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Facts
The assessee, a beneficial owner of 11.95% shares in a company, purchased a car for Rs. 9,73,306/-. The company made the payment for the car, which was registered in the assessee's name, and claimed depreciation on it. The AO treated this payment as a deemed dividend under Section 2(22)(e) of the Income Tax Act.
Held
The Tribunal held that for Section 2(22)(e) to be invoked, the payment must be for the individual benefit of the shareholder. Since the car was used for the company's business, and depreciation was allowed to the company, there was no evidence of personal benefit to the shareholder. Therefore, the deeming provisions of Section 2(22)(e) could not be invoked.
Key Issues
Whether payment by a company for a car purchased in the name of a shareholder, and used for company business, constitutes a deemed dividend under Section 2(22)(e) of the Income Tax Act when depreciation has been claimed and allowed to the company.
Sections Cited
143(3), 147, 2(22)(e), 10, 2(22)(e)
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Income Tax Appellate Tribunal, MUMBAI “SMC” BENCH : MUMBAI
Before: JUSTICE (RETD.) SHRI C.V. BHADANG & SHRI VIKRAM SINGH YADAV
Assessment Year : 2008-09 Mr. Mukund Vallabhdas Deputy Commissioner of Thakker, Income Tax, Ground Floor, vs. Central Circle-4(2)(1), Persian Apartments, Aayakar Bhavan, 434, VP Road, M.K. Road, Andheri (W), Mumbai-400020. Mumbai-400058. PAN : AAAPT3952A (Appellant) (Respondent) For Assessee : Shri Rajiv Khandelwal (Virtually appeared) For Revenue : Shri Anurag Tripathi Date of Hearing : 26-11-2025 Date of Pronouncement : 28-11-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Addl/JCIT(A)-1, Delhi, dated 27-08-2025, pertaining to Assessment Year (AY) 2008-09, wherein the assessee has challenged the sustenance of addition of Rs. 9,73,306/- u/s. 2(22)(e) of the Income Tax Act, 1961 („the Act‟).
Briefly stated facts of the case are that assessment in this case was completed u/s. 143(3) r.w.s. 147 of the Act, vide order dt. 30-03-2016, wherein the AO brought to tax a sum of Rs. 9,73,306/- as deemed dividend u/s. 2(22)(e) of the Act. As per the AO, a Chevrolet Optra Car for Rs. 9,73,306/- was purchased in the name of the assessee and the payment for the same was made by Gopaldas Visram & Co. Ltd., wherein the assessee is a beneficial owner holding 11.95% of shares of the said company. As per the AO, the purchase of car in the name of the assessee amounts to advancing of loan by the company to the assessee and which triggers the provisions of section 2(22)(e) of the Act and hence, the same was brought to tax in the hands of the assessee.
The assessee thereafter carried the matter in appeal before the Ld.CIT(A) and it was contended that no advance is received by the assessee from the company during the year under consideration. Further referring to Balance Sheet so prepared for the assessee, it was submitted that the motor-car is not appearing in his Balance Sheet as the company has made payment for purchase of the car and the motor car has been shown as part of fixed asset schedule and balance sheet of the company and the company has claimed depreciation on the same. It was further submitted that the Ld.CIT(A) vide order of the AO, dt. 30-03-2016 for A.Y 2008-09 in the case of the company, has allowed the depreciation so claimed by the company after discussing the matter at length. It was submitted that the motor-car has been used by the company for the purposes of its business and merely because motor-car is registered in the name of the assessee, it cannot be held that the provisions of section 2(22)(e) of the Act get triggered.
The submissions so filed by the assessee were considered, but not found acceptable to the Ld.CIT(A). As per the Ld.CIT(A), the contention of the assessee that no advance is received during the year does not hold any ground as provision of section 2(22)(e) of the Act are deeming provisions and payment made by the company for purchase of car in the name of substantial shareholder on his behalf is equal to advancing money to the shareholder and reference was drawn to the provisions of section 2(22)(e) of the Act, which reads as under: “any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the 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, or to any 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) 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.”
As per Ld.CIT(A), a plain reading of the aforesaid provisions of section 2(22)(e) shows that any payment made by any such company on behalf of or for the individual benefit of any such shareholder is in nature of deemed dividend. In the instant case, the company has made the payment of the car purchased in the name of the appellant and hence, has made payment for his benefit. It was further held by the Ld.CIT(A) that the assessee is a beneficiary owner in the company and the company has accumulated profits and the said fact has not been disputed by the assessee during the assessment as well as the appellate proceedings. Further, it was held that even if the depreciation is claimed in the books of the company, the substance of the transaction is that the company‟s funds were diverted for the personal benefit of a substantial shareholder. The assessee‟s plea that the same was done to save money on registration cannot be an excuse for application of the provisions of section 2(22)(e) of the Act. It was further held that when the car is sold by the assessee, the company will have no legal remedy under the Motor Vehicles Act to claim proceeds of such sale or to stop the assessee from selling the car, as the registered owner is the shareholder, not the company. It was accordingly held that the payment made by the company on behalf of the assessee for purchase of a car of Rs. 9,73,306/- falls within the ambit of section 2(22)(e) of the Act and the addition so made by the AO was confirmed. Against the said findings, the assessee is in appeal before us.
