Delhi High Court
Durga Dass Aggarwal vs Commissioner Of Income-Tax And ... on 5 May, 2005
Author: M B Lokur
Bench: S Kumar, M B Lokur
JUDGMENT
Madan B. Lokur, J.
1. The Appellant-assessed is aggrieved by an order dated 5th August, 2002 passed by the Income-tax Appellate Tribunal, Delhi, Bench C (for short the Tribunal) in ITA No. 4712/Del/95. The relevant assessment year is 1993-94.
2. The assessed is the Chairman of M/s Piping and Energy Private Limited (for short the company) and has a shareholding of 63.7% in the company. The assessed's wife holds the balance 36.3% shares in the company.
3. In the account that the assessed had with the company, certain amounts were reflected which, according to the Assessing Officer, were hit by the provisions of Section 2(22)(e) of the Income-tax Act, 1961 (for short the Act). The said provision reads as follows:-
"2(22) dividend includes -
(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits."
4. Upon an explanation having been called from the assessed and after considering his reply thereto, the Assessing Officer was of the view that the amounts shown in the account of the assessed were deemed dividend.
5. It transpires that the assessed was the owner of an industrial plot in Haryana. One of the requirements of holding the plot was that the assessed was required to make construction thereon. Since the assessed was a non-resident Indian, he claimed inability to personally make the construction and, therefore, entered into an agreement dated 16th April, 1992 with the company wherein it was agreed, inter alia, that the company would make the construction on the industrial plot and would exploit the plot and the construction for a period of five years after which both the plot as well as the construction would revert to the assessed. During the period of five years, the assessed was not entitled to any amount from the company towards rent etc.
6. The Assessing Officer did not accept the contention of the assessed that the amount spent by the company was neither a loan nor an advance. Consequently, an appeal was filed before the Commissioner of Income-tax (Appeals) [hereinafter referred to as the CIT (A)] who agreed with the assessed in so far as the present dispute is concerned and deleted the addition as deemed dividend of the amount shown in the account of the assessed with the company.
7. Feeling aggrieved, the Revenue preferred an appeal before the Tribunal, which allowed the appeal. The assessed has now sought to raise a substantial question of law under Section 260A of the Act said to be arising out of the order passed by the Tribunal.
8. We are of the view that the appeal does not raise any substantial question of law, particularly in view of the facts of the present case.
9. The Tribunal rightly noted that one of the moot questions is whether the expenditure incurred by the company in raising the construction or even towards making part payment of the cost of the plot can be termed as a payment made by the company by way of loan or advance to its shareholder or for the individual benefit of such shareholder so as to bring it within the definition of dividend in Section 2(22)(e) of the Act.
10. The Tribunal found that in the agreement dated 16th April, 1992 between the assessed and the company, it has been noted that the agreement is valid for a period of five years and is revocable/terminable by mutual consent. Till the agreement is not terminated, the building on the plot would continue to be an asset of the assessed on which capital appreciation would be declared by him in his wealth-tax returns and wealth-tax paid accordingly. It was noted that if the intention of the assessed and the company was that the construction would be an asset of the company, then such a provision would have formed a part of the agreement between the parties. Consequently, whatever expenditure was incurred by the company, having been debited to the individual account of the assessed instead of debiting it to the building account of the company, would necessarily imply that it was a loan or an advance given to the assessed. It was also noted that the assessed continued to be in constructive possession of the building as well as the land and by lifting the corporate veil it could be said that whatever benefits attached to the construction would pass on to the assessed since only he and his wife were shareholders in the company. Under these circumstances, it as held that the payment made to the assessed by the company will be deemed dividend within the meaning of Section 2(22)(e) of the Act.
11. Learned counsel for the Appellant contended that there was no payment made to the assessed by the company and, therefore, it could not be said to be an advance nor was any loan paid by the company to be assessed and that no benefit had accrued to the assessed by the arrangement entered into with the company.
12. We are of the view that all these issues have been considered and answered against the assessed by the Tribunal. The terms of the agreement dated 16th April, 1992, which have been referred to by the Assessing Officer as well as the Tribunal, clearly show that the asset was that of the assessed and he was to derive a benefit there from. He had even agreed to accept capital appreciation of the asset for the purpose of wealth-tax and also pay wealth-tax thereon.
13. Moreover, by lifting the corporate veil, there can be no doubt that the construction made by the company was for the benefit of the assessed who held the majority shares in the company, the balance being held by his wife. The assessed was admittedly not in a position to personally make the construction on the industrial plot, being a non-resident Indian, and the device of entering into an agreement with the company was resorted to apparently to retain the plot and other benefits derived there from.
14. The fact that the amounts expended by the company were shown in the personal account of the assessed further showed that the expenditure was not incurred by the company for its own benefit but essentially for the benefit of the assessed.
15. We are of the view that under these circumstances, no substantial question of law arises for consideration. The appeal is dismissed.
