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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-24, Mumbai, [in short CIT(A)], in dated 28.07.2016. The Assessment was framed by the Income Tax Officer, Ward-15(3)-1, Mumbai (in short ITO/ AO) for the A.Y. 2013-14 vide order dated
17.03.2016, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) in restricting the addition made by the AO at ₹ 41,19,565/- being deemed dividend under section 2(2)(e) of the Act relating to the transaction of property for which the payments were made by Vision Marketing and Services information services Pvt. Ltd. For this assessee has raised the following ground: -
“1. Addition on account of Deemed Dividend u/s 2(22)(e) of the Act. a. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the addition of ₹ 41,19,565/- out of ₹ 52,36,185/- made by the Ld. AO under section 2(22)(e) as deemed dividend. b. the Ld. CIT(A) erred in not appreciating that the property for which the payments were made by Vision Marketing & Information Services Pvt. Ltd. (‘Company’) was not the investment of the appellant, but it was merely held in the appellant’s name for and on behalf of the company, and which was shown in the books of the Company as its asset, and therefore, the same could not be treated as a loan to the appellant.
Your appellant, therefore, prays that the addition of ₹ 41,19,565/-.”
Briefly stated facts are that the assessee Smt. Jenobia Adi Doctor is director in the company Vision Marketing & Information Services Pvt. Ltd. The AO noted from the information filed by the assessee during the course of assessment proceedings that the assessee has purchased a joint property for the project namely Godrej Platinum and all the payments for the project of this flat was made by the company Vision Marketing & Information Services Pvt. Ltd., in which the assessee was a director. During the year Vision Marketing & Information Services Pvt. Ltd. made payment to the extent of ₹ 41,19,565/- (the total addition made by AO was ₹ 52,36,181/- out of which a sum of ₹ 11,16,620/- pertain to earlier year and hence CIT(A) deleted the addition for which the Revenue is not in appeal) and AO accordingly issued show cause notice as to why this payment of ₹ 52,36,185/- made by Vision Marketing & Information Services Pvt. Ltd. on behalf of the assessee should be treated as deemed dividend under section 2(22)(e) of the Act. The AO also noted that the assessee is holding the 50% of the shares in the company of Vision Marketing & Information Services Pvt. Ltd., who is having accumulated profit of ₹ 1,01,34,618/- as on 31.03.2013. According to AO, this payment for purchase of joint property in the name of the assessee is in the nature of deemed dividend and hence he made addition of this amount of ₹ 52,36,185/- being investment made in purchase of flat by the company i.e. Vision Marketing & Information Services Pvt. Ltd. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) is also confirmed the action of the Assessing Officer. Aggrieved, now assessee is in appeal before Tribunal.
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 co- 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 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 ₹ 11,16,620/- 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.
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 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 co- operative 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 vis-à-vis 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 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