2019 (3) TMI 331 - AT - Income Tax

Tribunal upholds deletion of protective additions, partially allows assessee's appeal on disallowance. Lease rental income taxed under 'Income from House Property.'

The Tribunal dismissed the Revenue's appeals for AY 2009-10 and 2011-12, upholding the deletion of protective additions. The assessee's appeals for AY ... Income from House Property - transfer of income without transfer of source - application of section 60 (chargeability of income to transferor where asset remains with transferor) - beneficial/overriding title by contract versus de facto ownership - protective assessment - disallowance under section 14A read with Rule 8D - limitation to dividend receivedIncome from House Property - transfer of income without transfer of source - application of section 60 (chargeability of income to transferor where asset remains with transferor) - protective assessment - Taxability of lease rentals received by Ambience Developers and Infrastructure Pvt. Ltd. (ADIPL) for AY 2009-10 - whether the rental income should be assessed in the hands of ADIPL or in the hands of the owner M/s. Ambience Hotels and Resorts Pvt. Ltd. - HELD THAT: - The Tribunal examined the agreement dated 31.03.2008 and its operative clauses showing that ADIPL received rents and had the right to manage and appropriate receipts during the currency of the agreement. However, the Tribunal applied the principle embodied in sections 22 and 27 and the statutory doctrine captured by section 60 - that where the asset producing the income remains with the transferor, income arising therefrom is chargeable as the income of the transferor. Relying on this Tribunal's earlier decision in the assessee's own case for preceding years and on the statutory scheme, the Tribunal held that in the absence of transfer of the capital asset, the rental income is taxable in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. and therefore the protective assessment made in the hands of ADIPL in respect of such rental income was directed to be deleted; the Assessing Officer was directed to assess the rental income in the hands of the owner, granting the statutory standard deduction as applicable. [Paras 8, 9]Protective addition in ADIPL's hands in respect of the lease rentals for AY 2009-10 is deleted and the Assessing Officer is directed to tax the rental income in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd., allowing the standard deduction as per law.Income from House Property - transfer of income without transfer of source - application of section 60 (chargeability of income to transferor where asset remains with transferor) - protective assessment - Taxability of lease rentals received by Ambience Developers and Infrastructure Pvt. Ltd. for AY 2011-12 - whether the addition made in ADIPL's hands should be sustained or deleted. - HELD THAT: - Facts and the contractual arrangement for AY 2011-12 were held to be identical to the earlier year. No fresh material was brought by the revenue. Respectfully following the Tribunal's reasoning applied to the preceding assessment year, the Tribunal directed deletion of the addition in ADIPL's hands and dismissed the revenue's grounds, directing the Assessing Officer to proceed accordingly. [Paras 10, 11]Revenue's appeal dismissed; addition in ADIPL's hands for AY 2011-12 deleted and rental income to be assessed in hands of the owner as per the Tribunal's directions.Transfer of income without transfer of source - application of section 60 (chargeability of income to transferor where asset remains with transferor) - Income from House Property - disallowance under section 14A read with Rule 8D - limitation to dividend received - (i) For M/s. Ambience Hotels and Resorts Pvt. Ltd. (AY 2010-11): Whether rental income from retail spaces (collected by ADIPL under the agreement) is taxable in the hands of Ambience Hotels and Resorts as income from house property, and (ii) Whether disallowance under section 14A read with Rule 8D(2)(iii) should be sustained and to what extent. - HELD THAT: - (i) The Tribunal considered the legislative history and scope of section 60 and related provisions, concluding that where the asset yielding income remains the property of the transferor, section 60 operates to charge the income to the transferor. Applying those principles, the Tribunal disagreed with the assessee's contention that section 60 was inapplicable and upheld the view that the income from leasing of shops/retail spaces is assessable in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. under the head 'Income from House Property' after allowing statutory deductions under section 24. (ii) On the section 14A disallowance computed by the Assessing Officer under Rule 8D(2)(iii), the Tribunal accepted that the assessee had earned dividend of a limited amount during the year and that in line with the Supreme Court's ratio in Maxopp Investment Ltd., the disallowance cannot exceed the dividend actually received; accordingly