Commissioner Of Income Tax vs Late Shri C.R. Dass
2011 Latest Caselaw 1545 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI


+                  ITA No. 610/2009


%                              Date of Decision:    17th March, 2011


COMMISSIONER OF INCOME TAX                           ... APPELLANT

                   Through:   Ms. Prem Lata Bansal, Sr. Advocate
                              with Mr. Deepak Anand, Advocate

                              Versus

LATE SHRI C.R. DASS                                 ... DEFENDANT

                   Through:   Mr. Satyen Sethi, Advocate.

CORAM:
HON'BLE MR. JUSTICE A.K.SIKRI
HON'BLE MR. JUSTICE M.L.MEHTA

1. Whether the Reporters of local papers
   may be allowed to see the judgment?         No

2. To be referred to Reporter or not?          No

3. Whether the judgment should be
   reported in the Digest?                     No




A.K. SIKRI, J. (Oral)

1. This case pertains to the assessment year 1998-99. For this

year, the assessee had filed the return declaring income of

Rs.1,14,000/-. This return was processed and accepted by the

Assessing Officer vide order dated 29th October, 1998.

2. The assessee, at that time, was the Director of M/s Pearey Lall

& Sons (EP) Ltd., and was also having the shares in the

Company, which were, admittedly, much less than 10% at the

relevant time. M/s Pearey Lall & Sons (EP) Ltd. (hereinafter,

referred to as „the Company‟) has also been assessed to tax in

Rohtak. In respect of his case for the year 2002-03, the

Company had filed appeal before the CIT(A), Rohtak. While

deciding the said appeal, the CIT(A), Rohtak found that the

assessee, herein, had given property No. 27, Aurangezed

Road, New Delhi to the Company on lease on 16th March, 1998

at a monthly rent of Rs.12,000/-. The account of the assessee

was also credited with Rs.75 lakhs as interest free security

deposit. This amount was not actually paid to the assessee

and instead the assessee was issued 74,560 shares of

Rs.100/- each on 25th March, 1998 and the account of the

assessee was debited with the consideration for issuance of

the said shares, thereby, debiting the account of the assessee

to the extent of Rs.74,56,000/-. With the issuance of these

shares, the share holding of the assessee increased to

44.57%. The CIT(A), on the basis of the aforesaid facts,

opined that the interest free security deposit of Rs.75 lakhs

should be treated as deemed dividend within the meaning of

Section 2(22)(e) of the Income Tax Act (hereinafter, referred

to as „the Act‟). While passing the order in the appeal, in

respect of the Company, at the same time, CIT(A) wrote for

providing this information to the Assessing Officer of the

assessee herein. On the basis of this information, the

Assessing Officer issued notice under Section 148 of the Act

on 18th October, 2006 seeking to reopen the assessment in

respect of the assessment year 1998-99 in the light of the

aforesaid. The assessee objected to this assessment on the

ground that a notice was issued after the expiry of six years

from the end of the assessment year, and thereafter, was

clearly barred by limitation. Even on merits, the assessee

contended that provisions of Section 2(22)(e) had not been

attracted and therefore, no such addition can be made. The

Assessing Officer repelled both the contentions of the

assessee and passed an assessment order dated 30th October,

2006 thereby making an addition of Rs.75 lakhs as deemed

dividend in the hands of the assessee under Section 2(22)(e)

of the Act. Against this order of the Assessing Officer, the

assessee preferred an appeal to the CIT(A). The assessee

pressed both the contentions which were raised before the

Assessing Officer as well, namely, issuance of notice under

Section 148 as barred by limitation, and even on merits, the

addition was untenable. The CIT(A) accepted both these

contentions of the assessee and deleted the addition made by

the Assessing Officer.

3. We may point out, at this stage, that on the question of

limitation, the Department had contended that, no doubt,

notice was issued after the expiry of six years, since the

assessment was reopened on the basis of "directions" given

by the Appellate authority i.e. the CIT(A), Rohtak, the

limitation period, as prescribed under Section 149 of the Act

was not applicable, having regard to the provisions of Section

150(1) of the Act. The assessee on the other hand had argued

that the order of the CIT(A), Rohtak passed in the case of the

Company could not amount to "directions" within the meaning

of Section 150 of the Act as it could not be treated as giving

the appeal effect. Some case law was also stated by the

assessee in support of these aforesaid contentions. The

CIT(A) observed as under while holding that the notice issued

under Section 148 of the Act was time barred:-

"First of all, it is a moot point as to whether the reopening at the instance of the CIT(A), Rohtak, who had no jurisdiction over the assessee is good in law and also permissible. The CIA(A) was deciding the appeal in the case of the company M/s Pearey Lall & Sons, for the asstt, year 2002-03, and not in the case of this

assessee. Further "Directions" can be givne only for the same assessment year and for the same assessee. This is the law laid down in the case of Consolidated Coffee Ltd. Vs. ITO 155 ITR 729 (Kerela) and in the case of CIT Vs. Raghubur Singh Trust 123 ITR 438 (SC).

