Income Tax Appellate Tribunal - Bangalore
Smt. T.V. Ushamani, Bangalore vs Department Of Income Tax on 5 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA Nos.138 to 143/Bang/2012
Assessment years : 2000-01 to 2005-06
The Income Tax Officer, Vs. Smt. T.V. Ushamani,
Ward 1(1), No.66, 4th Cross,
Bangalore. Indiranagar,
2nd Stage,
Bangalore - 560 038.
PAN : AAHPU 4628H
APPELLANT RESPONDENT
Appellant by : Smt. Susan Thomas Jose, Jt.CIT(DR)
Respondent by : Shri H. Guruswamy, Advocate
Date of hearing : 05.06.2013
Date of Pronouncement : 07.06.2013
ORDER
Per Bench These are appeals by the revenue against the common order dated 31.10.2011 of the CIT(Appeals)-I, Bangalore relating to assessment years 2000-01 to 2005-06.
ITA Nos.138 to 143/Bang/2012 Page 2 of 19
2. The only issue that arises for consideration in all these appeals is as to whether the CIT(Appeals) was justified in coming to the conclusion that rental income from the property known as Lakshmi Complex situated at No.320, Binnamangala Ist Stage, CMH Road, Indiranagar, Bangalore to the extent of 1/6th only is to be assessed in the hands of the assessee as against the claim of the Revenue that the entire rental income from the aforesaid property has to be assessed in the hands of the assessee.
3. The assessee is an individual. There was a commercial site bearing No.320 at Binnamangala Ist Stage, CMH Road, Indiranagar, Bangalore measuring to the extent of about 3942 sq.ft. This site belonged to B. Krishnamurthy, the husband of the assessee. B. Krishnamurthy died intestate on 10.04.1987 leaving behind his wife - the assessee and two daughters by name Ms. K. Padmabhusani and Ms. K. Lakshmi. The husband of the assessee was the only earning member of the family and after his death, the assessee and her daughters did not have sufficient source of income. The assessee and her two daughters therefore decided to lease out a part of the vacant site at Indiranagar to the assessee's two sisters by name T.V. Sudhamani & T.V. Nagamani and the assessee's brother, T.V. Ramakrishna. The assessee's two sisters were residing along with the assessee. Accordingly three lease deeds dated 22.04.1997 was executed by the assessee and her two daughters in favour of T.V. Sudhamani, T.V. Nagamani and T.V. Ramakrishna, leasing out to them specific areas measuring 657.10 sq.ft. each, out of the larger extent of ITA Nos.138 to 143/Bang/2012 Page 3 of 19 3942.60 sq.ft. of the site at Indiranagar. Clause (4) of the lease deed specifically provides as follows:-
"The Lessee has been permitted to put up the construction on the Schedule Premises either for domestic or commercial purpose at its own cost on the Schedule Premises and morefully known as Schedule 'B' Property, by himself and or enter into such understanding with the owners and other leaseholders, who are in possession of the remaining portion of Schedule 'A' Property. The construction of domestic or commercial complex in which case shall be a joint structure constructed by all the parties on the Schedule 'A' Property with a common intention of investing and earning rental incomes jointly and proportionately."
4. On 25.04.1997, the assessee and her two daughters, T.V. Ramakrishna, T.V. Sudhamani and T.V. Nagamani entered into an agreement by which they agreed to construct commercial complex on the larger extent of the property of 3942.60 sq.ft. at Indiranagar. The commercial complex was to be named as Lakshmi Complex. It was agreed that each one of them will contribute equally to the funds required for the construction of the complex. The assessee was appointed as the Managing Party and entrusted with the powers to act on behalf of others, supervise, control and administer the whole affairs of the property. She was also given the power to execute agreements of lease, to approach financial institutions for obtaining loan against mortgage of the property for the purpose of putting up construction. She was also authorised to approach municipal corporation, BWSSB, KEB, for construction of the building and for installing amenities in the building. The assessee was to ITA Nos.138 to 143/Bang/2012 Page 4 of 19 receive the rents from the various portions of the commercial complex that was to be leased out to different parties. Clauses 4g & 5 of the agreement dated 25.04.1997 reads as follows:-
"4g. For the better and more effectually doing, effecting and performing several matters and things aforesaid, the managing party has been authorised to represent purely as 'Absolute Owner' of the entire complex. The khatha on the Schedule Property stands in the name of the Managing Party), and the said Managing Party may appoint from time to time such person or persons as she may think fit as her substitute.
