2012 (12) TMI 569 - AT - Income Tax

Deemed dividend u/s 2(22)(a) - perquisite u/s 2(24)(iv) - the benefit received by the assessee on account of occupancy rights of the premises - assessee is a shareholder of HPPL which is a closely held company - held that - assessee has received occupancy rights in the premises on perpetual basis and in lieu of which assessee to hold shares in HPPL and also to give interest free refundable deposit of Rs. 18 lakhs towards proportionate land cost and development cost. Assessee is also entitled to transfer the occupancy rights by way of sale and transfer of block of assets and create third party rights subject to transferee deposit the required amount of interest free refundable security deposit and assessee thereafter to give possession to the transferee. CIT(A) is not justified to hold that it is perquisite benefit given by HPPL to its shareholder and not the transfer of occupancy rights to its shareholders. - provisions of section 2(24)(iv) of the Act does not apply to grant of occupancy rights by HPPL to the shareholder i.e. assessee herein. AO has rightly held that the value of flats received are nothing but dividend given in the form of assets by HPPL.

Issues Involved:
1. Validity of the order passed under Section 250 of the Income Tax Act.
2. Issuance of notice for enhancement of the appeal.
3. Classification of occupancy rights as benefit under Section 2(24)(iv) of the Income Tax Act.
4. Determination of the value of benefit under Section 2(24)(iv).
5. Deletion of addition made under Section 2(22)(a) regarding deemed dividend.
6. Applicability of capital gain tax and gift tax.

Detailed Analysis:

1. Validity of the Order Passed Under Section 250 of the Income Tax Act:
The assessee challenged the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 250 of the Income Tax Act, claiming it was erroneous in law and on facts. The Tribunal did not specifically address this issue in isolation but considered it in conjunction with other grounds raised.

2. Issuance of Notice for Enhancement of the Appeal:
The assessee contended that the CIT(A) erred in issuing a notice for enhancement of the appeal, making the appellate order void ab initio. The Tribunal did not specifically rule on this procedural aspect but focused on the substantive issues regarding the nature of the occupancy rights and the resultant tax implications.

3. Classification of Occupancy Rights as Benefit Under Section 2(24)(iv) of the Income Tax Act:
The CIT(A) held that the occupancy rights received by the assessee constituted a benefit under Section 2(24)(iv). The Tribunal disagreed, stating that the occupancy rights granted on a perpetual basis and transferable to third parties could not be classified as a mere perquisite or benefit. The Tribunal concluded that the CIT(A) was incorrect in applying Section 2(24)(iv) to the occupancy rights.

4. Determination of the Value of Benefit Under Section 2(24)(iv):
The CIT(A) had quantified the benefit received by the assessee by considering the compensation paid for surrendered occupancy rights. This valuation was contested by the assessee. The Tribunal, however, reversed the CIT(A)'s decision, determining that the occupancy rights should not be treated as a perquisite under Section 2(24)(iv), thus nullifying the need to assess their value under this section.

5. Deletion of Addition Made Under Section 2(22)(a) Regarding Deemed Dividend:
The Assessing Officer (AO) had treated the market value of the occupancy rights as deemed dividend under Section 2(22)(a), which was deleted by the CIT(A). The Tribunal upheld the AO's view, stating that the occupancy rights granted to the shareholders amounted to a release of assets by the company, thus qualifying as deemed dividend. The Tribunal confirmed the AO's addition of the market value of the occupancy rights as deemed dividend for the assessment year 2006-07.

6. Applicability of Capital Gain Tax and Gift Tax:
The department argued that the CIT(A) erred in holding that capital gain tax and gift tax were not applicable. The Tribunal did not specifically address this issue in the judgment, focusing instead on the primary issues of deemed dividend and classification of occupancy rights.

Conclusion:
The Tribunal concluded that the occupancy rights granted to the shareholders should be treated as deemed dividend under Section 2(22)(a) of the Income Tax Act. The appeals filed by the assessee and the department were allowed, with the Tribunal confirming the AO's addition for deemed dividend and reversing the CIT(A)'s order. The decision applied mutatis mutandis to the cross appeals for subsequent assessment years involving similar facts and issues.

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