ACIT, MEERUT vs. M/S. IHDP GLOBAL PVT. LTD., MEERUT

ORDER

Per L.P. Sahu, Accountant Member:

1. Whether in the facts and circumstances of the case, the Ld. CIT(Appeals) has erred in law in deleting the addition of Rs.2,72,74,672/- ignoring the facts that the relevant clause in lease agreement entered into between the assessee company and its tenant was a colourable devise to divert receipts/income of Rs.2,72,74,672/- to the other company to avoid tax liability in its hands and without incurring any tax liability in the hands of other company ignoring the judicial pronouncements of the Hon’ble Apex Court relied upon by the AO as follows : (i). CIT vs. McDowel (SC) (ii). CIT vs. Durga Prasad More,

82. ITR 540 (SC)

2. Whether in the facts and circumstances of the case, the Ld. CIT(Appeals) has erred in law in deleting the addition of Rs.2,72,74,672/- made by the AO with her confirmed observations that receipts of above amount by sister concerns of the assessee as maintenance charges in fact emanated from agreement between assessee and its tenants and thus was a part and parcel of receipts in the hands of the assessee.”

2. The Brief facts of the case are that the assessee company is a holding company of M/s. IHDP Home Interior Export Parks Private Limited and 100% share capital of subsidiary company/sister concern is held by the assessee company and both the directors are common. The assessee company enjoyed rental income of Rs. 17,11,94,528/- from its self occupied property situated at Plot No. 7, Sector 127, Taj Express Way, New Okhla Industrial Development Area, Distt. Gautam Budh Nagar (U.P.), being the owner of the land and civil construction of the property. Copy of agreement in this regard entered into between the assessee and M/s. Bell Woven Company India Pvt. Ltd.(Licensee)(tenant) dated 25th August, 2008 was placed before the authorities below. The subsidiary company of assessee, i.e., M/s. IHDP Home Interior Export Parks Private Limited provided various services and maintenances to the tenant and received a sum of Rs.2,72,74,672/- for the services rendered as per another agreement dated 25.08.2008 entered into between M/s. IHDP Home Interior Export Parks Private Limited and the user of property, M/s. Bell Woven Company India Pvt. Ltd. The tenants paid rent to the assessee company and separately paid maintenance charges to subsidiary company M/s. IHDP Home Interiors Exports Parks Pvt. Ltd. The AO completed the assessment of assessee by adding a sum of Rs.2,72,74,672/- received as maintenance charges by assessee’s subsidiary company M/s. IHDP Home Interiors Exports Parks Pvt. Ltd, to the income of assessee observing that the agreement entered into for providing services is a collusive agreement, entered only with a view to divert rental income of the assessee company because the maintenance charges are the integral part of license agreement entered into between the assessee-company and the tenants of the premises. He therefore, considering the law laid down in the cases of Durga Prasad More, 82 ITR 540(SC) and CIT vs. McDowell, made the impugned addition to the income of the assessee. Aggrieved assessee challenged the assessment order before the ld. CIT(A), who deleted the impugned addition observing as under :

“I have gone through the assessment order and submissions of AR and the papers and documents placed during the assessment proceedings, the copies of which were also placed before me in appellate proceedings. After carefully considering the same and the arguments raised before me by the AR, I find that the appellant company, - IHDP Globals Private Ltd. and the another company, Home Interiors Exports Parks Pvt. Ltd and the another company namely IHDP Home Interior Export Parks Private Ltd. are two separate assessees. I also find from the copies of the Balance sheets of both the companies placed on record that the appellant company purchased the Land and constructed the bare Building at plot No. 7 Sector 127, Taj Express Way, Noida and charged rent for the land and bare construction of the building through agreements entered into between the appellant company and the tenants. The appellant company was not in a position to give any maintenance services to its tenants as the necessary assets and equipments, such as lifts, generator etc. were not owned by the appellant company and that all the necessary assets and equipments such as Lifts, Generators, Air Conditioning plants, Chilling Plant, Fire Fighting Equipments etc. Were owned by namely IHDP Home Interior Export Parks Private Ltd. and that the said another company provides the maintenance and other services to the tenants as per separate agreements entered into between the said namely IHDP Home Interior Export Parks Private Ltd. and the tenants. It is, therefore, seen that there is no question of diverting the rental income. The AO was also expected to consider the audited annual accounts of IHDP Home Interior Export Parks Private Ltd. as well as the statement of Income and Income Tax Return filed by namely IHDP Home Interior Export Parks Private Ltd. for A.Y. 2009-10 and the assessment order passed u/s. 143(3) for A.Y. 2008-09 while passing the assessment order of the appellant company. It appears that it has not been done by AO. Considering the legal and factual position, I am of the considered opinion that on the facts and circumstances of the case, there is no reason to include the Income of Maintenance charges of Rs.2,72,74,672/- earned by namely IHDP Home Interior Export Parks Private Ltd., which is a separate assessee, in the hands of the appellant company, - IHDP Global Private Ltd. I accordingly delete this addition of Rs.2,72,74,672/-.”