5. The profits earned from Lakshmi Complex shall be subject to distribution once in a year among the co-owners in equal proportion only after deduction of equated installments of loans due as on that year ending, interest charges, payment of salaries, administrative expenses, maintenance expenses and other incidentals."
5. The commercial complex was constructed and rental income from the aforesaid property was received by the assessee. In her return of income filed for all the assessment years, the assessee offered to tax 1/6th of the rental income from Lakshmi Complex under the head 'income from house property'. The AO was of the view that the lease of the portion of the site and the MOU by which six people agreed to construct the commercial complex and share equally the rental income therefrom was only for the purpose of evading tax which legitimately had to be taxed in full in the hands of the assessee. In this regard, the AO has observed the following facts with regard to the ownership of the property:-
ITA Nos.138 to 143/Bang/2012 Page 5 of 19 "(i) The Khata of the land is in the name of the assessee viz.
Mr. T.V. Ushamani.
(ii) The building was constructed by the assessee and the building place is sanctioned in the name of the assessee.
(iii) Loans have been raised for the construction of the complex and the loan has been availed in the name of the assessee.
(iv) It is the assessee, who is paying interest on loan.
(v) It is in the assessee's name, that the municipal tax for the complex has been paid.
(vi) The rents were paid by the tenants by cheque and the same is issued in the name of the assessee only for all the years right from the year the property was let out.
(vii) Mr. T.V. Ramakrishna and Smt. T.V. Sudhamani in their statement made u/s. 131 on 02.03.2007 have categorically stated that they do not have any evidence for the payment of their share towards the cost of construction of the business complex.
Examination of the bank statements of the alleged co-owners reveals that there is absolutely no evidence to show that the assessee paid the proportionate income to any of the alleged co- owners. The lease and MOU created are only to give an appearance that the property is co-owned by six persons and thereby evade tax on the rental income. This is evident from the statements made by Sri T.V. Ramakrishna, T.V. Sudhamani and T.V. Ushamani as also the bank statements of all the alleged co- owners."
6. The AO accordingly issued show cause notice to the assessee calling upon the assessee to show cause as to why the entire rental income from Lakshmi Complex was not assessed in the hands of the assessee.
ITA Nos.138 to 143/Bang/2012 Page 6 of 19
7. In reply, the assessee pointed out to the documents of lease and the MoU and the various clauses in the MoU, which we have already referred to in the earlier part of this order. The assessee thus took the stand that she was 1/6th co-owner of the building and was liable to be assessed in respect of 1/6th of the rental income therefrom. The statements of the assessee as well as the statement of Sri T.V. Ramakrishna and T.V. Sudhamani were recorded by the AO by issue of summons u/s. 131 of the Act. In reply to questions 4 to 9, the assessee has stated as follows:-
"Q.4 Please give the details of loan taken.
Ans. The loan was taken in the name of Ushamani by mortgaging the complex property comprising of land.
Q.5 Who is repaying the loan? Explain the source for repayment.
Ans. I am paying the loan as the loan stands in my name out of the rental income. As regards to the guaranteeship of the loan none of the lessees have stood guarantee to such loan.
Q.6 Give the details of rent received and who receives the rent.
Ans. The entire rent of the complex is received by way of cheques only which are issued in my name as I've executed the lease agreements with the tenants. Such rents are deposited in my account at Canara Bank, V.V. Puram, out of which I am spending for regular expenditure and the balance is shared among six of us being co-owners.
Q.7 When the entire rental income is recd. by you by cheque in your name how do you pay the share of that income to each of the other persons said to be co-owners.
Ans. I pay the share of each co-owner by cash only.
ITA Nos.138 to 143/Bang/2012 Page 7 of 19 Q.8 Will you collect the receipt for payment of cash towards the respective shares as explained above.
