TMI Blog2020 (5) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, development and sale of integrated township, residential and commercial multi-storey buildings , complexes, hotels houses and apartments. It filed its return of income for assessment year 2012 13 on 28/9/2012 declaring loss of ₹ 257337209/ . The assessment under section 143 (3) of the act was passed by the Asst Commissioner of income tax, central circle 2, New Delhi (the learned AO) on 8/1/2015 making an addition of ₹ 129996970 to the total income of the assessee. 5. During the course of assessment proceedings the AO found that assessee has transferred the revenue sharing of ₹ 1 29996970 to its holding company EMMAR MGF land Limited [ Holding co] pursuant to an agreement dated 7/4/2008 entered into by the assessee company and its holding company. The AO found that the above transaction is with a related party. The assessee explained that as per agreement dated 7 April 2008 entered into by assessee with its holding company titled as revenue sharing agreement pursuant to which the holding company will provide to the assessee company end to end support in planning, development, construction, marketing and sale of its project namely Commonwealth Games ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said sum of ₹ 1 29996970/ is also dubious inasmuch as the same has been reduced from the turnover instead of debating it separately in the profit and loss account. vi. No tax deduction at source has been deducted from this payment and therefore even the provisions of section 40 (a) (i.e. a) would get attracted. vii. The said amount has been shown as liability as on 31/3/2012 by making a book entry and there is no actual movement of funds commensurate to such transactions. viii. Since the transaction is between two related entities it is hit by the provisions of section 40A (2) (a). Issue of agreement dated 7/4/2018 is self-serving document and there are no real intangible services rendered by the holding company to the assessee company for claiming this amount as its share of revenue. ix. The quantum of sharing revenue out of gross sales is inordinately high, which would result in transfer of the entire profit from the project to the holding company. x. There are several case laws on the subject in favour of the revenue where it has been held that such payment made to related party are hit by the provisions of section 40A (2) (b) and are therefore not allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is a sham agreement to which the revenue has been transferred to its holding company. The coordinate bench as per para number 47 onwards has held as under:- 47. We find that the assessee is under the obligation to part away with the source of income to the holding company and it was not its volition alone, to give away the revenue that could have been otherwise accrued to them. An agreement entered into by the holding company with the assessee for providing financial security cover and to part away 25% sales proceeds was clearly a case of division of source of income between the holding company and the assessee. The flats to be constructed, by the assessee company were the source of income and the holding company had created a lien over 25% for a quid pro quo thereof and therefore took away 25% shares from the sale proceeds. It is not a case that the entire sale proceeds of flats and therefore, the income there from would have accrued to the assessee and 25% thereof had been applied or given away by the assessee to the holding company. The assessee acts as a collector of revenue for the holding company of the receipt to the extent of 25% of the sale proceeds. The 25% belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be for benefit of transferee on completion of sale transaction, though actual transfer of factory had taken place on 30.09.1964, income pertaining to period 01.10.1962 to 30.09.1964 could not be assessed in assessee's hands as it stood diverted by overriding title. It. held that if there is an agreement before the sale transaction takes place to the effect that this transaction will go to the account of another person and not to the account of assessee company, then, the income would stand diverted by an overriding title as a matter of fact, even before the accrual. The Hon'ble Apex Court held as under: Held, reversing the decision of the High Court, that the profits stood diverted to the purchaser in terms of and in. accordance with the agreement dated July 24, 1962, read with the supplemental agreement dated November 2, 1962, and the date of actual transfer of the factory in question which, in fact, had taken place on September 30, 1964, did not alter the situation. The income stood diverted by an overriding- title as a matter of fact even before the accrual. There was no question of enabling the assessee to retain the profit in its own hand, after the sale a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. 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 be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which income never reaches the assessee, who even if he were to feet it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. 49. From the facts of the case, it can be said that where a superior title is created before any income accrues or arises, it would be the diversion of income by overriding title but where there is no obligation attached and income is applied as per assessee's own choice after it accrues, it will not be a case of diversion by superior title as no superior title existed. In diversion, there is no earmarking by the assessee of a particular income but a charge is created upon his property being source of income. A charg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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