Taxpublishers.in - Monday Corner Answer to the Quiz for the week (18 Nov 2024)

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Quiz for the week (18 Nov 2024): Suman and his 4 friends acquired a piece of vacant land jointly and paid equal amount for its acquisition. They constructed a commercial building in the said land by taking a bank loan jointly for construction purpose. After completion of construction, it was let-out for a monthly rent of Rs.1.50 lakhs to a listed company by entering in to an agreement with the tenant by describing them as Suman & others. They opened a bank account jointly where monthly rent was credited and loan instalment due to the bank was paid. All of them admitted one-fifth of the rental income in their personal income-tax return. The AO wants to assess the rental income of all from the said let-out property as AOP. Decide the validity of his action? Best Answer : In this case, all the 5 persons viz. Suman and 4 others have contributed equally for acquisition of vacant land. They also constructed the building by availing a joint bank loan. The constructed building was let out to the tenant by means of a single agreement by name Suman & Others and the rental income was credited to a single bank account from which the loan was repaid. The facts indicate that a group of persons have voluntarily joined together to earn income by acquiring the land and putting up a construction thereon. Recently, in Y.S. & Co-owners v. ITO 2024 TaxPub(DT) 6300 (P&H-HC) a similar case came up before the High Court. In this case, also the co-owners purchased property and constructed godowns which was let out to government companies. The rental income was deposited in the joint bank account of the co-owners. The court held that the assessment of income from the let-out property must be in the status of AOP and not as income received by co-owners. Readers may take note of the fact that merely because the taxpayer has admitted the income in his personal assessment being one-fifth of the income, would not preclude the Revenue from taxing the income in the status of AOP as held by the apex court in the case of ITO v. Ch.Atchaiah 1996 TaxPub(DT) 0726 (SC) : (1996) 218 ITR 0239. In this case, the apex court held that if the members of AOP have been assessed individually, the Revenue would not be barred to assess such income in the hands of AOP if the income in substance relates to AOP. The Apex Court held that income has to be assessed in the hands of the right person and merely because it was admitted and taxed in the hands of another person such income cannot be let free. It held that section 4(1) speaks of levy of income-tax on the total income of every person and it necessarily means the person who is liable to pay income-tax in respect of that total income according to law. Accordingly, merely because the co-owners have admitted the income in their personal assessment would not be proper and the status of AOP would be thrust by the Revenue by taking note of the fact that the loan was obtained jointly, the rental income was credited in the joint bank account and the rental agreement with the tenant was also a joint single agreement. As the parties have voluntarily come together to acquire land, put up a building and avail loan jointly besides exploiting the asset by letting out in a joint agreement would show that the status of the assessee is AOP. Hence, the stand of the Assessing Officer seems to be correct.

Quiz for the week (18 Nov 2024):

Suman and his 4 friends acquired a piece of vacant land jointly and paid equal amount for its acquisition. They constructed a commercial building in the said land by taking a bank loan jointly for construction purpose. After completion of construction, it was let-out for a monthly rent of Rs.1.50 lakhs to a listed company by entering in to an agreement with the tenant by describing them as Suman & others. They opened a bank account jointly where monthly rent was credited and loan instalment due to the bank was paid. All of them admitted one-fifth of the rental income in their personal income-tax return. The AO wants to assess the rental income of all from the said let-out property as AOP. Decide the validity of his action?

Best Answer :

In this case, all the 5 persons viz. Suman and 4 others have contributed equally for acquisition of vacant land. They also constructed the building by availing a joint bank loan. The constructed building was let out to the tenant by means of a single agreement by name Suman & Others and the rental income was credited to a single bank account from which the loan was repaid.

The facts indicate that a group of persons have voluntarily joined together to earn income by acquiring the land and putting up a construction thereon. Recently, in Y.S. & Co-owners v. ITO 2024 TaxPub(DT) 6300 (P&H-HC) a similar case came up before the High Court. In this case, also the co-owners purchased property and constructed godowns which was let out to government companies. The rental income was deposited in the joint bank account of the co-owners. The court held that the assessment of income from the let-out property must be in the status of AOP and not as income received by co-owners.

Readers may take note of the fact that merely because the taxpayer has admitted the income in his personal assessment being one-fifth of the income, would not preclude the Revenue from taxing the income in the status of AOP as held by the apex court in the case of ITO v. Ch.Atchaiah 1996 TaxPub(DT) 0726 (SC) : (1996) 218 ITR 0239. In this case, the apex court held that if the members of AOP have been assessed individually, the Revenue would not be barred to assess such income in the hands of AOP if the income in substance relates to AOP. The Apex Court held that income has to be assessed in the hands of the right person and merely because it was admitted and taxed in the hands of another person such income cannot be let free. It held that section 4(1) speaks of levy of income-tax on the total income of every person and it necessarily means the person who is liable to pay income-tax in respect of that total income according to law.

Accordingly, merely because the co-owners have admitted the income in their personal assessment would not be proper and the status of AOP would be thrust by the Revenue by taking note of the fact that the loan was obtained jointly, the rental income was credited in the joint bank account and the rental agreement with the tenant was also a joint single agreement.

As the parties have voluntarily come together to acquire land, put up a building and avail loan jointly besides exploiting the asset by letting out in a joint agreement would show that the status of the assessee is AOP. Hence, the stand of the Assessing Officer seems to be correct.