DCIT, New Delhi V. M/s. The State Trading Corp. of India Ltd., New Delhi

ITA 822/DEL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7079 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 09-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS REENA S PURI
• Assessee Lawyers: S GUPTA; K JETLEY P AGGARWAL
• Keywords: Diversion of income; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: H : NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER & SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A. NO. 822/DEL/2010 ASSESSMENT YEAR : 2006-07 D.C.I.T., CIRCLE-16(1), NEW DELHI. VS. M/S STATE TRADING CORPORATION OF INDIA LIMITED, JAWAHAR VYAPAR BHAWAN, TOLSTOY MARG, NEW DELHI. (PAN NO. AAACT 0102 F) I.T.A. NO. 3747/DEL/2010 ASSESSMENT YEAR : 2007-08 A.C.I.T., CIRCLE-16(1), NEW DELHI. VS. M/S STATE TRADING CORPORATION OF INDIA LIMITED, JAWAHAR VYAPAR BHAWAN, TOLSTOY MARG, NEW DELHI. (PAN NO. AAACT 0102 F) [APPELLANT] [RESPONDEN T] APPELLANT BY : MRS. R EENA S. PURI, CIT D.R. RESPONDENT BY : SHRI K. JETLEY, P. AGGARWAL & SHRI S. GUPTA, ADVOCATES O R D E R PER DIVA SINGH, JM BOTH THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE SEPARATE ORDERS DATED 02.12.2009 AND 26.05.2010 OF THE CIT(A) XIX, NEW DELHI PERTAINING TO 2006-07 & 2007-08 ASSESSMENT YE ARS. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 2 2. THE SOLE GROUND RAISED IN ITA NO.822/DEL/2010 RE ADS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION OF RS.3, 59,23,120/- ON ACCOUNT OF PAYMENTS MADE TO L&DO IGNORING THE FA CT THAT THE PROVISIONS OF SECTION 24 OF I.T. ACT ARE EXHAUS TIVE IN NATURE AND NO SUCH DEDUCTION IS PERMISSIBLE IN U/S 23 OR 2 4 OF I.T. ACT, 1961. 3. THE SAID ISSUE HAS ALSO BEEN AGITATED BY THE REV ENUE IN THE NEXT YEAR. HOWEVER, THE DEDUCTION ALLOWED BY THE CIT(A) WHICH IS UNDER CHALLENGE AMOUNTS TO RS.2,87,54,025/-. 4. IT WAS A COMMON STAND OF THE PARTIES BEFORE THE BENCH THAT FACTS AND CIRCUMSTANCES AS WELL AS ARGUMENTS ON EITHER SIDE W OULD BE IDENTICAL FOR BOTH THE YEARS ON THE FIRST ISSUE. 5. THE RELEVANT FACTS AS ARE APPEARING IN THE ASSES SMENT ORDER FOR THE YEAR 2006-07 ARE THAT THE ASSESSEE DECLARED A TOTAL INCOME OF RS.59,71,00,000/- ODD VIDE ITS RETURN DATED 27.11.2 006. SUBSEQUENTLY, IT WAS REVISED ON 29.02.2009 DECLARING A TOTAL INCOME OF RS.58,76,00,000/- ODD. THE ASSESSING OFFICER (A.O.) ON A PERUSAL OF THE COMPUTATION OF INCOME FILED BY THE ASSESSEE OBSERVED THAT THE ASSE SSEE HAD DECLARED RS.6,95,75,017/- ON ACCOUNT OF INCOME FROM HOUSE PR OPERTY. ON GOING THROUGH THE COMPUTATION OF INCOME ON RECORD, THE SA ID HOUSE PROPERTY, IT WAS OBSERVED THAT THE ASSESSEE HAS TAKEN ONLY 75% OF AC TUAL RENT RECEIVED AS ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 3 GROSS ANNUAL VALUE OF THE LET OUT PORTION OF THE HO USE PROPERTY. IN REGARD TO THIS, IT HAD GIVEN THE FOLLOWING NOTE :- THE AFORESAID AMOUNT OF RENT IS EXCLUSIVE OF 25% O F THE GROSS RENT RECEIVED FROM THE TENANTS SINCE 25% OF T HE GROSS RENT IS DIVERTED BY OVERRIDING TITLE TO L&DO IN TER MS OF CLAUSE XIV-A OF TERMS OF LEASE DEED BETWEEN STC & PRESIDEN T OF INDIA/L&DO. THE 25% OF RENT DOES NOT CONSTITUTE IN COME OF STC. 5.1. THE A.O. WAS OF THE VIEW THAT IN THE FACE OF THE EXHAUSTIVE PROVISION OF SECTION 22, 23 & 24 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER), THE ASSESSEE IS REQUIRED TO ADDRESS AS TO WHY THE TOTAL AMOUNT RECEIVED NOT BE TAKEN AS GROSS ANNUAL VALUE OF THE LET OUT HOUSE PROPERTY. 5.2. IN ITS REPLY DATED 28.11.2008, AS FOUND REPROD UCED IN THE ASSESSMENT ORDER, THE ASSESSEE STATED AS UNDER :- 4. PAYMENT TO L&DO: THE AGREEMENT ENTERS INTO BET WEEN THE ASSESSEE CORPORATION AND THE PRESIDENT OF INDIA HAS ALREADY BEEN FILED ALONG WITH OUR LETTER DATED 03.11.2008. IN TERMS O F THE SAID AGREEMENT, THE ASSESSEE CORPORATION CAN NOT EARN ANY INCOME ON ACCOUNT OF RENT UNLESS 25% OF THE SAME IS PASSED ON TO THE L&DO. I T WILL BE APPRECIATED THAT THIS PORTION OF 25% DOES NOT BELONGS TO ASSESS EE AS THE PERMISSION TO RENT OUT THE PROPERTY TO EARN RENTAL INCOME DOES NO T ACCRUE TO THE ASSESSEE UNLESS THIS PORTIONS PASSED ON TO L&DO. UNDER THE CIRCUMSTANCES THE AMOUNT TO THE EXTENT OF 25% OF THE RENT DOES, UNDER THE CIRCUMSTANCES, BELONGS /PERTAIN TO ASSESSEE. ONLY THE BALANCE AMO UNT OF 75% IS ON BY THE ASSESSEE CORPORATION WHICH HAS BEEN APPROPRIATELY R EFLECTED IN ITS TAXABLE INCOME. 25% OF THE RENT THEREFORE IS BELONGING TO L&DO THROUGH AN OVERRIDING TITLE. 