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2016 (1) TMI 407 - ITAT MUMBAI

2016 (1) TMI 407 - ITAT MUMBAI - TMI - Addition on account of deemed lease rent - diversion of income by overriding title - Held that:- Assuming for moment that the assessee was the owner of the impugned flat therefore liable to be taxed at the annual let out value, as mentioned elsewhere, there was a specific charge on the property prior to the purchase of the said property by the assessee and by way of this charge Shri Samir Bojwani received the lease rent from the licencee M/s. Accor Radha Kr .....

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the year under consideration.

The facts of the case are squarely covered by the decision of the Privy Council in the case of Raja Bejoy Singh Budhuria Vs CIT Bengal (1933 (3) TMI 20 - THE PRIVY COUNCIL) and also by the decision of CIT Vs Sitaldas Tirathdas [1960 (11) TMI 17 - SUPREME Court] . In both these cases, there was a charge for maintenance created against the assessee. In the case before us too, as evident from the above discussion, the lease rent was to go to Shri Sameer Boj .....

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- Decided in favour of assessee.

Addition on deemed interest earned by the assessee - Held that:- As mentioned elsewhere, the security deposit was taken by Shri Samir Bojwani pursuant to the Leave and Licence Agreement entred by him with M/s. Accor Radha Krishna Corporate Service Private Limited and since as mentioned elsewhere, the assessee could not have earned the rent during the impugned assessment year. We do not find any logic in taxing deemed interest in the hands of the asses .....

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year 2006-07. 2. The grievance of the assessee is two fold. The first ground relates to the addition of ₹ 44 lakhs on account of deemed lease rent and the second ground relates to the addition of ₹ 1.32 lakhs being deemed interest earned by the assessee . 3. The rival contentions were heard. We have given a thoughtful consideration to the submissions made by the respective representative. We have carefully gone through the orders of the authorities below and have carefully perused th .....

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a apartment vide show cause notice dated 25.11.2008, the AO asked the assessee to show cause why rent received or receivable at annual letting value of the said flat should not be taxed as per Sec. 22 & 23 of the Act for the period of 11 months i.e. May 2005 to March, 2006. 4.1. In response to this show cause notice, the assessee vide letter dated 1.12.2008 submitted a detailed reply which read as under: With reference to your letter dt 25.11.2008 wherein you have given an opportunity to the .....

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Tax Act 1961. To this, we would like to submit that the Assessee has purchased the flat at 'SAMSHIBA' vide Agreement dt 10th May 2005 on "Ownership Basis" from the Vendor Mr. Samir Narain Bhojwani subject to Leave & License Agreement which was executed between the Vendor & the Licensee namely Accor Radha Krishna Corporate Services Pvt. Ltd on 27th November 2004 and registered at the office of the Sub-Registrar of Assurances at Bandra under no BDR 1-01304-2005 on the 14 .....

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Fees for a period of 22 months and the Vendor was entitled to retain the same. The purchasers namely Assessee covenant with the Vendor as per the Agreement dt .10lh May 2005 that they sh1all not claim from the vendor any part of the said sum of ₹ 88,00,000/- being the license fees for the period o f22 months i.e. from 1st February 2005 to 30th November, 2006. It was also agreed between the three parties i.e. the Vendor, Purchaser & the Licensee that, in the event of the Licensee being .....

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on 31st October 2007 or 011 earlier termination thereof in accordance with the terms and 5 condition contained in the Leave and License Agreement & upon the purchasers repaying the said interest free security deposit of ₹ 12,00,000/- to M/s.Accor Radha Krishna Corporate Services Private Limited of the same has been received by the purchasers as stated in clause (6) herein above written. " Based on the above said agree 'lent the Assessee who i.e. the Purchaser made an Leave and .....

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greement the deposit would be refunded by the new Licensors. From the above it is abundantly clear that the possession of the flat was given by the vendor to the purchasers on 16th February 2006. On receiving the possession the purchasers have made a fresh Leave & License Agreement with the Licensee on the same date. Now as the possession has been received on 16th February 2006, as per the provisions of section 2 (47) (v) of the Income Tax Act 1961 "transfer in relation to capital asset .....

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from 1st December 2006. The sum of ₹ 44,00,000/- received from Accor Radha Krishna Corporate Services Private Limited on 16th February 2006, pertains to advance rent of ₹ 44,00,000/- i. e. ₹ 4,00,000/- per month from 1st December 2006 to 31st March 2007 which is offered for tax in the financial year 2006 - 07 relevant to Assessment Year 2007- 08. As the Assessee has not received any rent during the financial year there is no reason why the same should be taxed in the financial .....

