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
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