2015 (8) TMI 406 - AT - Income Tax

Sale consideration from transfer of property of the Company - whether taxable in the hands of the appellant? - Held that - It is settled law that company is an artificial juridical person which has its own identity and it is taxable as such. Hence, for its property sold it is the company which is taxable and not the assessee who received the money on behalf of the company. Now the Ld. Counsel for the assessee s plea is also cogent that the receipt of sum of money from the company could be taxable in the hands of the assessee who is shareholder and director only under u/s 2(22)(e) of the Act. In this regard, Ld. Counsel for the assessee has stated at bar that assessee is not holding more 9% share in the said company. Hence, provisions of section 2(22)(e) of the Act is not also applicable. In any case, it is not at all the case of Revenue that sum involved is taxable in the hands of the assessee as deemed dividend. Accordingly, we find that just because out of ignorance the assessee has invested sale proceed in regard on behalf of company capital gain bond to save its perceived capital gain liability, the sum involved cannot become taxable income of the assessee. The Central Board of Direct Tax in its Circular has also reiterated that Officers of the Revenue should not try to later advantage of the ignorance of the Assessee. It is also settled law that an income should be taxed in the hands of the appropriate assessee to whom the income belongs. Since the income by way of sale proceed of the property did not belong to the assessee, the assessee is not taxable for the said amount. As held in the case of Income Tax Officer v. Ch. Atchaiah (1995 (12) TMI 1 - SUPREME Court) it is the duty of the Assessing Officer to assess the right person only. Furthermore, as held in the case of Commissioner of Income-Tax, West Bengal I v. India Discount Co. Ltd. (1969 (8) TMI 2 - SUPREME Court) a receipt which in law cannot be regarded as income cannot become so merely because of assessee s book entry. - Decided in favour of assessee.

Summary

Issues:
Assessment of income from property sale in hands of the assessee, applicability of exemption u/s 54EC, treatment of income as unexplained, taxation of income from other sources, deemed dividend u/s 2(22)(e), tax liability of the company versus the individual shareholder.

Analysis:
The appeal addressed the issue of taxing the income from the sale of property in the hands of the assessee. The Assessing Officer (AO) had initially considered the amount received by the assessee as unexplained income and treated it as income from other sources. The AO also denied the exemption u/s 54EC of the Income Tax Act, stating that since the property belonged to a company, there was no capital gain in the personal hands of the assessee. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing that the assessee had filed a return showing capital gain and claimed exemption u/s 54EC, leading to a contradiction in arguments. The CIT(A) noted that the assessee had retained the sale proceeds for several years and had not produced evidence of the company offering any capital gain for tax. Therefore, the addition made by the AO was confirmed.

In response, the assessee argued that the sale consideration was received for property belonging to a company in which the assessee was a shareholder and director. The assessee contended that since the sale consideration belonged to the company, it should not be taxable in the hands of the individual. The assessee's counsel further argued that the sum involved could be treated as deemed dividend u/s 2(22)(e) but was not applicable due to the shareholding percentage. The Departmental Representative (DR) maintained that the amount was rightly taxed as income from other sources, as the assessee had received and enjoyed the sum.

Upon review, the Tribunal noted that the money received was explained and related to the sale of property owned by the company. The AO's acceptance that the money did not belong to the assessee contradicted the taxation of the same amount as the assessee's income from unexplained sources. The Tribunal emphasized that a company is a separate taxable entity, and for property sold, the company should be taxed, not the individual receiving the money on behalf of the company. The Tribunal agreed with the assessee's argument that the sum involved should not be taxable in the hands of the individual, citing relevant legal precedents and the duty of the Assessing Officer to assess the right person. Consequently, the Tribunal allowed the appeal, setting aside the lower authorities' order and ruling in favor of the assessee.