4.2 It is also a moot point as to whether the assessee‟s case can be reopened beyond the period of six years in view of the specific provisions of sectin 149. In my opinion it cannot be reopened."

4. As mentioned above, the CIT(A) did not rest its decision on

the question of limitation and went into the merits of the case

as well. The assessee, in this aspect, had argued that the

case was not covered by the provisions of Section 2(22)(e)

because of the following reasons"-

1. Security deposit of Rs.75 lakhs credited to the assessee

in the books of the Company on 16th March, 1998 and on

that date the assessee had admittedly shareholding

much less than 10% and thus provision of Section

2(22)(e) were not attracted.

2. The assessee had never received any money i.e., the

aforesaid amount of Rs.75 lakhs after few days i.e. on

25th March, 1998, he was allotted shares and for this

reason also the question of treating the aforesaid

amount as deemed dividend would not arise. It was

argued by the assessee that Section 2(22)(e) created a

legal fiction and such a provision has to be strictly

construed. The CIT(A) accepted this plea of the

assessee as well. It was now the turn of the Revenue to

feel aggrieved by this order of the CIT(A) and

accordingly, the Revenue approached the Income Tax

Appellate Tribunal (hereinafter, referred to as „ITAT‟) by

filing an appeal. This appeal was filed on solitary

ground which was taken in the following manner:-

"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.75 lakh right made by the A.O."

5. The aforesaid ground taken by the Revenue was treated by

the Tribunal as challenge on merits only. The Tribunal held

the view that CIT(A) had initiated the proceedings also on the

ground that re-opening of the re-assessment proceedings was

beyond the period of six years and thus time barred, but

Revenue had not challenged these findings of the CIT(A).

6. Based on this reason, the Tribunal dismissed the appeal

holding that when the notice under Section 148 of the Act,

after a period of six years was held to be time barred and

instead challenge was allowed thereto, question of deciding

the addition on merit did not arise.

7. Challenging the aforesaid order of the Tribunal, Ms. Prem Lata

Bansal, learned senior counsel for the Revenue made

strenuous plea that the ground taken by the Revenue

challenging the deletion of the addition of Rs.75 lakhs made

by the Assessing Officer was wide enough to include challenge

to the finding of the CIT(A) holding the reassessment

proceedings as time barred and a very myopic view was taken

by the ITAT in not construing the aforesaid ground in its

proper prospect.

8. Though, Mr. Satyen Sethi, learned counsel for the assessee

joined the issue, he submitted that for going into the issue he

was ready to argue the appeal on merits as well.

9. Learned counsels for both the parties agree the issue to be

decided on merits. It is because of this reason that we heard

learned counsels for the parties on merits on the addition of

Rs.75 lakhs made by the Assessing Officer under Section

2(22)(e) of the Act which has been deleted by the CIT(A).

Facts demonstrated above would clearly reveal that

admittedly as on 16th March, 1998 when the transaction of

lease was entered into between the assessee and the

Company, the share holding of the assessee in the Company

was much less than 10%. Thus, he was not having more than

10% beneficial interest in the Company as on that date. It is

on this date, i.e., 16th March, 1998 that the assessee leased

out the premises of the Company at a monthly rent of

Rs.12,000/- and as per the lease agreement, the Company

also agreed to pay some security deposit of Rs.75 lakhs, which

money was not paid on that date, but the amount of the

assessee was credited to this account/amount. The question

as to whether this amount of Rs.75lakhs received by the

assessee could be treated as deemed dividend income as per

the provision of Section 2(22)(e) of the Act on the date of

transaction, is to be examined. It hardly needs to be

emphasized that Section 2(22)(e) of the Act creates a legal

fiction and therefore, such a provision is to be strictly

construed. Rigor of Clause (e) of Section 2(22) has to be

strictly complied with before the receipt at the hands of the

assessee is to be treated as deemed income. On that date,

i.e., 16th March, 1998, the assessee had less than 10%

beneficial interest in the Company. This amount, therefore, by

no stretch of imagination can qualify as deemed income under

the aforesaid provision. We are therefore, in agreement with

the approach taken by CIT(A) in deleting the aforesaid

addition made by the Assessing Officer.

10. We may record that since the assessee has succeeded on

merits, having not gone into the issue of limitation and

therefore it be not construed that as far as limitation is

concerned we have opined in favour of the Revenue.

11. The present appeal is dismissed on the aforesaid ground

holding that no substantial question of law arises for

consideration.

A.K.SIKRI (JUDGE)

M.L.MEHTA (JUDGE)

MARCH 17, 2010 AK