5.3. CONSIDERING THE AGREEMENT REFERRED TO BY THE A SSESSEE, THE A.O. WAS OF THE VIEW THAT IT IS NOT DENIED THAT THERE IS AN AGREEMENT BETWEEN THE STC AND L& DO THAT IN CASE LEASE PROPERTY WAS LET OUT, THE STC WOULD PAY 25% ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 4 OF THE RENT RECEIVED ON SUCH LET OUT PORTION OF THE PROPERTY TO THE L&DO. HOWEVER, THE ACTION OF THE ASSESSEE IN TREATING 25% OF RENT RECEIVED, WHICH WAS PAID BY IT TO L&DO AS ITS EXEMPT INCOME WAS CON SIDERED TO BE CONTRARY TO THE PROVISIONS OF THE ACT. SINCE THE SAID ISSUE IS DEALT BY PROVISIONS OF SECTION 22 TO 24 AND BY VIRTUE OF SECTION 23 THE AS SESSEE COULD CALCULATE ANNUAL VALUE OF A LET OUT HOUSE PROPERTY BY DEDUCTI NG THE MUNICIPAL TAX PAID FROM THE ACTUAL RENT RECEIVED AND FROM ANNUAL VALUE SO ARRIVED UNDER SECTION 24 PROVIDED ONLY TWO DEDUCTIONS NAMELY (A) STANDARD DEDUCTION AND (B) INTEREST ON BORROWED CAPITAL. THUS, SINCE NO DEDUC TION CAN BE CLAIMED IN RESPECT OF AN EXPENDITURE WHICH IS NOT SPECIFIED IN SECTION 24 OF THE ACT, THE POSITION OF LAW WAS CONSIDERED TO HAVE BEEN SETTLED BY INDIAN CITY PROPERTY VS. CIT, 55 ITR 262 (CAL), CIT VS. H.G. GUPTA & SON S, 149 ITR 253 (DELHI). ACCORDINGLY THE ASSESSEES INCOME FROM HO USE PROPERTY WAS COMPUTED AS UNDER: ACTUAL RENT RECEIVED RS.15,47,14,350/- LESS: MUNICIPAL TAX RS.1,66,42,881/- NET ANNUAL VALUE RS.13,80,71,469/- LESS: STANDARD DEDUCTION U/S 24(A) RS.4,14,21,440/ - INCOME FROM HOUSE PROPERTY RS.9,66,50,028/- 5.4. SIMILARLY IN 2007-08 A.Y. THE ASSESSEE WAS REQ UIRED TO ADDRESS AN IDENTICAL ISSUE IN REGARD TO EXPENSES OF RS.3,87,54 ,025/- AS HAVING BEEN PAID TO L&DO. THE ACTION OF THE ASSESSEE IN TAKING ONLY 75% OF THE ACTUAL RENT ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 5 RECEIVED FROM THE LET OUT PROPERTY WAS QUESTIONED W HEREIN IDENTICAL NOTE IN REGARD TO THE SAME AS IN THE EARLIER YEARS HAD BEE N GIVEN BY THE ASSESSEE IN ITS COMPUTATION. THE ASSESSEE THEREIN IN THE SAID YEAR FILED DETAILED WRITTEN SUBMISSIONS VIDE LETTER DATED 03.11.2009 WHICH IS FOUND REPRODUCED AT PAGE NOS.2 TO 4 OF THE ASSESSMENT ORDER. A PERUSAL OF T HE SAME SHOWS THAT IT WAS CONTENDED THAT THE ASSESSEE HAD TAKEN ON LEASE FRO M THE GOVERNMENT OF INDIA THE LAND SITUATED AT TOLSTOY MARG, NEW DELHI VIDE LEASE DEED DATED 5 TH OCTOBER, 1975. AS PER THE LEASED DOCUMENT THE ASSE SSEE CONSTRUCTED A MULTI- STOREY BUILDING THEREON AND THE SAID BUILDING IN TE RMS OF THE LEASE COULD BE USED FOR OFFICE PURPOSES OF THE ASSESSEE, ITS SUBSI DIARIES INCLUDING CENTRAL COTTAGE INDUSTRIES EMPORIUM. THE RESTRICTIONS PLAC ED BY THE SAID AGREEMENT ON THE ASSESSEE BEING SET OUT IN CLAUSE XIV-A READ WITH CLAUSE-IX OF THE SAID LEASE DEED IT WAS STATED PROVIDES AS UNDER :- THE INTENDED LESSEE SHALL NOT SUBLET OR GIVE ON RE NT ANY PART OF THE SAID LAND OR BUILDING CONSTRUCTED ON TH E DEMISED PIECE OF LAND WITHOUT PRIOR PERMISSION OF THE LESSO R. IN CASE OF SUCH PERMISSION THE STATE TRADING CORPORATION WILL PAY TO THE GOVERNMENT 25% OF THE RENT SO FETCHED IN RESPECT OF THE SAID ACCOMMODATION AS IS HIRED OUT BY THE CORPORATION TO ORGANIZATIONS OTHER THAN THAT OF THE STATE TRADING CORPORATION AND ITS SUBSIDIARIES INCLUDING CENTRAL COTTAGE INDU STRIES EMPORIUM. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 6 5.5. REFERRING TO THE SAID CLAUSE, IT WAS STATED TH AT A SUM EQUIVALENT TO 25% THEREOF WAS DEDUCTED FROM THE GROSS AMOUNT OF RENT DUE FROM THE PROPERTY AT TOLSTOY MARG. IT WAS STATED THAT SUCH EXPENDITURE WAS OBLIGATORY ON THE PART OF THE ASSESSEE FOR EARNING THE RENTAL INCOME OFFERED FOR TAXATION. IT WAS AGITATED THAT THE EXPENDITURE WAS NECESSARILY INCUR RED FOR ENJOYMENT/USER OF THE RELEVANT PROPERTY; THAT WITHOUT PASSING ON 25% OF THE GROSS RENT TO L&DO THE ASSESSEE WOULD NOT HAVE BEEN ABLE TO LET O UT THE PROPERTY AND EARN INCOME. RELIANCE WAS PLACED UPON J.B. PATEL & CO. VS. DCIT, 118 ITD 556 WHICH HAD OCCASION TO CONSIDER THE DECISION IN THE CASE OF CIT VS. H.G. GUPTA & SONS, 149 ITR 253. IT WAS ALSO CONTENDED TH AT THE ASSESSEE IS NOT CLAIMING DEDUCTION UNDER SECTION 24 AND IT IS A CAS E OF DIVERTING INCOME BY OVERRIDING TITLE. FURTHER RELIANCE WAS PLACED UPON CIT VS. SURAT JILLA KAMDAR SAHAKARI SANGH LIMITED, 201 ITR 157 AND CIT VS. CHAMPA PROPERTIES (P) LTD. REPORTED IN 212 ITR 303. 5.6. IT WAS ALSO CONTENDED THAT THE SAID DEDUCTION HAS BEEN CLAIMED BY THE ASSESSEE SINCE THE LAST SO MANY YEARS AND THE SAID ISSUE HAS NEVER BEEN DISPUTED BY THE DEPARTMENT. NO NEW FACTS HAVE BEEN BROUGHT ON RECORD SO AS TO DEVIATE FROM THE CONSISTENT STAND TAKEN IN T HE EARLIER YEARS. IT WAS URGED THAT UNLESS SOME NEW FACT IS BROUGHT ON RECOR D THE PAST ACCEPTED ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 7 PRACTICE CANNOT BE DEVIATED FROM. FOR THE SAID PRO POSITION, RELIANCE WAS PLACED UPON THE FOLLOWING JUDG3EMENTS :- I) RADHA SOAMI SATSANG VS. CIT, 193 ITR 321 (SC) II) CIT VS. ARJ SECURITY PRINTERS, 264 ITR 276 (DEL ) III) CIT VS. HARIG CRANKSHAFTS LTD., 173 TAXMAN 152 (DEL) 5.7. NOT CONVINCED BY THE EXPLANATION OFFERED IN TH E YEARS UNDER CONSIDERATION THE A.O. WAS OF THE VIEW THAT ALTHOU GH IT IS NOT DENIED THAT THERE IS AN AGREEMENT BETWEEN THE STC AND L&DO, HOW EVER, THE PAYMENT OF 25% OF THE RENT RECEIVED BY THE L&DO CANNOT BE A LLOWED, AS ACCORDING TO HIM THE ANNUAL VALUE OF THE HOUSE PROPERTY IS T O BE DETERMINED IN TERMS OF SECTION 23 AND 24 OF THE ACT WHICH DOES NOT PRO VIDE FOR SUCH A DEDUCTION, AS SUCH, THE DEDUCTION CLAIMED WAS NOT ALLOWED. 6. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL B EFORE THE CIT(A). 