2018 (1) TMI 971 - AT - Income Tax

Addition as perquisite in lieu of salary u/s 17(2)(iii) - difference in value between stamp duty valuation and actual sale value - assessee is a director of the company - Held that - There is nothing on record, either in the assessment proceeding or in the order of the first appellate authority to suggest that the Assessing Officer has made any enquiry to ascertain the fair market value of the property. Even, he has not conducted any enquiry with the company which has sold shops to the assessee to ascertain the fair market value of the property sold to the assessee. In the absence of any enquiry conducted by the Assessing Officer to demonstrate that the value adopted for stamp duty purpose is the actual fair market value of the properties sold, it cannot be said that a benefit in the nature of perquisite as provided under section 17(2)(iii) of the Act has been given to the assessee by the company. Merely because the assessee happens to be a director of the company, provisions of section 17(2)(iii) of the Act cannot be applied to the assessee without establishing the fact that the assessee is an employee of the company and the benefit given is in the nature of salary. Without factually establishing the existence of employer employee relationship between the company and the assessee it cannot be assumed that the assessee has been given a benefit in lieu of salary, even, in the absence of contract of employment between the company and the assessee. This is so because as per section 17(2)(iii)(a) of the Act, the director to whom any benefit or amenity is granted must be an employee of the company. Merely on the basis of the difference between stamp duty valuation and actual sale consideration the Assessing Officer has concluded that a benefit in the nature of perquisite has been given to the assessee by the company. However, there is nothing on record nor any positive finding by the Assessing Officer on the basis of any enquiry to suggest that the fair market value is the value determined for stamp duty purpose. There is no allegation by the Assessing Officer that any consideration over and above the sale value has changed hands. That being the case, the addition made by the Assessing Officer by treating the difference in value between stamp duty valuation and actual sale value cannot be treated as perquisite u/s 17(2)(iii) of the Act. Though, AO has consciously not referred to the provisions of section 50C of the Act, however, there is no room for doubt that applying the deeming fiction of section 50C, the Assessing Officer has adopted the stamp duty value as the deemed sale consideration while making the disputed addition. Therefore, in view of the aforesaid, we hold that the addition made is unsustainable - Decided in favour of assessee. Applicability of section 28(iv) - purchase of shop rooms - Held that - We are unable to agree with the decision of FAA since, the transaction relating to purchase of shop rooms has been shown as an investment activity by the assessee in its books. Moreover, in the assessment year 2010 11, the Department has accepted it as an investment activity. So, if at all there is any benefit or perquisite, even assuming the argument of the Department, it cannot be said to be arising from a business or exercise of a profession by the assessee. In any case of the matter, we have already held that AO has failed to establish that by merely the reason of difference between stamp duty valuation and actual sale consideration actually any benefit did arise and accrue to the assessee. That being the case, it cannot be treated as a profit and gain of business or profession u/s 28(iv) of the Act. Applicability of section 56(2)(vii)(b) - Held that - Undisputedly the transfer of shop rooms to the assessee and his wife was not without consideration. Therefore, as per the provisions of section 56(2)(vii) of the Act as it existed in the relevant assessment year, no addition under the said provision can be made. See case of Sandeep Srivastava 2015 (7) TMI 1262 - ITAT MUMBAI - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?1,95,03,678 as perquisite in lieu of salary under section 17(2)(iii) of the Income-tax Act, 1961.
2. Applicability of section 28(iv) and 56(2)(vii)(b) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition as Perquisite in Lieu of Salary under Section 17(2)(iii):

The primary issue was whether the difference between the stamp duty valuation and the actual sale value of properties purchased by the assessee should be treated as a perquisite under section 17(2)(iii) of the Income-tax Act, 1961. The Assessing Officer (AO) added ?1,95,03,678 to the assessee's income, reasoning that the company sold properties at a price lower than the market value, thus providing a benefit to the assessee, who was a director of the company. The AO concluded that this difference constituted a perquisite in lieu of salary.

The assessee contended that there was no employer-employee relationship between him and the company, as he was not a whole-time director or shareholder and was engaged in his own business. The assessee argued that the provisions of section 17(2)(iii) could not be applied without establishing an employer-employee relationship and that the difference in valuation did not automatically imply a benefit.

The Tribunal found merit in the assessee's arguments, noting that the AO did not conduct any inquiry to ascertain the fair market value of the property. The AO's reliance on the stamp duty valuation was deemed insufficient to establish that a benefit was provided. The Tribunal emphasized that the deeming provisions of section 50C, which apply to sellers for capital gains computation, could not be extended to buyers under section 17(2)(iii). The Tribunal concluded that without evidence of an employer-employee relationship or a benefit in the nature of salary, the addition was unsustainable and deleted it.

2. Applicability of Section 28(iv) and 56(2)(vii)(b):

For the assessment year 2012-13, the Commissioner (Appeals) upheld an addition of ?49,72,740 as perquisite under section 17(2)(iii) and on alternative grounds under sections 28(iv) and 56(2)(vii)(b). The Commissioner also enhanced the income, considering benefits accruing to a relative of the director as income under section 2(24)(vi).

The Tribunal, referencing its earlier decision, held that the addition based on the difference between stamp duty valuation and actual sale consideration was unsustainable. The Tribunal further analyzed the applicability of sections 28(iv) and 56(2)(vii)(b).

Regarding section 28(iv), the Tribunal noted that the transaction was shown as an investment in the assessee's books and was accepted as such by the Department in the previous year. Thus, any benefit could not be considered as arising from business or profession.

As for section 56(2)(vii)(b), the Tribunal pointed out that the provision applicable to the relevant year did not allow for treating the difference as income unless the property was transferred without consideration. Since the properties were transferred for consideration, no addition could be made under this section. The Tribunal also referenced the decision in Sandeep Srivastava, which supported this view.

Conclusion:

The Tribunal concluded that the additions made by the AO and upheld by the Commissioner (Appeals) were not sustainable under sections 17(2)(iii), 28(iv), or 56(2)(vii)(b) of the Income-tax Act. The appeals were allowed, and the additions were deleted.