2017 (10) TMI 782 - AT - Income Tax

Addition u/s 50C - Held that - As perused the ingredients of Sec.55 of the Stamp (Amendment) Act, 2011 which clearly exempt the leasehold property from valuation under the stamp duty (Supra) and even otherwise the judgment passed by the Hon ble Mumbai High Court is guiding factor for coming to the right conclusion, therefore, we do not have any hesitation to hold that the plots under disputes were exempted from Stamp duty according to section 55 of the Stamp Act (supra) because the leasehold property does not fall within the dimension of the land and building. Hence, on the aforesaid analyzation, the addition u/s 50C of the I.T. Act stands deleted. Deemed dividend addition u/s 2(22)(e) - Held that - It is undisputed fact that for purchase of the land/plot, the earnest money to the tune of ₹ 10 Lakhs was deposited with the authority of the J & K State, however, due to non-maturity of the sale, the earnest money was refunded to the assessee and the same money was returned back to the Sat Agrotech Overseas Pvt. Ltd., hence, in our considered view, the assessee has not earned any dividend, therefore, the same cannot fall under the provisions of Sec.2(22(e) as deemed dividend. Hence, we do not have any hesitation to delete the said addition as added on account of deemed dividend. No hesitation to delete the said addition as added on account of deemed dividend.

Summary

Issues Involved:

1. Applicability of Section 50C of the Income Tax Act, 1961 to leasehold properties.
2. Treatment of a loan as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.

Detailed Analysis of the Judgment:

1. Applicability of Section 50C of the Income Tax Act, 1961 to Leasehold Properties:

The primary issue was whether the provisions of Section 50C of the Income Tax Act, 1961, which pertains to the valuation of capital assets for the purpose of calculating capital gains, were applicable to leasehold properties. The assessee argued that the properties sold were leasehold properties owned by the Jammu and Kashmir Housing Board and, therefore, should not be valued as per the circle rates under the Stamp Act but according to the rates prescribed by the Housing Board. The Assessing Officer, however, adopted the circle rates fixed by the Divisional Commissioner of Jammu, leading to an addition of ?11,80,673/- to the assessee's income.

The appellate authority (CIT(A)) upheld the Assessing Officer's decision, emphasizing that Section 50C(1) mandates that the value adopted by the State Government's Stamp Valuation Authority should be considered for calculating capital gains. However, the Tribunal referred to the Stamp (Amendment) Act, 2011, which exempts the transfer of leasehold properties from stamp duty, and the judgment of the Bombay High Court in the case of M/s Greenfield Hotels & Estates Pvt. Ltd., which held that Section 50C is not applicable to leasehold properties. Consequently, the Tribunal concluded that the addition under Section 50C was not justified and deleted it.

2. Treatment of a Loan as Deemed Dividend under Section 2(22)(e) of the Income Tax Act, 1961:

The second issue was whether a loan of ?10 Lakhs received from M/s Sat Agrotech Overseas Pvt. Ltd. should be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The assessee contended that the loan was taken for the purchase of a property, which was later returned as the deal did not materialize. The CIT(A) upheld the Assessing Officer's decision to treat the loan as deemed dividend, arguing that the transaction was a sham.

The Tribunal, however, considered the Circular No. 19/2017 issued by the CBDT, which clarified that trade advances or commercial transactions do not fall within the ambit of deemed dividend under Section 2(22)(e). The Tribunal noted that the loan was authorized by a resolution of the company's board for the specific purpose of purchasing a plot and was returned when the deal did not go through. Therefore, the Tribunal concluded that the transaction was a genuine commercial transaction and not a sham, and the addition as deemed dividend was deleted.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, deleting the additions made under Section 50C and Section 2(22)(e) of the Income Tax Act, 1961. The judgment emphasized the applicability of legal provisions and precedents in determining the correct tax treatment of leasehold properties and commercial transactions. The order was pronounced in the open court on 14.09.2017.