6.1. BEFORE THE CIT(A), DETAILED WRITTEN SUBMISSI ONS WERE FILED WHICH ARE IDENTICAL TO WHAT WAS FILED BEFORE THE A.O. IN 2007 -08 A.Y. THE RELIANCE PLACED IN THE ASSESSMENT ORDER ON INDIAN CITY PROPE RTY VS. CIT, 55 ITR 262 WAS STATED TO BE MISPLACED. IT WAS CONTENDED THAT THE FACTS ARE ENTIRELY DIFFERENT IN AS MUCH AS INDIA CITY PROPERTY WAS STA TED TO BE A CASE OF CLAIM OF PRO-RATA DEDUCTION OF MANAGING AGENCY COMMISSION AGAINST INCOME FROM PROPERTY WHICH IS NOT THE CASE OF THE ASSESSEE. SI MILARLY IN REGARD TO THE RELIANCE PLACED BY THE AO UPON 149 ITR 253 IN THE CASE OF CIT VS. H.G. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 8 GUPTA & SONS. THE SAID CASE WAS ALSO CONSIDERED B Y THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF J.B. PATEL & CO. VS. DCIT, 118 ITD 556, AS SUCH RELIANCE WAS PLACED UPON THE READING O F THE SAID JUDGEMENT AS MADE BY THE TRIBUNAL. 7. CONSIDERING THE SUBMISSIONS, THE ISSUE WAS CONCL UDED BY THE CIT(A) OBSERVING AS UNDER :- 6. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND TH E WRITTEN SUBMISSIONS FILED BY THE AR. 7. THE APPELLANT CORPORATION HAD TAKEN ON LEASE FRO M THE GOVERNMENT OF INDIA, THE LAND SITUATED AT TOLSTOY M ARG, NEW DELHI VIDE LEASE DEED DATED 5 TH OCTOBER, 1975. THE APPELLANT CONSTRUCTED A MULTI STOREY BUILDING THEREON. SUCH BUILDING COULD BE US ED FOR OFFICE PURPOSES OF THE APPELLANT, ITS SUBSIDIARIES INCLUDING CENTRA L COTTAGE INDUSTRIES EMPORIUM. AS PER CLAUSE XIVA READ WITH CLAUSE II O F THE SAID LEASE DEED, IT IS PROVIDED AS UNDER. CLAUSE XIV-A OF THE LEASE DEED FURTHER PROVIDED AS UNDER :- THE INTENDED LESSEE SHALL NOT SUBLET OR GIVE ON RE NT ANY PART OF THE SAID LAND OR BUILDING CONSTRUCTED ON THE DEMISE D PIECE OF LAND WITHOUT PRIOR PERMISSION OF THE LESSOR. IN CASE OF SUCH PERMISSION THE STATE TRADING CORPORATION WILL PAY TO THE GOVER NMENT 25% OF THE RENT SO FETCHED IN RESPECT OF THE SAID ACCOMMOD ATION AS IS HIRED OUT BY THE CORPORATION TO ORGANIZATIONS OTHER THAN THAT OF THE STATE TRADING CORPORATION AND ITS SUBSIDIARIES INCLUDING CENTRAL COTTAGE INDUSTRIES EMPORIUM. 8. DURING THE YEAR THE ASSESSEE HAD SHOWN RECEIPTS FROM OTHERS TOWARDS RENT AND ALV WAS WORKED OUT AS UNDER : GROSS RENT RECEIVED AT DELHI RS.14,36,92,469/- LESS: 25% PAID TO L&DO RS.3,59,23,120/- NET RENT RS.10,77,69,349/- GROSS RENT RECEIVE AT MUMBAI & KAKINADA (38,59,054 + 44,07,360) RS.82,66, 424/- ANNUAL LETTING VALUE RS.11,60,35,763/- 9. THE ASSESSING OFFICER INCREASED THE ABOVE ALV RE TURNED BY THE ASSESSEE BY 25% WHICH WORKED OUT TO RS.15,47,14,350 /- (116035763 X 100/75). ACCORDING TO THE AO GROSS RENT RECEIVED F ROM OTHERS AT DELHI IS TO BE TAKEN AS ALV. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 9 THE RENTS RECEIVED AT MUMBAI & KAKINADA ARE RETURNE D AT 100%. HENCE THE ASSESSING OFFICER WAS WRONG IN INCREASING THE SAID RECEIPTS BY ANOTHER 25% FOR ALV PURPOSE AS HE HAS DONE IN RESPE CT OF THE RENTAL RECEIPTS AT DELHI. 10. THE AO CONCLUDED THAT GROSS RENTAL RECEIPTS SHO ULD BE TAKEN AS ANNUAL VALUE FOR COMPUTING THE INCOME FROM HOUSE PR OPERTY. 11. THE MAIN CONTENTION OF THE AR IS THAT, AS PER T HE AGREEMENT 25% OF THE RENT BELONGED TO THE LAND AND DEVELOPMENT OFFIC ER, NEW DELHI AND IT DOES NOT HAVE CONTROL OVER THE SAME AND THE INCOME IS DIVERTED AT SOURCE. THE AR RELIED ON THE FOLLOWING CASE LAWS : 1. J.B. PATEL & CO. V. DY. CIT (118 ITD 556) 2. CIT V. H.G. GUPTA & SONS, 149 ITR 253 3. CIT V. SURAT JILLA KAMDAR SAHAKARI SANGH LTD, 20 1 ITR 157 4. CIT V. CHAMPA PROPERTIES (P) LIMITED REPORTED IN 212 ITR 303 5. INDIAN CITY PROPERTY V. CIT REPORTED IN 55 ITR 2 62 6. RADHA SOAMI SATSANG V. CIT, 193 ITR 321 (SC) 7. CIT VS. ARJ SECURITY PRINTERS, 264 ITR 276 (DEL) 8. CIT V. HARIG CRANKSHAFTS LTD, 173 TAXMAN 152 (DE L) 12. AS PER THE AGREEMENT, THE ASSESSEE HAD PAID 25% OF THE RENT TO THE L&DO WHICH IS NOT DISPUTED BY THE ASSESSING OFFICER . IT IS A CLEAR CASE OF DIVERSION OF INCOME AT SOURCE. IT CANNOT BE CONSID ERED AS APPLICATION OF INCOME. THE ASSESSEE HAS RIGHTLY TAKEN THE NET AMO UNT RECEIVED AS ALV. IN VIEW OF THE ABOVE FATS AND CIRCUMSTANCES, THE AC TION OF THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH LAW. 13. IT IS FURTHER SEEN THAT THE ASSESSEE HAS BEEN F OLLOWING THE SAME METHOD WHICH WAS ACCEPTED BY THE DEPARTMENT. FOLLO WING THE PRINCIPLE OF CONSISTENCY, THE METHOD ADOPTED BY THE ASSESSEE SHOULD NOT BE DISTURBED UNLESS THERE IS CHANGE OF FACTS OR LEGAL POSITION. THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO DISPROVE THE ABOVE CONTEN TIONS. HENCE GROUND NOS.2 & 3ARE ALLOWED. 7.1. SIMILARLY IN 2007-08 A.Y., THE APPEAL OF THE A SSESSEE ON IDENTICAL REASONING WAS ALLOWED FOLLOWING THE SAME REASONING. 8. AGGRIEVED BY THIS THE THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL IN BOTH THE YEARS. