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Income Tax Appellate Tribunal, BENCH “B” KOLKATA
Before: Shri A.T Varkey & Shri Manish Borad
PER MANISH BORAD, AM.
This appeal filed by the assessee pertaining to the A.Y. 2014-15 is directed against the order of ld. Commissioner of Income-tax (Appeals)-11, Kolkata dated 31-07-2019 vide no. 282/CIT(a)-11/CIR- 38/16-17/MID which is arising out of the assessment order framed u/s 1. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
143(3) of the Income Tax Act dated 30-12-2016 by ACIT, Circle-38, Midnapore.
The assessee has raised following grounds of appeals for Assessment Year 2014-15:-
For that in view of the facts and the circumstances, the Ld. CIT(A) failed to appreciate the fact that the appellant had not received any fund from the company hence the invocation of sec.2(22)(e) by AO in such respect was bad in law and in view of the facts and in the circumstances may kindly be held accordingly.
Without prejudice to Ground No.1 above, the land acquired by the company was duly reflected in the audited accounts of the company and as such the mere mention of name of the Directors in the Sale Deed does not lead the violation of sec.2(22)(e) and in view of the facts and in the circumstances it may be held accordingly.
Without prejudice to Ground No. 1 & 2 above, the amounted routed through the Directors/ Shareholders was mere business transaction and such it did not attract the provisions of sec.2(22)(e) and in view of the facts and in the circumstances it may be held accordingly .
For that your petitioner craves the right to put additional grounds and / or to alter / amend / modify the present grounds at the time of hearing.
Brief facts of the case as culled out from the records are that the assessee is an individual. Return of income for the A.Y 2014-15 filed on 24-03-2015 declaring total income of Rs. 14,60,370/-. Case selected for scrutiny through CASS followed by serving of notices issued u/s. 143(2) and 142(1) of the Act. On verification of individual transactions statement, the Ld. AO came to know that the assessee 2. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
had purchased a property jointly with Sri Pijush Kanti Pal for a total consideration of Rs. 1,56,83,132/-. The assessee’s share was of Rs.78,41,566/-. On further examination, the ld.AO came to know that the payment for purchase of said property has been made by company, namely M/s. Spandan Diagnostic Centre Pvt. Ltd. [ in short, hereinafter referred to as ‘M/s.SDCPL’] in which the assessee is a director. The ld. AO also noted that the said property was neither disclosed in the balance sheet prepared by the assessee nor loan was shown from the said company. Further, ld. AO called for the financial statement of the said company, M/s. SDCPL and after considering the assessee’s statement came to a conclusion that the share of the assessee in the property at Rs.78,41,566/- is liable to be added in the hands of the assessee as deemed dividend u/s.2(22)( e ) of the Act. Accordingly, income of assessee assessed at Rs.93,01,940/-. Aggrieved, the assessee preferred an appeal before the ld. CIT(A), but failed to succeed.
Now, the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee submitted that the said property costing of Rs.1,46,82,291/- was purchased by the said company, M/s. SDCPL. Payment was made by the said company through banking channel. The said land is shown as fixed asset and accounts are audited. The property was purchased in the name of director to save stamp duty charges to some extent but no advance was given by M/s. SDCPL to its director.
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The Ld. Counsel for the assessee submitted that no loan was received by the assessee from the company, M/s. SDCPL. The property was purchased in the name of the assessee and the other person only on behalf of the assessee company and also to save the stamp duty charges. The said property is duly accounted for in the books of account of the company (M/s.SDCPL) and shown as fixed asset consistently. In support of the contention that under similar set of facts, no addition for deemed dividend u/s. 2(22) (e) of the Act is called for, reliance placed on following decisions:-
Smt. Jenobia Adi Doctor Vs. ITO, W-15(3)(1), Mumbai In ITA No. 6085/Mum/2017 A.Y 2013-14, order dt. 23-07-2019 2. ACIT,Company Cir-1(4), Chennai Vs. Harshad V. Doshi In IT Appeal No. 1367(MDS). of 2009, April 23,2010/(2011)130 ITD 137(Chen.) 3. Aloke Kumar Ghosh Vs. ACIT,Cir-38, Midnapore, ITA No. 2402/Kol/2019 for the A.Y 2015-16, order dt. 31-01-202(SMC Bench, Kolkata) 7. Per contra, Ld. Departmental Representative vehemently argued supporting the finding of the ld. CIT(A) as under:- “9. I have carefully considered the facts of the case. The bare facts which emerge from the above discussions are that two of the Directors, including the appellant, are substantially interested in the Private Limited Company called Spandan Healthcare Private Limited, holding around 16% of its share. The said two Directors purchased landed property during the year under consideration in their individual names. They continue to hold the legal title on that land in their individual capacities. For purchasing this land, payment was made by the Private Limited Company in which these two Directors were substantially interested.
