TMI Blog1993 (3) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... o each of the lessors in accordance with their respective shares. In the assessment years 1967-68, 1968-69 and 1969-70, the lease rent from the said property, which was renamed Shivsagar Estates, was the only source of income and it was assessed to tax in the hands of an association of persons comprising these sixty-five individuals. This status was upheld by the Appellate Assistant Commissioner of Income-tax ("the AAC"), but the Income-tax Appellate Tribunal ("the Tribunal") held that there was no association vis-a-vis the lease rent and that the sixty-five persons were individually assessable on their respective shares. Broadly stated, this decision was based on the finding that each of the sixty-five co-owners had a specific and definite share and that none of the necessary and essential ingredients for the formation of an association, namely, volition, joint enterprise, joint management, joint accrual and joint receipt of income was present in the case, One of the circumstances on which the Revenue had laid considerable stress was that these sixty-five persons had not merely purchased the vast area and given it on lease, but they had also set about developing their estate as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by each of these persons acting as the respective attorney or agent of their respective group and by collateral security by way of deposit of title deeds relating to plot H. It may be mentioned that the amount of loan drawn periodically had been debited by the bank to the loan account in the same bank opened on September 26, 1969, in the names of the co-owners. From this current account substantial amounts were also transferred to the account of Sangli Bank in the name of Messrs. D. C. Shah, M. H. Patel and V. D. Dhanwatay, co owners of Shivsagar Estates. Considering the aforesaid peculiar facts obtaining in respect of plot H, the Income-tax Officer came to the conclusion that the sixty-five persons formed an association of persons to exploit the said property as a business venture. In this connection, he referred to an agreement entered into between these persons and Messrs. Metropolitan Hotels Limited dated June 9, 1969, the relevant portions of which are to be found in the assessment order for the assessment year 1972-73 : "(1) The lessees are constructing a five star international hotel in technical collaboration and assistance with Hiltons in accordance with the sanction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee took up the stand before the Income-tax Officer that there was no association of persons for exploiting plot H, that no income had arisen to it either by way of lease rent or interest on advances made to Messrs. Metropolitan Hotels Limited, and that in any event, in view of the terms and conditions of the agreement dated January 28, 1972, no income had arisen or accrued to the assessee as the assessee had agreed to waive its right of receiving compensation/interest from Messrs. Metropolitan Hotels Limited. It was also stated that after the termination of the said agreement, another agreement was entered into between the assessee and Messrs. Poonam Hotels Limited and whatever amount the assessee received from Messrs. Poonam Hotels Limited was handed over to Messrs. Metropolitan Hotels Limited. In other words, the assessee wanted to impress upon the Income-tax Officer that it was for business consideration and commercial expediency that it gave up the right to receive the lease rent or interest from Messrs. Metropolitan Hotels Limited. The Income-tax Officer, however, was not inclined to accept the assessee's contention, as according to him, giving up of the lease rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssistant Commissioner, under these circumstances, when no books of account were maintained by the assessee, the best course would be to make a best judgment assessment estimating the income of the assessee from plot H. However, in view of the subsequent development that Messrs. Metropolitan Hotels Limited was not in a position to complete the project of constructing a hotel of an international standard in collaboration with Hilton Hotel International Incorporated and the fact that Messrs. Metropolitan Hotels Limited had requested the assessee to terminate the contract, etc., etc., the Appellate Assistant Commissioner, relying on the aforesaid two decisions, held that the doctrine of real income would be applicable in the instant case. According to him, on the proper appreciation of the facts and circumstances obtaining in the case, there was no justification for estimating any income as was done by the Income-tax Officer. He, therefore, deleted the income included by the Income-tax Officer in the total income of the assessee in respect of plot H. Aggrieved by the action of the Appellate Assistant Commissioner, both the assessee as well as the Revenue came up in appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for taxation ?" Learned counsel for the assessee vehemently argued that since there were no distinguishing features between the leasing out of plots A to and plot H, the Tribunal was not justified in upholding the status of an association of persons adopted by the Income-tax Officer in respect of the income arising out of plot H. According to him, the fact that these sixty five persons had jointly taken loan from the First National City Bank would not be of any help in determining as to under which status these persons should be assessed. In this connection, he invited our attention to the earlier order of this court in Income-tax Reference No. 231 of 1977 (CIT v. Shivsagar Estates (AOP) [1993] 201 ITR 953) and strongly urged that even in the case of plot H, the status should be of individuals and not of an association of persons. As regards the income by way of lease rent and interest included in the total income of the assessee, the learned counsel for the assessee submitted that by now the doctrine of real income has taken a firm footing and there are a number of decisions reported in the Income Tax Reports wherein the courts have approved of this doctrine. In this connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon us that since the agreement dated January 28, 1972, was a commercial agreement which any prudent businessman would have entered into, the Appellate Assistant Commissioner was fully justified in holding that no income from plot H could be included in the total income of the assessee. According to him, the Tribunal has failed to appreciate various decisions cited during the course of hearing, more particularly the decisions in which the waiver or giving up of income had taken place after the end of the relevant accounting year. He, therefore, submitted that even if we answer question No. 1 against the assessee, we must answer question No. 2 in favour of the assessee. Learned counsel for the Revenue on the other hand submitted that since the taking of a huge loan from a bank and advancing the same to Messrs. Metropolitan Hotels Limited with a view to earn income from plot H was an integrated operation, the Income-tax Officer and the Tribunal were fully justified in holding that so far as plot H was concerned, there was an association of persons exploiting the plot in a commercial manner. In this connection, he placed reliance on the decisions in the cases of Smt. Parvathi Devi v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hotels Limited on interest. Therefore, the income earned by way of lease rent and interest earned on the advances made to Messrs. Metropolitan Hotels Limited have to be assessed differently. The former cannot be assessed in the status of association of persons but has to be assessed in the individual hands of the sixty-five persons as per their respective shares. However, the interest earned on the loans advanced to Messrs. Metropolitan Hotels Limited has to be assessed as the income of an association of persons consisting of these sixty-five persons. As regards the taxability of the income arising from plot H by way of lease rent and interest on advances made to Messrs. Metropolitan Hotels Limited is concerned, we are inclined to agree with the stand taken on behalf of the assessee that the doctrine of real income would be applicable in the instant case. It is no doubt true that the assessee had given plot H to Messrs. Metropolitan Hotels Limited for constructing a hotel of international standard in collaboration with Messrs. Hilton Hotels International. In fact, Messrs. Metropolitan Hotels Limited had started construction, including that of construction of a retention wall, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. " Learned counsel for the Revenue has cited the decision of the Supreme Court in the case of Morvi Industries Ltd. [1971] 82 ITR 835. However, it is pertinent to note that in the said decision the assessee had unilaterally given up the right to receive income from the other party, which is not the case here. In our case as well as in the case of Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC), there was a bilateral agreement between the parties, that too, on commercial lines, to waive the receipt of the income due to the fact that the other party was in a very bad financial state of affairs. According to us, the decision of the Supreme Court in the case of State Bank of Travancore [1986] 158 ITR 102, would not further the case of the Revenue, on the contrary, it would support the stand taken on behalf of the assessee. In this connection, we would only refer to page 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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