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 10 9. THE LD.D.R. HEAVILY RELYING UPON THE ASSESSMENT ORD ER CONTENDED THAT AS PER THE TERMS OF THE LEASE AGREEMENT DT. 15 TH DECEMBER,1975, THE ASSESSEE WAS UNDER AN OBLIGATION BY VIRTUE OF CLAUSE IV A TO OBTAIN THE PERMISSION OF L&DO IN THE EVENTUALITY APART FROM THE SAID PROP ERTY WAS TO BE LEASED TO THE PERSONS WHO WERE OUTSIDERS AND OUT OF THE RENTA L RECEIVED THERE FROM 25% WAS TO BE PAID TO THE GOVERNMENT. HOWEVER THIS DID NOT AMOUNT TO CREATING AN OVERRIDING TITLE AND THE DEDUCTION CLAI MED BY THE ASSESSEE IT WAS ARGUED IT WAS NOT PERMISSIBLE U/S 23 AND 24 OF TH E INCOME TAX ACT. AS SUCH THE CLAIM OF THE ASSESSEE IT WAS ARGUED WAS NOT PERMISSIBLE UNDER LAW. IT WAS HER STAND THAT THE ASSESSEE COULD CLAIM ON LY THOSE DEDUCTIONS WHICH WERE CONTEMPLATED BY THE ACT. IT WAS HER CATEGORICA L STAND THAT THE SAID AMOUNT WAS NOT PAID TOWARDS MUNICIPAL TAXES AND RA TES ETC. AS CONTEMPLATED BY THE STATUTE AND AT BEST IT COULD BE UNDERSTOOD A S COVERED BY THE 30% REDUCTION ALLOWED BY THE ACT AS STANDARD DEDUCTION FROM THE RENTAL RECEIPTS. APART FROM THAT ONLY DEDUCTION WHICH COULD BE ALLOW ED AS INTEREST PAID TO SERVICE THE LOAN UTILIZED FOR ACQUIRING ETC. THE SA ID PROPERTY. NONE OF THESE THREE CONDITIONS IT WAS ARGUED IS EVIDENT IN THE F ACTS OF THE PRESENT CASE THE CLAIM OF ASSESSEE AS SUCH WAS RIGHTLY DISALLOWED BY THE A.O. IN BOTH THE YEARS. 9.1. RELIANCE WAS PLACED UPON : CIT VS. SITALDAS TIRATHDAS, 41 ITR 367 (S.C.); CIT VS. SUNIL J. KINARIWALA, 259 ITR 10 (S.C.); ASHOK SOI VS CIT, 273 ITR 165 (DELHI) (WHEREIN 74 I TD 235 (M) AFFIRMED; SAVITRI AND CO. VS ITO, 246 ITR 520 (BOM.) 10. THE LD. AUTHORISED REPRESENTATIVE (A.R.) HEAVIL Y RELIED UPON THE IMPUGNED ORDER AND CONTENDED THAT THE CONSISTENT ST AND OF THE ASSESSEE HAS ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 11 BEEN ACCEPTED BY THE DEPARTMENT OVER THE YEARS. RE FERENCE WAS MADE TO THE CHART ADDRESSING THE POSITION ACCEPTED THE VERY SAM E POSITION. THE POSITION HAS BEEN ACCEPTED ALL ALONG IN 2001-2002 A.Y. THE S AID ORDER WAS SUBJECTED TO REOPENING AND EXAMINING THE ASSESSMENT ORDER U/S 147/143(3) THE PAYMENT OF 25% FROM THE GROSS RENTALS RECEIVED WAS ALLOWED TO BE MADE TO THE L&DO THE CLAIMS AND DEDUCTION OF THE SAID AMOUN T WAS ALLOWED. SIMILARLY IN 2002-03 A.Y. AND IN 2003-04 TO 2005-0 6 A.YS CONSISTENTLY IN THE CASE OF THE ASSESSEE THE ASSESSMENTS ORDERS HAV E BEEN PASSED UNDER SECTION 143(1) AND THESE PAYMENTS HAVE CONSISTENTLY BEEN ALLOWED TO THE ASSESSEE AND ONLY FOR THE FIRST TIME IN 2006-07 & 2 007-08 A.YS. THE PAYMENTS HAVE BEEN DISALLOWED. IT WAS CONTENDED TH AT NO NEW FACT HAS EMERGED. THERE IS NO CHANGE IN THE POSITION OF LAW . MERELY AT HIS OWN WHIMS, TO REINTERPRET THE AGREEMENT WHICH HAS ALL A LONG BEEN ACCEPTED BY THE DEPARTMENT OVER THE YEARS I.E. FROM 1971 ONWAR DS THE AO HAS CHOSEN TO DISTURB THE ACCEPTED POSITION. IT WAS AGITATED THA T THE DEPARTMENT SHOULD NOT BE ALLOWED TO UPSET THE SETTLED POSITION WHICH IS C ONTRARY TO THE PRINCIPLES LAID DOWN BY THE APEX COURT IN THE CASE OF RADHA SO AMI SATSANG VS. CIT, 193 ITR 321 (SC). HEAVY RELIANCE WAS PLACED ON THE SAME WHICH PRINCIPLE IT WAS EMPHASIZED WAS ACCEPTED IN THE DECISIONS OF VARIOUS COURTS AND CO- ORDINATE BENCHES. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 12 10.1. IT WAS ALSO HIS CONTENTION ON MERITS THA T THERE IS NO DISPUTE ABOUT THE GENUINENESS OF THE AGREEMENT. THE TERMS OF THE AGREEMENT ALSO ARE NOT IN DISPUTE AND EVEN ON THE INTERPRETATION THEREON IT IS NOT NOBODYS CASE THAT THE 25% OF THE RENTAL INCOME IS BEING PAID TO THE L &DO UNDER A SHAM AGREEMENT. THUS, IN THE FACTS WHICH ARE UNAMBIGUOU S NAMELY THAT THERE IS A LEASE DEED WHICH PLACES CERTAIN RESTRICTIONS ON THE ASSESSEE WHO ADMITTEDLY IS IN POSSESSION OF THE LEASED PROPERTY ONLY BY VIR TUE OF THE LEASE AGREEMENT IS NOT IN FULL OWNERSHIP OF THE SAID PROPERTY. T HE SAID PROPERTY IS ENJOYED ONLY IF THE ASSESSEE ABIDES BY THE LEASE AGREEMENT. THE PAYMENT OF 25% HAS BEEN MADE TO THE L&DO BY THE ASSESSEE ABIDING WITH THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT AND THE ASSESSEE CONSEQUENTLY IS NOT IN FULL OWNERSHIP OF THE SAID PROPERTY. IT WAS ARGUED THAT IT IS NOT ANYONES CASE THAT 25% INTEREST RECEIVED HAS NOT BEEN PAID TO THE L&DO. IN THESE FACTS, THE ISSUE IS COVERED EVEN ON THIS ASPECT BY THE JUD GEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. R J WOODS, 334 ITR 358 (DELHI). RELIANCE WAS ALSO PLACED UPON THE ORDER O F THE COORDINATE DELHI BENCH IN ORDER DATED 13.3.2009 IN ITA NO.3760/DEL/ 2007 IN THE CASE OF PRADIP KISHAN VS. ITO, COPY OF THE SAME WAS PLACED BEFORE THE BENCH. THE PRINCIPLES OF LAW AS ENUNCIATED BY THE HONBLE CALC UTTA HIGH COURT AND GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHAMPA PR OPERTIES PVT. LTD, 212 ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 13 ITR 303 (CAL) AND CIT V. SURAT JILLA KAMDAR SAHAKAR I SANGH LTD., 201 ITR 157 RESPECTIVELY WERE ALSO RELIED UPON. ATTENTION WAS ALSO INVITED TO THE ORDER OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF J.B. PATEL & CO. VS. CIT (2009) 118 ITD 556 (AHD.). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL PERUSAL OF THE F ACTS AND CIRCUMSTANCES AND THE POSITION OF LAW, WE ARE OF THE VIEW THAT ON THE ISSUE THE GROUNDS RAISED BY THE DEPARTMENT IN BOTH THE YEARS DESERVE TO BE R EJECTED. IN ORDER TO COME TO THE SAID CONCLUSION WE SET OUT OUR REASONS IN TH E SUBSEQUENT PARAGRAPHS. 