Chetan Das, Bangalore V. JCIT, Bangalore

ITA 780/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7381 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: H N KHINCHA

Judgement Text

ITA.780/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NO.780/BANG/2016 (ASSESSMENT YEAR : 2011-12) SHRI. CHETAN DASS, NO.189, SANKEY ROAD, SADASHIVANAGAR, BENGALURU .. APPELLANT PAN : ACCPD7140E V. JOINT COMMISSIONER OF INCOME TAX, RANGE-6, BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. H. N. KHINCHA, CA REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON : 04.09.2017 PRONOUNCED ON : 19.10.2017 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS ARISING OUT OF THE ORDER PAS SED BY THE CIT (A) LTU, BENGALURU, DT.22.03.2016, FOR THE ASSESS MENT YEAR 2011- 12, ON THE FOLLOWING GROUNDS : ITA.780/BANG/2016 PAGE - 2 1. THE LEARNED ASSESSING OFFICER HAD ERRED IN THE DISALLOWING THE CLAIM OF DEDUCTION OF INTEREST IS RS.29,90,918/- AND THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) HAS ERRED IN CONFIRMING THE SAME. 2. THE LOWER AUTHORITIES HAVE ARRIVED AT AN ERRONEO US CONCLUSION ON AN IMPROPER APPRECIATION OF FACTS. O N CORRECT APPRECIATION OF FACTS IT WILL BE CLEAR THAT DEDUCTI ON OF RS.29,90,718/- WAS CORRECTLY CLAIMED BY THE APPELLA NT AND THE SAME IS TO BE ALLOWED TO THE APPELLANT. 3. THE LEARNED ASSESSING OFFICER HAS ALSO ERRED IN LEVYING INTEREST U/S.234B, 234C OF THE I. T. ACT, 1961. TH E APPELLANT DENIES LIABILITY TO PAY INTEREST. THE INTEREST HAV ING BEEN LEVIED ERRONEOUSLY IS TO BE DELETED. 02. BRIEF FACTS ARE, THE ASSESSEE AN INDIVIDUAL, F ILED THE RETURN OF INCOME FOR THE AY 2011-12 DECLARING AN INCOME OF RS .30,66,010/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE WAS I SSUED ON 06.08.2013 IN RESPONSE TO WHICH THE ASSESSEES REPR ESENTATIVE APPEARED AND THE CASE WAS DISCUSSED. THEREAFTER A SHOW-CAUSE NOTICE WAS ISSUED AS THE ASSESSEE FAILED TO FURNISH THE RE QUISITE DETAILS. 03. THE AO MADE AN ADDITION OF RS.29,90,718/-, BEIN G DEDUCTION OF CLAIM FOR INTEREST BY THE ASSESSEE. IT WAS THE CAS E OF THE ASSESSEE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT OF LEASE WIT H BEERADEVARA DEVASTHANAGALA SANGHA (HEREINAFTER REFERRED TO AS BDS FOR SHORT), SAMPIGE TANK BUND ROAD, WOODLANDS HOTEL, BENGALURU, IN RESPECT OF PROPERTY AT RESIDENCY ROAD ALSO KNOWN AS SAMPIGE TA NK BUND ROAD VIDE AGREEMENT DT.06.08.1980. THE ASSESSEE CLAIMS THAT THE AGREEMENT COULD NOT BE FULLY CONVERTED INTO CONTRACT OF LEASE DUE TO DISPUTE BETWEEN THE ASSESSEE AND THE BDS, WHICH RESULTED IN TO FILING OF A ITA.780/BANG/2016 