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ever received by the assessee nor was it supposed to receive the same as per clause 4 & 5 of the Agreement of sale dt 10th May 2005, since this income never reached the assessee she is not entitled to pay the tax on the Income which was never received by her, nor was she entitled to receive the same. Under the scheme of the Act, it is the total income of an assessee, computed under the provisions of the Act that is assessable to income tax. So much of the income which an assessee is not enti .....

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on in regard to the amount in question. When a third person becomes entitled to receive the amount under an obligation of an assessee even before he could lay a claim to receive it as his income, there would be diversion of income by the overriding title, but when after receipt of the income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application of income by the assessee & not of diversion of income by overrid .....

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s a difference between an amount which a person is obliged to apply out of his income & an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly .....

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by overriding title laid down in Raja Bejoy Singh Dudhuria (1 ITR 135) and the case of CIT V Sitaldas Tiradhdas (1961) 41 ITR 367 (SC) and in the case of Travancore Sugar & Chemicals Ltd (1973) reported in 88 ITR 1 (SC) wherein It was held that the "Income can be said to be diverted only when it is diverted at source so that when it accrues it is really not the income of the assessee but is somebody else's income. It is, thus, clear that where by the obligation income is diverted be .....

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& license agreement at 27th Nov 2004 which was registered with the registrar hence the Assessee cannot be charged to tax on the same income. Further the Assessee in its Agreement of sale dt. 10th May 2005 agreed with the vendor and licensee that she would not be entitled to receive the rent the rent upto 30th November 2006 though she would be owner of the property as this was the main clause based on which the vendor had agreed to sell the property to the Assessee. Had this clause would not .....

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. Samir Bhojwani has already received advance rent from the tenant Accor Radha Krishna Corporate Service Private Limited with a tacit understanding that to the extent of rent which should actually have received by you rightly being the owner of the flat, you will pay a lesser purchase consideration to Mr Samir Bhojawani for the said flat which you have purchased from him. To this we would like to submit that the Income Tax Department cannot step into the shoes of the Assessee & dictate as to .....

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ed for the same & the Assessee has agreed to that effect. The Assessee has also given copy of confirmation letter from Mr. Samir Bhojwani along with copy of acknowledgment of Income Tax Return filed by him for the Assessment Year 2006-07, wherein he has offered the Rental Income for tax, hence the learned Assessing officer will have tax the Assessee based on the facts available on records unless he is able to prove it is a colorable devise. In light of the said facts & circumstances of t .....

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t the provisions of Sec. 22 of the Act are crystal clear and apply on the assessee. The AO concluded by taking monthly rental at ₹ 4,00,000/- and added a sum of ₹ 44 lakhs to the total income of the assessee under the head Income from House Property . 5. The assessee carried the matter before the Ld. CIT(A) but without any success. However, at the same time, the Ld. CIT(A) observed that the erstwhile owner Mr. Samir Bhojwani has taken a security deposit of ₹ 12,00,000/- and sin .....

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r Bhojwani had a leave and license agreement with Accor Radhakrishna Corporate Services Pvt. Ltd., vide agreement dated 27.11.2004. The license fee was agreed at ₹ 4,00,000/-. Since the agreement was for a period of 22 months, it was agreed that the license fee of ₹ 88,00,000/- shall be paid on or before the 1st February, 2005. It was further agreed that the licensee shall over and above the licence fees paid interest free refundable security deposit of ₹ 12,00,000/-. The most .....

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levant clauses of the Leave and Licence Agreement dated 27.11.2004, let us now consider the purchase agreement dated 10.5.2005 by which the impugned flat was purchased by the assessee. Vide Clause (w) of this agreement, it was made clear that the impugned flats are subject to a registered Leave and Licence Agreement executed between Shri Samir Bhojwani with Accor Radha Krishna Corporate Service Private Limited. The terms and conditions of the said Leave and Licence Agreement were also made clear .....

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continue the said Leave & License with the same licensee i.e. Accor Radha Krishna Corporate Service Private Limited. The most important clause is Clause-8 wherein it is specifically mentioned that the purchaser (assessee) is entitled to receive the physical possession of the said premises only on expiry of the license period i.e. on 31st October, 2007. 7.1. Considering the aforementioned undisputed facts all that we have to see is whether the assessee was in a position to earn/receive lease .....

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hna Corporate Service Private Limited. Thus, if there is a iota of doubt that the impugned ALV should be taxed in the hands of the assessee, it is a clear case of diversion of income by overriding title. In our understanding of the facts, there is no need for going into the assumptions as in the purchase Deed itself, it is clearly mentioned that the assessee will get the physical possession of the said premise only after 31.10.2007. Therefore, there is no question of any accrual of rent during t .....

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