Ans. No. I do not take any receipts because except Mr. Ramakrishna all are staying alongwith me in the same house and all co-owners are family related.
Q.9 Do you mean to say that there are no evidence in any form like vouchers for the payment of respective shares as claimed above.
Ans. No. But each of us have an account of respective payments made by me."
8. Similarly T.V. Ramakrishna in his statement affirmed the fact of 1/6th share as co-owner of Lakshmi Complex and that his sister has been collecting rents from all the tenants and paying 1/6th share to him. She also affirmed in reply to Q.11 to 13 as under:-
"Q.11 Was any loan taken for the construction of the complex?
If so, in whose name?
Ans. For the construction of the complex a loan was raised from Canara Bank, VV Puram Branch around the year 1996-97. The loan taken was around 20 lakhs in the sole name of Smt. TV Ushamani against the security of the site. I was not a party to the loan. The instalment of each is paid by her only. As on today there is no liability in this regard.
Q.12 What is your contribution to the repayment of loan and interest thereon?
Ans. My share of income from the property is net of all the payments including the repayment of loan, interest paid and municipal tax.
Q.13 In the answer to the Q.No.10 you have stated that you receive your share of income periodically in cash. How do you acknowledge the receipt?
ITA Nos.138 to 143/Bang/2012 Page 8 of 19 Ans. No written acknowledgement or no receipt is given to her for having received my share of income. As she is my sister, it is purely by mutual trust."
9. Similarly T.V. Sudhamani was also examined and in her statement she gave the same version as was given by Shri T.V. Ramakrishna.
10. In the light of the evidence and the statements recorded, the AO came to the following conclusions:-
" The above facts prove that it is the assessee who is enjoying the income from the complex. There is absolutely no credible evidence right from the beginning when the complex was constructed and let out from the Financial Year 1998-99 to show how and under what basis each alleged co-owners came to acquire an equal share in the building complex. This is a clear case of diversion of income and the entire divide is deliberately created to evade legitimate tax on the income from property owned by the assessee. Right from the date of construction, no rental income was paid to the said co-owners. The entire TDS has been claimed by the assessee only and none of the co-owners have claimed the TDS.
All the above facts prove that the entire rental income from the complex belongs to Smt. T.V. Ushamani only."
11. The details of the income shown by the assessee as income from house property and the income ultimately assessed by the AO as income from house property in the hands of the assessee was as follows:-
ITA Nos.138 to 143/Bang/2012 Page 9 of 19 Assessment year Shown by the appellant Determined by the AO (Rs.) (Rs.) 2000-01 1,11,307 7,56,248 2001-02 1,27,378 8,15,587 2002-03 1,29,848 8,38,725 2003-04 1,01,687 6,97,587 2004-05 1,15,615 9,74,989
12. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(Appeals).
13. Before the CIT(Appeals), the assessee again reiterated the submission that there were six co-owners of the property, Lakshmi Complex, and that the assessee was entitled to only 1/6th share of the rental income from the said property. The case of the AO and the reply of the assessee to the various issues raised may be summed up thus:-
(1)(a) According to the AO, there was no credible evidence to show that all the co-owners had contributed to the construction of the complex.
Admittedly, it was Ushamani who incurred expenses towards cost of construction by borrowing loans from the bank in her name. It was she who repaid the interest as well as the principal amount borrowed from the bank.
(b) To the above stand of the AO, the assessee has submitted that the following were investments made by the co-owners in construction of the commercial complex:-
ITA Nos.138 to 143/Bang/2012 Page 10 of 19 The amount invested Co-owner wise is submitted as under:-
1. Smt. Ushamani Rs.7,33,925
2. Smt. Laxmi Rs.6,33,955
3. Smt. Padmabhusani Rs.6,33,951
4. Smt. Sudhamani T.V. Rs.6,33,950
5. Smt. Nagamani Rs.6,33,951
6. Sri Ramakrishna Rs.6,33,950 The investment so made in the commercial complex has been reflected in the respective Returns of Income of all the Co-owners.