PAGE - 3 LITIGATION AND THE CASE WAS PENDING BEFORE THE HON BLE KARNATAKA HIGH COURT BY WAY OF RFA NO.90/2012. THE ASSESSEE HAD ENTERED INTO AGREEMENT TO SUBLEASE TO LEASE THE ABOVE SAI D PROPERTY WITH M/S. TAPOVAN BUILDERS P. LTD ON 23.02.1987 AND FURTHER A NOTHER SUB-LEASE AGREEMENT WAS ENTERED WITH M/S. BANGALORE HOSPITAL LTD ON 23.09.1990. THE ASSESSEE RECEIVED SUMS OF RS.9,50, 000/- AND RS.40 LAKHS FROM THE ABOVE TWO SUB-LESSEES RESPECTIVELY A S ADVANCE AND THE ASSESSEE HAS CLAIMED RS.29.90 LAKHS ONLY AS INTERES T EXPENSE ON THE ABOVE SAID ADVANCE. IT WAS SUBMITTED BY THE ASSESS EE THAT THE INTEREST PAYABLE ON THE ADVANCES HAS BEEN CLAIMED AS DEDUCTI ON U/S.57 OF THE ACT, FROM THE INTEREST RECEIVED ON DEPOSITS. HOWEV ER, THE AO WAS NOT CONVINCED AND HAS MADE THE ADDITION ON THE FOLLOWIN G GROUNDS : I) THAT THE CLAIM IS VAGUE II) THE PARTIES ENTERED INTO LEASE AGREEMENTS DESPI TE KNOWING THAT THE PROPERTY WAS IN LITIGATION III) THE MATTER HAS NOT REACHED FINALITY AND THE LI ABILITY IS NOT CRYSTALISED IV) INTEREST IS NOT ACTUALLY PAID AND THE LIABILITY IS A CONTINGENT ONE. FEELING AGGRIEVED BY THE ORDER PASSED BY THE AO, TH E ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). ITA.780/BANG/2016 PAGE - 4 05. THE CIT (A) CONFIRMED THE ADDITIONS MADE BY THE AO. BEING FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 06. BEFORE US THE LD. AR RELIED UPON THE PROVISIONS MENTIONED IN THE SUB-LEASE AGREEMENT TO THE FOLLOWING EFFECT : IT WAS SUBMITTED THAT THE ASSESSEE IS BOUND TO COMP ENSATE THE SUB- LESSEES FOR ANY EXPENSES / LOSSES THAT WOULD BE INC URRED AS A RESULT OF DEFECT IN THE TITLE OF THE ASSESSEE. FURTHER OUR A TTENTION WAS ALSO DRAWN TO PARA 17 OF THE AGREEMENT WHICH IS REPRODUCED BEL OW : ITA.780/BANG/2016 PAGE - 5 17. THE CHIEF-TENANT HEREBY AGREES AND UNDERTAKE T O EFFECTUALLY AND FULLY INDEMNIFY THE SUB TENANT AG AINST ALL ACTIONS, PROCEEDINGS OR DEMANDS AND IF THE SUB-TENA NT SUFFER ANY LOSS OR DAMAGE OR EXPENDITURE BY WAY AND BECAUS E OF ANY CLAIM, ENTITLEMENT OR DEMAND BY ANY PERSON WHOMSOEV ER OR AS A RESULT OF DEFECT IN THE TITLE OF THE CHIEF TENA NT IN RESPECT OF THE SCHEDULE PROPERTY TO THE EXTENT OF SUCH LOSS, D AMAGE OR EXPENDITURE THAT THE SUB-TENANT MAY SUFFER AS AFORE - MENTIONED. 07. IN VIEW OF THE ABOVE, IT WAS SUBMITTED BY THE L D AR THAT THE LIABILITY IS NOT A CONTINGENT LIABILITY AND IT IS T HE LIABILITY OF THE ASSESSEE TO PAY THE INTEREST IN TERMS OF THE AGREEM ENT AND THEREFORE THE FINDING OF THE AO AND CIT (A) WERE IN CORRECT. FUR THER, IT WAS SUBMITTED THAT THE ASSESSEE IS FOLLOWING THE MERCAN TILE SYSTEM OF ACCOUNTING AND THE ASSESSEE IS LIABLE TO SHOW THE I NTEREST INCOME IN ITS BOOKS OF ACCOUNT. IT WAS LASTLY SUBMITTED THAT INV OCATION OF SECTION 57(3) BY THE AUTHORITIES BELOW WERE NOT CORRECT. 08. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE LOWER AUTHORITIES AND HAS SUBMITTED THAT THE AGREEMENT EN TERED INTO BETWEEN THE ASSESSEE (CHIEF-TENANT) WITH THE SUB-LESSEES IS NOT ENFORCEABLE IN THE EYES OF LAW AND THEREFORE THERE IS NO QUESTION OF CONTINGENT LIABILITY. 09. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND ALSO THE WRITTEN SUBMISSIONS FILED. FROM THE RECORD, THE FOLLOWING FACTS ARISE : ITA.780/BANG/2016 PAGE - 6 I) THE ASSESSEE WAS GRANTED A LEASE DT.19.05.1978 R EGISTERED AS NO.604 IN BOOK-I, VOLUME 1949 PAGE 97 IN THE O/O TH E SUB-REGISTRAR, BANGALORE, FOR A PERIOD OF TEN YEARS ; II) FURTHER THE ASSESSEE SOUGHT EXTENSION OF LEASE OF TWO PORTIONS VIDE AGREEMENT DT.19.05.1987 BY PAYING AN AMOUNT O F RS.9.5 LAKHS FOR A PERIOD OF 48 YEARS WITH AN OPTION TO RENEW FO R A PERIOD OF 23 YEARS, FOR AN AMOUNT OF RS.9.5 LAKHS PAID BY M/S. T APOVAN BUILDERS, FURTHER M/S. TAPOVAN BUILDERS HAD UNDERTAKEN TO PA Y ANOTHER RS.10 LAKHS TO THE ASSESSEE AT THE TIME OF REGISTRATION O F THE SUB-LEASE AGREEMENT IN FAVOUR OF THE SUB-LESSEE. SUB-LEASE W AS TO BE EXECUTED WITHIN SIX MONTHS FROM THE DATE OF PRINCIPAL TENANT ENTERING INTO THE LEASE OF THE SAID PROPERTY WITH THE LANDLORD. III) IN THE AGREEMENT DT.19.05.1987, IT WAS CLEARL Y MENTIONED THAT A LITIGATION WAS GOING ON BETWEEN THE PRINCIPAL TENAN T AND BDS, WHICH WAS A SUBJECT MATTER OF O.S. NO.10329/1983. IV) SIMILARLY, THE ASSESSEE ENTERED INTO ANOTHER LE ASE WITH M/S. BANGALORE HOSPITALS LTD, BY A SUB-LEASE AGREEMENT D T.23.09.1990 FOR GRANT OF SUB-LEASE FOR A PERIOD OF 48 YEARS AND SUB JECT TO EXTENSION FOR A FURTHER PERIOD OF 23 YEARS. IN THE SUB-LEASE AGR EEMENT IT IS MENTIONED THAT SUB-LESSEE HAS GIVEN A PAY ORDER FOR A SUM OF RS.40 LAKHS AS ADVANCE TOWARDS THE GRANT OF SUB-LEASE. V) IT WAS FURTHER STIPULATED THAT THE ASSESSEE WILL BE GETTING RS. 30,000/- PM AS AGREED FROM THE SUB-T ENANT. IT WAS ALSO ITA.780/BANG/2016 PAGE - 7 MENTIONED IN THE SAID AGREEMENT THAT THE SUB-LESSEE NAMELY, BANGALORE HOSPITALS LTD HAD NOT ALSO PAID ANOTHER SUM OF RS.45 LAKHS AT THE TIME OF ACTUAL REGISTRATION AND EXECUTION OF SUB-LEASE BY THE CHIEF TENANT IN FAVOUR OF THE SUB-LESSEE. IN THE A GREEMENT DT.23.09.1990, THE ASSESSEE HAD ALSO MENTIONED ABOU T THE PENDENCY OF THE DISPUTE BETWEEN THE CHIEF TENANT AND BDS. 10. FROM THE ABOVE, IT IS CLEAR THAT THE INITIAL LE