Madhuri Amin, Mumbai vs Assessee

Smt. Madhuri Amin Vs.` Commissioner of Income Tax, White House, 91 Walkeshwar Road, (Appeals) - 36, Mumbai - 400 006. Mumbai.

PAN/GIR No. AACPA2588D Appellant Respondent

ITA NO 2783/Mum/2011 Assessment year: - 2006-07

Assistant Commissioner of Income Tax, Vs.` Smt. Madhuri Amin Central Circle - 44, Room Non. 656, White House, 91 th 6 floor, Aaykar Bhavan, Walkeshwar Road, M.K. Road, Mumbai - 400 020. Mumbai - 400 006 PAN/GIR No. AACPA2588D Appellant Respondent

Assessee By Shri Vijay Mehta Revenue By Shri Yogesh Kamat

Date of hearing 19.05.2015 Date of pronouncement 29.5.2015

ORDER

Per G.S. Pannu, AM

These are cross appeals directed against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the CIT(A)'] dated 31/1/2011 which in turn- has arisen from an order passed by the Assessing Officer u/s 143(3) 2

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of the Income Tax Act, 1961( hereinafter referred to as the Act) dated 30-12-2008 pertaining to assessment year 2006-07.

2. In the appeal of the assessee, following Grounds have been raised:-

1. The Ld. Commissioner of Income Tax (Appeal) has erred in law and facts in passing the order u/s 250 of the Act.

2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has grossly erred in issuing notice for enhancement of the appeal filed. Consequently, the appellate order passed by the Ld. CIT(A) is bad in law and void ab initio.

3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has grossly erred in holding that occupancy rights received by the appellant is benefit u/s 2(24)(iv) of the Income Tax Act, 1961.

4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has grossly erred in determining the value of benefit u/s 2(24)(iv) of the Income Tax Act, 1961 at Rs, 4,21,000/-

3. In so far as the appeal of the Revenue is concerned, the solitary Ground raised is as under:-

"On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) was not justified in deleting the addition of Rs. 23,38,605/- ignoring that the benefit received by the assessee on account of occupancy rights of the premises allotted to it by the company in substance amounted to distribution of its accumulated profit."

4. In brief, the relevant facts are that the assessee along with her father is a share holder in a company M/s Hatane Premises Pvt. Ltd. (in short 'HPPL'), which was incorporated on March 30, 1992, for carrying on real estate business. M/s HPPL owned a property at Andheri (W), Mumbai and it gave occupancy rights in the property to its share holders based on the number of shares held by them. Accordingly, assessee received occupancy rights in the said property of 421 sq. ft. which was valued by the Assessing Officer at Rs. 27,38,605/-, by applying the stamp duty reckoner rates of the area. The Assessing Officer noted that in the case of assessee's father Shri Shantikumar D. Majithia, who was also a share holder in HPPL, Page 2 of 10 3

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the receipt of such occupancy rights was held to be an event taxable within the meaning of section 2(22)(a) of the Act. The stand of the Assessing Officer was that the impugned transaction entailed release by HPPL of assets to the share holders which was to be treated as a dividend within the meaning of section 2(22)(a) of the Act. Thus the sum of Rs. 27,38,605/- was added to the total income as 'dividend' in terms of section 2(22)(a) of the Act. The CIT(A) however, disagreed with the Assessing Officer as according to him, there was no release of any asset by HPPL to its share holders and, therefore, section 2(22)(a) of the Act was not attracted. On this aspect of the matter, Revenue is in appeal before us in terms of aforestated Ground of appeal.

5. Further, the CIT(A) show-caused the assessee as to why the impugned transaction be not considered an event covered by the provisions of section 2(24)(iv) of the Act. After considering the submissions put forth by the assessee, the CIT(A) held that the impugned transaction was in the nature of a benefit or perquisite obtained from HPPL, which was liable to be considered as income in terms of section 2(24)(iv) of the Act. The Assessing Officer valued such benefit at Rs. 4,21,000/-. The said value was arrived at by applying a rate of Rs. 8000/- per square feet on the area allotted to assessee i.e. 422 sq. ft. Thus, the CIT(A) sustained the addition of Rs.4,21,000/- in terms of sectioni 2(24)(iv) of the Act. Against the said action of the CIT(A) assessee is in appeal before us on the aforesaid Grounds of appeal.

