2016 (6) TMI 1225 - HC - Income Tax

Addition invoking section 2(22)(e) - amounts received as share application money by companies from companies in both of which the respondent assessee has beneficial interest - Held that - On similar facts, the Delhi High Court and Madras High Court in Sumit Chopra (2011 (4) TMI 1374 - DELHI HIGH COURT) and Rugmini Ram Ragav (2007 (7) TMI 237 - MADRAS HIGH COURT) has also taken a view that the share application money cannot be treated as loans and advances for purposes of section 2(22)(e) of the Act. Moreover, on examination of the facts, both the Commissioner of Income-tax (Appeals) and the Tribunal have held that what was received was share allotment money and, therefore, could not be considered to be a loan and/or advance. It is to be further noted that it is not the case of the Revenue that the transaction of taking money for allotment of shares was a colourable device to evade taxes. In the aforesaid circumstances, no reason has been shown as to why the concurrent finding of fact arrived at by the Commissioner of Income-tax (Appeals) and the Tribunal holding that share allotment money could not be considered to be loans and advances is required to be disturbed. This finding was reached on an analysis of facts. Appeal is admitted on question No. (ii) - Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that investment made in two distinct adjacent flats would qualify for exemption under section 54F without appreciating the fact that the said section provides exemption in respect of a residential property implying a single residential unit only ?

Summary

Issues Involved:
1. Interpretation of section 2(22)(e) of the Income-tax Act, 1961 regarding share application money received by companies.
2. Eligibility for exemption under section 54F of the Income-tax Act, 1961 for investment in multiple residential properties.

Analysis:

Issue 1: Interpretation of section 2(22)(e) of the Income-tax Act, 1961 regarding share application money received by companies:
The case involved a challenge to the order passed by the Income-tax Appellate Tribunal (the Tribunal) regarding the treatment of share application money received by companies in which the respondent-assessee had beneficial interest. The Assessing Officer invoked section 2(22)(e) of the Act to tax the share application money as deemed dividend. However, the Commissioner of Income-tax (Appeals) held that the share application money was part of a business arrangement for raising capital and not loans or advances. The Tribunal upheld this decision, citing precedents and emphasizing the absence of mala fide intentions in the transactions. The High Court concurred with the Tribunal's decision, noting that the share allotment money was not a loan or advance based on factual analysis. The court highlighted that the Revenue had accepted similar decisions in other cases and found no reason to disturb the concurrent findings of the lower authorities.

Issue 2: Eligibility for exemption under section 54F of the Income-tax Act, 1961 for investment in multiple residential properties:
The second question raised in the appeal pertained to whether investments in two distinct adjacent flats could qualify for exemption under section 54F, which provides for exemption in respect of a single residential unit only. However, the court did not delve into this issue as it found no substantial question of law raised regarding this matter. The appeal was admitted only on this question, and the court directed the Registry to communicate the order to the Tribunal for further proceedings.

In conclusion, the High Court upheld the Tribunal's decision regarding the treatment of share application money under section 2(22)(e) of the Income-tax Act, 1961, based on factual analysis and precedents. The court did not entertain the question related to exemption under section 54F, admitting the appeal only on that specific issue for further consideration.