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2020 (5) TMI 356 - AT - Income TaxDisallowance on account of Sham Agreement - AO found that the transaction is with a related party - revenue has been transferred to its holding company - assessee is not eligible for deduction of expenditure incurred towards services obtained from its holding company at the 25% of the revenue - HELD THAT:- A compulsion at source imposed by a third party is necessary to create a superior title. Just because diverted income is collected by the assessee himself for and on behalf of the beneficiary; it cannot be inferred that it was only an application and not diversion. In the instant case, the assessee has been obligated by virtue of the agreement to divert the income at source and also for the contributions made by the holding company. Revenue sharing agreement entered with the holding company by the assessee is diversion of income by overriding title. The revenue's contention that the entire transaction is sham and aimed at only to divert the income to EMLL cannot be said to be correct based on the facts and the judicial pronouncements. In case of assessee [2020 (1) TMI 458 - ITAT DELHI] itself based on the same agreement, we do not find any merit in the appeal of the assessee in deleting the addition made by the learned CIT – A holding that the agreement between the holding company as well as the assessee was not sham agreements. Accordingly, we dismiss the appeal of the learned assessing officer. Payment of the disbursement income to the holding company - diversion of income by overriding title or merely on application of income - HELD THAT:- As decided in case of assessee [2020 (1) TMI 458 - ITAT DELHI] payment made to the holding company is obligated the in diversion of income by overriding title. The coordinate bench also after considering the contribution made by the holding company and keeping in view the amounts that have been already offered for taxation in the hands by the respective entities the above expenditure is allowable in the hands of the company. The relevant paragraphs as cited above that the revenue sharing agreement entered with the holding company by the assessee is a diversion of income by overriding title, we allow ground number one of the appeal following the reasoning given by the coordinate bench.
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