A two Judge bench comprising of Justices A.K Sikri and Ashok Bhushan recently confirmed an assessment order wherein the department assessed the rental income from the hands of the original owner of the property who had leased out his property to his own family members, who in turn had sub-leased it to outsiders on much higher rentals.
The bench relied on the specific finding fact of the lower authorities that the lease deed with the wife, son and daughter-in-law of the assesse was used as a devise to evade tax.
In the instant case, Assesse leased out his property to his family members, who later sub-leased the same to other persons for higher rent. The assessing officer treated the rent received by the lessees of the appellant as rental income of the appellant and demanded tax.
On second appeal, the ITAT allowed a partial relief to the assessee by directing the department to determine the annual letting value of the property to the sub-lessee on the basis of the municipal valuation.
On departmental appeal, the Andhra Pradesh & Telengana High Court reversed the ITAT order and held that since the nature of leases executed by the assesse is bogus and the structures were raised by the assessee himself, the net rental value must be regarded as the rental income of the assesse.
Aggrieved by the order, the Assessee knocked the door of the apex Court on appeal.
“Going by the nature of transaction, a clear finding of fact is arrived at by the authorities below that a devise was made by the appellant herein to show lesser income at his hand and because of this reason only he purportedly entered into a lease agreement with his wife, son and daughter-in-law in respect of the aforesaid property of which he is paying by letting them at a very nominal rates and allowing his family members to sub-let the same at a much higher rents,” the bench said.
The bench further noticed the decision in Income Tax Officer vs Ch. Atchaiah wherein it was held that the Assessing Authority has a right to tax the “right person”.
“Once it is found that the income in fact belongs to the appellant he was the right person for taxing the said income, it was permissible for the Income Tax Authorities to tax the said income at the hands of the assesse,” the bench said.
The bench further clarified that assessing the family members for the same income would result in double taxation.
Read the Full Text of the Judgment Below
