TaxTMI 
TaxTMI 
2012 (12) TMI 569
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.... Grounds raised by assessee are as under: "1. The ld CIT(A) 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, ld CIT(A) has grossly erred in issuing notice for enhancement of the appeal filed. Consequently, the appellate order passed by 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, ld CIT(A) has grossly erred in holding that occupancy rights received by the appellant is benefit u/s.2(24)(iv) of the I.T. Act, 1961. 4. On the facts and in the circumstances of the case and in law, ld CIT(A) has grossly erred in determining the value of benefit u/s.2(24)(iv) of the I.T. Act, 1961 at Rs.16,44,000/-. 5. Grounds raised by department are as under: "1. 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. 93,95,460/- made u/s 2(22)(a) of the I T Act 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 accu....
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....considered as dividend as per the provisions of section 2(22)(a) of the IT Act which reads as follows: "Dividend includes - (a) 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 of the company. " In reply, the assessee vide its letter dated 26.12.2008 stated that the occupancy rights were given to its shareholders in the year ending 31.3.2002 and the company had no accumulated profits on that date. The assessee further stated that the first profit was earned by the company in the year ended 31.3.2005 when it sold its properties for the first time. The letters granting occupancy rights to the assessee of two flats admeasuring carpet area of 685 square feet each on the first and second floor, Shanti Kutir are attached to this order as annexure 'A' and 'B'. These letters confirm that the flats were given by the company on 25 March, 2006 and not before 31.3.2002 as claimed by the assessee. The falsehood of the assessee stands nailed. As per the balance sheets of the company, it had an accumulated profit of 1 98,46,433/- as on 31.3.2005 and Rs. 1....
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....a sum of money towards interest free refundable deposits and it secured an allotment of occupancy rights in respect of premises No.101 and 201 in the said building. On behalf of assessee, it was contended that AO did not appreciate submissions made by assessee that there was no distribution by HPPL since the asset continued to belong to HPPL and also that the shareholders had contributed towards the allotment of the Occupancy Rights and further that on the date when occupancy rights were allotted to shareholders as a whole HPPL had no accumulated profits. On behalf of assessee, it was also contended that the shareholders were given occupancy rights by the resolution of the Board of HPPL in the meeting held on 15.3.2002. Since HPPL did not have any accumulative profits, assessee got occupancy rights subject to the payment of interest free refundable deposit. Hence, it cannot be considered as deemed dividend. 11. Ld CIT(A) has stated that Article -5 gives the rights of use and occupation of allotted premises to the shareholders. This right shall be exclusive and subject to placing with HPPL interest free refundable security deposit of the amount as determined by the Board of company....
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.... sq. ft has been allotted in assessment year 2006-07 and the balance area 1774 sq. ft has been allotted in assessment year 2007-08. Therefore, ld CIT(A) determined the value of benefit u/s.2(24)(iv) of the Act at Rs. 16,44,000/- for assessment year 2006-07 and of Rs. 17,74,000/- for assessment year 2007-08 and added to the total income of assessee for the respective assessment years. Hence, these cross appeals by assessee as well as by department on the ground as mentioned hereinabove in paras 4 & 5. 13. On behalf of assessee, it was contended that assessee received occupancy rights in the building of HPPL by virtue of being a shareholder and as per the resolution passed in the meeting of the Board of Directors held on 10.1.2002, copy placed at pages 1-8 of PB. He submitted that the said occupancy rights were modified from time to time. Ld A.R. referred pages 40 & 41 of PB, which is copy of letter dated 13.5.2004 by HPPL granting additional occupancy rights to the assessee subject to payment of interest free refundable deposit of Rs. 18,00,000 per flat and also against holding of block of 80,000 equity shares per flat. He submitted that letter dated 25.3.2006 by HPPL to the assess....
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....mount cannot be taxed in view of provisions of section 10(34) of the Act as the dividend is not taxable in the hands of shareholder in A.Y. 2006-07. Ld A.R further submitted that without prejudice to above submission, if the addition is to be made as deemed dividend, it should be limited to proportionate to share holding of the assessee in the maximum accumulated profit of HPPL. 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 we....
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....ered 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 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 o....
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....idend. 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 ....