11.1. COPY OF THE LEASE DEED ENTERED INTO BY THE ASSESSEE HAS BEEN PLACED AT PAGE NOS. 32 TO 49 OF THE PAPER BOOK WHICH SHOWS THAT THE LEASE AGREEMENT WAS EXECUTED ON 05.12.1975. THE UNDISPUT ED FACT ON RECORD WITH WHICH WE ARE CONCERNED WITH IS THAT CLAUSE XIV-A M ANDATES THAT IN THE EVENTUALITY A PORTION OF THE LEASED PROPERTY IS LET OUT BY THE ASSESSEE PRIOR PERMISSION OF THE LESSOR IS TO BE OBTAINED AND THER EAFTER FROM THE RENT RECEIVED 25% THEREFROM MUST BE HANDED OVER TO THE G OVERNMENT. FOR READY REFERENCE WE REPRODUCE THE SPECIFIC CLAUSE. CLAUSE XIV-A : THE INTENDED LESSEE SHALL NOT SUB-L ET OR GIVE ON RENT ANY PART OF THE SAID LAND OR BUILDING CONST RUCTED ON THE DESIRED PIECE OF LAND WITHOUT PRIOR PERMISSION OF THE LESSER. IN CASE OF SUCH PERMISSION THE STC WILL PA Y TO THE GOVERNMENT 25% OF THE RENT FETCHED IN RESPECT OF SU CH ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 14 ACCOMMODATION AS IS HIRED OUT BY THE CORPORATION TO ORGANIZATIONS OTHER THAN THAT OF THE STC AND ITS SU BSIDIARIES INCLUDING CENTRAL COTTAGE INDUSTRIES EMPORIUM. IT IS A MATTER OF RECORD THAT THE SAID LEASE AGREE MENT HAS BEEN INTERPRETED CONSISTENTLY OVER THE YEARS BY THE DEPA RTMENT HAS ALLOWED THE ASSESSEE TO REDUCE 25% FROM THE GROSS RENTAL RECEI PT AND TAKING THE 75% OF THE RENTAL RECEIPTS FOR CONSIDERATION OF THE PROVIS IONS OF THE ACT. BEFORE US THIS FACT HAS BEEN SPECIFICALLY EMPHASIZED. SPECIF IC REFERENCE HAS BEEN MADE BY THE LD.A.R. TO 2001-02 AND 2002-03 A.YS. W HEREIN EVEN WHEN THE REGULAR ASSESSMENTS ACCEPTING THE SAID CLAIM HAVE B EEN REOPENED AND EVEN IN THOSE RE-ASSESSMENT PROCEEDINGS IN THE 143(3) ORDER S MADE THEREAFTER NO DISALLOWANCE ON THIS ACCOUNT HAS BEEN MADE. IT HAS ALSO BEEN CONTENDED THAT SIMILARLY EVEN IN 2004-05 AND 2005-06 THE POSITION WAS THE SAME AND THE ASSESSMENTS WERE MADE UNDER SECTION 143(3). IT HAS BEEN CANVASSED THAT ALL ALONG ASSESSEES CLAIM HAS BEEN ALLOWED AND ONLY I N 2006-07 A.YEARS FOR THE FIRST TIME THE VERY SAME LEASE AGREEMENT HAS B EEN AGAIN RE-INTERPRETED BY THE ASSESSING OFFICER. IT IS SEEN THAT NO NEW F ACT OR CHANGE IN THE POSITION OF LAW HAS BEEN SET OUT IN THE ORDER BY TH E ASSESSING OFFICER NOR HAS IT BEEN CANVASSED BY THE LD. D.R. BEFORE US TO UPS ET THE SETTLED POSITION. IN THE ABSENCE OF ANY CHANGE IN FACT OR LAW THE SETTLE D POSITION CANNOT BE UNSETTLED AS HAS BEEN LAID DOWN IN RADHA SOAMI SAT SANG VS. CIT, 193 ITR ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 15 321 (SC). THESE FACTS ARE BROUGHT OUT IN THE IMPUG NED RODER AND HAVE NOT BEEN REBUTTED BY THE DEPARTMENT. THE ASSESSEE BEF ORE THE CIT(A) HAS ALSO RELIED UPON THE JUDGEMENTS IN THE CASE OF CIT VS. CHAMPA PROPERTIES PVT. LTD, 212 ITR 303 (CAL) AND CIT V. SURAT JILLA KAMDA R SAHAKARI SANGH LTD., 201 ITR 157. AS SUCH, BEING SATISFIED BY THE REASO NING AND THE FINDING OF THE CIT(A) ON THIS ACCOUNT, THE DEPARTMENTAL GROUND FAILS. 11.2. IT IS FURTHER SEEN THAT EVEN ON FACTS WHEN CONSIDERED IN THE LIGHT OF THE LEASE AGREEMENT THERE IS NO MERIT IN THE ARGUMENTS ON BEHALF OF THE DEPARTMENT. RELIANCE HAS BEEN PLACED UPON CIT VS. SITALDAS TIRATHDAS, 41 ITR 367 (SC). THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED UPON THE SAID JUDGEMENT. SPECIAL EMPHASIS HAS BEEN PLACED ON THE LAST TWO SENTENCES OF THE HEAD NOTE WHICH WERE READ OUT BY THE LD.D.R. FOR READY REFERENCE WE REPRODUCE THE SAME AS UNDER :- THE TRUE TEST FOR THE APPLICATION OF THE RULE OF D IVERSION OF INCOME BY AN OVERRIDING CHARGE, IS WHETHER THE A MOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS HIS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EV ERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DEC ISIVE FACT. THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PER SON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WH ICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE A PAR T OF THE INCOME OF THE ASSESSEE. WHERE BY THE OBLIGATION IN COME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDU CTIBLE; BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCH ARGE AN OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FOLLOW. IT IS THE FI RST KIND OF ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 16 PAYMENT WHICH CAN TRULY BE EXCUSED AND NOT THE SECO ND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTH ER A PORTION OF ONES OWN INCOME, WHICH HAS BEEN RECEIVE D AND IS SINCE APPLIED. 11.3. THE SAID JUDGEMENT HAS ALSO BEEN RELIED UPON BY THE LD. A.R. 11.4. ON A CAREFUL CONSIDERATION OF THE SAME, WE FI ND THAT NO HELP CAN BE DERIVED THERE FROM BY THE ARGUMENT FROM THE PRINCIP LE LAID OUT THEREIN AS THIS WAS A CASE WHERE THE WIFE AND CHILDREN OF THE ASSES SEE, WHO CONTINUED TO BE MEMBERS OF HIS FAMILY, RECEIVED A PORTION OF THE AS SESSEES INCOME AFTER HE HAD RECEIVED IT AS HIS OWN. THEIR LORDSHIPS HELD T HAT IT WAS A CASE OF APPLICATION OF A PORTION OF THE INCOME TO DISCHARGE AN OBLIGATION AND NOT ONE IN WHICH BY AN OVERRIDING CHARGE THE ASSESSEE BECAM E ONLY A COLLECTOR OF ANOTHERS INCOME. 