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TMI Blog2012 (12) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... been sold to a company called Dev Housing and Land Development. The company issued letters to the shareholders stating that their request for occupancy rights of various flats has been accepted against their block of shares and that they would have to pay interest free refundable deposit and further informed them that the municipal taxes would be payable by them and they would be entitled to transfer the occupancy rights of the flat concerned, by way of sale and create third party rights and give possession to the transferee subject to the transferee depositing the required amount of interest free deposits. During the period 1992 to 2003/2004 i.e by the time, the project was completed, the real estate prices went through the roof. If the company was to sell its entire stock in trade, it would result into huge profits and taxes payable would be very high. Accordingly, to avoid the payment of taxes, the company distributed the stock in trade amongst its shareholders. The said distribution has been done in A.Y.2006-07 and A.Y. 2007-08. On being questioned, as to why the said distribution should not be considered as dividend as per the provisions of section 2(22)(a) of the IT Act whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of HPPL. The shares in the said company, i.e. HPPL had attached with right to occupy certain portions of the property constructed on a plot of land owned by it. A shareholder who holds a certain block of shares; could on payment of interest free refundable deposit to HPPL to be permitted to occupy a part of the said building. The said interest free refundable deposit was given by a shareholder towards the proportionate cost of land and cost of construction/development. The said occupancy rights were first granted by HPPL to its shareholders in the year ended 31.3.2002 and subsequently rights were merely amended from time to time. Each time when rights were so amended, a shareholder whose rights were reduced in any manner, was compensated. The said occupancy rights were as such transferable but only with the consent of HPPL. It was contended that HPPL had no accumulated profits in the year ended 31.3.2002 when the occupancy rights were attached to some of the shareholding. The first profit earned by said HPPL was only in the year ended 31.3.2005. The assessee in the year ended 31.3.2006, contributed a sum of money towards interest free refundable deposits and it secured an allotmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which formed the part of the assets were given to the shareholders against payment of 'interest free refundable deposit' only and it cannot be said that there was distribution of assets either in part or fully. That the shareholders never could transfer the flat in their own name and had to surrender it back to the company and in lieu thereof to receive back the refundable deposit. Ld CIT(A) has stated that the addition made by AO u/s.2(22)(a) of the Act cannot be sustained. 12. However, ld CIT(A) has held that assessee had received benefit/perquisite u/s.2(24)(iv) of the Act on account of obtaining occupancy rights in the building. Ld CIT(A) has proceeded to quantify the benefit and has stated that when the assessee surrendered the occupancy rights in respect of the part of allotted premises, the compensation of Rs.1000 per sq. ft was paid by HPPL. Therefore, assessee has received the value of benefit from the premises @ Rs. 1000 per sq. ft of the area of the occupancy rights that remains with the assessee. Ld CIT(A) has stated that assessee is having remaining area of 3418 sq. ft out of which 1644 sq. ft has been allotted in assessment year 2006-07 and the balance area 1774 sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n section 2(24)(iv) of the Act as it tantamounts to release of assets. He submitted that the order of ld CIT(A) to consider occupancy rights as amenities u/s.2(24)(iv) is not valid and the same should be set aside. 14. On the other hand, ld D.R. submitted that AO is justified to consider the occupancy rights as deemed dividend u/s.2(22)(a) of the Act because assessee has got occupancy rights as if the assessee became owner of the said part of the building with a small amount of security deposit. Ld D.R. by placing reliance on letter dated 25.3.2006 placed at page 43 of PB, submitted that occupancy right has been given to the assessee in assessment year 2006-07 and, therefore, AO has rightly treated the value of occupancy right as deemed dividend u/s.2(22)(a) of the Act. 15. Ld A.R. in his rejoinder, submitted that if the said occupancy right is deemed dividend, it cannot be taxed in assessment year 2006-07 as the right was given in assessment year 2003-04 and, there is no distribution of assets in assessment year 2006-07. Ld A.R. further submitted that if it is considered as deemed dividend, said amount cannot be taxed in view of provisions of section 10(34) of the Act as the div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment cost. It is further stated therein that assessee is liable to pay municipal taxes and other outgoings in respect of flat for the occupancy right is given to the assessee every month. The municipal taxes are also to be paid by the assessee. We observe that it is also stated in the said letter that assessee is entitled to transfer the occupancy rights of the concerned flat by way of sale and transfer of block of shares and create third party rights subject to transferee depositing with HPPL the required amount of interest free security deposit and assessee shall also be entitled to give possession of the said flats to any transferee and HPPL have no objection for the same. It is evident that assessee has got the occupancy right of the premises by way of letter dt.25.3.2006. Hence, the authorities below have rightly held that said occupancy right is given to the assessee in A.Y. 2006-07 and not in earlier assessment years. 19. Now question arises as to whether grant of said occupancy right could be considered as deemed dividend u/s.2(22)(a) of the Act as considered by the AO or it is to be considered perquisite/benefits given by HPPL to its shareholders and as such is to be ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses under consideration by way of sale to a third party subject to condition that transferee is to deposit the required amount of interest free security deposit with HPPL. It is observed that the consideration to be received by the assessee on transfer of his occupancy right is not to be refunded to HPPL. It is also observed that HPPL will have no objection for creating third party rights in the occupancy right given to assessee. Further, during the course of hearing, ld A.R. also submitted that HPPL has given occupancy rights in the premises to the assessee perpetually and, therefore, it is to be considered release of assets by HPPL. Ld D.R. also in his submission submitted that assessee has got in guise of occupancy rights full ownership with small amount of security deposit and, therefore, it is to be considered as deemed dividend u/s.2(22)(a) of the Act. Section 2(22)(a) also provides that any distribution by a company of accumulated profits, whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets, it is a deemed dividend. Considering above submissions of ld representatives of parties and the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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