6. In this background, the Ld. Representative for the assessee pointed out that similar issue in relation to assessment year 2006-07, came up before the Tribunal in the case of assesse's father Shantikumar D. Majithia, wherein, also the Assessing

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Officer had applied the provisions of section 2(22)(a) of the Act, and on appeal by the assessee, the CIT(A) set aside the aforesaid stand of the Assessing Officer and instead he applied the provisions of section 2(24)(iv) of the Act. The Ld. Representative submitted a copy of the consolidated order of the Tribunal passed in the case of assessee's father Shantikumar D. Majithia and Smt. Shobhana Majithia (assessee's mother) for assessment year 2006-07 and 2007-08 vide ITA No. 2517 and 2518/Mum/2011 dated 19.09.2012 alongwith a copy of the order of the Tribunal in M.A. No. 74 & 75/M/2013 pertaining to assessment year 2006-07, dated 07.06.2013, in the case of the aforesaid two assesses, wherein identical issues have been dealt with. It was a common ground between the parties that the captioned appeals be disposed-off in the aforesaid light, as the facts and circumstances are identical and further that the aforesaid orders of the Tribunal continue to hold the field.

7. In order to impart completeness to the order, we may note that so far as the invoking of section 2(24)(iv) of the Act by the CIT(A) is concerned, the Tribunal in its order dated 19.10.2012, (supra) disagreed with the stand of the CIT(A) and the operative portion of the order reads as under:-

"16. We have considered submissions of ld representatives of parties and orders of authorities below.

17. We observe that assessee is a shareholder of HPPL, which is a closely held company. It is relevant to state that its earlier name was Majithia and Mehta Construction Private Limited (MMCPL), which was incorporated on 30.3.1992 to carry on real estate business with Jitendra Navneetlal Mehta, Ila Jitendra Mehta and Sonal Sudhir Majithia as shareholders. This family owned company had purchased a land at Andheri (W) and had given occupancy rights to its shareholders based on the number of shares held by them. Ld CIT(A) has stated that HPPL declared the said assets as fixed assets and distributed the same amongst shareholders to avoid tax on sale of assets. AO found that letters granting occupancy rights were given by HPPL to its shareholders on 25.3.2006 and therefore, it is covered by A.Y. 2006-07 and A.Y. 2007- Page 4 of 10 5

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08 and whereas assessee contended that occupancy rights were given to the shareholders for the year ending on 31.3.2002 and if the provisions of section 2(22)(a) are applied, no addition could be made as deemed dividend because HPPL did not have any accumulated profits as on 31.3.2002. However, AO, as mentioned hereinabove, held that assessee by its letter dated 25.3.2006 has been granted occupancy rights to its shareholders and adopted market value of the property as per Stamp Duty Reckoner and added the same u/s.2(22)(a) of the Act. Ld CIT(A) has also agreed with the findings of AO that occupancy right was given by HPPL to its shareholders in the assessment years 2006-07 and 2007-08.

18. At the time of hearing, our attention was drawn to the said letter dated 25.3.2006 placed at page 43 of PB. We on perusal of the said letter agree with the findings of authorities below that occupancy rights of the premises were given to the assessee in the assessment year 2006-07 as said letter addressed to the assessee categorically states that he has to pay interest free refundable deposit amount of Rs.18 lakhs towards the proportionate land, construction and development cost. It is further stated therein that assessee is liable to pay municipal taxes and other outgoings in respect of flat for the occupancy right is given to the assessee every month. The municipal taxes are also to be paid by the assessee. We observe that it is also stated in the said letter that assessee is entitled to transfer the occupancy rights of the concerned flat by way of sale and transfer of block of shares and create third party rights subject totransferee depositing with HPPL the required amount of interest free security deposit and assessee shall also be entitled to give possession of the said flats to any transferee and HPPL have no objection for the same. It is evident that assessee has got the occupancy right of the premises by way of letter dt.25.3.2006. Hence, the authorities below have rightly held that said occupancy right is given to the assessee in A.Y. 2006- 07 and not in earlier assessment years.