11.5. SIMILARLY IN CIT VS. SUNIL J. KINARIWALA, 259 ITR 10 (SC) WHICH HAS ALSO BEEN RELIED UPON BY THE LD.D.R. IT IS SEEN TH AT IT WAS A CASE WHERE THE ASSESSEE WAS A PARTNER IN A FIRM HAVING 10% SHARE T HEREIN. HE CREATED A TRUST BY A DEED OF SETTLEMENT ASSIGNING 50% OUT OF HIS 10 % OF HIS RIGHT, TITLE AND INTEREST (EXCLUDING CAPITAL) AS PARTNER IN THE FIRM IN FAVOUR OF THE TRUST. THE QUESTION WAS WHETHER 50% OF THE INCOME ATTRIBUTABLE TO HIS SHARE FROM THE FIRM STOOD TRANSFERRED TO THE TRUST RESULTING IN DI VERSION OF INCOME AT SOURCE. THEIR LORDSHIPS HELD THAT THE SHARE OF THE INCOME O F THE ASSESSEE ASSIGNED TO ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 17 THE TRUST HAD TO BE INCLUDED IN THE INCOME OF THE A SSESSEE. AS SUCH, IT IS SEEN THAT THE PRINCIPLE LAID DOWN THEREIN HAS NO IMPACT IN THE PRESENT PROCEEDINGS AS THEREIN IT WAS A UNILATERAL ACTION W HEREAS IN THE FACTS OF THE PRESENT CASE THE LEASE AGREEMENT IMPOSES SPECIFIC R ESTRICTIONS AND CONDITIONS, AND IT IS NOT THE CASE OF THE DEPARTMEN T THAT EITHER THE AGREEMENT IS NOT GENUINE OR THE CONDITIONS ARE COLLUSIVE OR DISPUTED. 11.6. RELIANCE BY THE LD. DEPARTMENTAL REPRESENTATI VE HAS ALSO BEEN PLACED UPON CIT VS. SHRI & SMT. GANESH G.K. AZRENKAR, 217 ITR 148. SPECIFIC EMPHASIS WAS LAID ON THE 4 TH PARAGRAPH OF THE HEAD NOTE. FOR READY REFERENCE WE REPRODUCE THE SAME AS UNDER : HELD, THAT THE INCOME DERIVED BY THE ASSESSEE BY R EASON OF HIS 80 PERCENT SHARE IN THE PROFITS OF THE BUSINESS CAR RIED ON BY THE SAID PARTNERSHIP WAS HIS INCOME ALONE AND EVEN ASSU MING THERE WAS A VALID TRUST CREATED BY THE ASSESSEE, UNDER TH E SAID TRUST DEED DATED APRIL 1, 1975, THERE WAS NO DIVERSION OF HIS INCOME BY OVERRIDING TITLE. 11.7. THEIR LORDSHIPS OF THE BOMBAY HIGH COURT DECI DED THE ISSUE HOLDING THAT UNDER THE LAW OF PARTNERSHIP A PARTNER ALONE I S ENTITLED TO THE PROFIT OF THE BUSINESS. THIS JUDGEMENT AS IS EVIDENT FROM T HE FACTS UNDER CONSIDERATION BY THE HONBLE HIGH COURT AND THE ISS UE WITH WHICH THE HONBLE HIGH COURT WAS SEIZED WITH WOULD SHOW THAT UNDER THE PRINCIPLE LAID DOWN THEREON HAS NO RELEVANCE TO THE PRESENT P ROCEEDINGS. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 18 11.8. RELIANCE HAS ALSO BEEN PLACED UPON SAVITRI AN D CO. VS. ITO, 246 ITR 520 (BOMBAY) BY THE LD. AUTHORISED REPRESENTATIVE. A PERUSAL OF THE FACTS TAKEN INTO CONSIDERATION BY THEIR LORDSHIPS SHOWS T HAT THE ASSESSEE FIRM CONSISTING OF FIVE PARTNERS PURCHASED CERTAIN PREMI SES AND THE PARTNERSHIP FIRM GAVE THE SAID PREMISES ON LEASE TO NABARD. HO WEVER AFTER A FEW YEARS, SINCE NO RENTAL INCOME WAS SHOWN BY THE ASSE SSEE FIRM THE AO ENQUIRED ABOUT IT AND IN RESPONSE IT WAS EXPLAINE D THAT THE PARTNERSHIP DEED HAD BEEN AMENDED BY VIRTUE OF WHICH THE INCOME ACCR UING OR ARISING FROM THE PROPERTY LEASED TO NABARD WAS NOT TO BELONG TO THE FIRM BUT IT WAS TO DIRECTLY BELONG TO THE PARTNERS IN THE PROFIT- SHAR ING RATIO AND APPROPRIATE BOOKS OF ACCOUNTS OF THE PARTNERS AND THE BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM IN REGARD THERETO HAVE BEEN PASSED. AS SUCH, IT WAS CONTENDED THAT THE ASSET WAS TRANSFERRED BY BOOK ENTRIES TO THE DEBIT OF THE CAPITAL ACCOUNT OF THE PARTNERS. THE LEASE DEED WITH NABARD IT WAS S TATED COULD NOT BE CHANGED IN FAVOUR OF THE PARTNERS AS NABARD DID NOT AGREE TO SUCH A CHANGE. ON ACCOUNT OF THESE FACTS THAT SINCE THE L EASE DEED ENTERED INTO BY THE PARTNERSHIP FIRM WITH NABAD DID NOT RECOGNIZE P ARTNERS AS LESSORS, IT WAS HELD THAT THE ASSESSING OFFICER WAS RIGHT AS TH ERE WAS NO DIVERSION OF INCOME RECEIVED FROM NABARD AS THERE WAS NO OVERRID ING TITLE. THE FACTS IN THE PRESENT CASE ARE DISTINGUISHABLE. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 19 11.9. RELIANCE HAS ALSO BEEN PLACED UPON BY THE DEP ARTMENT ON THE CASE OF ASHOK SOI VS. DCIT, 74 ITD 235 (DEL). A PERUSAL OF THE SAID ORDER WHICH WAS UPHELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ASHOK SOI VS CIT, 273 ITR 165 (DELHI) WOULD SHOW THAT THE ASSES SEE CLAIMED FOR REDUCING FROM THE TOTAL CONSIDERATION THE PAYMENT M ADE TO HIS FATHER FOR THE PURPOSES OF CAPITAL GAIN. THE SAID CLAIM WAS NOT A LLOWED AS ON FACTS IT WAS FOUND THAT HIS FATHER HAD NO TITLE OR INTEREST IN ANY KIND WITH THAT PROPERTY AND MERELY RESIDED WITH THE ASSESSEE IN THE SAID PR OPERTY. THE PAYMENT SO MADE IT WAS HELD COULD NOT BE CLAIMED AS PAYMENT MA DE FOR GETTING PREMISES VACATED AND DEDUCTION U/S 48 COULD NOT BE ALLOWED. IT IS SEEN THAT THE FACTS ARE ENTIRELY DISTINGUISHABLE AND HAVE NO ROLE TO PL AY IN THE PRESENT PROCEEDINGS. THE JURISDICTIONAL HIGH COURT CONFIRM ED THE TRIBUNAL ORDER HOLDING THAT THE PAYMENT MADE BY THE ASSESSEE TO HI S FATHER COULD IN NO WAY ALTER THE COMPONENT OF THE CAPITAL GAIN IN THE HA NDS OF THE ASSESSEE. THE FACTS AS HAS BEEN OBSERVED ARE ENTIRELY DISTINGUISH ABLE AND HAVE NO ROLE TO PLAY IN THE PRESENT PROCEEDINGS. 