2011 (3) TMI 1441 - AT - Income Tax

ITAT Delhi: Real estate advances not dividends!

The Appellate Tribunal ITAT DELHI ruled that the addition of Rs. 1,43,96,908/- as dividend u/s 2(22)(e) of the Act was not justified. The Tribunal ... Addition on account of dividend u/s 2(22)(e) of the Act - It was mentioned that the assessee was not able to prove the bona-fides of his claim regarding carrying on of real estate business and the audited accounts had shown the amount as unsecured loans – Held that:-monies were advanced in pursuance of the memorandum of agreement for developing plots of land into commercial buildings, one of the objects of the company. The plots belonged to the assessee which were to be handed over to the company for construction as per approved plans. It was the business of the company to undertake real estate construction business. In a way, the assessee became a partner with the company to carry on real estate business, during the course of which the advances were received, advances cannot be deemed to be dividend, appeal is dismissed Issues:1. Addition of Rs. 1,43,96,908/- as dividend u/s 2(22)(e) of the Act.Analysis:The Appellate Tribunal ITAT DELHI addressed the issue of whether the addition of Rs. 1,43,96,908/- as dividend u/s 2(22)(e) of the Act was justified. The revenue contended that the amount should be treated as loans or advances based on the audited accounts of the assessee. However, the CIT (Appeals) had deleted this addition, stating that the monies received were in the form of deposits, not loans or advances. The Tribunal examined the facts, including the collaboration agreement between the assessee and Gururakha Plastics Pvt. Ltd., where the company paid the amount to the assessee for developing commercial buildings on land owned by the assessee. The company had passed a resolution to engage in real estate development business, making it one of its main objects. The Tribunal analyzed the provision of section 2(22)(e) which defines dividend and cited relevant case laws to support its decision.The Tribunal considered the case law of CIT v. Ambassador Travels (P.) Ltd. and CIT v. Raj Kumar to establish the conditions under which a payment would be deemed as a dividend u/s 2(22)(e) of the Act. It emphasized that the nature of the payment, whether as a loan or advance, is crucial in determining its tax treatment. The Tribunal also referred to the case of CIT v. Creative Dyeing & Printing (P.) Ltd. to interpret the term 'advance' in conjunction with 'loan' for tax implications. Based on these precedents and the specific facts of the case, the Tribunal concluded that the advances received by the assessee for real estate development business could not be classified as dividends under section 2(22)(e) of the Act.In light of the collaboration agreement, the purpose of the payments, and the business activities of the company, the Tribunal dismissed the appeal by the revenue. The Tribunal found that the monies were advanced in the course of the real estate business collaboration between the assessee and the company, and therefore, did not fall under the definition of dividend as per section 2(22)(e) of the Act. The decision highlighted the importance of the nature and context of payments in determining their tax treatment, especially in cases involving shareholder transactions and business collaborations.