2021 (9) TMI 804 - AT - Income Tax

Deemed dividend u/s.2(22)(e) - immovable property was purchased in the joint name of assessee and Mr. Pijush Kanti Pal - As per AO legal title of the land in question for taking the view that the payment for purchase of land by M/s. SDCPL, in which the assessee is a director, was indirect way of paying the consideration on behalf of its director - HELD THAT - Payment of purchase of property was made by the said company through banking channel. The assessee has not shown his share of property in his individual balance sheet, Land Building(KCT) Ledger Account in the books of M/s. SDCPL showing all the details of payments made to acquire the said property. The company, M/s. SDCPL has duly disclosed the land in question in its audited balance sheet appearing in the fixed asset chart at Schedule 10, forming part of the total asset valued at ₹ 316,424,615/-. We find that the land in question has been duly disclosed in the subsequent balance sheets for the F.Ys 2014-15 to 2018-19. There is no iota of evidence that company, M/s.SDCPL has given loan/advance to the assessee and the transaction of purchase of property is purely for the benefit of the company s business and is for commercial expediency. Since there is no loan/advance given to the assessee from the said company and the alleged transaction is for company s own business and commercial expediency, there was no reason to invoke the provisions of section 2(22)( e). In the instant case since no land/advance was given to the assessee from the said company, in which the assessee is a director and, therefore, the ld.AO erred in invoking the provisions of section 2(22)(e) - Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of Section 2(22)(e) of the Income Tax Act.
2. Legal title and beneficial ownership of the property.
3. Commercial expediency and business transactions.

Issue-wise Detailed Analysis:

1. Invocation of Section 2(22)(e) of the Income Tax Act:
The primary issue in this case is whether the payment made by M/s. Spandan Diagnostic Centre Pvt. Ltd. (SDCPL) for the purchase of property in the name of its director constitutes a "deemed dividend" under Section 2(22)(e) of the Income Tax Act. The Assessing Officer (AO) added ?78,41,566/- to the assessee's income, treating it as a loan from SDCPL to its director. The CIT(A) upheld this view, emphasizing the legal title of the property being in the director's name. However, the Tribunal found that the property was purchased for the company's benefit and was accounted for in the company's books, thus not constituting a loan or advance to the director.

2. Legal Title and Beneficial Ownership of the Property:
The Tribunal examined whether the legal title of the property held by the director implied beneficial ownership. The CIT(A) argued that the legal title being with the directors meant the payment by SDCPL was for their individual benefit. The Tribunal disagreed, noting that the property was consistently shown as a fixed asset in SDCPL's audited accounts and was purchased for the company's commercial purposes. The Tribunal cited similar cases, such as Smt. Jenobia Adi Doctor Vs. ITO and ACIT Vs. Harshad V. Doshi, where properties held in directors' names for company purposes did not attract Section 2(22)(e).

3. Commercial Expediency and Business Transactions:
The Tribunal considered whether the transaction was motivated by commercial expediency. The assessee argued that the property was purchased in the director's name to save on stamp duty, but it was for the company's use and benefit. The Tribunal found this argument credible, supported by board resolutions and consistent accounting treatment. The Tribunal emphasized that the absence of any loan or advance to the director and the commercial nature of the transaction meant Section 2(22)(e) was not applicable.

Conclusion:
The Tribunal concluded that the payment for the property by SDCPL did not constitute a deemed dividend under Section 2(22)(e) as there was no loan or advance to the director, and the transaction was for the company's benefit. The addition of ?78,41,566/- to the assessee's income was deleted, and the appeal was allowed. The Tribunal's decision was based on the consistent accounting treatment, board resolutions, and the commercial nature of the transaction, aligning with precedents in similar cases.