2018 (4) TMI 1210 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - Tribunal confirming the view of the CIT (Appeals) opined that the amount in question was in the nature of trade advances to the assessee made by the company and not a loan - Held that - The assessee had entered into an agreement with the company for development and consideration of the land which was owned by the assessee. Various transactions of such agreement pertain to the negotiation of sale price to be received by the assessee from the payments collected by the company. Tribunal referred to the judgement of CIT vs. Rajkumar 2009 (5) TMI 17 - DELHI HIGH COURT and held that trade advances made for the commercial transactions would not be hit by section 2(22)(e) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Treatment of proceeds from the sale of land as long term capital gain or business income.
2. Deletion of addition made on account of deemed dividend under section 2(22)(e) of the Act.

Analysis:

Issue 1:
The first issue in this case revolves around the classification of the proceeds from the sale of land by the assessee. The Revenue contended that the amount should be treated as business income, while the assessee argued for it to be considered as long term capital gain. Despite the small amount involved, the High Court did not delve into the merits of this question.

Issue 2:
The second issue pertains to the deletion of an addition of ?1.15 crores as deemed dividend under section 2(22)(e) of the Act. The Tribunal, upholding the CIT (Appeals) decision, determined that the amount in question represented trade advances rather than a loan. This conclusion was reached by examining an agreement between the assessee and the company for land development. The Tribunal referred to a judgement of the Delhi High Court in a similar case and held that trade advances for commercial transactions are not covered by section 2(22)(e) of the Act.

In the final judgement, the High Court concurred with the Tribunal's decision, finding no legal question to be addressed. Consequently, the Tax Appeal was dismissed, upholding the Tribunal's ruling on the treatment of the deemed dividend amount.