2016 (12) TMI 1772 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessee is a Director and having more than 10% share holding in M/s.Shree Velu Builders (P) Ltd., a company in which public are not substantially interested was having accumulated profits of ₹ 84,51,787/- as on 31.03.2007 and it has transferred the flat constructed by the company valued at ₹ 38 lakhs to the assessee. After transfer of the flat of ₹ 38 lakhs, the outstanding balance in the current account maintained by the assessee was at ₹ 32,25,049/-(Dr.), which means that the assessee owe the company an amount of ₹ 32,25,049/- as at the end of the year. HELD THAT - The amount of ₹ 31,57,569/- is outstanding as a loan/advance being the amount excess drawn in the current account, which is nothing but a loan/advance because of the transfer of the company asset to the assessee. Though, the amount paid is not in cash, the asset of the company (money s worth) was transferred to the assessee resulting into reduction of the assets of the company and the ultimate result is outstanding as a loan from the assessee. Therefore, the transfer of assets which resulted in a advance/loan is held to be payment by the company to the assessee and falls within the four corners of the deemed dividend as per the provisions of the Sec. 2(22)(e) of the Income Tax Act . See KANTILAL MANILAL AND OTHERS VERSUS COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH AND SAURASHTRA, AHMEDABAD 1960 (11) TMI 11 - SUPREME COURT Dividend need not be distributed in money; it may be distributed by delivery of property or right having monetary value. The resolution, it is true, did not purport to distribute the right amongst the shareholders as dividend. It did not also take the form of a resolution for distribution of dividend; it took the form of distribution of a right which had a monetary value. But by the form of the resolution sanctioning the distribution, the true character of the resolution could not be altered. Payment made to the assessee by the company is rightly brought to tax by the AO as deemed dividend and the addition made by the AO is confirmed. - Decided against assessee.

Summary

Issues:
1. Delay in filing the appeal
2. Applicability of Sec.2(22)(e) of the Income Tax Act
3. Interpretation of deemed dividend under Sec.2(22)(e)
4. Comparison with previous ITAT decision

Analysis:
1. Delay in filing the appeal: The appeal was filed with a delay of 16 days, which was condoned by the Appellate Tribunal after considering the reasons provided by the Appellant. The Tribunal found a reasonable cause for the delay and allowed the appeal to proceed.

2. Applicability of Sec.2(22)(e) of the Income Tax Act: The case involved the application of Sec.2(22)(e) of the Income Tax Act, which deals with deemed dividend. The Assessing Officer (AO) invoked this provision after finding that the assessee, a Director with significant shareholding in a company, received a flat valued at a certain amount, resulting in an outstanding balance in the current account. The AO treated a portion of this amount as deemed dividend and brought it to tax.

3. Interpretation of deemed dividend under Sec.2(22)(e): The Appellate Tribunal analyzed the provisions of Sec.2(22)(e) in detail. It highlighted that any payment by a company to a shareholder holding more than 10% shares, not being a company in which the public are substantially interested, by way of advance or loan is considered deemed dividend. In this case, the Tribunal found that the conditions for taxing the advance as deemed dividend were satisfied, including the transfer of the flat resulting in a debit balance in the current account.

4. Comparison with previous ITAT decision: The Appellate Tribunal considered a previous decision of the ITAT "B" Bench in the assessee's own case for the AY 2006-07. The Tribunal noted that the lower authorities had relied on this decision to delete the addition made by the AO. However, the Tribunal found that the previous decision did not consider a judgment of the Hon'ble Supreme Court related to the distribution of dividend. Based on this, the Tribunal confirmed the addition of the deemed dividend made by the AO and allowed the appeal of the Revenue.

In conclusion, the Appellate Tribunal upheld the AO's decision to treat the amount received by the assessee as deemed dividend under Sec.2(22)(e) of the Income Tax Act, emphasizing the transfer of assets resulting in an advance/loan to the shareholder. The Tribunal's decision was based on a thorough analysis of the legal provisions and relevant judicial precedents, ultimately allowing the appeal of the Revenue.