1988 (1) TMI 77 - AT - Income Tax

ITAT Upholds CIT(A) Decision: Lessees' Payment Not Taxable

INCOME TAX OFFICER. Versus M/s CHAMPA PROPERTIES P. LTD.

The ITAT upheld the CIT(A)'s decision and dismissed the departmental appeals for both assessment years under consideration. The payment of Rs. 72,000 to ... - Issues:1. Whether the amount paid by the assessee to the three partnership firms should be included in the computation of house property income.2. Whether the agreements entered into by the assessee with the lessees constituted an application of income by the assessee-company.Detailed Analysis:1. The case involved the ownership of immovable properties by an individual who subsequently sold a percentage of the properties to close relatives and formed a joint stock company with other co-owners. The company leased the property to three partnership firms before entering into an agreement with the Government of India for renting out the entire property. The Income Tax Officer (ITO) found discrepancies in the income computation of the assessee for the assessment years 1982-83 and 1983-84, specifically related to a sum of Rs. 72,000 paid to the partnership firms. The ITO included this amount in the house property income of the assessee based on previous orders. The CIT(A) deleted the addition of Rs. 72,000 for each assessment year, leading to an appeal by the revenue against the CIT(A) orders.2. The crux of the issue revolved around whether the payment of Rs. 72,000 to the lessees constituted an application of income by the assessee-company. The department argued that the payment should be considered as part of the assessee's income, as the lessees surrendered their rights, resulting in a capital field payment. However, the assessee contended that the amount paid did not form part of its income, as it collected the sum as a trustee on behalf of the lessees, leading to a diversion of income before reaching the assessee. The agreements entered into by the assessee with the lessees were crucial in determining the nature of the payment and its treatment in computing house property income. The ITAT held that the payment of Rs. 72,000 did not form part of the assessee's income, as it was based on valid agreements with the lessees and did not constitute an application of income as per the Supreme Court's interpretation in CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC). The ITAT upheld the CIT(A)'s decision and dismissed the departmental appeals for both assessment years under consideration.