Therefore, the Learned AO is not justified to say that there is no credible evidence.' (2)(a) According to the AO, on an examination of the bank statement of the co-owners, it was seen that there was no deposit of the amount received towards their share of rental income from the assessee.
(b) According to the assessee, the share of other co-owners were paid by her in cash and the fact that their bank accounts did not show deposits and share of rental income cannot be a ground to come to the conclusion that the assessee was in fact enjoying the entire rental income from the property, Lakshmi Complex. (3)(a) According to the AO, MoU was only a colourful device to evade payment of tax on the rental income.
(b) According to the assessee, the case of the assessee is supported by documentary evidence and that there was no colourful device adopted to evade payment of tax as surmised by the AO.
ITA Nos.138 to 143/Bang/2012 Page 11 of 19 (4)(a) According to the AO, there was a calculated income diversion. In this regard, the AO has referred to the fact that the Khatha of the property stood in the name of the assessee. The sanctioned plan was also in the name of the assessee. It was the assessee, who raised the loan for construction of the building and there is no evidence to show contribution by other co-owners. Municipal taxes were being assessed in the name of the assessee. The receipts were also in the name of the assessee. The tenants were paying the rents to the assessee. The TDS certificates were issued by the tenants in the name of the assessee and the entire credit for the tax deducted at source is being claimed only by the assessee.
(b) On the above, the assessee has submitted that Khatha of the property is irrelevant as it relates to ownership of the land. U/s. 22 of the Act, income from house property is assessed on the basis of the ownership of the building and not the land. Similarly, the sanctioned plan in the name of the assessee is for and on behalf of the other co-owners and this is duly reflected in the agreement dated 25.04.1997 whereby the commercial complex was agreed to be built jointly by all the six persons. The construction of the building was not from the bank loan alone and that other co-owners had also contributed to meet the cost of construction of the building. The lease deed and TDS being in the name of the assessee is a fact ITA Nos.138 to 143/Bang/2012 Page 12 of 19 which flows from the agreements dated 25.04.1997 between the six persons.
(5)(a) The other co-owners had declared their share of rental income in the returns filed for the various assessment years. On the above, the AO was of the view that the tax liability in many cases was Nil after claiming admissible deductions and that there was no PAN number obtained. According to the AO, it was just a colourable device adopted to evade tax.
(b) On the approach of the AO, the assessee submitted that the legal requirements as per law have been complied with and the revenue cannot have any grievance.
14. On a consideration of the above submissions of the AO and the assessee, the ld. CIT(Appeals) held as follows:-
"14. I have gone through the above. It is better to have a chronology of events on hand to understand the issue involved.
Sl. Date Event
No.
1 10.04.1987 Sri.B. Krishna Murthy, owner of commercial site bearing No.320, Binamangala, 1st stage, CMH Road Indiranagar, Bangalore, (measuring 3942.60 sq.ft. & measuring 1971 sq.ft.) died leaving behind his wife the appellant and two daughters namely Miss.K Padmabhusani & M.K. Lakshmi.
2 01.04.1997 A portion of the above site was leased to appellants two unmarried sister & brother for 11 years.
ITA Nos.138 to 143/Bang/2012 Page 13 of 19 3 22.04.1997 Three separate lease deeds were executed for a rent of Rs.1,500/- per month. From these three lesses. These lease deeds also permitted to put up construction on lands given on lease to them.
4 25.04.1997 A MOU was signed amongst the lesses and lessor to put up a commercial complex under the name Lakshmi Complex. As per the terms of MOU all six persons had to invest equally and share the rent equally after its construction and letting out. It also made the appellant chief of the co-owners to deal with all matters relating to Lakshmi Complex.