the disallowance was restricted to the dividend amount receivable by the assessee for the year. [Paras 19, 20, 21, 23, 24]Assessee's appeal (Ambience Hotels) dismissed - rental income is assessable in the hands of the owner as 'Income from House Property'; disallowance under section 14A/Rule 8D restricted to the extent of dividend actually received.Final Conclusion: The Tribunal held, across the disputed assessment years, that where the capital asset producing rental income remained with the owner, the income is chargeable to the owner (applying the doctrine embodied in sections 22/27 and the principle under section 60); protective additions in the hands of the recipient were ordered deleted and Assessing Officers directed to assess the income in the hands of the owner with statutory deductions. Separately, the section 14A disallowance was confined to the dividend actually received. Issues Involved:1. Deletion of addition on account of lease rental income on a protective basis.2. Taxability of lease rentals received from retail spaces.3. Applicability of Section 60 of the Income Tax Act.4. Legal ownership and beneficial ownership of the property.5. Allowance of business expenses if income is taxed under 'Income from Business and Profession'.6. Disallowance under Section 14A read with Rule 8D(2)(iii).Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Lease Rental Income on a Protective Basis:The Revenue's appeals for AY 2009-10 and 2011-12 challenged the deletion of additions made on a protective basis regarding lease rental income. The Tribunal observed that the lease rental income should be taxed in the hands of the actual owner, M/s. Ambience Hotels and Resorts Pvt. Ltd., and not the assessee, as there was no transfer of property. The Tribunal upheld the CIT(A)'s decision to delete the protective addition in the assessee's hands, directing the AO to tax the rental income in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd.2. Taxability of Lease Rentals Received from Retail Spaces:The assessee's appeals for AY 2010-11 contested the CIT(A)'s decision to tax the lease rentals in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. The Tribunal held that the lease rental income should be assessed in the hands of the actual owner, M/s. Ambience Hotels and Resorts Pvt. Ltd., and not the assessee, as the agreement did not transfer the property to the assessee. Thus, the income from leasing of shops/retail spaces was to be taxed under 'Income from House Property' in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd.3. Applicability of Section 60 of the Income Tax Act:The Revenue argued that the arrangement between the assessee and its sister concern should be taxed under Section 60, as it involved the transfer of income without transferring the asset. The Tribunal referred to the legislative history and judicial interpretations of Section 60, concluding that it applies when the asset remains with the transferor, and only the income is transferred. Since the property was not transferred to the assessee, Section 60 was applicable, and the rental income should be taxed in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd.4. Legal Ownership and Beneficial Ownership of the Property:The assessee contended that it had beneficial ownership of the property due to the agreement and the interest-free deposit paid. However, the Tribunal noted that legal ownership is crucial for taxing income under 'Income from House Property.' Since M/s. Ambience Hotels and Resorts Pvt. Ltd. remained the legal owner, the rental income was taxable in its hands, not the assessee's.5. Allowance of Business Expenses if Income is Taxed under 'Income from Business and Profession':The assessee argued that if the lease rental income is taxed under 'Income from Business and Profession,' business expenses should be allowed. The Tribunal did not accept this argument, as the income was to be taxed under 'Income from House Property' in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd., and not the assessee.6. Disallowance under Section 14A read with Rule 8D(2)(iii):In the assessee's appeal for AY 2010-11, the issue of disallowance under Section 14A was raised. The Tribunal observed that the assessee had made significant investments and earned dividend income. Referring to the Supreme Court's decision in Maxopp Investment Ltd. vs. CIT, the Tribunal held that disallowance should not exceed the dividend earned. Thus, the disallowance was restricted to the extent of the dividend income received by the assessee.Conclusion:The Tribunal dismissed the Revenue's appeals for AY 2009-10 and 2011-12, upholding the deletion of protective additions. The assessee's appeals for AY 2010-11 were partly allowed concerning the disallowance under Section 14A, but the primary issue of taxing lease rental income was decided against the assessee, confirming that the income should be taxed in the hands of M/s. Ambience Hotels and Resorts Pvt. Ltd. under 'Income from House Property.'