ACIT Vs Tupelo Builders Pvt. Ltd. (ITAT Delhi)
ITAT Delhi held that the main objective of the assesses is to carry on the business of letting out of properties and hence the income earned by the assessee from letting out of the property is assessable under the head ‘Income from Business’.
Facts-
AO noticed that during the previous year relevant to AY 2015-16 the assessee company along with Shri Rajiv Rattan purchased property bearing House No.13A, Amrita Shergill Marg, New Delhi. AO examined the purchase of property in the light of the provisions of prohibition of Benami Property Transaction Act, 1988. AO observed that the total value of 95% of share of the property acquired in the name of the assessee company has been shown as inventory in the books of the assessee company at Rs.322.85 crores, however, as per the records of sale deed dated 23.06.2014 and the other documents filed by the assessee it revealed that assessee company made entire payment of consideration and other statutory expenses for the property at Rs.245.02 crores through its bank accounts and another 5% amounting to Rs.12.25 crores has been taken by the assessee from Shri Rajiv Rattan on 04.02.2015 and there is direct nexus between the payment made by the assessee company and the funds provided by Shri Rajiv Rattan either through loan or through its subsidiary company or home loan.
AO also observed that the arrangement of leave and license agreement dated 01.10.2014 and payment of rent by Shri Rajiv Rattan is a colourable device to make a facate to grant possession of property for immediate and future use to the beneficial owner and, therefore, the second limb of prohibition of Benami Property Transaction Act i.e., holding of property for the immediate or future benefit, direct or indirect has been satisfied. Therefore, he was of the view that Section 292(9A) of the prohibition of Benami Properties Transaction Act are clearly apply in case of the assessee company as the assessee acted as Benamidar for the beneficial owner of Shri Rajiv Rattan for the property purchased.
Conclusion-
As could be seen from MOA one of the main objects of the assessee company is to construct, acquire hold buildings, tenements and such other movable and immovable property and to rent let on hire and managed immovable property. Therefore, we noticed that undoubtedly the main objects of the assessee company provides to carrying on the business of letting out of properties and the assessee has let out its property during the year and earned rental income of Rs.4,50,00,000/-which was offered to tax under the head “Income from Business”. Applying the ratio of the decisions of the Hon’ble Supreme Court in the case of Rayale Corporation Ltd. (supra) and Chennai Properties Ltd. (supra) and also the other decisions referred to above, we hold that the income earned by the assessee from letting out of property is assessable under the head “Income from Business”. The decision of Sultan Brother relied upon by the Ld. AO has already been distinguished by the Apex Court in Chennai Properties (373 ITR 673). As noted above, the property was let out by the assessee as per defined business objectives and lease rent earned by the assessee is rightly disclosed as business income. As we have held that the income from letting out of property is assessable under the head “Income from Business” the expenses incurred by the assessee towards interest and processing charges are allowable as deduction u/s 37(1) of the Act. We sustain the order of the Ld. CIT(A) and reject the grounds raised by the Revenue.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-9, New Delhi dated 15.07.2019 for the AY 2015-16. The Revenue in its appeal raised the following grounds:
1. “On the facts and circumstances of the case, the Ld.C!T(A) erred in deleting the addition of Rs.11,58,12,598/- made by the Assessing Officer on account of interest and processing charges. Ld.C!T(A) failed to admire the fact that loan was sanctioned to Sh. Rajiv Rattan and the name of the assessee company has been used for disguising the arrangement of purchase in the name of assessee company in order to get benefit of “interest and processing charge” in name of assessee company.
2. On the facts and circumstances of the case, the Ld.CIT(A) erred in deleting the addition of Rs.5,40,00,000/- made by the Assessing Officer on account of income from other sources and accepting the claim of assessee that sum of Rs.4,50,00,000/- as income from Business and Profession. The assessee lent its name for a beneficial owner for purchase of property and also have received sum in the form of rent through a colourable leave and license agreement. In this process the assessee has also lent its name to the Home Loan sanctioned to Sh. Rajiv Rattan and claiming it as business expenses. Lending of name for the benefit of other persons cannot be held as Business and Profession of the company.