15. The above chronology of events reveals that at least the appellant could not have been able to construct the Lakshmi complex unless the other co-owners would have come forward and invested their shares in the construction activity of the Lakshmi Complex. The AR has also given the details of such investment made by each of the six co-owners and have stated that the same had been also reflected in the respective returns of income not disputed at any stage by the AO. Thus it becomes clear that ownership vests with the A.O.P. and not the appellant alone. Now comes the benefit of rent from such complex. It is an admitted fact that the appellant alone receives the same from all tenants through cheques and claims that she distributes the same by cash amongst the co-owners. The A.O. has disbelieved such claim as not genuine. He states that TDS certificates issued by the tenants only mentions the name of the appellant and therefore the appellant becomes the dejure and defacto owner of such rent receipts and therefore the entire sum be taxed in her hand. I find no merit in such argument of the A.O. Mere mention of the name of the appellant in TDS certificate does not make her the exclusive owner of the sum mentioned therein. TDS certificate only reveals the mental status of the payer tenant who consider the appellant as manger of the co-owner and who can be given the rent because in the lease agreement, there is no condition that they would pay the divided to all six co-owners separately and deduct TDS therefrom separately and issue different certificates to each coowners. Such is against the principles of convenience ITA Nos.138 to 143/Bang/2012 Page 14 of 19 for both the tenants as well as the six co-owners. In other words entries in TDS certificates, so far the payee is concerned, cannot be held as conclusive evidence for making the payee liable to pay tax under the same head or as owner. Such is also the view of the Honourable Members of ITAT Mumbai in the case of - a ITO Vs. Shornaya Enterprises order dated 30-06-2011 in ITA.No. 3648/Mum/2010 by Mum 'J'ITAT.
In that case appellant owned a studio. It was being rent out on hourly basis to filmmakers. They were showing in the TDS certificate the payment as "rent". The assessee was showing the rental receipts in the return as business income. The AO on the basis of TDS certificates changed the head of income to House Property. The ITAT held it as business income observing that the TDS certificate only what the payer thinks about the nature of payment. Here in this case the TDS certificates reveal only what the tenants think about the appellant and such thinking cannot be held as conclusive evidence to tax the entire sum received in her hands alone because further evidences stand in the way of such conclusion. First1y the appellant has distributed the receipt is evidenced by there reflection in the returns of income even before the commencement of assessment proceedings of A.Y. 2005-06. Secondly the claim of the appellant that she was distributing the receipts without any receipt has not been disputed by the A.O. even if he holds that bank accounts do not reflect such receipts by the other coowners. The probability is that the other co-owners may not be depositing the same in their respective bank accounts and keeping the same for their personal expenditure. The fact that A.O. has not disputed the fact that after receiving the cheques and depositing the same in her Bank A/C she has also withdrawn the same in cash goes in favour of the presumption that the assessee has distributed the same amongst other co-owners after withdrawing the same from her bank account because there is no other out go for the assessee. Thirdly thus TDS certificates fail to convince me to hold that the sum received is to be taxed in appellant's hand exclusively. Fourthly I find from the chronology of events that the land had remained vacant, for almost 10 years. Had she been so maneavouring or financially strong, she would not have stopped so long to earn such huge ITA Nos.138 to 143/Bang/2012 Page 15 of 19 rental income by construction of such commercial complex. I therefore observe it is a case of need and not greed and therefore the pendulum of probability weighs in favours of her to hold that she is only a medium to receive & distribute the rental sum as the manager/chief/representative of the coownership consisting of 6 persons."
15. Aggrieved by the order of the ld. CIT(Appeals), the revenue has preferred the present appeals before the Tribunal.
16. We have heard the submissions of the ld. DR, who reiterated the stand of the AO as reflected in the submissions in the form of remand report filed before the CIT(Appeals). The ld. counsel for the assessee, on the other hand, relied on the order of the CIT(A) and reiterated the stand of the assessee as put forth before the AO and the CIT(A).
17. The ld. DR also relied on the decision of the ITAT Delhi Bench in the case of Bindals Developers Pvt. Ltd. v. ITO, 292 ITR (AT) 178 (Del), for the proposition that to be the owner of a property for the purpose of assessment u/s. 22 of the Act, there should be a lease for a minimum period of 12 years as required u/s. 269UA(f) of the Act. Our attention was also drawn to the provisions of section 27(iiib) of the Act.
