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2017 (8) TMI 123 - HC - Income TaxAllowable expenditure - excess claim of premium paid on plot - revenue or capital expenditure - assessee claimed the same in its business of ship breaking as it has obtained that plot on lease from GMB - Held that - The same is held to be revenue expenditure by the learned Commissioner of Income-tax (Appeals) confirmed by the learned Tribunal. The said issue was covered against the Revenue in view of the decision of the Division Bench of this court in the case of Sun Pharmaceuticals Ind. Limited (2009 (3) TMI 587 - Gujarat High Court). In the case before the Division Bench the Division Bench has held that where the assessee took a land on lease for 99 years at a nominal rent of 40 per year and paid a sum of above 48 lakhs as advance rent as the land was not acquired by the assessee advance rent was allowable as revenue expenditure and could not be treated as capital expenditure. Similar is the position in the present case. Under the circumstances no error has been considered by the learned Tribunal in deleting the addition made on account of excess claim of premium paid on the plot. Question No. 1 is answered against the Revenue and in favour of the assessee. Addition under section 2(22)(e)- Held that - Identical question came to be considered by the Division Bench of this court and considering the decision the Delhi High Court in the case of CIT v. Ankitech P. Ltd. reported in 2011 (5) TMI 325 - DELHI HIGH COURT the Division Bench has confirmed the deletion made by the learned Tribunal by holding that from whom loan and advance was taken by the assessee must be a shareholder in the assessee-company.
Issues Involved:
1. Deletion of addition of ?16,79,850 made on account of excess claim of premium paid on plot. 2. Deletion of addition of ?1,94,54,869 made under section 2(22)(e) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?16,79,850 Made on Account of Excess Claim of Premium Paid on Plot: The core issue revolves around whether the premium paid on a plot leased from the Gujarat Maritime Board (GMB) should be treated as capital expenditure or revenue expenditure. The assessee claimed the entire premium amount of ?18,66,450 as a business expense, arguing it was a revenue expenditure. However, the Assessing Officer (AO) considered the lease agreement, which was for 10 years, and treated the payment as capital expenditure, allowing only one-tenth of the amount and disallowing the balance of ?16,79,850. The Commissioner of Income-tax (Appeals) [CIT(A)] and the Income-tax Appellate Tribunal (ITAT) both ruled in favor of the assessee, treating the premium as a revenue expenditure. The Tribunal's decision was influenced by a precedent set in the case of Deputy CIT v. Sun Pharmaceuticals Ind. Ltd., where the court held that advance rent paid for a long-term lease was allowable as revenue expenditure since no permanent asset was acquired. The High Court upheld the Tribunal's decision, noting that the lease did not result in the acquisition of a permanent asset by the assessee, and therefore, the premium paid was correctly treated as revenue expenditure. The question was answered against the Revenue and in favor of the assessee. 2. Deletion of Addition of ?1,94,54,869 Made Under Section 2(22)(e) of the Income-tax Act: The second issue pertains to the addition of ?1,94,54,869 as deemed dividend under section 2(22)(e) of the Income-tax Act. The AO made this addition on the grounds that the assessee received loans and advances from M/s. Mahavir Rolling Mills Ltd., a company in which a common director, Shri K. K. Bansal, held more than 20% shares in both companies. The CIT(A) and ITAT deleted this addition, reasoning that neither M/s. Mahavir Rolling Mills Ltd. was a shareholder in the assessee company, nor was the assessee company a shareholder in M/s. Mahavir Rolling Mills Ltd. The Tribunal's decision was supported by the Delhi High Court's ruling in CIT v. Ankitech P. Ltd., which clarified that for section 2(22)(e) to apply, the loan or advance must be given to a shareholder of the lending company. The High Court concurred with the Tribunal's view, emphasizing that the legal fiction created by section 2(22)(e) does not extend to deeming the recipient company as a shareholder. The court noted that the intention behind section 2(22)(e) is to tax dividends in the hands of shareholders, not in the hands of non-shareholder entities receiving loans or advances. The question was therefore answered against the Revenue and in favor of the assessee. Conclusion: The High Court dismissed the Revenue's appeal, affirming the ITAT's decisions on both issues. The premium paid on the plot was deemed a revenue expenditure, and the addition under section 2(22)(e) was found inapplicable as the recipient was not a shareholder in the lending company.
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