3. On the facts and circumstances of the case the order of Ld.CIT(A) is perverse.”
2. As both the above grounds are inter-connected the same are dealt with commonly hereunder.
3. Briefly stated the facts are that the Assessee a Private Limited Company e-filed its original return of income for the assessment year under consideration on 19.09.2015 declaring loss of Rs.7,07,00,678/-under the head “Income from Business”. The assessment was completed on 30.12.2017 u/s 143(3) of the Act assessing rental income under the head “Income from other sources” as against income from business as declared by the assessee. The Assessing Officer also denied the claim of the assessee for interest and processing charges on home loan as allowable expenditure u/s 37(1) of the Act from “Income from Business”.
4. The Assessing Officer noticed that during the previous year relevant to AY 2015-16 the assessee company along with Shri Rajiv Rattan purchased property bearing House No.13A, Amrita Shergill Marg, New Delhi. The Assessing Officer observed from the documents submitted by the assessee that the property was purchased from taking home loan of Rs.166.87 crores from Bank of India by the assessee and Shri Rajiv Rattan as joint applicants and the assessee has borrowed long term loan of Rs.83.36 crores from M/s Tupelo Properties Pvt. Ltd. which is the holding company of the assessee. The Assessing Officer observed that the property purchased by the assessee which has 95% stake in the property was let out to Shri Rajiv Rattan who has 5% stake in the property for a monthly rent of Rs.90 lakhs. As per the leave and license agreement dated 01.10.2014 the rental income received by the assessee was shown under the head “Income from Business”.
5. In view of the above and based on some reports in the newspapers that Shri Rajiv Rattan has purchased property the Assessing Officer was of the view that an arrangement of purchase of property in the name of assessee company was made by Shri Rajiv Rattan by paying entire consideration provided by Shri Rajiv Rattan and the possession of the property has been given to the beneficial owner of the property by the leave and license agreement. The Assessing Officer examined the purchase of property in the light of the provisions of prohibition of Benami Property Transaction Act, 1988. The Assessing Officer observed that the total value of 95% of share of the property acquired in the name of the assessee company has been shown as inventory in the books of the assessee company at Rs.322.85 crores, however, as per the records of sale deed dated 23.06.2014 and the other documents filed by the assessee it revealed that assessee company made entire payment of consideration and other statutory expenses for the property at Rs.245.02 crores through its bank accounts and another 5% amounting to Rs.12.25 crores has been taken by the assessee from Shri Rajiv Rattan on 04.02.2015 and there is direct nexus between the payment made by the assessee company and the funds provided by Shri Rajiv Rattan either through loan or through its subsidiary company or home loan.
6. The AO also observed that the arrangement of leave and license agreement dated 01.10.2014 and payment of rent by Shri Rajiv Rattan is a colourable device to make a facate to grant possession of property for immediate and future use to the beneficial owner and, therefore, the second limb of prohibition of Benami Property Transaction Act i.e., holding of property for the immediate or future benefit, direct or indirect has been satisfied. Therefore, he was of the view that Section 292(9A) of the prohibition of Benami Properties Transaction Act are clearly apply in case of the assessee company as the assessee acted as Benamidar for the beneficial owner of Shri Rajiv Rattan for the property purchased.
7. The Assessing Officer stated, inter-alia, that the transaction is Benami in nature and the assessee company is Benamidar of Shri Rajiv Rattan for the following reasons:
i) The loan taken from Bank of India of a sum of Rs. 163 crores was actually sanctioned to Shri Rajiv Ratan and the assessee company’s name only features as a co-applicant.
ii) There are news articles and media reports wherein it has come out that it is Shri Rajiv Rattan who has purchased the property at 13, Amrita Shergil Marg, New Delhi and the name of the company is nowhere visible.
iii) This is an arrangement for purchase of a property where the consideration has been provided by Shri Rajiv Ratan and by leave and license agreement, the possession is also with him and he being the beneficial owner is enjoying its benefits.
iv) The assessee company for the balance funds of Rs. 55 crores, took a loan from its holding company,M/s Tupelo Properties Private Limited, whose 99.99% shareholder is Shri Rajiv Rattan which shows that there is a direct nexus between the money provided by Shri Rajiv Rattan for the purchase of the property.