What catches my attention is that the land was purchased individually by the two Directors of the company and that the legal title on the said land had remained with them even though the payments were made by the private limited company. One 4. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
may argue that since the land as a fixed asset is reflected in the accounts of the private limited company which also has made the payments from its own accounts and since the Directors have not claimed the land in their balance sheets, there was no question of the company paying any amount indirectly to the Directors because the land belonged to the company and it had, accordingly, been shown as asset in the books of the Company. It may also be argued thus, that the directors had nothing to do with the said land transaction and the payments related to it. 11. I, somehow, I am unable to accept this argument. The reason being that the legal title to that land is with the Directors of the company in their individual capacities. It does not really matter as to who has accounted for what in the books of accounts in what way, but what really matters is who holds the legal title to the land in question. The clear answer is, the two Directors, including the appellant, as individuals hold a legal title to the land in question. Seen in this perspective, it transpires that the directors acquired the said landed property in their individual names for which the private limited company incurred a liability. Therefore, in my view, the payments made by the Private Limited Company was actually towards the liability created by the Directors in the books of the company for acquiring an asset individually in their names. In other words, the payments for purchase of land made by the Private Limited Company was an indirect way of paying the considerations on behalf of the Directors. In my view, this transaction comes directly within the ambit of section 2 (22) (e) of the IncomeTax Act 1961.
I, for the reasons discussed above, hold that the amount paid by the company was in the form of deemed dividend as envisaged in section 2(22) (e) of the Act. Therefore, the Id. AO is directed to treat an amount of loan repaid on behalf of the Directors by the company as deemed dividend paid by it to the Directors. The amount of disallowance should be restricted to the accumulated profits of the company during the year.”
We have heard the rival contentions and perused the records placed before us and carefully gone through the decision as referred and relied on by the ld. Counsel for the assessee. Though the 5. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
assessee has raised three effective grounds, but the sole grievance relates to addition for deemed dividend u/s. 2(22)( e ) of the Act at Rs. 78,41,566/-.We find that an immovable property was purchased in the joint name of assessee and Mr. Pijush Kanti Pal for a consideration of Rs. 1,56,83,132/- (inclusive of stamp duty). Share of assessee is of Rs. 78,41,566/-. The payment for total purchase consideration was made by the company, M/s. SDCPL in which the assessee is a director. Since the property was in the name of assessee, the ld. AO treated the alleged sum as loan given by the said company to its director, thereby invoking the provisions of section 2(22)( e ) of the Act. Further, the ld. CIT(A) also confirmed the view taken by the ld. AO, mainly focussing on the legal title of the land in question for taking the view that the payment for purchase of land by M/s. SDCPL was indirect way of paying the consideration on behalf of its director and the ld. CIT(A) accordingly held this transaction to come within the ambit of section 2(22) ( e ) of the Act. 9. Before proceeding, we will first go through the provisions of section 2(22) ( e ) of the Act, which reads as under:-
(a) to (d)…. …. …. …. …. …. …. … … (e) 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 ; but "dividend" does not include— 6. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
(i) a distribution made in accordance with subclause (c) or subclause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ; (ia) a distribution made in accordance with subclause (c) or subclause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of subclause (e), to the extent to which it is so set off; (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company). Explanation 1.—The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.—The expression "accumulated profits" in subclauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those subclauses, and in subclause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Explanation 2A.—In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation. Explanation 3.—For the purposes of this clause,— (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;]
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From perusal of the above provisions of section 2(22)(e ) of the Act, we find that one of the conditions in which such provision can be invoked is when a company gives loan or advance to a shareholder being the beneficial owner of shares holding not less than 10% of the voting power or a loan or advance to such shareholder, who is a member or partner having substantial interest or any payment by such company for the individual benefit of such shareholder to the extent to which the company possessed accumulative profits. The catch words in this provision as applicable to the issue in question are loan or advance and individual benefit . So we need to examine that whether in the instant case there is a loan or advance to the assessee from the company or any individual benefit has been given to the assessee by the company.
