ITAT : Parting with profit-share under MOU not 'diversion by overriding title', upholds taxability

Hyderabad ITAT holds that share of profit paid by assessee-builder to SIDCPL (one Infrastructure Development company) under the terms of MoU, not diversion of income by overriding title, but only an application of income, consequently holds the same taxable for AYs 2009-10 and 2010-11; Notes that the assessee had received advance of Rs. 8 crores from SIDCPL in June, 2006 which was utilised for purchase of land from HDFC Ltd. (for the purpose of developing the same), since the assessee could not repay the advance, it entered into MoU on March 22, 2007 wherein it was agreed that  87.12% of the profits (after deducting expenditure) would be distributed to the SIDCPL and only the balance would be retained by assessee; Notes that when the advance was received from SIDCPL, there was no obligation on part of the assessee to part with any of the receipts or even profit from the sale of such land, observes that so called obligation had arisen only by virtue of the subsequent MOU, not connected with property as such, holds that “The so called MOU entered, subsequent to the property being purchased and developed, cannot be considered as an obligation created at source, so as to claim diversion of income.”; Further notes that assessee had agreed only to share the profits and not the losses, remarks that “If there is an obligation at the source, then the losses arising also gets shared.”, cites principles on diversion of income laid down by SC in Sitaldas Tirathdas case; Moreover, noting that assessee was not even shown as debtor in SIDCPL’s books, ITAT doubts the real arrangement between the parties, further observes that “Since the amount of Rs. 2.05 Crores was already paid by the time the MOU entered, the distribution of profit at 87.12% also gives rise to a doubt about the ratio that was determined”:ITAT