v) The Assessing Officer further stated that no explanation has been given as to why the property has been purchased in the joint name with Shri Rajiv Rattan when he is neither a director nor a shareholder in the assessee company and why a leave and license agreement has been entered into with Shri Rajiv Rattan at a sum of Rs. 90 lakhs per month despite the fact that he is not occupying the property but still paying the rent to the assessee company. Leave and license agreement also have many errors, the assessee company has been shown to be absolute owner of the property in the agreement.
vi) The Assessing Officer further stated that the leave and license agreement is a colorable device and that Shri Rajiv Rattan is not residing in the property and the assessee company has merely lent its name for the property whereas the beneficial owner for the property is none other but Sri Rajiv Rattan. Hence, according to the Assessing Officer, the interest and processing charges of Rs.11,58,06,398/- are not allowable as business expenditure since the property de-facto belongs to Shri Rajiv Rattan.
8. The Assessing Officer further observed that though the assessee has kept the property in inventory but its conduct clearly establish the property cannot be business or commercial property and the assessee has lent its name for the beneficial owner for purchase of property and, therefore, AO held that rent from property is not income from business or profession of the assessee company. Accordingly, the rental income shown by the assessee was assessed under the head “Income from other sources”.
9. The Assessing Officer further denied interest and processing charges on home loan as allowable business expenses u/s 37(1) of the Act for the reason that the property was held to be not a commercial property of the assessee and also not used for the purpose of business and the property purchased is benami property of Sh. Rajiv Rattan. Therefore, he was of the view that the expenses are not allowable u/s 37(1) of the Act.
10. On appeal the Ld. CIT(Appeals) on examining the provisions of prohibition of Benami Property Transaction Act, the facts of the asessee’s case, the evidences produced before him and the decisions relied on, has passed an exhaustive order dealing with each of the allegations of Assessing Officer and the contentions are briefly given below:-
i) Shri Rajiv Rattan is only one of the joint owners of the property as per the registered sale deed and this fact has been disclosed by the assessee company in its books of account. The news clippings cannot be a basis of any allegation of Benami. In substance the assessee company has recorded the purchase to the extent of 95% and the source of the same i.e, the corresponding loan liability is duly recorded and disclosed in the books of account.
ii) In order to be classified as a Benami property/transaction, the basic premise is that the property is transferred to a person and consideration for such property has been provided by another person and the property is held for the immediate benefit of the person who has provided the consideration. In this case, Shri Rajiv Rattan is not another person but a joint holder of the property. Assessing Officer has failed to bring any evidence showing that the possession of the property is with another person other than the joint legal owners. Clearly, the consideration to the extent of 95% is from the sources arranged by the assessee company i.e, loans from Bank of India and from its holding company, which have been duly recorded in its books of account. It also comes out from the supporting documents that in case of default in repayment of the loan, it is the property of the company which could be attached and sold and monies shall be recovered there from. Hence, it cannot be said that the source of funds to the extent of 95% of the property belong to Shri. Rajiv Rattan. They belong to the assessee company.
iii) According to the Ld.CIT(A), 75% of funds were borrowed by the assessee company from the bank against hypothecation of the property and the remaining were borrowed from its holding company and the issuance of the debentures.
iv) The Ld.CIT(A) further stated that the property was let out to Shri Rajiv Rattan on fair market rent and not without consideration or on nominal rentals and the leave and license does not replace the title of the property.
v) Hence, Shri Rajiv Rattan is paying rent for the use of the property on the basis of its fair market value rentals.
vi) Leave and license agreement along with its addendum was also examined by the Ld.CIT(A) and no errors were found.
vii) The Ld.CIT(A) stated that purchase of property individually or jointly is a mutual commercial decision which is within the sole domain of the assessee company.
viii) The board resolution passed by the assessee company for purchasing the property in joint name was also placed on record.
ix) There are no undisclosed transaction, fact or involvement of any party apart from the parties to the transaction.
x) The Ld.CIT(A) stated that Assessing Officer has failed to bring out any motive for giving the transaction a benami colour. Allegations have been made by Assessing Officer on apparently incorrect appreciation of facts, without bringing out any motive for doing so. The onus of proving transactions to be Benami rests solely upon the person alleging it to be a Benami and Assessing Officer has not brought out any evidence on record to show that what is apparent is not the real transaction. The Ld.CIT(A) has also relied on the decisions of Hon’ble Supreme Court in the case of the Mangathai Ammal vs. Rajeswari & Others (Civil Appeal No. 4805 of 2019) and P. Leelavathi vs. V. Shankarnarayana Rao (2019) 6 SCALE 112.
