TMI Blog2020 (3) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and other 6 persons find specific mention in this agreement. The aforesaid agreement has been executed by the 7 licensors and licensee and the same is a registered document. Pursuant to the terms of both the agreements, the transactions have been carried out and assessee as well as other 6 persons have offered their respective share of income in their own tax returns. There is nothing illegal in both the agreements. This being the case, the agreement dated 20/04/2009 could not be termed as sham agreement or an artificial structure with a view to evade tax liability. The said argument would be further weakened by the fact that proportionate income has already been offered to tax by the assessee as well as other 6 licensors. The observations of Ld. CIT(A) that the said income should have been offered as Income from House Property by the 6 persons could not be a ground to make impugned additions in the hands of the assessee. It is also fortified by the fact that learned first appellate authority, himself, observed that Ld. AO should have taken corrective measures about income shown as income from house property by the family members. However, the said error, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards Amenities) received by six others from M/s Diesel Fashion India Reliance Pvt. Ltd. as Rent Income of the appellant disregarding the Tripartite Leave License Agreement (Registered) executed between the Appellant (licensor), other co-licensors and M/s Diesel Fashion India Reliance Pvt. Ltd. (licensee), which entitled the licensors to only a part of the rent received from M/s Diesel Fashion India Reliance Pvt. Ltd. for part of the property owned and licensed out by them. 2. On the facts and the circumstances of the case and in law, the learned CIT(A) erred in asserting on para 5.13 of page 13 that, ....rent from entire property ought to be offered for taxation in the hands of the appellant firm only disregarding the lease agreement entered in to between the appellant firm and six other persons (coincidentally family members of the partners of the firm) for leasing out part of the property to six other persons, prior to the tripartite Leave and License Agreement executed and registered with M/s Diesel Fashion India Reliance Pvt. Ltd. 3. On the facts and the circumstances of the case and in law, the learned CIT(A) erred in upholding the findings of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ater on revised to ₹ 76.45 Lacs to claim deduction of service tax for ₹ 3.07 Lacs. 3.2 During assessment proceedings, it transpired that the assessee had entered into two agreements with M/s Diesel Fashion India Reliance Pvt. Ltd. (DFIRPL). One agreement was for leave and license agreement whereas the other agreement pertained to amenities charges in respect of same property. As per leave and license agreement dated 28/08/2009, the assessee was entitled for rent of ₹ 10 Lacs per month whereas as per amenities agreement dated 28/08/2009, the assessee was entitled for amenities charges of ₹ 6 Lacs per month. The details of the agreement have been elaborated in subsequent paragraphs. 3.3 The documents on record would reveal that the assessee being owner of a commercial premises comprising-off of basement, Ground Floor First Floor admeasuring about 7043 Square feet situated in a building known as Western Wind , Plot No.22A TPS Santacruz No.-II, CTS No. 1029/1, Juhu Tara Road, Mumbai (hereinafter referred to as licensed premises), entered into Leave License Agreement on 20/04/2009 with 6 persons namely Mr. Shachin Jagdish Nanavati, Mrs. Hima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Property after claiming deduction of municipal taxes and statutory deduction of 30% u/s 24. The net taxable income, thus, offered is ₹ 66.52 Lacs. Later on, the assessee has revised its return of income to claim the deduction of service tax also. The computation of income of other 6 persons, as placed on record, would reveal that those persons have also offered their respective share in the rent and amenities charges to tax while filing their respective returns of income for the year under consideration. 3.7 In the above background, Ld. AO observed that the assessee before letting out said premises to M/s DFIRPL, gave the premises on rent to various family members for a rent of ₹ 2.10 Lacs per month. When DFIRPL approached the assessee to take the premises on rent, the previous lessees were occupying the said premises and therefore, the assessee firm had apportioned rent to the family members and took net rent to the profit loss account. On the basis of stated factual matrix, Ld. AO observed that in terms of Sec.23 of the Income Tax Act, if the rent received or receivable was higher than the sum for which the property might reasonably be expected to let out, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources which would prejudice the assessee in two ways i) the share of 6 persons, in amenities charges, was brought to tax in the hands of the assessee; ii) the assessee would be denied statutory deduction of 30% against the same. 5.1 Aggrieved, the assessee assailed the computations made by Ld. AO before learned first appellate authority, by way of elaborate submissions, which have already been extracted in the impugned order. 5.2 Regarding clubbing of rental income in the hands of the assessee, the assessee, inter-alia, relied upon the decision of Bombay High Court rendered in Akshay Textiles Trading Agencies Pvt Ltd. (304 ITR 401) and also on the decision of Hon ble Calcutta High Court in CIT V/s Indra Co. (268 ITR 240) for the submissions that only the actual rent received by the assessee was to be brought to tax . The attention was drawn to the fact the leave and license agreement was entered with 6 persons on 20/04/2009 which was much before subsequent leave and license agreement entered into by the assessee and other 6 persons with M/s DFIRPL. It was submitted that the licensors had to spend huge amount in making structural changes in the building in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse Property but as Income from Other Sources. Income from a house property is taxable in the hands of its legal owner in whose name the property stands. Owner would mean a person entitled to receive income from a property in his own right even if no registered document was executed in his favor. Rental income of a person other than the owner could not be charged to tax under the head Income from House Property. Therefore, rental income received by tenant from sub-letting could not be charged to tax under the head Income from House Property. When the assessee was the sole owner of the property, the entire income was to be offered to tax by the assessee. The plea that other person offered the same to tax would be of no relevance. The rental income earned by other persons by sub-letting was chargeable under the head Income from other sources or as business income and it was illegal on the part of the family members to offer the income under the head Income from House Property. Therefore, Ld. AO should have taken corrective measures about income shown as income from house property by the family members. Finally, the plea raised by the assessee was rejected and it was held that the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in the hands of the assessee. It is trite law that tax planning is legitimate provided it is within four corners of law and done without any fraudulent intention. Colorable devices could not be a part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods. If the tax payer was in a position to carry a transaction in two alternative ways, one of which would result in lower tax liability, the assessee would be at liberty to choose that particular method. In the present case, we find nothing illegality in both the leave and license agreement entered into by the assessee. The terms of the agreement were duly honoured by the respective parties and it could not be said that the earlier agreement was a sham agreement. The rule of consistency would also favor assessee s case since similar apportionment done in AY 2010-11 has been accepted by the revenue. The case laws referred to in para 5.2 would also support the cause of the assessee that annual value of the property would be the annual value received or receivable by the assessee from the tenant irrespective of the fact that tenant on fur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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