2014 (8) TMI 388 - HC - Income Tax

Deemed dividend u/s 2(22)(e) Purpose of enactment of provisions for deemed dividend Taxability of deemed dividend - Whether deemed dividend to be taxed in the hands of the shareholder only and not in the hands of the concern - Held that - Following the decision in THE CHIEF COMMISSIONER OF INCOME TAX-III & ANR. VS. M/S. SARVA EQUITY PVT. LTD. 2014 (4) TMI 788 - KARNATAKA HIGH COURT - a beneficial owner of shares whose name does not appear in the Register of shareholders of the Company cannot be stated to be a shareholder - He may be beneficially entitled to the share but he is certainly not a shareholder - it is only the person whose name is entered in the Register of the shareholders of the Company as the holder of the shares who can be said to be a shareholder qua Company and not the person beneficially entitled to the shares - it is only where a loan is advanced by the Company to the registered shareholder and the other conditions set out in Section 2(22)(e) of the Act are satisfied, that amount of loan would be liable to be regarded as deemed dividend Decided against Revenue. Amendment to section 80IB prospective in nature Form No. 10CCB not filed Held that - The provision came on the statute book by Finance Act 2004, with effect from 1/4/2005 - The plan which is sanctioned is of 16/3/2004 ie., prior to the provision coming into force the provision is prospective in nature and it has no application to house products which was approved by the local authority prior to 1/4/2005 - the benefit u/s 80 IB cannot be denied to the assessee on the ground that he does not comply with the terms of Sec.80 IB(10) - The Tribunal has recorded a finding that the building was completed within the stipulated period and the certificate issued by the Panchayat after the building is completed, the assessee is entitled to the benefit Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 2(22)(e) of the IT Act regarding deemed dividend assessment.
2. Compliance with requirements under Section 80IB for claiming benefits.
3. Validity of completion certificate for eligibility of benefit under Section 80IB.

Analysis:
1. The High Court addressed the first two substantial questions of law raised by the Revenue regarding the interpretation of Section 2(22)(e) of the IT Act. Referring to a previous case, the court emphasized that for a loan to be considered as deemed dividend, it must be advanced to a registered shareholder, not just a beneficial owner. The court upheld the view that loans to shareholders meeting the conditions of Section 2(22)(e) would be deemed as dividends. Consequently, the questions were answered in favor of the assessee and against the Revenue.

2. Moving on to questions 3 and 4, the issue revolved around compliance with Section 80IB requirements for claiming benefits. The court clarified that the provision of Section 80IB, introduced in 2004, had a prospective nature and did not apply to projects approved before April 1, 2005. As the project in question was sanctioned prior to this date, the court ruled that the benefit under Section 80IB could not be denied to the assessee. The court also noted that compliance with statutory requirements was unnecessary due to the provision's inapplicability to the case.

3. Regarding the validity of the completion certificate for claiming benefits under Section 80IB, the court discussed a specific project where the Revenue contested the validity of the certificate issued by the Village Panchayat. The court highlighted that while the BDA did not issue a completion certificate, the absence of such a provision in relevant statutes led the assessee to obtain a certificate from the Panchayat. The court concluded that the Tribunal's finding on the completion of the building within the stipulated period justified the assessee's entitlement to benefits, despite the controversy over the certificate's validity. As a result, the court dismissed the appeals, emphasizing that the decision was based on the specific facts of the cases and could not be cited as a precedent.

In conclusion, the High Court's judgment clarified the interpretation of Section 2(22)(e) of the IT Act, addressed compliance issues under Section 80IB, and validated the use of a completion certificate for benefit eligibility under Section 80IB. The court's decision favored the assessee in all the issues discussed, providing detailed reasoning and legal analysis for each aspect of the case.