ASE FOR A PERIOD OF TEN YEARS EXPIRED ON 19.05.1988 AND THERE WAS NO EX TENSION OF LEASE AGREEMENT IN FAVOUR OF THE ASSESSEE. ON ACCOUNT OF THE ABOVE, WE ARE OF THE OPINION THAT ONCE THE ASSESSEE DID NOT HAVE ANY RIGHT TO REMAIN IN POSSESSION OF LEASE, THERE WAS NO OCCASION FOR T HE ASSESSEE TO ENTER INTO A SUB-LEASE AGREEMENT INITIALLY WITH TAPOVAN B UILDERS IN THE YEAR 1987 AND THEREAFTER WITH BANGALORE HOSPITALS LTD. MOREOVER THE EXISTENCE OF BOTH THE SUB-LEASE AGREEMENTS WAS DEPE NDENT UPON THE CLEAR AND MARKETABLE TITLE OF THE ASSESSEE, ON THE BASIS OF WHICH THE ASSESSEE CAN EXECUTE THE SUB-LEASE AGREEMENT IN FAV OUR OF THESE TWO SUB-LESSEES. ONCE THE TITLE OF THE ASSESSEE IS UND ER CLOUD, THERE IS NO OCCASION FOR THE ASSESSEE TO EXECUTE THE SUB-LEASE AGREEMENT IN FAVOUR OF THESE TWO ENTITIES. FURTHER BOTH THE SUB-LEASE AGREEMENTS WERE ONLY A PRELUDE TO THE AGREEMENT AS NEITHER THE TITLE OF THE ASSESSEE WAS CLEAR NOR THE ASSESSEE COULD PUT THESE TWO ENTITIES INTO POSSESSION, NOR T HESE TWO ENTITIES HAVE PAID THE REMAINING AMOUNT OF RS.10 LAKHS AND R S.45 LAKHS RESPECTIVELY. ITA.780/BANG/2016 PAGE - 8 11. IN VIEW OF THE ABOVE, THE CLAIM OF THE ASSESSEE THAT THE INTEREST WAS PAYABLE ON ADVANCES OF RS.9,50,000/- AND RS.40, 00,000/- ARE NOT PAYABLE ON ACCRUAL BASIS. ONCE THE ASSESSEE WAS UN ABLE TO DISCHARGE ITS OBLIGATION UNDER THE AGREEMENT, IT IS FOR THE A SSESSEE TO TAKE A CALL AND RETURN THE AMOUNT RECEIVED BY HIM IMMEDIATELY W HEN HE WAS UNABLE TO PAY THE AMOUNT. FURTHER THE CREDIT OF IN TEREST ACCRUED IN FAVOUR OF THESE TWO ENTITLES WAS RELATABLE TO THE B USINESS OF THE ASSESSEE, AS IT WAS NOT WHOLLY AND EXCLUSIVELY CONN ECTED WITH THE BUSINESS OF THE ASSESSEE. OUR VIEW IS FURTHER SUPP ORTED BY THE FACT THAT THESE TWO ENTITIES HAVE NOT SHOWN ANY INTEREST AMOU NT TOWARDS THESE ADVANCES AS RECEIVABLES IN THEIR BOOKS OF ACCOUNT. 12. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THA T THE LIABILITY IS ONLY SOUGHT TO BE CREDITED BY WAY OF CREDITING THE INTEREST AMOUNT WAS MERELY A CONTINGENT LIABILITY / OR RATHER NO LIABIL ITY IN THE EYES OF LAW. THEREFORE THE ASSESSEE WAS NOT ENTITLED TO CREDIT T HE SAME AMOUNT BY DEDUCTING IT UNDER THE PROVISIONS OF THE ACT. IN V IEW OF THE ABOVE, THE REASONING GIVEN BY THE CIT (A) IN PARA 3.17 AND 3.1 8 ARE CORRECT AND NO INTERFERENCE IS CALLED FOR. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. SD/- SD/- (JASON P. BOAZ) (LA LIT KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 19.10.2017. MCN* ITA.780/BANG/2016 PAGE - 9 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY