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2017 (9) TMI 1239 - HC - Income TaxDiversion of income at source - overriding title - income of assessee - Joint venture agreement - 97% of the receipt transfer to M/s TRG Industries (P) Ltd. - scope of the agreement - Held that:- True test of diversion of income by overriding title is whether the amount sought to be deducted, in truth, never reached the assessee as his income. To apply the doctrine of diversion of income by overriding title, the first and foremost condition to be satisfied is the nature of assessee”s obligation, whether by the obligation, the income is diverted before it reaches the assessee, or whether the income is required to be applied to discharge an obligation after such income reaches the assessee. In the instant case, there is diversion of income at the source itself. Therefore, the instant case is diversion of income by overriding title. The receipt of amount of ₹ 12,09,55,137/- could not be treated as income of the assessee and it was the case of diversion of income by overriding title. Accordingly, the first substantial question of law is answered in favour of the appellant. From the perusal of the order passed by the Tribunal, the same cannot be said to be unreasoned, arbitrary or non speaking. From the close scrutiny of the order passed by the Tribunal, it is evident that it has perused the relevant records and has gone through the written submissions which were filed on behalf of the assessee. Therefore, it cannot be said that order passed by the Tribunal is unreasoned, arbitrary or non speaking. Accordingly, the second substantial question of law is answered. Addition invoking Section 40(a)(ia) - Held that:- With insertion of section proviso by Finance Act, 2012 to section 40(a)(ia) of the Act as otherwise also since the taxes have been paid by the joint ventures, the assessee could be held to be an assessee in default so as to disallow the amount attributed by the joint venture to the joint venturers in the ratio of 97:3 so as to invoke Section 40(a)(ia) of the Act. The aforesaid amendment is retrospective and is clarificatory in nature. For yet another reason, Section 40(a)(ia) of the Act is inapplicable to the fact situation of the case as no amount was payable by the assessee at the close of the year and if two views are possible, the one which favours the assessee has to be adopted. See ACIT V. Red Brick Realtors (2015 (7) TMI 437 - ITAT CHENNAI). Accordingly, the third substantial question of law is also answered in the affirmative and in favour of the assessee.
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