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2016 (3) TMI 284 - BOMBAY HIGH COURT

2016 (3) TMI 284 - BOMBAY HIGH COURT - TMI - Deemed dividend addition made u/s 2(22)(e) - Held that:- The effect of clause (e) of section 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present .....

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f land by way of license was given to M/s. Skyline Mansion Pvt. Ltd. The Tribunal has in the impugned order rendered a finding of fact that when the security deposit was received under the joint development agreement dated 4th April 2008, no sale took place as no conveyance was executed. Further, the land and rights in respect thereof being stock in trade and not capital assets of the Respondent Assessee, no sale under the Transfer of Property Act also took place in the subject Assessment Year. .....

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was received, in view of the findings of fact rendered by the Tribunal, there is no income earned by the Respondent Assessee in respect of its security deposit of ₹ 54.68 crores. - Decided in favour of assessee - Income Tax Appeal No. 2299 of 2013 - Dated:- 16-2-2016 - M. S. Sanklecha And B. P. Colabawalla, JJ. For the Appellant : Mr Arvind Pinto For the Respondent : Mr J.D. Mistry with Mr Atul Jasani ORDER 1. This Appeal under section 260A of the Income Tax Act 1961 (the Act) challenges .....

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erent from those of the latter case ?" (B) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of ₹ 28,41,34,500 being business income in the guise of security deposit received by the Respondent fir, as the latter had already transferred its rights of ownership by way of irrevocable covenant as also received the entire consideration by way of security deposit ?" 3. Re:- Question No.(A): (a) The Respondent - Ass .....

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sit from M/s. Skyline Mansion Pvt. Ltd. was a deemed dividend in the hands of the Respondent Assessee. However, the same was restricted to only ₹ 23.63 lakhs being the accumulated profits of M/s Skyline Mansion Pvt.Ltd. (b) Being aggrieved, the appellant preferred an appeal to Commissioner of Income Tax (Appeals) ('CIT(A)'). By an order dated 21st September 2012 the CIT(A) held that the amount of ₹ 54.68 crores as deposit was received partly for business consideration i.e. to .....

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May, 2013 held that Section 2(22)(e) of the Act would have no application in the present facts. This for the reason that it is undisputed position the Assessee - firm to whom the security deposit was made, is not a registered shareholder of M/s. Skyline Mansion Pvt. Ltd. nor is it the case of the Revenue that the shares of M/s Skyline Mansion Pvt.Ltd. are held by the individual partners for and on behalf of the Assessee - firm. In the above view, the impugned order placed reliance upon the deci .....

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as deleted. (d) Mr. Pinto, learned counsel for the Revenue submits that the Respondent Assessee is a partnership firm and the shares in the Company would be registered not in the name of the partnership firm but in the name of individual partners. Thus, deemed dividend would be payable by the Respondent - Assessee firm; and (e) Although the above submission was made by Mr. Pinto for the Revenue, nothing on record was shown to us to indicate that the shares belonged to the Respondent Assessee fir .....

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r alia held thus:- "Consequently, the effect of clause (e) of section 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case the payment, even assuming that it was a dividend .....

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ssessment year 2009-10 entered into a joint development agreement dated 4th April, 2008 with M/s. Skyline Mansion Pvt.Ltd. which was holding land contiguous to its land. The Respondent - Assessee's land was a part of the no development zone besides having various persons claiming some interest in it. However, to ensure that M/s. Skyline Mansion Pvt.Ltd., would endavour to meet its obligations in terms of joint development agreement dated 4th April, 2008, a security deposit of ₹ 54.68 c .....

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did not add any income on the above account as a part of business Income as he had held the entire amount of security deposit of ₹ 54.68 crores as deemed dividend. (b) However, the CIT(A) while dealing with the Respondent Assessee's appeal in exercise of its powers under Section 251 of the Act, enhanced the Income by ₹ 28.41 crores holding the same to be business income. This on the ground that out of ₹ 54.68 crores received as deposits, ₹ 42.41 crores attributable t .....

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appeal to the Tribunal. The Tribunal by the impugned order held that the development rights of the Respondent Assessee in its land was its stock in trade. The impugned order holds that in terms of the Agreement dated 4th April, 2008, the license to enter upon its land was to be given within 90 days of M/s. Skyline Mansion Pvt. Ltd. obtaining all requisite permissions to develop the property. This license was given on 25th April, 2011. This is the date when the transaction of development crystall .....

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e impugned order of the Tribunal also records that this part of its income is offered to tax for A.Y. 2012-13 while allowing the Appeal of the Respondent Assessee. (d) Mr. Pinto, learned counsel for the Revenue, in support of the Appeal, submits that the Respondent - Assessee was following mercantile system of accounting, thus the amount received as security deposit has to be taxed as income during the subject Assessment Year. However, nothing was pointed out from the record to indicate that inc .....

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d by the Revenue or A.Y. 2012-13 or as contended by the Assessee i.e. when the possession of land by way of license was given to M/s. Skyline Mansion Pvt. Ltd. The Tribunal has in the impugned order rendered a finding of fact that when the security deposit was received under the joint development agreement dated 4th April 2008, no sale took place as no conveyance was executed. Further, the land and rights in respect thereof being stock in trade and not capital assets of the Respondent Assessee, .....

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