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 Jagdish Narayan Sharma vs. ITO (ITAT Jaipur)

Digest of important case law January 2014
April, 09th 2014

S.2(22)(e): Deemed dividend–Not a share holder-Loans or advances from another company cannot be treated as deemed dividend merely on the ground that there was common shareholder in both the companies.

The assessee company had received loan from another company. The assessee was not a shareholder of the other company. However, there was a common shareholder (individual) who held more than 50% in both the companies. In view of the above facts the AO held that the amount received by the assessee from an another company was a deemed dividend u/s 2(22)(e) of the Act. The CIT(A) upheld the AO’s order. On further appeal, the Tribunal deleted the addition made by AO following the decision of the jurisdictional High Court in CIT v. Ankitech (P.) Ltd. 340 ITR 14 (Delhi) where it has been held that deemed dividend provisions cannot be invoked merely because there are common shareholders between the two companies. The High Court followed the aforesaid judgment and dismissed revenue’s appeal. (AY. 2006-07)
CIT .v. AR Magnetics (P.) Ltd. (2014) 220 Taxman 209 (Delhi)(HC)

S.2(22)(e): Deemed dividend–Not a share holder-Inter-corporate deposit-Where assessee had received a deposit from a company but did not own any share of that company it could not be treated as a deemed dividend.

The Assessee received a deposit of Rs. 25 lakhs from Amigo Brushes Pvt. Ltd. During the assessment, the Assessing Officer treated the deposits as a loan and consequently deemed to be a deemed dividend under Section 2(22)(e) of the Act from Amigo Brushes Pvt. Ltd. The assessee contended that it did not hold a share in other company from which it had received deposit and, accordingly, it could not be treated to be a deemed dividend under Section 2(22)(e) of the Act . The CIT(A) uphold the order of the AO. On appeal, the tribunal reversed the order of CIT(A). The High Court decided the issue in favour of the assessee, relying on the decision of the Division Bench of the High Court in CIT v. Ankitech (P.) Ltd. (2012) 340 ITR 14 (Del) wherein it was held that if the assessee-company does not hold a share in other company from which it had received deposit then it cannot be treated to be a deemed dividend under Section 2(22)(e) of the Act. (AY. 2000-01)
CIT .v. Daisy Packers (P.) Ltd. (2014) 220 Taxman 331 (Guj)(HC)

S.2(22)(e): Deemed dividend-Not a registered share holder-Where assessee-company received share application money from another company, the amount in question could not be taxed as deemed dividend in its hands as the assessee was not a registered shareholder of said company.
The assessee had derived income from trading in shares. During the course of assessment proceedings, it was revealed that the assessee had received a sum of Rs.23.00 lacs from M/s. Japanwala Jewellers (P.) Ltd., Jaipur as share application money. The assessing authority, after taking note of Section 2(22)(e) and available records, observed that the share application money received by the assessee company was in the nature of an unsecured loan and further treated it to be deemed dividend in the hands of the assessee company under the provisions of Section 2(22)(e). The High Court upholding the order of the CIT(A) and Tribunal hold that liability of tax as deemed dividend would be attracted in the hands of the individuals who were shareholders of the said company and not in the hands of the company.
CIT .v. Suram Holding (P.) Ltd. (2014) 220 Taxman 327 (Raj.)(HC)

S.2(14): Capital asset-Agricultural land-Capital gains-land situated within limits of 8 Kms from any municipality would be a capital asset, sale of which would attract capital gain. [S.45]

The assessee owned a piece of land which was situated at Village Islampur, District Pathankot. The same was sold on 29.8.2005. She claimed that since the land is an agricultural land, therefore, it does not attract any capital gain. Before the Assessing Officer, a certificate issued by the Tehsildar, Pathankot was filed to the effect that the land is at a distance of 9 KMs from Pathankot and thus not a capital asset. The Assessing Officer took a note of the fact that Government of Punjab vide notification dated 31.11.2004 extended the Municipal Limits of Municipal Council, Sujanpur upto Malikpur and that the said Municipal Council has established Octroi post at Malikpur and the land sold was situated inside the Octroi post. Thus, it was said to be a capital asset. The CIT(A) and the Tribunal set aside the order passed by the Assessing Officer. On an appeal by the department, the High Court decided the issue in favour of the revenue by relying on the judgment of CIT v. Smt. Anjana Sehgal (ITA No. 276/2004) (P&H) and held that since the land is situated within the Municipal limits of Municipal Council, Sujanpur, it is a capital asset and hence subject to capital gains.
CIT .v. Neeru Aggarwal (Smt.) (2014) 220 Taxman 329 (P&H)(HC)

