel at Ambience Island, Gurugram; in those premises, certain retail premises too were created and constructed. The hotel is adjacent to Ambience Mall, owned by ADI. AHR said that during F. Y. 2007-08, it needed funds for completing the hotel project; it entered into an agreement with ADI. Under that agreement (dated 31.03.2008), ADI paid ₹ 75 crores interest free deposit to the company. This enabled it (ADI) to enjoy the rental income from certain specified retail spaces of AHR. AHR contended, in the remanded assessment proceedings that by terms of the agreement ADI became owner of lease rental of said specified retail spaces and accordingly; it (ADI) declared the said rental in its return of income for A.Y.2008-09. It was urged by AHR that since it secured interest free deposit of ₹ 75 crores and ADI was allowed to enjoy the rentals from specified retail spaces, the income (from those lease rentals) belonged to it, i.e. ADI and not to AHRL. The AO disagreed, and, after noticing Section 22 of the Act (as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41,54,580/- Credit for prepaid taxes is allowed. Detailed computation of tax and interest is given in the enclosed ITS-150 which is part of this order. Issue notice of demand and necessary forms. 15. The Appellate Commissioner, who heard the assessees appeals, found that the contentions on its behalf with respect to applicability of Section 22 and reporting of rental income in ADI s hands without merit. He relied on Section 60 and held that the provision envisioned the following, i.e. i) The payer owns an asset. ii) The ownership of asset not transferred and is in fact retained. iii) The income from the asset is transferred to any person, under a settlement, trust, covenant; agreement or arrangement. iv) The transfer may be revocable or may not be revocable. v) The transfer may be effected at any time (may be before the Commissioner of Income Tax Act or otherwise). 16. Thereafter it was held that: 5.1 This section provides that where an assessee purports to transfer income arising to such person (but not the source of it) in such a way that under, the instrument of transfer the income no longer arises to such person or is received by such pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the transferor company, i.e. AHHL. AHRL has alienated or assigned the source of income i.e. lease rentals so that the income no longer belongs to it and in such a way that it would not be liable to be taxed upon the Income arising from such leasing activity of these properties thereafter. However it is pertinently mentioned here that the said agreement dated 31-03-2008, the appellant company did not transfer the ownership of the said properties in favour of ADIPL. The appellant company AHRL has only created a charge in respect of the lease rent and no doubt ADIPL was given unfettered rights that empowered it to collect lease rent from the- tenants, and the deed also provided in clause 4 that the tenant by paying the amount of rent would be discharging their obligation towards rent. Section 60 is quite clear in its implication and provides no scope for any ambiguity. It makes it clear where the asset was not transferred but the income thereof alone was transferred, such income was assessable in the hands of the transferor i.e. AHRL who is the owner of the property. -------------------------- ------------------- 5.1.4 Income tax Act provides the assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transferor and shall be included in his total income. ***************** ********* Section 63. Transfer and revocable transfer defined- for the purposes of Sections 60,61 and 62 of this Section- (a) a transfer shall be deemed to be revocable if - (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets; (b) transfer includes any settlement, trust, covenant, agreement or arrangement. 19. In the present case, the agreement between the two assessees contained, inter alia, the following stipulations: 1. That In consideration of above-said deposit of ₹ 75,00,0001- (Rupees Seventy-Five Crores Only), the First Party doth hereby agrees to gram and assign in favour of the Second Party all its rights and interest to lease and manage the Said Space or any part thereof and to receive and appropriate to its own account all receipts and receivables from the leasing of Said Space or any part thereof. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds to ₹ 1.4 lakh; the same pattern was repeated for AY 1965-66, reflecting a loss of ₹ 2.45 lakh. The original return did not include profits from the working of the two Pakistan factories but only the interest income for the two-year period from 1-10-1962 to 30-9-1964 which however was deleted in the revised return on the ground of non-receipt of the same. 22. The High Court s judgment, which ruled that income had accrued to the assessee/appellant, till the date of sale, was overturned by the Supreme Court, which held as follows: 12. While at the first blush the reasoning seems to be rather attractive but on consideration of the issue on a wider perspective the High Court cannot but be said to be in clear error. For the year 1965-66 when the order of assessment was made, the profits were ascertained on 30-9-1964 and the property was itself transferred, as such question of accrual of profit on account of the transferred assets does not and cannot arise. Be it noted that completion of sale transaction ought to be attributed its normal meaning and in this regard contextual facts should also be looked into and considered in the proper perspective. The sale transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i.e Rungamatee Tea Industries, Poddar Cement, Arvind Narottam) were all cited and considered by the CIT (A) after the AO s order, on remand in the earlier round. This court is also of the opinion that like in Dalmia, the facts in Rungamatee, clearly showed that the transaction by which the assets were handed over possession were not just for their management, but preparatory to their sale. The purchaser took possession of the assets from the owner and managed them till conveyance, the subsequent year; the Calcutta High Court held in these circumstances, as follows: Section 60 of the Act cannot have any application to the facts and circumstances of this case inasmuch as the income is derived not because of the transfer of assets but because the management and possession and the right to carry on the business operations had been given to the assessee even before the conveyance was executed. The profit arises out of sale of and manufactured and not from the ownership of the tea garden. The agreement has been acted upon and the agreement clearly provides that the agreement would come into effect from April 1, 1973, and, accordingly, provision has been made in the agreement its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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