Examining the facts of the instant case, we find 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, placed at page-4 of the paper book is showing all the details of payments made to acquire the said property. Board Resolution has been passed in the Board Meeting held on 19-10-2013 unanimously resolving that “for the basic developments of the company’s business, fund required to purchase assets for its extension at Choto Tengra, Kharagpur, due to some technical problem, land will be purchased in the name of two directors of the said company and purchase land & building will be the assets of the said company. No liability in the name of individual of directors will
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accrue by this transactions”. Further, we find that 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 Rs. 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) of the Act. Our view is duly supported by the decision of the co-ordinate bench of ITAT, Mumbai in the case of Smt.Jenobia Adi Doctor Vs. ITO, W-15(3)(1), Mumbai, order dt. 23-07- 2019, wherein Tribunal has observed as follows:-
“4. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted the facts that Vision Marketing & Information Services Pvt. Ltd along with Mr. Percy Adi Doctor jointly purchased Flat No. 203 in Godrej Platinum project, each having 50% share therein. However, by a Board resolution passed on 01.12.2011, it was decided that the assessee, who is a Director in Vision Marketing & Information Services Pvt. Ltd., would hold this property in her individual name, but for and on behalf of the company since the company was advised that in a eo operative society structure, a corporate body cannot be a joint member along with another individual. Thus, 50% share in this property always belonged to the company, Vision Marketing & Information Services Pvt. Ltd. though it was purchased in the individual names of the assessee along 9. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
with the other joint owner. This clear understanding was reflected not only in the Board Resolution referred to above, but also in conduct of the company demonstrated as under:
'The company made direct payments to Godrej towards its share in the instalments payable for the purchase price;
The amounts paid to Godrej were shown as "Investment in Godrej & Boyce Mfg. Co. Ltd." in the books of account of Vision;
In the Balance Sheet of Vision as at 31.03.2012 and 31.03,2013, the same is shown as "Investment in Godrej & Boyce Mfg. Co. Ltd."
We noted that the initial amount of Rs. 11,16,6201 was paid by Vaspar IT Services Pvt. Ltd. on 08.12.2011 to Godrej on behalf of Vision Marketing & Information Services Pvt. Ltd. and the same was shown as loan to Vision Marketing & Information Services Pvt. Ltd. in the books of Vaspar IT Services Pvt. Ltd. and also in the Balance Sheet of Vaspar IT Services Pvt. Ltd, as on 31.03.2012 and correspondingly. We noted from the facts of the case that Vision Marketing & Information Services Pvt. Ltd. has also shown loan taken from Vaspar IT Services Pvt. Ltd. as on 31.03.2012. All these accounting entries having been passed in the books of account of these companies clearly show the intention that the property was from inception beneficially belonged to Vision Marketing & Information Services Pvt. Ltd. and not to the assessee, who merely held in her name as a Director for and on behalf of Vision Marketing & Information Services Pvt. Ltd. The intention of parties is duly reflected in the treatment given in the books of account as those entries speak out the real intention underlying those entries. We also noted from the arguments of the assessee's Counsel and case records that the rental income has been offered by the company Vision Marketing & Information Services Pvt. Ltd. in its hand for subsequent assessment years continuously.
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As regards the AO's allegation that the Board Resolution, a certified copy of which was filed before him, was 'fabricated" is not correct as the AO misread the date of resolution. The date referred to as 09.03.2015 not that of the meeting, but it was the date of certified copy of the Resolution, which was filed before the AO. The Board Meeting was held on 01. 12.2011 and the same is clearly stated in the certified copy of the Board Resolution filed before the AO. It may be noted that the submission was filed before the AO on 10.03.2016, where this certified copy is attached. This certified copy was obtained a day before and again there is a typographical error in that the year is typed as '2015" instead of '2016". But it may be appreciated that this type of error keep happening in the early part of a new year when the people mistakenly type or write the immediately preceding year as a habit until they are used to the new year. Thus, Board Resolution is the most crucial and clinching evidence to show that it is the Company that is the beneficial owner of this properly and not the assessee, who merely holds the same in her name for and on behalf of the Company, being a Director of the Company. The Board Resolution coupled with the entries in the books of account and Balance Sheets as at 31.3.2012 and 31.03.2013 constitute the clinching evidence to show that the said property really belongs to the Company and the assessee merely held the same for and on behalf of the Company.
