2019 (5) TMI 193 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - unpaid price of purchase of assets of company - Tribunal, allowing the appeal filed by the Revenue, held that the part of price of the flat sold by the company M/s.Shree Velu Builders (P) Ltd., in which the Assessee was having substantial interest as holding more than 10% of the share holding, be treated as deemed dividend - HELD THAT - Assessee had substantial interest in the aforesaid closely held company M/s.Shree Velu Builders (P) Ltd. and the company had sold the flat in question to the Assessee himself of which a major portion of price remained unpaid by him at the end of the previous year, which, in our opinion, has been rightly treated by the Tribunal as an advance to the Director falling within the mischief of Section 2(22)(e). The same was therefore, liable to be taxed as deemed dividend in the hands of the Assessee. Therefore, the Appellate Tribunal has not committed any error. We do not find any merit in the appeal filed by the Assessee and thus the questions of law are answered in favour of the Revenue and against the Assessee. Maintainability of the appeal - Instruction of CBDT for not filing or withdrawing appeal on low tax effect - binding on Tribunal or Court - HELD THAT - The Court or the concerned Tribunal cannot compel the litigant, be it Revenue Department or the Assessee, to withdraw any such appeal from its records. The Court can only grant permission to withdraw at the request of the concerned appellant, unless there is objection raised by the other side and the Court upholds such objection. Such Instructions of CBDT are neither binding on the Court or the Tribunal, nor the Board could direct the concerned Court or Tribunal to compel the litigant to withdraw such appeal. Once the learned Tribunal has pronounced upon the merits of the appeal of the Assessee, the first contention raised by the learned counsel for the Assessee that the appeal before the Tribunal was not maintainable, is infructuous and this Court cannot set aside the order passed by the Income Tax Appellate Tribunal on merits, on account of the aforesaid Instruction No.3 of 2011 dated 09.02.2011, even if it is held to be applicable to this case.

Summary

Issues:
1. Whether transferring the asset of the Company for a due consideration amounts to dividend under Section 2(22)(e) of the Income Tax Act, 1961?
2. Whether the appeal filed by the Revenue against the deletion of addition done by the Assessing Officer was maintainable?

Issue 1:
The Assessee appealed against the Income Tax Appellate Tribunal's order regarding the treatment of the part of the flat's sale price as deemed dividend under Section 2(22)(e) of the Act. The Tribunal found that the Assessee, a 10% shareholder in the company, received a flat valued at ?38 lakhs, resulting in an outstanding balance of ?32,25,049/- payable to the company. The Tribunal held that this transaction fell within the ambit of deemed dividend as per Section 2(22)(e) since the Assessee met the conditions for taxing the advance as deemed dividend. The Tribunal emphasized that the transfer of the company's asset to the Assessee, even if not in cash, constituted a payment by the company, thus qualifying as deemed dividend. The Tribunal referred to the Supreme Court's ruling that dividend can be distributed through property or rights with monetary value. Consequently, the Tribunal upheld the addition made by the Assessing Officer, confirming that the payment was rightly taxed as deemed dividend.

Issue 2:
The Assessee contended that the appeal filed by the Revenue before the Tribunal was not maintainable as the tax effect was below the prescribed limit of ?10,00,000/- as per CBDT's Instruction No.3 of 2011. However, the Revenue argued that the case fell within an exception in the instruction, allowing the appeal to proceed. The High Court clarified that internal guidelines like Instruction No.3 of 2011 were not binding on the Court or the Tribunal, and the litigants were expected to comply with such guidelines. The Court could not compel the withdrawal of appeals based on these guidelines. As the Tribunal had already decided on the merits of the case, the High Court found the issue of appeal maintainability irrelevant. On the merits, the High Court agreed with the Tribunal's decision that the unpaid price of the flat constituted deemed dividend under Section 2(22)(e) since the Assessee had substantial interest in the company and the unpaid amount was treated as an advance to the Director. Consequently, the High Court dismissed the Assessee's appeal, ruling in favor of the Revenue.

This summary provides a detailed analysis of the judgment, addressing the issues raised by the Assessee and the Revenue, and explaining the Tribunal's decision upheld by the High Court.