Sahney Kirkwood Pvt Ltd vs. ACIT (Bombay High Court)

Tax Planning transaction not “Sham” if parties assessed

The assessee let out its premises to Minicon on a monthly rent of Rs.47,000 pursuant to a leave and license agreement. Minicon thereafter let out the said premises to various third parties. The AO, CIT (A) & Tribunal took the view that as one director was common between the assessee and Minicon, the transaction of leave & license was a “sham” and that the amount received by Minicon from various persons was assessable in the hands of the assessee. On appeal by the assessee, HELD allowing the appeal:

As the amounts received by Minicon from the third parties have been taxed in the hands of Minicon and that has attained finality, taxing the very same amount once again in the hands of the assessee would amount to taxing an income twice which is not permissible in law. In Akshay Textile Trading 304 ITR 401 (Bom) it was held that in the absence of any cogent evidence to show that the transaction was not genuine, the amounts received by an intermediary cannot be assessed in the hands of the assessee. In the present case, save and except the fact that one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Minicon is a sham transaction. Accordingly, the decision of the Tribunal that the amounts received by Minicon on account of letting out the premises is liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon is a sham and bogus transaction cannot be accepted.