TMI Blog2010 (4) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. - IT Appeal No. 1367 (Mds.) of 2009 - - - Dated:- 23-4-2010 - ABRAHAM P. GEORGE, ACCOUNTANT MEMBER J, AND VIJAY PAL RAO, JUDICIAL MEMBER J, Omkareshwar Chidra for the Appellant. G. Baskar for the Respondent. ORDER Per Abraham P. George, Accountant Member : - This is a departmental appeal. Grievance is that Commissioner (A) deleted additions made by the Assessing Officer under section 2(22)(e) of the Income-tax Act, 1961 (for short the Act ) on account of advances paid by one M/s Doshi Housing Ltd. Rs. 3,19,82,112/- and rental advance of Rs.19,89,000/-paid by the same company to the assessee. According to the Revenue Commissioner (A) did not consider the decision of Hon ble Jurisdictional High Court in the case of CIT v. P.K.Abubucker (259 ITR 507) and erred in considering that the payments made by DHL to assessee were driven by business consideration. 2. Short facts apropos this are that assessee the managing director of a company by name M/s Doshi Housing Ltd. (DHL for short) was having substantial holdings of shares, therein whereby any advances or loans received by him from the said company would invite application of section 2(22)(e) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in the name of the assessee and not in the name of DHL. Assessing Officer also noted that assessee had shown capital gains on the sale of such land when finally effected after development by DHL to the ultimate customers, and hence it was an admitted position that assessee himself was the owner of the land. Learned Assessing Officer therefore came to a conclusion that the assessee having gained from the advances received from DHL, which were all credited into his personal bank account, section 2(22)(e) of the Act was clearly attracted. Assessing Officer also took note of the assessment proceedings in the case of DHL wherein interest paid by the said company was disallowed for a reason that funds were diverted to the directors/shareholders. This according to him further proved that the advances received by the assessee were not in the nature of any business transactions. Thereafter, placing reliance on the decision of the Apex Court in the case of Miss P.Sarada v. CIT (229 ITR 444) and the decision of the Hon ble Jurisdictional High Court in the case of CIT v. P.K.Abubucker ( supra ), he held that the sum of Rs.3,59,44,112/- out of total advance of Rs.3,87,53,232/- and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale and not registered. ( viii ) Just because the assessee could get some minor benefit in subsequent years, on account of transfer of all undivided interest of land in Aspirin Garden, Vadapalani, Tambaram, Vanagaram, Vengaivasal and Villivakkam, it would not mean that the advance received by the assessee were not for the business purpose of DHL 6. In support of the above, assessee also filed letters addressed to DHL whereby various aspects relating to negotiations on the terms of purchase, were informed to the said company, copies of board resolution of DHL authorizing the assessee to negotiate and purchase properties, details of fund transferred from DHL its utilization. For supporting its contention regarding addition of the lease deposit, assessee filed a copy of lease deed through which he had let out his property to DHL 7. Learned Commissioner (A) after considering the submissions of the assessee, documents filed by him and the assessment records, came to a conclusion that there was no intention on the part of DHL to transfer funds to the assessee as advance or loan for the benefit of the assessee. According to him funds were transferred with a clear understandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/-. In so far as the sum of Rs. 19,89,000/-paid by the said company to the assessee as advance for lease of his building for the purpose of office premises, learned Commissioner (A) was of the opinion that it was only a security deposit, which would not call for application of section 2(22)(e) of the Act. He therefore deleted this addition as well. 8. Now before us assailing the order of the Commissioner (A) the submissions made by learned Departmental Representative were as under: ( i ) Money of the company was given to the assessee to purchase the land in his name and assessee had transferred such land to the other owners by selling the undivided share of the land therein. In this process assessee was making money and the surplus was admitted by him under the head capital gains . ( ii ) The land having been registered in the name of the assessee, the profits were also received by the assessee. Such land was held by the assessee for considerable time till the undivided share therein was ultimately sold after construction of the flats. ( iii ) Even a benefit conferred on a director who was holding substantial interest, in an indirect manner also fell within the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the land. Learned counsel for the assessee contended that there was nothing illegal or unlawful in this methodology which was essential to remain competitive in the business of property development. It was very much necessary to keep the prices down for the ultimate customer, so as to remain competitive and it was only with this intention that DHL had used its managing director s name for holding the land. Learned counsel for the assessee pointed out that the ultimate price for which the flat was sold included the value of the undivided share of the land, and such value was miniscule. Referring to paper book pages 57 58, learned counsel for the assessee pointed out that except for Aspirin garden, Vanagaram, Vengaivasal and Reddi Kuppam none of the properties were registered in assessee s name but were held by various sister concerns of DHL or jointly held by assessee along with other directors. Further according to him, the advances received from DHL were immediately paid to the vendors of the property and these were all in accordance with the decisions taken by DHL. Continuing his arguments Learned counsel for the assessee, submitted that the advances received from DHL were f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SOT 95; that of Chandigarh Bench in DCIT v. Lakra Brothers (106 TTJ 250) and that of a Co-ordinate Bench in the case of DCIT v. Shri M.Ponnuswamy in ITA No.1699/Mds/2008 dated 26.06.2009. 