In view of the above facts clearly spell out that the property does not belong to the assessee and where the property does not belong to the assessee, then where is the question of the company making payment on behalf of the assessee so as to attract the provision of section 2(22)( e) of the Act. Hence, we are of the view that the AO and CIT(A) clearly erred in holding that the moneys paid by the Company to Godrej was for the benefit of the assessee and hence, to be treated as deemed dividend u/s.2(22)(e) of the Act.
We have also gone through the case law relied on by the learned Counsel for the assessee of Hon'ble Supreme Court in the case of CIT vs. Podar Cement (P.) Ltd [1997] 226 ITR 625 (SC), wherein the concept of beneficial owner is 11. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
explained. The facts before the Hon'ble Supreme Court was that some flats were let out to various persons and rental income from these flats were included in the return of income assessable as income from other sourced under section 56 of the Act as the assessee company was not the legal owner of the property in the flats. The assessee contended that such a claim was put forward mainly in the ground that the title of the property has not been conveyed to the cooperative society which was affirmed by the purchasers of the flats and that so long as the ownership was not transferred in the name of the assessee. The rental income from the flats could not be assessed as income from house property. Hon'ble Supreme Court after considering the entire legal jurisprudence finally considered the issue vide Para 53 and 54 as under:
"53. We are conscious of the settled position that under the common law owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as Transfer of Property Act, Registration Act, etc. But in the context of section 22 having regard to the ground realities and further having regard to the object of the Act, namely, 'to tax the income', we are of the view that the owner is a person who is entitled to receive income from the property in his own right.
In the light of the above narration and discussion, we do not think it necessary to discuss any more separately the submissions advanced across the bar. "
And answered the issue on the concept of beneficial owner visavis a registered owner.
We have gone through the case law cited by the assessee of co ordinate bench of this Tribunal in the case of ACIT vs. Harshad V. Doshi (2011) 130 ITD 137 (Chennai), wherein the Tribunal held that provisions of section 2(22)( e) of the Act did not apply to advances made by the company to the assessee, who was the Managing Director thereof and also holding substantial interest therein, to acquire land in his name for the purpose of development by the company so as 12. ITA No.2401/Kol/2019 A.Y 2014-15 MANOJ PATI
to reduce the incidence of stamp duty on the ultimate sale of flats to the customers. The Tribunal held that the company advanced money to the MD out of commercial expediency to reduce the cost and be more competitive, and therefore it was clearly motivated by business exigencies, and that did not amount to loan or advance within the meaning of section 2(22)(e ) of the Act. In view of above, we are of the view that this addition cannot be sustained hence, we delete the addition made by AO and confirmed by Commissioner of Income Tax (Appeals).
In the result, the appeal of the assessee is allowed.”
In view of the above facts and circumstances as well as respectfully following the decision of the Tribunal, we are of the considered view that in the instant case since no land/advance was given to the assessee from the said company, in which the asessee is a director and, therefore, the ld.AO erred in invoking the provisions of section 2(22)(e) of the Act. We accordingly, set aside the finding of the ld. CIT(A) and delete the addition of Rs.78,41,566/- made by the ld. AO u/s. 2(22)( e ) of the Act. Accordingly, ground nos. 1 to 3 raised by the assessee are allowed.
Ground no. 4 is general in nature, which needs no adjudication.
In the result, the appeal of the assessee stands allowed.
The order pronounced in the open Court on 15. 09.2021. Sd/- Sd/- (A.T.VARKEY) (MANISHBORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER दनांक /Dated : 15th September, 2021
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**PP/SPS आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1.अपीलाथ�/Appellant/Assessee: Sri Manoj Pati, PAN: AESPP2111H, C/o M/s. Salarpuria Jajodia & Co., 7 Chittaranjan Avenue, Kolkata-700 072. 2. ��यथ�/Respondent/Department: ACIT, Circle-38, Midnapore, Nazarganj, Paschim Midnapore-721101. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guardfile. By order/आदेश से, /True Copy/ Senior Private Secretary/D.D.O ITAT, Kolkata
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