2012 (9) TMI 1237 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of rental income in the hands of the assessee company.
2. Applicability of Section 115-O regarding dividend distribution.
3. Treatment of the amount received from Samsung as income.

Summary:

Issue 1: Taxability of Rental Income
The Tribunal held that the shareholders of the assessee company are deemed owners of the property as per Section 22 read with Section 27(iii) of the Income Tax Act, 1961. Therefore, the rental income cannot be taxed in the hands of the assessee company. The High Court initially ruled in favor of the revenue, but the Supreme Court set aside this order, allowing for a review. Upon review, the High Court considered the Memorandum of Association and Articles of Association, which permitted the company to distribute its properties to shareholders. The Court concluded that the company is an ostensible owner and the shareholders are deemed owners of the specific portions allotted to them. The lease executed by the company should be construed as done on behalf of the shareholders. Consequently, the rental income is taxable in the hands of the shareholders, not the company.

Issue 2: Applicability of Section 115-O
The Tribunal held that no dividend was paid to the shareholders, and therefore, no tax under Section 115-O of the Act could be levied. The High Court, aligning with the Tribunal's view, found that the income distributed to the shareholders was rental income and not dividend. Hence, Section 115-O was not applicable.

Issue 3: Treatment of Amount Received from Samsung
The Tribunal held that the amount received from Samsung cannot be treated as the income of the assessee company. The High Court agreed, noting that the company did not retain any part of the rent or rental advance. The income was distributed to the shareholders, who filed returns and paid taxes accordingly. Thus, the amount received from Samsung was not considered the company's income.

Conclusion:
The High Court dismissed the appeals, answering the first question of law in favor of the assessee. Consequently, the second and third questions of law did not arise for consideration.