18. We have considered the rival submissions. At the outset, the provisions of the Act with regard to the assessment of income from house property need to be set out. Under section 22 of the Act, the charge under the head 'income from house property' is on the annual value of the ITA Nos.138 to 143/Bang/2012 Page 16 of 19 property consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner. Thus, ownership of the building will be the basis of the charge to tax under the head 'income from house property'. The ownership of the land would be irrelevant and to this extent, reference made by the AO to the Khatha of the site being in the name of the assessee becomes insignificant.
19. Section 27(iiib) deems a person having a leasehold right over the property for 12 years as owner of the property for the purpose of section 22 of the Act. In the present case, what was leased to the two sisters and brother of the assessee was vacant land and not any building, therefore reference of the Revenue to the provisions of section 27(iiib) of the Act and the decision of the Delhi Bench of the Tribunal in the case of Bindals Developers Pvt. Ltd. (supra) would also not be relevant.
20. Under section 26 of the Act, if the property consisting of building and land appurtenant thereto is owned by two or more persons and their share are definite and ascertainable, their shares have to be computed in accordance with sections 22 to 25 and included in their respective total income.
21. In the present case, factually the site on which the building - Lakshmi Complex was built belongs to three persons viz., the assessee and her two daughters. They succeeded to the property as legal heirs of the original owner of the property, Shri B. Krishnamurthy. Under three ITA Nos.138 to 143/Bang/2012 Page 17 of 19 lease deeds, 657.10 sq.ft. each of the land of the total extent of 3942.60 sq.ft. was given to the two sisters and one brother of the assessee on lease. Under an agreement dated 25.04.1997, all the six persons who had freehold interest as well as leasehold interest over the land agreed to construct the commercial complex and share equally the rental income derived from letting out the commercial complex. It has been affirmed by the assessee in the assessment proceedings before the AO that the other co-owners had contributed the following amounts for construction of the commercial complex:-
Name of the Co-owner Amt. of Investment Relevant evidence as reflected in Paper Book Balance Sheet Page No. 1. Smt. Ushamani Rs.7,75,077 88 2. Miss K. Padma Rs.6,33,951 123 Bhooshini 3. Miss K. Lakshmi Rs.6,33,952 150 4. Sri T.V. Ramakrishna Rs.6,33,950 191 5. Miss T.V. Nagamani Rs.6,33951 216
6. Miss T.V. Sudhamani Rs.5,85,543 -
22. It has been certified in the paperbook before us that the above documents were on the file of the AO. However, in the statement of the assessee recorded u/s. 131 of the Act, there is a reference to the bank loan having been availed and each co-owner having contributed equally for meeting the cost of construction. In the statement of T.V. Ramakrishna and T.V. Sudhamani, there is no averment that they contributed for meeting ITA Nos.138 to 143/Bang/2012 Page 18 of 19 the cost of construction. In our view, the absence of such averment in the statements of T.V. Ramakrishna and T.V. Sudhamani will not be very significant. It is a fact that as per the agreements dated 25.04.1997, all the six persons agreed to share the rental income equally. The fact that the assessment of the property by the municipal authorities is made only in the name of the assessee and that the rental income was received by the assessee and that the TDS Certificates is issued in the name of the assessee and credit for TDS is claimed only by the assessee and not by any other co-owners, are all facts which, in our view, are not significant. The parties are free to agree to any mode of enjoyment of the property. The agreement evidences share of the rental income equally by all the six persons. The factum of ownership of the structure by all the six persons has been prima facie demonstrated. The revenue seeks to rely only on circumstantial evidence. In our view, those circumstantial evidence are not sufficient to prove the case of the revenue or to disprove the case of the assessee. In our view, the ld. CIT(Appeals) has rightly taken into consideration the four circumstances as mentioned in his order and come to the right conclusion that only 1/6th share of rental income from the property - Lakshmi Complex has to be assessed in the hands of the assessee. We do not find any grounds to interfere with the conclusions arrived at by the ld. CIT(Appeals). Consequently, these appeals by the revenue are dismissed.
ITA Nos.138 to 143/Bang/2012 Page 19 of 19
23. In the result, all the appeals by the revenue are dismissed.
Pronounced in the open court on this 7th day of June, 2013.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN )
Accountant Member Judicial Member
Bangalore,
Dated, the 7th June, 2013.
Ds/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.