During the course of hearing, the Ld.AR reiterated the submissions made before the lower authorities and our reference was drawn to the submissions made before the Ld.CIT(A) and it was submitted that matter relating to claim of depreciation had come up in case of the company for impugned assessment year where the AO has disallowed the depreciation for precisely the same reason that the car has been registered in name of the shareholder, however there was no dispute that motor car is used for the purposes of company‟s business, however, on appeal, the said claim of depreciation has been allowed by the Ld.CIT(A) vide his order dated 30-03- 2016 wherein the Ld.CIT(A) has followed his earlier decision for A.Y 2010- 11 in case of the company. In the earlier decision, he has followed the decision of the Coordinate Bench in case of Edwise Consultants (P) Ltd, which has in turn followed the decision of the Hon‟ble Gujarat High Court in case of Aravali Finlease Ltd 341 ITR 282 (Guj) wherein it was held that depreciation is allowable in hands of the company even if its registered in name of the Director provided the vehicle is used for the purpose of business of company and income derived there from was shown as income of the company. It was accordingly submitted that where there is no dispute that the motor car has been used for the company‟s business and depreciation has been allowed, there is no basis to hold that any benefit has accrued to the shareholder and thus, the provisions of deemed dividend cannot be invoked. A copy of the appellate order dated 30-03- 2016 passed by the Ld.CIT(A) in case of the company has been placed on record. It was submitted that the day the appellate order was passed by the Ld.CIT(A) in case of the company, the same day the AO in the instant case has passed the assessment order u/s 143(3) r/w 147 and thus, the AO was apparently didn‟t have the knowledge of the said order. It was further submitted that the assessee has however brought the said order to the knowledge of the Ld.CIT(A), however, he has failed to consider the same. It was accordingly submitted that necessary relief be provided to the assessee by deleting the addition so sustained by the Ld.CIT(A).
The Ld. DR has been heard who has relied on the findings of the AO as well as that of the Ld.CIT(A).
We have heard the rival contentions and perused the material available on record. The issue under consideration relates to invocation of provisions of section 2(22)(e) of the Act. The factum of the assessee being a beneficial owner holding 11.95% shares in the company is not in dispute. It is also not in dispute that the company had accumulated profits at the time of purchase of car. The limited dispute relates to where the motor car so purchased by the company, the payment in respect of which has been made by the company and which has been recorded as part of fixed assets of the company and in respect of which the depreciation has been claimed and allowed, whether the payment so made by the company can be termed as payment made by the company on behalf, or for the individual benefit, of any such shareholder for the reason that the motor car so purchased has been registered in individual name of the shareholder and not in the name of the company.
In this regard, on perusal of records, we find that in the case of the company (where the assessee is the beneficial owner), the matter relating to claim of depreciation on the motor car was under dispute on precisely the same reason and on appeal, the ld CIT(A) has allowed the said claim of depreciation following his own decision in case of company for assessment year 2010-11 and in the latter decision, he has followed the decision of the Hon‟ble Gujarat High Court in case of Aravali Finlease (Supra). Therefore, as far as claim of depreciation in hands of the company is concerned, we find that the same has been allowed. As far as usage of the motor car – whether used for the purposes of company‟s business, it has been claimed by the Ld.AR that the same was never disputed by the AO while disallowing the claim of depreciation in hands of the company. The said claim of the Ld.AR has not been rebutted by the ld DR during the course of hearing. Further, we find that there is nothing on record which demonstrates that the motor car has been used for the personal benefit of the shareholder.
The provisions of section 2(22)(e) are in nature of deeming provisions and therefore, where it talks of payment made by the company during the relevant year, the benefit which accrued to the shareholder in his individual and personal capacity also have to be seen during the relevant year and not in future and only where both the conditions are satisfied, deeming provisions can be invoked. Where the shareholder also happens to hold certain managerial or administrative role and position in the company and uses the motor car for meeting his official duties and obligations, it cannot be held that the motor car has been used for personal and individual benefit of the shareholder as he is using the car as part of his discharge of official duties. At the same time, where he uses the motor car for his personal leisure or for his personal and/or family usage, it can be held that he uses the vehicle for personal purposes and therefore, for his personal benefits. Therefore, it depends upon facts and circumstances of each case and in the instant case, as we have stated earlier, there is nothing on record which remotely demonstrate that the motor car has been used by the shareholder in his personal and individual capacity and thus, it cannot be held that the motor car has been used for benefit of the shareholder. The mere fact that the motor car has been registered in name of the shareholder is not sufficient enough to hold that the payment for purchase of such motor car has been made for the individual benefit of the shareholder.
In light of the aforesaid discussion, in absence of any material on record which justify satisfaction of the requisite conditions, the deeming provisions of section 2(22)(e) of the Act cannot be invoked in the instant case and the addition so made is hereby directed to be deleted.
In the result, the appeal of the assessee is allowed.