2013 (10) TMI 1360 - HC - Income Tax

Loan treated as capital, share premium not income in tax case

The Commissioner of Income Tax (Central), Ludhiana Versus Radhe Sham Jain

The High Court upheld the decisions of the lower authorities regarding a case involving the treatment of a loan given by the assessee to the company and ... Loan advanced - Held that:- A perusal of the order passed by the Income Tax Appellate Tribunal reveals that after considering that a cheque was issued in favour of the assessee, from the account of the proprietorship concern, the assessee deposited the cheque in the account of the newly formed company, which returned this amount to the assessee, held that the amount belonged to the assessee on account of his capital in the proprietorship concern. The Income Tax Appellate Tribunal also held that the Commissioner of Income Tax (Appeals) rightly restricted addition of ₹ 34,858/-, i.e., to the extent of accumulated profits. We have considered the arguments advanced by counsel for the revenue and are not inclined to take a view different from the opinion recorded by the Tribunal. The arguments raise disputed questions of fact, which have been answered in favour of the assessee. In the absence of any error, while considering the facts or in applying any provision of the Act, we find no reason to hold that findings of facts recorded by the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) give rise to a question of law, much less, the questions of law framed by the revenue. Issues:1. Whether the loan given by the assessee to the company was properly accounted forRs.2. Whether the share premium amount can be considered as income of the companyRs.Analysis:Issue 1:The main issue in this case was whether the loan of Rs. 1.50 crores given by the assessee to the company was properly documented and accounted for. The Assessing Officer treated the amount as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. However, the Commissioner of Income Tax (Appeals) accepted the explanation provided by the assessee, stating that the amount was originally withdrawn from the proprietorship concern, deposited with the company, and then returned to the assessee. The Income Tax Appellate Tribunal reviewed the entire controversy and found that the amount belonged to the assessee as capital in the proprietorship concern. The Tribunal concluded that the cheque issued was not encashed due to the conversion of the concern into a company, and hence, the amount rightfully belonged to the assessee, which was credited to the assessee's account. The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) and dismissed the revenue's appeal, stating that there was no substantial question of law arising for consideration.Issue 2:The second issue revolved around whether the share premium amount could be considered as income of the company. The Tribunal held that the share premium amount lying as reserve and surplus of the company did not represent accumulated profits of the company. The Commissioner of Income Tax (Appeals) had restricted the addition to the extent of accumulated profits, which was Rs. 34,858/-. The Tribunal concurred with the Commissioner's decision and found no reason to overturn it. The Tribunal emphasized that the disputed questions of fact had been resolved in favor of the assessee, and there was no error in applying the provisions of the Income Tax Act. Therefore, the Tribunal dismissed the appeal, stating that the findings of fact did not give rise to any question of law.In conclusion, the High Court dismissed the appeal, upholding the decisions of the lower authorities and finding no substantial question of law in the issues raised by the revenue.