19. Now question arises as to whether grant of said occupancy right could be considered as deemed dividend u/s.2(22)(a) of the Act as considered by the AO or it is to be considered perquisite/benefits given by HPPL to its shareholders and as such is to be assessed u/s.2(24)(iv) of the Act or it is to be considered neither deemed dividend nor perquisite to the assessee.

20. As per grounds of appeal taken by assessee as well as by department, it is observed that assessee has disputed in its ground of appeal the findings of ld CIT(A) to hold that occupancy rights received by the assessee is benefit u/s.2(24)(iv) of the I.T.Act, 1961 at Rs.16,44,000 for assessment year under consideration i.e. A.Y. 2006-07 and Rs.17,74,000 for subsequent assessment year i.e. A.Y. 2007-08. On the other hand, department has also disputed the said order of ld CIT(A) not to accept the findings of AO that the addition is to be made in respect of occupancy rights as deemed dividend u/s.2(22)(a) of the Act. Therefore, it is evident that both parties have disputed the Page 5 of 10 6

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order of ld CIT(A) to consider the grant of occupancy rights by HPPL to its shareholders, assessee herein as perquisite/benefit u/s.2(24)(iv) of the Act.

21. On consideration of submissions of ld representatives of parties and the contents of letter dated 25.3.2006, as mentioned hereinabove, copy placed at page 43 of PB, we observe that assessee has received occupancy rights in the premises on perpetual basis and in lieu of which, assessee to hold shares in HPPL and also to give interest free refundable deposit of Rs.18 lakhs towards proportionate land cost and development cost. Assessee is also entitled to transfer the occupancy rights by way of sale and transfer of block of assets and create third party rights subject to transferee deposit the required amount of interest free refundable security deposit and assessee thereafter to give possession to the transferee. Therefore, we are of the considered view that ld CIT(A) is not justified to hold that it is perquisite benefit given by HPPL to its shareholder and not the transfer of occupancy rights to its shareholders. Hence, we agree with ld A.R. that provisions of section 2(24)(iv) of the Act does not apply to grant of occupancy rights by HPPL to the shareholder, i.e. assessee herein, on the facts of the case before us."

8. Therefore, having regard to the aforesaid discussion in the order of the Tribunal, which has been rendered under identical circumstances, we hereby set- aside the action of the CIT(A) in invoking the provisions of section 2(24)(iv) of the Act, in the present case. Thus, the appeal of the assessee in so far as it relates to the Ground of Appeal Nos. 2 to 4 is allowed, as above.

9. In so far as the question of application of section 2(22)(a) of the Act is concerned, therein the Tribunal in its order dated 19.10.2012 (supra), upheld the assertions of the Assessing Officer that the provisions of section 2(22)(a) of the Act are attracted to the impugned transactions. The relevant discussion in the order of the Tribunal on this aspect reads as under:-

"22. Now coming to question as to whether said grant of occupancy rights could be treated as deemed dividend u/s.2(22)(a) of the Act in the assessment year under consideration.

23. We observe that assessee has got the occupancy right in perpetuity as assessee can transfer his occupancy rights of the premises under consideration by way of sale to a third party subject to condition that transferee is to deposit the required amount of Page 6 of 10 7

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interest free security deposit with HPPL. It is observed that the consideration to be received by the assessee on transfer of his occupancy right is not to be refunded to HPPL. It is also observed that HPPL will have no objection for creating third party rights in the occupancy right given to assessee. Further, during the course of hearing, ld A.R. also submitted that HPPL has given occupancy rights in the premises to the assessee perpetually and, therefore, it is to be considered release of assets by HPPL. Ld D.R. also in his submission submitted that assessee has got in guise of occupancy rights full ownership with small amount of security deposit and, therefore, it is to be considered as deemed dividend u/s.2(22)(a) of the Act. Section 2(22)(a) also provides that any distribution by a company of accumulated profits, whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets, it is a deemed dividend. Considering above submissions of ld representatives of parties and the contents of letter dated 25.3.2006, we are of the considered view that AO has rightly held that the value of flats received are nothing but dividend given in the form of assets by HPPL. Hence, we uphold the order of AO that said occupancy right of the premises allotted by HPPL to assessee amounts to deemed dividend u/s.2(22)(a) of the Act.