S.2(14): Capital asset-Agricultural land- Transfer of land on as it is and where it is basis to a developer- Neither assessable as capital gains nor business income. [S.10(1), 28(i), 45]

The assessee is engaged in agricultural operations on land classified as agricultural land in revenue records. The land was situated in rural area outside municipal limits. Assessee transferred the said land to developer on “as is and where is” basis to a developer. Tribunal held that profit earned on sale of land was agricultural income. Hence, it is exempt from tax. It is neither assessable as capital gains nor business income. (AY.2006-07)
Harniks Park (P.) Ltd. .v. ITO (2014) 62 SOT 15(URO)/41 109 (Hyd.)(Trib.)

S.2(24): Income-Capital or revenue-Carbon credit-Receipt on account of carbon credit is capital receipt hence not liable to tax. [S.4, 28(iv), 45]
The amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. (AY. 2007-08 to 2009-10)
Shree Cement Ltd. v. ACIT(2014)100 DTR 33 (Jaipur)(Trib.)

S.2(47)(v): Transfer-Capital gains-Mere execution of a development agreement is not a “transfer” if possession as per s. 53A of the Transfer of Property Act is not given.[S.45, Transfer of Property Act , 53A]

Though the development agreement was executed in AY 2003-04, the possession as contemplated in Section 53A of the Transfer of Property Act was in fact not handed over by the assessee to the developer. The agreement only permitted the development to be carried out by the said developer. The entire control over the property was in fact with the assessee inasmuch as the licence to construct the property was also in the name of the assessee and the occupancy certificate was also given to the assessee. Therefore, the execution of the agreement could not amount to transfer as contemplated under Section 53A of the Transfer of Property Act. The agreement was subsequently specifically modified and the assessee was liable to pay the capital gain as per the last agreement i.e. for assessment year 2008-09.(AY.2008-09)( Tax Appeal No. 11 & 12 of 2013, dt. 2/12/2013.)
CIT .v. Sadia Shaikh (Bom.)(HC)

S.4: Income-Capital or revenue-Termination of Agreement-Compensation so received was capital receipt and, hence, not taxable. [S.28(i)]
Compensation was received by assessee for termination of agreement for providing back office support services to bank. Assessee had parted with personnel who were handling this activity of assessee company to give them on role of bank and bank handled such activity itself. Compensation so received was capital receipt and hence not taxable. (AYs. 2003-04 to 2006-07)

3i Infotech Ltd .v. Add. CIT (2014) 146 ITD 405 / (2013) 38 422 (Mum.)(Trib.)
S.5: Scope of Total Income-Real income-Notional interest-Parties were agreed on not to charge interest as per the conditions laid down in MOU, than the AO cannot compel them to do so.
In terms of MOU, the assessee had not charged interest from its collection agent Sahara India, except when the delay in transmission of funds exceeded two months. The Assessing Officer treated the amount outstanding for less than two months as a loan to Sahara India in the form of working capital on which no interest was charged. Accordingly, the Assessing Officer had disallowed interest on the borrowings to the extent of interest not charged on the interest-free loan given to Sahara India. On appeal, the CIT(A) as well as the Tribunal deleted the addition made by the Assessing Officer. On appeal by the Revenue, the High Court held that the parties were agreed on not to charge interest as per the conditions laid down in MOU, than the AO cannot compel them to do so. It is only the assessee who knows the commercial and business relations and situation thereof and the department is not supposed to interfere. (AYs. 1992-93 to 1994-95)
CIT .v. Sahara India Mutual Benefit Co. Ltd. (2014) 220 Taxman 16 (All.)(HC)

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