10. We have perused the orders and heard the rival contentions. There is no dispute that DHL had advanced sum of Rs.3,59,44,112/- to the assessee. It is also not in dispute that the assessee is having substantial interest in DHL which could warrant application of section 2(22)(e) of the Act. Learned Commissioner (A) had deleted this addition but for a sum of Rs.39,62,000/- on which assessee is not in appeal. In so far as the rental advance of Rs.19,89,000/- is concerned Commissioner (A) had deleted the addition, finding it to be an advance given by the said company for leasing out a building from the assessee for using it for its office. Nothing was brought on record by the Revenue to rebut the finding of learned Commissioner (A) that this was only a lease advance. Hence we find no reason to interfere with his order that section 2(22)(e) could not be applied on this amount. Therefore we confine ourselves to the issue whether the sum of Rs.3,19,82,112/- received by the assessee would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not say that he was not the right person to hold the ownership of the property, whether through a power of attorney or otherwise- We cannot say it was not a transaction motivated by business consideration. In the process, it might be true that assessee had derived some benefit on account of capital gains when the ultimate transfer of the undivided share in the land was made to the ultimate customer by DHL, But in our opinion, this would not in any way change the colour of the transaction which clearly was motivated by business consideration and commercial expediency. That none of the funds that were transferred to the assessee, were held by him for any meaningful period of time, so as to derive any benefit there from is clear from the order of the Commissioner (A), where through separate tables for each property involved he has given the dates of transfer of funds and payments made by the assessee therefrom have been clearly tabulated at pages 13 to 20. We are not reproducing such tabulation for the simple reason that the Revenue has not controverted any of these figures or dates mentioned by the Commissioner (A). Projects undertaken by DHL, against which it had transferred money a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t could only mean such advance which carries with it an obligation of repayment, and trade advance given for effecting a commercial transaction did not fall under the ambit of section 2(22)(e) of the Act, Again Chandigarh Bench of this Tribunal in the case of DCIT v. Lakra Brothers ( supra ) had held that the advance made during the ordinary course of business for business expediency did not constitute deemed dividend under section 2(22)(e) of the Act. In the case of Sunil Sethi v. DCIT supra Delhi Bench had held that amounts advanced by a company to its director under a Board resolution, for specific purpose, would not fall under the mischief of section 2(22)(e) of the Act. Here the assessee has pointed out the resolutions passed by DHL whereby assessee was authorised to purchase land in respect of various properties on which development was proposed or contemplated by such company. Copies of these resolutions are placed at paper-book pages 8, 13, 20, 25, 34, 45, 48 and 52. Thus in our opinion these transactions were purely made for business expediency by DHL and hence it would take it out of the purview of section 2(22)(e) of the Act. Vis-a-vis the argument of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of receipt, which remained that as deemed dividend. No doubt, it was true that Hon ble Apex Court held the legal fiction embodied in section 2(22)(e) of the Act, to come into play as soon as monies were paid by a company to a shareholder having substantial interest. But there, the loan or advance was not given for any business purpose but it was sheer withdrawal of money from the company and it was for this reason Hon ble Apex Court held it to be deemed dividend. On the other hand here as clearly mentioned by us the transactions were borne out of business consideration. In the fourth case CIT v. P.K.Abubucker (259 ITR 507) of Hon ble Jurisidictional High Court, advances given by a company to its managing director for construction of a building, which building was to be Leased out to the company and the advances were to be adjusted against future rents, it was held by their Lordships that such advances were deemed dividend within the meaning of section 2(22)(e) of the Act. Here on the other hand, advances given by DHL to the assessee was not for construction of any building but was only for holding ownership of land on which development was to be done by DHL and therefore mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich fails within the mischief of the impugned section is advance or loan made by a company which does not normally deal in money- lending, and it is made with the full knowledge of the provisions contained in the impugned section. The object of keeping accumulated profits without distributing them obviously is to take the benefit of the lower rate of super-tax prescribed for companies. This object was defeated by s. 23A which provides that in the case of undistributed profits, tax would be levied on the shareholders on the basis of that the accumulated profits will be deemed to have been distributed amongst them. Similarly, s. 12(IB) provides that if a controlled company adopts the device of making a loan or advance to one of its shareholders, such shareholders will be deemed to have received the said amount out of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It is clear that when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately decided to adopt the device of making a loan or advance. Such an arrangement is intended to evade the applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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