TaxTMI 
TaxTMI 
2016 (1) TMI 407
X X X X Extracts X X X X
X X X X Extracts X X X X
....er are that the assessee has purchased flats in multistoried building called Samshiba vide agreement dated 10.5.2005 for a consideration of Rs. 3.75 crores. While scrutinizing the return of income, the Assessing Officer found that the assessee has not shown any income under the head "Income from House Property" being annual let out value of the flats in Samshiba 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 Assessee to show cause as to why the Income of Rs. 44,00,000/- being leave & license rent from flat at Samshiba Apartments for the period of 11 months be added to Assessee's Income as she had purchased the flat on 10th May 2005 from Mr. Samir Bojwani & being the owner of flat, she is entitled to the Leave & License Rent o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 License Agreement with Accor Radha Krishna Corporate Services Pvt. Ltd., on 16th February 2006 & registered the document with the Sub-Registrar on 22nd February 2006 for a period 11 months from 1st December 2006 to31st Oct 2007. It can be seen from the para 2 & 2 A of the said Leave & License Agreement that the period of License shall be of 21 Months commencing from 1st February 2006 till 31st October 2006. It can be seen from para 1 (f) that upon the expiry of Leave & License Agreement 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 "tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oes the income attributable to the assessee get diverted by over riding title? The determinative factor is the nature & effect of the assessee's obligation 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 overriding title. " Consequently the Leave & License Rent of Rs. 6,00,000/- (for the period 16th February 2006 to 31st March 2006 @ Rs. 4,00,000/- per month) which the Assessee was never entitled to receive the same cannot be charged to tax. In our opinion the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in evevy case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the Assessee. Had this clause would not have been agreed by the purchaser, the vendor would not have sold the property to the purchaser. Hence the Assessee, even if would have received this income of Rs. 6,00,000/- the same would be on behalf of the vendor Mr. Samir Bhojwani as she was not entitled to receive the rent as per the terms & conditions of the agreement of sale dt 10/05/2005. As regards your contention that you want to 'presume' that the Assessee has agreed not to recover the rent for the period for which Mr. 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 what the Assessee should have done. As long as the transaction is not a colorable device that Income Tax Department cannot overrule an agreem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e agreement with Accor Radhakrishna Corporate Services Pvt. Ltd., vide agreement dated 27.11.2004. The license fee was agreed at Rs. 4,00,000/-. Since the agreement was for a period of 22 months, it was agreed that the license fee of Rs. 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 Rs. 12,00,000/-. The most relevant clause of this agreement is clause 16.1 which read as under: "The Licensee shall be entitled to terminate this agreement by giving a prior written notice of minimum three months to the licensor Provided However that such option of termination shall not be exercised by the Licensee for an initial period of 15 months, in case the Licensee desires to terminate the agreement, it will have to give three months prior notice but only after 30th April, 2006.(Emphasized by us) 7. Keeping these relevant 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 ....