11.10. WE ALSO WOULD LIKE TO REFER TO CIT VS. R J WOODS, 334 ITR 358 WHICH HAS BEEN RELIED UPON BY THE LD.A.R. FOR THE C ONTENTION THAT THEIR LORDSHIPS HELD THAT THE MAINTENANCE AND OTHER CHARG ES PAID BY THE ASSESSEE WERE DEDUCTIBLE FROM THE RENT WHILE COMPUTING THE A NNUAL LETTING VALUE. THE ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 20 LD. A.R. SPECIFICALLY REFERRED TO THE SAID JUDGEMEN T SO AS TO CONTEND THAT THE STAND TAKEN BY THE DEPARTMENT THAT IT IS ONLY WHAT HAS BEEN CONSIDERED IN SECTION 23 & 24 OF THE ACT IS TO BE ALLOWED AND THE IN-VIOBILITY OF ANY EXPENSE NOT CONTEMPLATED UNDER THE SECTION STANDS DISPROVED BY THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT WHEREIN THEIR LORDSHIPS HAVE HELD THAT MAINTENANCE AND OTHER CHARGES HAVE TO BE DEDUCTED FROM THE RENT WHILE CALCULATING ANNUAL LETTING VALUE. 11.11. APART FROM THE JUDGMENTS MENTIONED ABOVE WHICH HAVE BEEN REFERRED TO BY THE PARTIES, WE HAVE ALSO TAKEN INTO CONSIDERATION THE JUDGEMENTS RELIED UPON BY THE CIT(A). IT IS SEEN THAT ON FACTS THEY HAVE NOT BEEN DISTINGUISHED BY THE LD.D.R. WE WOULD FURTHER REFER TO THE ORDER OF THE CO-ORDINATE BENCH IN THE CASE OF PRADIP KRISHEN VS. ITO IN ORDER DATED 13.03.2009 IN ITA NO.3760/DEL/2007 WHICH HAS ALSO S PECIFICALLY BEEN RELIED UPON BY THE LD.A.R. A PERUSAL OF THE SAID ORDER SH OWS THAT BY VIRTUE OF A WILL A SPECIFIC PROPERTY DEVOLVED UPON THE ASSESSEE ALONG WITH TWO CO- OWNERS. THE WILL MANDATED THAT IN THE EVENTUALITY THE PROPERTY IS RENTED THE RENTAL RECEIPTS WOULD BE DIVIDED EQUALLY AMONGST TH E CO-OWNERS. THE RECORD SHOWS THAT THE ASSESSEE HAD GOT HIS NAME SUBSTITU TED AS OWNER IN THE PROPERTY IN THE RECORDS OF THE NDMC AND HOUSE TAX W AS ALSO PAID BY HIM. THE RENTAL INCOME WAS SHOWN BY THE CO-OWNERS IN THE IR INDIVIDUAL RETURN ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 21 AND PAN ETC. STOOD FILED. CONSIDERING THESE FACTS, THE CO-ORDINATE BENCH CAME TO THE CONCLUSION THAT IN VIEW OF THE FACT THA T TERMS OF THE WILL ARE UNAMBIGUOUS IN REGARD TO THE DISTRIBUTION OF THE RE NTAL INCOME AND THE GENUINENESS OF THE WILL WAS NOT DOUBTED. IN TERMS OF THE SAID WILL THE RENTAL INCOME HAD BEEN SHARED. THE MENTIONING IN THE PREA MBLE OF THE LEASE DEED THE NAME OF THE ASSESSEE IN THE INTEREST OF EXECUTI NG A PROPER AGREEMENT DID NOT CREATE SUCH A POSITION THAT THE CO-OWNERS WERE DISENTITLED TO THE RECEIPT OF THE RENTAL. IN THESE CIRCUMSTANCES, THE CO-ORDI NATE BENCH HELD THAT THE INCOME IS DIVERTED BEFORE IT REACHED THE ASSESSEE AS HAD BEEN CONTEMPLATED BY THE APEX COURT IN THE CASE OF CIT VS. SITALDAS T IRATHDAS, 41 ITR 361 (SC). THE SAID ORDER FURTHER SUPPORTS THE FINDING. 12. ACCORDINGLY, FOR THE REASONS GIVEN HEREIN ABO VE, THE SOLE GROUND OF THE DEPARTMENT IN ITA NO.822/DEL/2010 AND GROUND NO.1 I N ITA NO.3747/DEL/2010 IS REJECTED. 13. THE FACTS AVAILABLE IN THE ASSESSMENT ORDER QUA GROUND NO.2 OF THE DEPARTMENT ARE THAT THE A.O. OBSERVED THAT THE ASSE SSEE HAD EARNED EXEMPT INCOME OF RS.8,19,59,395/- WHICH INCLUDES 6.5% TAX FREE INCOME FROM UTI BONDS OF RS.5,92,59,155/- AND DIVIDEND INCOME OF RS .2,27,00,240/-. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXPENSE S RELATING TO THE EXEMPT INCOME SHOULD NOT BE DISALLOWED AND ADDED TO THE TO TAL INCOME IN THE LIGHT ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 22 OF THE PROVISIONS OF SECTION 14A OF THE ACT READ WI TH RULE 8D OF THE INCOME TAX RULES, 1962. THE A.O. RELYING UPON THE ORDER O F THE SPECIAL BENCH IN THE CASE OF DAGA CAPITAL, 117 ITD 169 (MUM.) (SB) W ORKED OUT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AM OUNTING TO RS.89,55,000/-. 14. AGGRIEVED BY THIS, IN APPEAL BEFORE THE FIRST A PPELLATE AUTHORITY, IT WAS CONTENDED THAT NO BORROWED FUNDS WERE UTILIZED AND THE ORDER OF DAGA CAPITAL WAS IN THE CONTEXT WHERE BORROWED FUNDS WER E UTILIZED AND THOSE WERE THE CASES OF NON-BANKING FINANCIAL COMPANIES. INVESTMENTS IN THE CASE OF THE ASSESSEE WERE MADE IN F.Y. 1997-98, 1998-99 AND 1999-2000 OUT OF ITS OWN FUNDS. RELYING UPON THE FOLLOWING ORDERS, IT WAS CONTENDED THAT NO DISALLOWANCE SHOULD BE MADE :- 1. PTC INDIA LIMITED VS. DCIT (I.T.A. NO.580 & 581/ DEL/2009) 2. LEO INDUSTRIES LIMITED VS. ITO 143 TAXMAN 23 (DE L) ITAT (SMC) 3. ESCORTS LIMITED VS. ACIT 104 ITD 427 (DELHI) 4. CIT II VS. HERO CYCLES LIMITED (189 TAXMAN 50) ( P&H) 5. WIMCO SEEDLINGS LTD. VS. DCIT 293 I.T.R. 216 (AT ) (DELHI) 6. ACIT VS. JINDAL SAW PIPES LTD., 118 TTJ 228 (DEL HI) 7. DLF LTD. VS. CIT 27 SOT 22 (DEL) 8. CIT VS. HINDUSTAN CO-OPERATIVE SOCIETY SERVICES CO. LTD. (DEL) 170 TAXMAN 458. 