2015 (7) TMI 1262 - AT - Income Tax

Addition u/s 17(2)(iii)/28(iv) - perquisite in the hands of director - difference between the stamp duty valuation and sale consideration constituted as income in the hands of the assessee - assessee being a director of company purchased a property from the above said company - Held that - Since the assessee happened to be the Share holder and Director of the company, which sold the property, the assessing officer has presumed that the assessee has derived benefit from the transaction of purchase of property for the reason that there was a difference between the sale consideration and the value determined for stamp duty purposes. Accordingly, the AO proceeded to assess the difference amount of ₹ 96.26 lakhs as income of the assessee. AO was not sure as to the section under which the said difference is assessable. Hence he has quoted both sec. 17(2)(iii) and sec. 28(iv) of the Act. We have noticed that the Ld CIT(A) has given proper reasoning that the above said difference cannot be assessed as income of the assessee under both the sections. During the course of hearing, the Ld D.R also could not controvert the reasoning given by Ld CIT(A). The provisions of sec. 56(2)(vii), which provide for assessing difference between the Stamp duty valuation and the sale consideration in the hands of the buyer, has been inserted by the Finance Act, 2010 w.r.e.f from 1.10.2009. In the instant case, the impugned transaction has taken place on 17-7-2008 and hence the deeming provisions of sec. 56(2)(vii) are also not applicable to it. Under these set of facts, we are of the view that the assessing officer has made the impugned addition only on surmises - Decided in favour of assessee.

Summary

Issues:
- Addition of Rs. 96.26 lakhs under sections 17(2)(iii) and 28(iv) of the Income Tax Act.
- Applicability of sec. 17(2)(iii) for computing income from salary.
- Existence of employer-employee relationship.
- Application of sec. 28(iv) to the value of benefit or perquisite from business.
- Justification of the assessing officer's addition.

Analysis:

1. The appeal challenged the deletion of the addition of Rs. 96.26 lakhs made under sections 17(2)(iii) and 28(iv) of the Income Tax Act for the assessment year 2009-10. The assessing officer had considered the difference between the stamp duty valuation and the sale consideration as income of the assessee, a director and shareholder in a private limited company. The CIT(A) deleted the addition based on the absence of an employer-employee relationship between the company and the assessee, as required by sec. 17(2)(iii) for computing salary income.

2. The CIT(A) correctly noted that the assessee did not receive any salary from the company and cited the Emel Webber case to establish the prerequisite of an employer-employee relationship for applying sec. 15 to 17 of the Act. Since no such relationship existed, the CIT(A) held that the addition could not be taxed as a perquisite under sec. 17(2)(iii). Additionally, the CIT(A) found sec. 28(iv) inapplicable as there was no benefit arising from business or profession, ultimately leading to the deletion of the addition.

3. During the appeal, the revenue contended that the assessing officer's order should stand. However, the assessee's representative argued against the application of sec. 17(2)(iii) and sec. 28(iv) to the case, emphasizing the lack of an employer-employee relationship and the nature of the transaction as a property purchase. The representative highlighted that the stamp duty valuation was an estimate based on government rates and should not determine the actual value of the transaction.

4. The Tribunal observed that the assessing officer presumed the assessee benefited from the property purchase due to the difference in valuation but failed to establish any additional payment beyond the agreed consideration. The Tribunal agreed with the CIT(A)'s reasoning that the difference could not be taxed under either sec. 17(2)(iii) or sec. 28(iv). Furthermore, the deeming provisions of sec. 56(2)(vii) did not apply retroactively to the transaction, leading to the conclusion that the addition was made on conjecture.

5. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 96.26 lakhs, dismissing the revenue's appeal on 8th July 2015. The judgment emphasized the importance of a legal basis for assessing income and the necessity of a clear employer-employee relationship for tax implications related to salary and benefits.