Case: The Commissioner of Income Tax Vs. Vir Vikram Vaid

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—(i) a distribution made in accordance with sub-clause (c) or sub-clause (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 sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalized 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 sub-clause (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 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).6. To effectively adjudicate upon the issue before us it will be convenient to refer the assessment order dated 2.2.2009 itself prior to dealing with the impugned order. The Assessing Officer holds that the amount of Rs.2.51 crores was paid on behalf of the assessee and relied upon inter alia on a decision of the Calcutta High Court in the case of Mr.M.D. Jindal Vs. CIT 164 ITR 28 . It states that any payment referred to in section 2(22)(e) also covers value of goods and services provided by the Company to its share holders. Alternatively, the Assessing Officer held that the amount of Rs.2.51 crores be treated as a perquisite which includes value of any benefit by Company to the employee who is the Director thereof and/or by Company, who has substantial interest in it. Thus, the case against the Respondent was two fold, one that amount of Rs.2.51 crores was deemed dividend and secondly, that the amount constituted a perquisite.7. In appeal, the Commissioner of Income Tax in his order 10.11.2009 also noted a submission of the Respondent that he had leased out the premises to the Company on rent which was lower than the prevailing market rate with a clear understanding that all expenditure for its upkeep and improvement, if any, would be fully spent by the Company since the Appellant had stopped his own business activities. According to the CIT (Appeals) the Respondent failed to substantiate the said claim and held that all conditions provided under section 2(22)(e) for deemed dividend was satisfied. In appeal, the tribunal concluded that the payment was not deemed dividend. The tribunal also held that the amount was also not perquisite and accordingly the Appellants case under section 17(2) is also not sustainable.8. In the present appeal, the challenge is restricted to the tribunals findings that the Respondents case is not covered under section 2(22)(e). There is no challenge to the findings qua disallowance of the Appellants case that the amount was a perquisite. Analysis of section 2(22)(e) would reveal that in order attract the provisions of sub-section (22) the payment made by the Company must be by way of advance or loan to the share holder who is entitled to the shares which do not carry a fixed rate of dividend with or without a right to participate or a payment to him for his individual benefit. The payment should be for the individual benefit of such share holder and it would be restricted to accumulated profits of the Company.9. In the present case, no money has been paid to the Respondent by way of advance or loan nor was any payment made for his individual benefit. The fact that the Company has spent money has not been called into question. Thus, it is deemed that the Company did spent Rs.2.51 crores towards repair and renovation on the premises owned by the Respondent. There is no dispute about the fact that the Company had taken rent on the aforesaid premises. Thus, it is case where the asset of the Respondent may have enhanced in value by virtue of repairs and renovation in respect of which it cannot be brought within definition of the advance or loan to the Respondent. Nor can it be treated as payment by the Company on behalf of the Respondent share holder or for the individual benefit of such share holder.10. To hold so would be merely presumption which is not warranted in the facts of the present case. Accordingly, the order of the tribunal cannot be faulted.11. The challenge being restricted to the issue of dividend alone it is not necessary to consider the contention pertaining that the amount as perquisite. Moreover, in the case of Income Tax Appeal No.114 of 2012 and other group of appeals this court has vide the judgment dated July 4, 2014 to which one of us (S.C. Dharmadhikari, J.) was a party has already held that where the recipient is not the share holder of the lender Company such case of a deemed dividend does not arise and such appeals are to stand dismissed since they do not raise any substantial question of law. We have, however, considered the facts of the present case in detail being slightly different nature in the facts of the case in Income Tax Appeal No.114 of 2012.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]6. To effectively adjudicate upon the issue before us it will be convenient to refer the assessment order dated 2.2.2009 itself prior to dealing with the impugned order. The Assessing Officer holds that the amount of Rs.2.51 crores was paid on behalf of the assessee and relied upon inter alia on a decision of the Calcutta High Court in the case of Mr.M.D. Jindal Vs. CIT 164 ITR 28 . It states that any payment referred to in section 2(22)(e) also covers value of goods and services provided by the Company to its share holders. Alternatively, the Assessing Officer held that the amount of Rs.2.51 crores be treated as a perquisite which includes value of any benefit by Company to the employee who is the Director thereof and/or by Company, who has substantial interest in it. Thus, the case against the Respondent was two fold, one that amount of Rs.2.51 crores was deemed dividend and secondly, that the amount constituted a perquisite.7. In appeal, the Commissioner of Income Tax in his order 10.11.2009 also noted a submission of the Respondent that he had leased out the premises to the Company on rent which was lower than the prevailing market rate with a clear understanding that all expenditure for its upkeep and improvement, if any, would be fully spent by the Company since the Appellant had stopped his own business activities. According to the CIT (Appeals) the Respondent failed to substantiate the said claim and held that all conditions provided under section 2(22)(e) for deemed dividend was satisfied. In appeal, the tribunal concluded that the payment was not deemed dividend. The tribunal also held that the amount was also not perquisite and accordingly the Appellants case under section 17(2) is also not sustainable.8. In the present appeal, the challenge is restricted to the tribunals findings that the Respondents case is not covered under section 2(22)(e). There is no challenge to the findings qua disallowance of the Appellants case that the amount was a perquisite. Analysis of section 2(22)(e) would reveal that in order attract the provisions of(22) the payment made by the Company must be by way of advance or loan to the share holder who is entitled to the shares which do not carry a fixed rate of dividend with or without a right to participate or a payment to him for his individual benefit. The payment should be for the individual benefit of such share holder and it would be restricted to accumulated profits of the Company.9. In the present case, no money has been paid to the Respondent by way of advance or loan nor was any payment made for his individual benefit. The fact that the Company has spent money has not been called into question. Thus, it is deemed that the Company did spent Rs.2.51 crores towards repair and renovation on the premises owned by the Respondent. There is no dispute about the fact that the Company had taken rent on the aforesaid premises. Thus, it is case where the asset of the Respondent may have enhanced in value by virtue of repairs and renovation in respect of which it cannot be brought within definition of the advance or loan to the Respondent. Nor can it be treated as payment by the Company on behalf of the Respondent share holder or for the individual benefit of such share holder.10. To hold so would be merely presumption which is not warranted in the facts of the present case. Accordingly, the order of the tribunal cannot be faulted.11. The challenge being restricted to the issue of dividend alone it is not necessary to consider the contention pertaining that the amount as perquisite. Moreover, in the case of Income Tax Appeal No.114 of 2012 and other group of appeals this court has vide the judgment dated July 4, 2014 to which one of us (S.C. Dharmadhikari, J.) was a party has already held that where the recipient is not the share holder of the lender Company such case of a deemed dividend does not arise and such appeals are to stand dismissed since they do not raise any substantial question of law. We have, however, considered the facts of the present case in detail being slightly different nature in the facts of the case in Income Tax Appeal No.114 of 2012. In the circumstances the impugned order is not vitiated by error of law apparent on the face on record.