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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘A, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, AM: This appeal filed by the assessee is directed against the order of CIT(A) – 10, Hyderabad, dated, 24/09/2018 for AY 2014-15.
On perusal of record, there was a delay of 75 days in filing this appeal before us. To this effect, the assessee filed an affidavit wherein it was affirmed that his counsel was misplaced the appeal papers, due to which, there was delay and requested to condone the same as the delay was neither deliberate nor intentional. As the assessee was prevented by sufficient cause for not filing the appeal within the stipulated time, we condone the delay and admit the same for hearing and adjudication.
Brief facts of the case are, the assessee, a non-resident individual, filed his return of income for the AY 2014-15 on
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30/07/2014 declaring income of Rs. 7,36,680/-, which was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’). Subsequently, the case was selected for scrutiny under CASS and accordingly, notices u/s 143(2) and 142(1) of the Act was issued to the assessee. In response to the said notices, the AR of the assessee furnished the required information.
3.1. The AO observed that the case was selected for scrutiny to verify the large decrease in annual Iettable value of House property. However on verification of the return of income for assessment year 2014-15 and assessment year 2013-14, AO noticed that the assessee has offered income from house property to the tune of Rs. 11,17,600/- for A.Y. 2014-15 whereas for the AY. 2013-14, the assessee has offered Rs.22,52,216/-. On verification, AO noticed that during the year under consideration the assessee has not offered rental income from the property at H.No. 1-98/A/K/2, Kruthika Layout, Madhapur, Hyderabad.
3.2 During the course of assessment proceedings, the A.O asked the assessee to furnish the explanation for the large decrease in rental income during the year under consideration. In response, the assessee submitted that the assessee made some family arrangements with his father, hence he has agreed to transfer his rental income to his father, received from the above property.
3.3 The AO rejected the submissions of the assessee for the following reasons:
“a. As per the provisions of section 60 of the Income tax Act, 1961, which states that "All income arising to any person by virtue of a transfer whether revocable or not
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and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income- tax as the income of the transferor and shall be included in his total income. " Therefore, the rental income which was transferred without the transfer of property from where the rents were arrived, is taxable only in the hands of the assessee. b. The assessee has not produced any evidence for transfer of rights from the property to his father, which is mandate as per section 2(47) of the income tax Act, 1961. Hence as there is no transfer of the property, assessee himself is the owner of the property, hence he is liable to tax for the receipts of rental income.”
3.4 Further, AO observed that as seen from the return of income for A.Y. 2014-15 of Shri G. Ravindra Babu, assessee's brother, who is the co-owner of the said property and equal beneficiary in the rental income received from the property, that the assessee's share in the rental income received from the said property, during the relevant year was Rs.8,78,500/-, Rs.5,27,100/- and Rs.4,92,275/-. Further, he observed that the same receipts are reflecting in assessee's father return of income for the assessment year 2014-15. Hence the unoffered rental income totalling to Rs 18,97,875/- against assessee’s share in the property at “Kruthika Layout” is brought to tax in the hands of the assessee as the actual owner of the mentioned property is assessee himself. Accordingly, the AO recomputed the income from house property as under: Rents received as per return Rs. 11,17,600 Add: Rents received as discussed above Rs. 18,97,875 Rs. 30,15,475 Less: Municipal taxes Rs. 1,00,325 Rs. 29,15,150 Less: Standard deduction u/s 24(a) @ 30%Rs. 8,74,545 ------------------ Rs. 20,45,605
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Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) confirmed the order of AO by observing as under:
“7. In the course of the appeal proceedings, the appellant furnished submissions vide letter dt. 27.08.2018. After considering the submissions, it is seen that the AO was justified in taxing the relevant sum in the hands of the appellant. On facts, the provisions of Section 60 are applicable. There is no evidence to suggest transfer of rights in property to the father of the appellant. The appellant continues to be the owner of the property. Even as per clause 5, of the family arrangement dt. 25.12.2012, it is clear that the family arrangement shall not be construed as transferring of title in favour of the second party under any circumstances. Accordingly, it is held that the addition made is justified and the grounds of appeal no. 2 & 3 are dismissed.” 5. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: “1. The order of ld. CIT(A) is contrary to law, facts and circumstances of the case. 2. The ld. CIT(A) erred in confirming the addition made by the AO. 3. The ld. CIT(A) without proper appreciation of facts and application of law erred in holding that rental income from the property owned by the appellant was received by his father Gudapati Vijaya Rama Rao in a family arrangement and disclosed in his father’s income tax return, is taxable as income of the appellant. 4. The ld. CIT(A) erred in applying provisions of section 80 of the Act. 5. The appellant craves leave to add, alter or amend any of the above grounds before or in course of hearing of this appeal.” 6. Ld. AR submitted that the facts of the case that assessee has made family arrangement, as per which, the rent from the property is assigned to Assessee’s father, who has declared the same in his return of income. This fact was also confirmed by both AO & CIT(A). He submitted that AO/CIT(A) has applied section 60 to bring the rental income to tax. The
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section 63 connotes broader meaning to the term ‘arrangement’, it does include family arrangements. He prayed and submitted that the rental income was already brought to tax in the hands of assessee’s father, the same income cannot be brought to tax in assessee’s hands also.
Ld. DR relied on the orders of AO and CIT(A).
Considered the rival submissions and perused the material on record. It is fact that assessee was receiving rent from the impugned properties and from this year onwards, he made an arrangement to transfer the rental income to his father. Accordingly, assessee has not declared the rental income in his return of income, but, at the same time, assessee’s father has declared the rental income in his return of income.
8.1 Now, AO brought to tax the same rental income to tax in assessee’s hands as the ownership of the property is not transferred, remain with the assessee and, accordingly invoked section 60. In this case, the assessee as well as assessee’s father are in the same tax bracket i.e. chargeable to tax @ 30%. Actually, there is no gain to either parties to avoid tax. We notice that for the purpose of section 60-62, the definition of transfer is given in section 63. The relevant word for this case is the ‘arrangement’, as claimed by the assessee that it is family arrangement. The word ‘arrangement’ was aptly explained by Hon’ble Punjab and Haryana High Court in the case of S.P. Jaiswal Vs. CIT [1981] 130 ITR 643, the word ‘arrangement’ has not used as a term of apt, but has been used in the business sense. Assessee made family arrangement to transfer the rent to his father without transfer of the title. Assessee also demonstrated the arrangement by
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declaring the income in the return of income of the assessee’s father. It clearly indicates that the arrangement was genuine and proper. The revenue also accepted the rental income declared by assessee’s father and treated him accordingly, at the same time, invokes section 60 to bring the same income to tax again in the hands of the title owner i.e. assessee. It is accepted principle that the same income cannot be taxed twice, particularly, when there is no loss to the revenue whether it is declared in the hands of the assessee or assessee’s father. When there is no loss to the revenue, the same source of income cannot be taxed again. Therefore, the grounds raised by the assessee is allowed.
In the result, appeal of the assessee is allowed.
Pronounced in the open court on 27th May, 2019.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 27th May, 2019. kv Copy forwarded to: 1. Surendra Babu Gudapati, Plot No. 1292/A, H.No. 8-2-293/82/A, Road No. 65, Jubilee Hills, Hyderabad – 500 033 2. ITO, International Taxation – 1, Hyderabad 3. CIT(A) - 10, Hyderabad 4. CIT (IT & TP), Hyderabad 5. The DR, ITAT, Hyderabad 6. Guard File