15. CONSIDERING THE SUBMISSIONS, THE CIT(A) TAKING NOTE OF THE DETAILS OF THE SOURCES FOR MAKING THE INVESTMENT AND THE AVAIL ABLE PROFITS OF THE ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 23 ASSESSEE AND THE RESOURCES AVAILABLE TO THE ASSESSE E IN THE YEARS WHICH ARE FOUND REPRODUCED IN PARAGRAPH NO. 13.2 OF THE IMPUG NED ORDER. IN PARAGRAPH NO.13.3 CIT(A) SETS OUT THE DETAILS OF THE INVESTM ENT WHICH HAD YIELDED THE DIVIDENDS. CONSIDERING THE FACTS TAKEN INTO CONSID ERATION WHEREIN THE A.O. HAD NOT CONTROVERTED THE FACTS AND MERELY APPLIED D AGA CAPITALS THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. THE ARGUMENTS C ONSIDERED ARE SET OUT IN PARA 13.5 TO 13.9, NAMELY THAT THE A.O. HAS MADE T HE DISALLOWANCE RELYING UPON THE CASE LAW IGNORING THE FACT THAT NO BORROWE D FUNDS WERE USED; IGNORING THE FACT THAT INVESTMENTS STOOD MADE IN T HE EARLIER YEAR; AND THAT SUFFICIENT EVIDENCE WAS AVAILABLE TO PROVE THAT THE RE WAS NO DIRECT EXPENDITURE. IN THE YEARS UNDER CONSIDERATION THER E WAS INTEREST EXPENDITURE OF RS. 51,34,13,932/- AND INTEREST INCOME OF RS. 11 8,73,56,698/-. AS SUCH NO NET INTEREST EXPENSES STOOD CHARGED TO THE PROFI T & LOSS ACCOUNT. THE DISALLOWANCE MADE AS SUCH WAS HELD TO BE UNCALLED F OR. RELIANCE WAS ALSO PLACED UPON THE JUDGMENT OF THE PUNJAB & HARYANA HI GH COURT IN THE CASE OF CIT VS. HERO CYCLE, 189 TAXMAN 50 (P&H) AND CIT VS. WINSOME TEXTILE INDUSTRIES LTD., 319 ITR 204 (P&H). THE CIT(A) FUR THER TOOK NOTE OF THE FACT THAT THE ASSESSEE HAD OFFERED ON ITS OWN A DIS ALLOWANCE OF RS.37,000/- TOWARDS INDIRECT EXPENDITURE. ACCORDINGLY CONSIDER ING THE ABOVE REASONS, THE CIT(A), DELETED THE ADDITION MADE BY WAY OF DIS ALLOWANCE. ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 24 16. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFO RE THE TRIBUNAL. 17. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE A.O. SINCE THE ORDER OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL IS NO LONGER GOOD LAW IN VIEW OF THE J UDGEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. L TD., MUMBAI VS. DCIT, 328 ITR 81. 18. THE REQUEST OF THE LD. D.R. WAS STRONGLY OPPOSE D BY THE LD. A.R. WHO CONTENDED THAT THE OCCASION TO MAKE A DISALLOWA NCE WOULD COME ONLY WHEN EITHER THERE IS AN EXPENDITURE INCURRED BY THE ASSESSEE OR THE ASSESSEE HAS USED THE BORROWED FUND. IN THE FACTS OF THE PR ESENT CASE, THE FINDINGS HAVE NOT BEEN REBUTTED BY THE DEPARTMENT. THE ASSE SSEE HAS FURNISHED SOURCES FOR MAKING THE INVESTMENT RIGHT FROM 1987-8 8 A.YEARS AND HAS SHOWN THAT IT HAD SUBSTANTIAL AMOUNT OF PROFIT AFTE R TAX AND ALSO RESERVES IN EACH OF THESE YEARS. THESE FACTS IT WAS ARGUED ARE SET OUT IN PARAGRAPH NO.13.2 OF THE IMPUGNED ORDER AND HEAVILY RELIED U PON. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS SHOWN THE DETAILS O F THE INVESTMENT WHICH HAVE YIELDED DIVIDENDS WHICH WOULD SHOW THAT THESE STOOD MADE IN APRIL, 1997, JULY, 1998 AND SEPTEMBER, 1999. IT WAS SUBMI TTED THAT THE TOTAL INVESTMENT AS ON 01.04.2006 STOOD AS RS.9072.17 CRO RES AND THUS TOTAL INVESTMENT AS ON 31.03.2007 AGAIN STOOD AT RS.9072. 17 CRORES WHICH FACT IS ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 25 ALSO BROUGHT OUT IN THE IMPUGNED ORDER AT PARAGRA PH NO.13.3. HEAVY RELIANCE WAS PLACED UPON THE CASE LAW RELIED UPON BY THE CIT(A) AND TAKEN INTO CONSIDERATION BEFORE THE CIT(A). IT WAS HIS SUBMISSION THAT ON FACTS, NO DISALLOWANCE DESERVES TO BE MAINTAINED. 18.1. APART FROM THE FACTUAL MATRIX, EVEN ON THE P RINCIPLE OF CONSISTENCY IT WAS ARGUED THAT ON THE SAID ISSUE IN 2001-02 AND 20 02-03 IDENTICAL DISALLOWANCE HAVE BEEN MADE BY THE A.O. AND THE CLA IM OF THE ASSESSEE IN REGARD TO NO DISALLOWANCE IS MAINTAINABLE WAS ALLO WED BY THE CIT(A). IT WAS SUBMITTED THAT IN THE FIRST YEAR NO APPEAL HAD BEEN FILED ON THE ISSUE BY THE DEPARTMENT AND THE ORDER STOOD ACCEPTED AND IN THE SECOND YEAR DEPARTMENTAL APPEAL WAS DISMISSED FOR LACK OF COD A PPROVAL. IN 2003-04, SINCE DIVIDEND TAX WAS PAYABLE, THE ISSUE WAS NOT A PPLICABLE. HOWEVER, IN 2004-05 AND 2005-06 IDENTICAL DISALLOWANCE HAVE BEE N MADE BY THE A.O. AND WHEREAS THE CIT(A) HAD ALLOWED THE RELIEF IN BO TH THE YEARS. IN 2004-05 A.Y. NO APPEAL HAD BEEN FILED ON THIS ISSUE BY THE DEPARTMENT AND IN 2005- 06 THE DEPARTMENTAL APPEAL STOOD DISMISSED FOR LACK OF COD APPROVAL. IN 2006-07, THE CLAIM WAS NOT DISPUTED BY THE A.O. HEN CE STANDS ALLOWED UNDER SECTION 143(3) OF THE ACT. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT ON FACTS, NAM ELY, THAT THE ASSESSEE HAD ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 26 ADEQUATE RESOURCES FOR MAKING INVESTMENT AND THE F ACT THAT INVESTMENT WHICH HAVE YIELDED DIVIDEND WERE MADE IN THE EARLIE R YEARS NAMELY APRIL 1997, AND THE TOTAL INVESTMENT ON 01.04.2006 AND 31 .03.2007 WAS RS.9072.17 CRORES. IN THESE FACTS WHICH STAND UNCO NTROVERTED ON RECORD THE REQUEST OF THE LD. D.R. TO RESTORE THE ISSUE TO THE FILE OF THE A.O. CANNOT BE ACCEDED TO. THE A.O. CAN BE DIRECTED TO FIND A REA SONABLE ESTIMATE TO CALCULATE THE PROBABLE EXPENDITURE INCURRED WHERE T HE FACTS SHOW THAT SOME EXPENSES MAY HAVE BEEN INCURRED BUT WHEREAS THE FAC TS OF THE ASSESSEE EMINENTLY DEMONSTRATE THAT NO EXPENSES WERE INCURRE D AND THE INVESTMENTS PERTAIN TO THE EARLIER YEARS, THE OCCASION TO RESTO RE THE ISSUE DOES NOT ARISE. BEING SATISFIED BY THE REASONING ARRIVED AT IN THE IMPUGNED ORDER, WHICH STANDS UNCONTROVERTED, THE GROUND NO.2 RAISED BY TH E DEPARTMENT IS DISMISSED. 20. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2011. SD/- SD/- (K.D. RANJAN) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28TH OCTOBER, 2011 PBN/MANGA* ITA NO.822 & 3747/DEL./2010 A.YS. 2006-07 & 2007-08 27 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. D.R., ITAT BY ORDER, DY. REGISTRAR, ITAT, DELHI BENCHES