Taxpayer can Opt a Method resulting in Lowest Tax Liability, When Two Alternatives are Available: ITAT [Read Order]

ITAT - Depreciation - Taxscan

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT), in an assessee-friendly ruling, held that if there exist two methods for tax payment, the assessee can opt the method which would result in the lowest tax liability. The Tribunal opined that in such cases, it cannot be treated as a device to escape from the tax liability.

The assessee, along with other six persons, entered into an Amenities Agreement to provide certain amenities and facilities in the licensed premises to the licensee against amenities charges of Rs.6 Lacs per month for the first year and Rs.7 Lacs per month for 2nd and 3rd year. The assessee offered an amount of Rs.103.20 Lacs for income tax under the head Income from House Property and claimed the statutory deductions available under the head.

During the assessment proceedings, the Assessing Officer noted that the assessee firm had apportioned rent to the family members and took net rent to the profit & loss account. He found the arrangement as a device to evade tax and therefore, made additions.

On the first appeal, the CIT(A) held that the said income should have been offered as Income from House Property by the 6 persons could not be a ground to make impugned additions in the hands of the assessee.

The Tribunal noted that the transactions have been carried out and assessee, as well as other 6 persons, have offered their respective share of income in their own tax returns.

“There is nothing illegal in both the agreements. This being the case, the agreement dated 20/04/2009 could not be termed as a sham agreement or an artificial structure with a view to evade tax liability.”

While concluding the matter in favour of the assessee, the Tribunal held that “It is trite law that tax planning is legitimate provided it is within four corners of law and done without any fraudulent intention. Colourable devices could not be a part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods. If the taxpayer was in a position to carry a transaction in two alternative ways, one of which would result in lower tax liability, the assessee would be at liberty to choose that particular method. In the present case, we find nothing illegality in both the leave and license agreement entered into by the assessee. The terms of the agreement were duly honoured by the respective parties and it could not be said that the earlier agreement was a sham agreement.”

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