9911796707
TMI Blog2015 (2) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... he property was let out to Hindustan Infrastructure Projects & Engineering Pvt. Ltd. The assessee received a sum of Rs. 9 lakhs as rents for letting out of the aforesaid property during the previous year. 4. The AO was of the view that considering the location of the property, the annual rent declared by the assessee was very low. The AO thereafter after a discussion about the prevailing rate of rents in that area, worked out the rental income of the property as follows:- Rental income from Koramangala Property No.408 43,20,000 Less: Property tax paid . 29,722 42,90,278 Less: 30% for repairs 12,87,083 Income 30,03,195 5. On appeal by the assessee, the CIT(A) held that 'fair rent' for the property mentioned in the lease agreement between the parties for the property No.407, 408 & 409 has to be fixed. He found that as per material on record revealed that the property was constructed over residential sites that were acquired during the F.Y. 2002-03 and investment made thereon site-wise as follows:- F.Y. Site No. Total Investment (in Rs.) 2002-03 407 1,50,79,801 2003-04 408 1,70,38,249 2004-05 409 2,21,18,288 Total 5,42,36,338 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue. 10. The second issue that arises for consideration is as to whether CIT(A) was justified in deleting the disallowance of interest of Rs. 10,45,850 on borrowings made. As far as the aforesaid issue is concerned, the facts are that the assessee, as we have already seen, was the owner of property at Koramangala from which he received a rent of Rs. 9 lakhs during the previous year. The assessee against the aforesaid income of Rs. 9 lakhs claimed deduction u/s. 24(1) of the Act of a sum of Rs. 15,57,000 and declared loss under the head income from house property. The AO disallowed the claim of assessee for deduction u/s. 24(1) of the Act on the ground that assessee did not prove with documentary evidence the nexus between the loan taken and acquisition of property. 11. On appeal by the assessee, the CIT(A) gave the following findings:- "4.4 I have considered the appellant's submissions and the reasons given by the AO in the assessment order. As mention in preceding para that property bearing No. 407, 408 and 409 acquired during the financial year 2002-03 and total investment made thereon of Rs. 5,42,36,338/-. Initially loan was borrowed from ING Vysya Bank which was repaid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by applying the provisions of section 2(22)(e) of the Act. 17. The AO, however, held that though the appellant was not a shareholder in Jupiter Capital Pvt. Ltd, he was shareholder with 95% shareholding in M/s Vectra Holdings Pvt. Ltd. which in turn was holding 99.9% share holding in Jupiter Capital Pvt. Ltd. Accordingly, it was held that the assessee being the beneficiary of dividend in Vectra Holdings which in turn is a beneficiary of dividend from Jupiter capital Pvt. Ltd., he can be held as beneficiary or actual owner of share of Jupiter Capital Pvt. Ltd. Accordingly the advance in question was treated as deemed dividend in the hands of assessee u/s. 2(22)(e) and added to the total income of the assessee by the AO. 18. On appeal by the assessee, the CIT(A) deleted the addition made by the AO holding that since the assessee was not shareholder in M/s. Jupiter Capital Pvt. Ltd., the same cannot be assessed as deemed dividend in the hands of assessee. 19. Aggrieved, the Revenue has raised the aforesaid issue in ground Nos. 5 & 6 before the Tribunal. 20. We have heard the submissions of the ld. DR who relied on the order of AO. The ld. counsel for the assessee relied on the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) Third limb (c) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits." 25. In the present appeal we are concerned with the second limb of Sec.2(22)(e) of the Act, viz., "to any concern in which such shareholder is a member or a partner and in which he has a substantial interest". The following conditions are required to be satisfied for application of the above category of payment to be regarded as Dividend. They are:- (a) There must be a payment to a concern by a company. (b) A person must be Shareholder of the company being a registered holder and beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power. This is because of the expression "Such Shareholder" found in the relevant provision. This expression only refers to the shareholder referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.33% 2. Smt.Saroj Khurana : 4.67% 3. Vikas Khurana : 22% 4. Deshbandhu Khurana: 25% 5. Shri.Rajiv Khurana : 25% The constitution of the firm Hotel Hill Top was as follows: 1. Shri Roop Kumar Khurana: 45% 2. Shri.Deshbandhu Khurana: 55% The AO assessed the sum of Rs. 10 lacs as deemed dividend u/s.2(22)(e) of the Act in the hands of the firm because the two partners of M/S.Hotel Hill Top were holding shares by which they had 10% voting power in M/S.Hill Top Palace Hotels (P) Ltd. They were also entitled to 20% of the income of the firm M/S.Hotel Hill Top. Therefore the loan by M/S.Hill Top Palace Hotels (P) Ltd. To the firm M/S.Hotel Hill Top was treated as deemed dividend in the hands of M/S.Hotel Hill Top, the firm under the Second limb of Sec.2(22)(e) of the Act. The CIT(A) held that since the firm was not the shareholder of the company the assessment as deemed dividend in the hands of the firm was not correct. The order of the CIT(A) was confirmed by the Tribunal. On Revenue's appeal before the Hon'ble High Court, the following question of law was framed for consideration:- "Whether on the facts and in the circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t did not deal with the second limb of Sec.2(22)(e) of the Act is not correct." 27. The Special Bench further held as follows:- "34. We are of the view that the provisions of Sec.2(22)(e) does not spell out as to whether the income has to be taxed in the hands of the shareholder or the concern(non-shareholder). The provisions are ambiguous. It is therefore necessary to examine the intention behind enacting the provisions of Sec.2(22)(e) of the Act. 35. The intention behind enacting provisions of section 2(22)(e) are that closely held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would became taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming them as Dividend in the hands of a shareholder the ordinary and natural meaning of the word "Dividend" is altered. To this extent the definition of the term "Dividend can be said to operate. If the definition of "Dividend" is extended to a loan or advance to a non shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of Sec.2(22)(e) and in the absence of indication in Sec.2(22)(e) to extend the legal fiction to a case of loan or advance to a non-shareholder also, we are of the view that loan or advance to a nonshareholder cannot be taxed as Deemed Dividend in the hands of a non-shareholder."
28. Since the Assessee in the present case is not a shareholder in the lender company, we are of the view that the above decision is squarely applicable to the facts of the Assessee's case.
29. In view of the aforesaid decision, we are of the view that the order of CIT(A) does not call for any interference. Consequently ground Nos. 5 & 6 raised by the Revenue are also dismissed.
30. In the result, the appeal by the Revenue is dismissed.
Pronounced in the open court on this 27th day of February, 2015. X X X X Extracts X X X X X X X X Extracts X X X X
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