24. Now the question arises as to whether said deemed dividend should be assessed in the assessment year under consideration i.e. A.Y. 2006-07 or is to be considered to be assessed in assessment year 2003-04 as contended by ld authorized representative. On the basis of facts considered in the light of letter dated 25.3.2006, wherein, it is stated that assessee has agreed to give occupancy rights of the first floor of residential building bearing No.2, inter alia, on payment of interest free refundable deposit amount of Rs.18,00,000/- and admittedly assessee has paid 51% of the said amount in the assessment year under consideration, we hold the action of AO to consider the market value of the said occupancy rights as deemed dividend in the assessment year 2006-07 is in order and no interference is called for. However, the issue as to whether said deemed dividend could be taxed in assessment year under consideration or not will be considered by the AO as per provisions of law at the time of giving effect to our above order.

25. In view of above, grounds taken by assessee as well as department are allowed by confirming the action of AO and reversing the order of ld CIT(A) for assessment year 2006-07."

10. Furthermore, the Tribunal vide its order passed in miscellaneous application M.A. no. 74 & 75/Mum//2013 dated 7.6.2013 (supra) modified its earlier order on the aforesaid aspect and held that though the provisions of section 2(22)(a) of the Act are attracted and the impugned sum was liable to be assessed as dividend, so Page 7 of 10 8

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however, the said income was entitled for exemption in terms of section 10(34) of the Act. Relevant discussion in the order of the Tribunal is as under:-

"We have considered submissions of Ld. Representatives of parties and have perused order of the Tribunal as well as provisions of section 10(34) of the I.T. Act., 1961. There is no dispute to the fact that the Tribunal has held that occupancy right of the premises allotted by HPPL to the assessee herein amounts to deemed dividend under section 2(22)(a) of the Act as per para 23 of the said order. Further, Tribunal vide para 24 has confirmed the action of AO that market value of the occupancy right be considered as deemed dividend in assessment year 2006-07. The Tribunal thereafter has held that the issue as to whether said deemed dividend could taxed in the assessment years under consideration i.e. 2006-07 and 2007-08 or not will be considered by the AO as per provisions of law at the time of giving effect to the order of the Tribunal. Similar direction has been given vide para 27 relating to assessment year 2007-08 in the case of the assessee Shantikumar D Majithia and in para 28 in the said case of assessee Smt Sobghana Majithi. In the light of provisions of section 10(34) of the Act, there is no dispute to the fact that deemed dividend income is not taxable in assessment year under consideration viz A.Y. 2006-07 and 2007-08. However, considering above submissions of Ld. A.R., we state that dividend income in assessment years 2006-07 and 2007-08 is not taxable as per provisions of section 10(34) of the Act. Accordingly, this order be read along with our order dated 19.10.2012. Hence, applications filed by assessee are allowed."

11. Following the aforesaid precedent, which has been rendered under identical circumstances, we, therefore, hold that the occupancy rights in the premises allotted by HPPL to the assessee amounts to 'dividend' income within the meaning of section 2(22)(a) of the Act and same being exempt within the meaning of section 10(34) of the Act, no addition on this count is merited. As a consequence in so far as Ground of appeal of the Revenue is concerned, the same is also dismissed having regard to the aforesaid discussion.

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12. Resultantly, appeal of the assessee is allowed whereas that of the Revenue is dismissed.

Order pronounced in the open court on this 29th day of May 2015.

Sd/- Sd/-

(Sanjay Garg) (G.S. Pannu) (Judicial Member) (Accountant Member)

Mumbai dated 29-05-2015 SKS Sr. P.S,

Copy to: 1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, "B" Bench, ITAT, Mumbai By Order

Assistant Registrar Income Tax Appellate Tribunal, Mumbai Benches, MUMBAI

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