Tribunal deems unpaid flat price as dividend in shareholder case. High Court rules against Assessee.

The Tribunal upheld the addition of the outstanding balance payable to the company as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, in a case where a 10% shareholder received a flat from the company. The High Court dismissed the Assessee's appeal, ruling in favor of the Revenue, emphasizing that internal guidelines on appeal maintainability were not binding and that the unpaid price of the flat constituted deemed dividend due to the Assessee's substantial interest in the company.

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Issues:
1. Whether transferring the asset of the Company for a due consideration amounts to dividend under Section 2(22)(e) of the Income Tax Act, 1961Rs.
2. Whether the appeal filed by the Revenue against the deletion of addition done by the Assessing Officer was maintainableRs.

Issue 1:
The Assessee appealed against the Income Tax Appellate Tribunal's order regarding the treatment of the part of the flat's sale price as deemed dividend under Section 2(22)(e) of the Act. The Tribunal found that the Assessee, a 10% shareholder in the company, received a flat valued at Rs. 38 lakhs, resulting in an outstanding balance of Rs. 32,25,049/- payable to the company. The Tribunal held that this transaction fell within the ambit of deemed dividend as per Section 2(22)(e) since the Assessee met the conditions for taxing the advance as deemed dividend. The Tribunal emphasized that the transfer of the company's asset to the Assessee, even if not in cash, constituted a payment by the company, thus qualifying as deemed dividend. The Tribunal referred to the Supreme Court's ruling that dividend can be distributed through property or rights with monetary value. Consequently, the Tribunal upheld the addition made by the Assessing Officer, confirming that the payment was rightly taxed as deemed dividend.

Issue 2:
The Assessee contended that the appeal filed by the Revenue before the Tribunal was not maintainable as the tax effect was below the prescribed limit of Rs. 10,00,000/- as per CBDT's Instruction No.3 of 2011. However, the Revenue argued that the case fell within an exception in the instruction, allowing the appeal to proceed. The High Court clarified that internal guidelines like Instruction No.3 of 2011 were not binding on the Court or the Tribunal, and the litigants were expected to comply with such guidelines. The Court could not compel the withdrawal of appeals based on these guidelines. As the Tribunal had already decided on the merits of the case, the High Court found the issue of appeal maintainability irrelevant. On the merits, the High Court agreed with the Tribunal's decision that the unpaid price of the flat constituted deemed dividend under Section 2(22)(e) since the Assessee had substantial interest in the company and the unpaid amount was treated as an advance to the Director. Consequently, the High Court dismissed the Assessee's appeal, ruling in favor of the Revenue.

This summary provides a detailed analysis of the judgment, addressing the issues raised by the Assessee and the Revenue, and explaining the Tribunal's decision upheld by the High Court.

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