xi) The Ld.CIT(A) has further examined main objects of the company and held that the property was rightly reflected as inventory.
xii) He further stated that since Shri Rajiv Rattan is also joint purchaser of the property, he is entitled to apply for a home loan and mention of assessee company’s name as co-applicant does not affect its legal title.
xiii) The Income Tax Act does not prohibit disclosure and recording of partly owned property as inventory and that the business expenditure has been legitimately claimed since the property was let out for the defined business objectives and lease rent earned rightly disclosed as business income, and expenses were rightly claimed as business expenditure.
11. The Ld. CIT(A) further following the decisions of the Hon’ble Supreme Court in the case of Chennai Properties and Investments Ltd. (373 ITR 673) and in the case of Rayala Corporation Pvt. Ltd. Vs. ACIT (386 ITR 500) and the decision of the Coordinate Bench of the ITAT Delhi in the case of Master Infrastructure Pvt. Ltd. Vs. ACIT (ITA No.671/Del/2014) held that the rental income received by the assessee is assessable under the head “Income from Business or Profession” and not under the head income from “other sources” and the interest and processing charges were incurred wholly and exclusively for the purpose of business and they are allowable expenses u/s 37(1) of the Act.
12. Before us, the Ld. DR strongly supported the orders of the Assessing Officer. The Ld. DR further submits that the home loan sanctioned were only for residential purposes and not for commercial purpose and that too for individuals. The Ld. DR submits that Shri Rajiv Rattan funded the loan from the property through holding company to assessee and the leave and license agreement entered into by the assessee company with Shri Rajiv Rattan for letting out of the property and the possession given to Shri Rajiv Rattan is nothing but allowing the beneficial owner to take possession of the property and the leave and license agreement is only a colourable device. The ld. DR vehemently contended that the acquisition of the property in the assessee company’s name is a benami transaction and the property de-facto belongs to Shri Rajiv Rattan. He contended that Shri Rajiv Rattan is a sole owner of the property in as much as he owns the holding company which in turn owns the assessee company who provided the loan to the assessee company for purchase of the property. Hence, it is Shri Rajiv Rattan to whom the entire property belongs and more so since the home loan taken mentions Shri Rajiv Rattan as the main applicant even though his share in the property is only 5% and further loans have been taken from the holding company, M/s Tupelo Properties Pvt. Ltd., of which Shri Rajiv Rattan is a sole shareholder. Therefore, Ld. DR contends that it os clear that the funds belong to Shri Rajiv Rattan and the assessee company is only for the name sake and Shri Rajiv Rattan takes all the decisions relating to the property and even the construction/renovation work which is going on after he has taken possession is out of his funds. The ld. DR stated that the property cannot be transferred without the consent of Shri Rajiv Rattan as he owns 5% share in the property. The ld. DR has further stated that the assessee company has share capital of only Rs. 1 lakh and it cannot on its own carry out such huge transactions and therefore it is Shri Rajiv Rattan who is de-facto the owner of the property.
13. On the other hand, the Ld. Counsel for the assessee Shri Ajay Wadhwa referring to loan sanction letter dated 19.06.2014 issued by Bank of India submits that the entire loan was credited to assessee company account. The Ld. Counsel submits that the transaction of purchase by assessee company along with Shri Rajiv Rattan cannot be treated as Benami Transaction as the purchase consideration was entirely paid by the assessee company, the Rajiv Rattan and the assessee are co-applicants of the loan obtained from the bank and the liability to clear the loan vests with the assessee company and not Shri Rajiv Rattan. Ld. Counsel submits that Sh. Rajiv Rattan has taken the property on leave and license for a monthly rent of Rs.90 lakhs and the leave and license is a renewable for every 11 months. The Ld. Counsel further submits that there are no fetters on the assessee company to sell its 95% shares in the property and, therefore, the transaction cannot be treated as Benami Transaction.
14. The Ld. Counsel for the assessee also submitted the tabular presentation of the allegations levelled by the AO in treating the purchase of property by the assessee as Benami Property of Sh. Rajiv Rattan and the assessee’s contentions as under:
