2010 (1) TMI 981 - AT - Income Tax

Summary

Issues Involved:
1. Deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961.
2. Disallowance of interest on borrowings u/s 36(1)(iii) of the Income-tax Act, 1961.
3. Disallowance of depreciation on office premises u/s 32 of the Income-tax Act, 1961.

Summary:

1. Deemed Dividend u/s 2(22)(e):
The issue raised by the assessee was against the treatment of unsecured loan as deemed dividend u/s 2(22)(e). The Assessing Officer treated the loan of Rs. 88,25,000 taken from M/s. Cavim Reality Pvt. Ltd. by the assessee-company as deemed dividend. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal found that the issue is covered by the decision of the Special Bench in Asst. CIT v. Bhaumik Colour P. Ltd. [2009] 313 ITR (AT) 146, which held that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender-company. Since the assessee-company was neither a registered shareholder nor a beneficial shareholder in the lending company, the provisions of section 2(22)(e) were not applicable. Thus, this ground of appeal raised by the assessee was allowed.

2. Disallowance of Interest on Borrowings u/s 36(1)(iii):
The assessee claimed interest on term loan paid to Global Trust Bank Ltd. for acquiring property, which was disallowed by the Assessing Officer on the ground that the asset was not put to use. The Commissioner of Income-tax (Appeals) upheld this disallowance. The Tribunal, however, noted that the assessee was already in the business of real estate and brokerage, and the asset was acquired for business purposes. Citing the Supreme Court's decision in Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194, which clarified that Explanation 8 to section 43(1) does not apply to section 36(1)(iii), the Tribunal held that the assessee is entitled to deduction under section 36(1)(iii). The amendment to section 36(1)(iii) was also noted to be prospective from April 1, 2004. Therefore, this ground of appeal was allowed.

3. Disallowance of Depreciation on Office Premises u/s 32:
The assessee claimed depreciation on office premises, which was disallowed by the Assessing Officer on the ground that the premises were not put to use. The Commissioner of Income-tax (Appeals) upheld this decision. The Tribunal found that the assessee failed to produce any evidence to support its claim that the premises were used for business purposes. As section 32 requires the asset to be used for business or profession to claim depreciation, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) and dismissed this ground of appeal.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal allowed the grounds related to deemed dividend and interest on borrowings but dismissed the ground related to depreciation on office premises. The order was pronounced on January 12, 2010.