SHANTIKUMAR D. MAJITHIA, MUMBAI V. DCIT CEN CIR 44, MUMBAI

ITA 2518/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8522 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 15-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Keywords: Gift; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.2517 & 2518/MUM/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 SHANTIKUMAR D MAJITHIA, BLD NO.2, 5 TH FLOOR, PLOT NO.68, SHANTIKUTIR, OPP. ANDHERI FIREBRIGADE, S.V.ROAD, ANDHERI(W), MUMBAI-58 PA NO.AABPM 4432 J DCIT, CENT. CIRCLE-44, MUMBAI. (APPELLANT) VS. (RESPONDENT) ITA NO.3232 & 3234 /MUM/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 DCIT, CENT. CIRCLE-44, MUMBAI. SHANTIKUMAR D MAJITHIA, BLD NO.2, 5 TH FLOOR, PLOT NO.68, SHANTIKUTIR, OPP. ANDHERI FIREBRIGADE, S.V.ROAD, ANDHERI(W), MUMBAI-58 PA NO.AABPM 4432 J (APPELLANT) VS. (RESPONDENT) ITA NO.2520/MUM/2011 ASSESSMENT YEAR: 2006-07 SMT. SOBHANA MAJITHIA, BLD NO.2, 5 TH FLOOR, PLOT NO.68, SHANTIKUTIR, OPP. ANDHERI FIREBRIGADE, S.V.ROAD, ANDHERI(W), MUMBAI-58 PA NO.ADMPM 7636 B DCIT, CENT. CIRCLE-44, MUMBAI. (APPELLANT) VS. (RESPONDENT) ITA NO.3160/MUM/2011 ASSESSMENT YEAR: 2006-07 DCIT, CENT. CIRCLE-44, MUMBAI SMT. SOBHANA MAJITHIA, BLD NO.2, 5 TH FLOOR, PLOT NO.68, SHANTIKUTIR, OPP. ANDHERI FIREBRIGADE, S.V.ROAD, ANDHERI(W), MUMBAI-58 PA NO.ADMPM 7636 B (APPELLANT) VS. (RESPONDENT) SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 2 ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY: SHRI GIRIJA DAYAL DATE OF HEARING: 15.10.2012 DATE OF PRONOUNCEMENT: 19.10.2012 ORDER PER BENCH: THE ASSESSEE VIZ; SHRI SHANTIKUMAR D.MAJITHIA AND D EPARTMENT HAVE FILED CROSS APPEALS FOR ASSESSMENT YEARS 2006-07 AND 2007-08 AG AINST COMMON ORDER OF LD CIT(A) DATED 31.1.2011 AND ASSESSEE VIZ; MRS SHOBHANA MAJ ITHIA AND DEPARTMENT HAVE FILED CROSS APPEALS FOR ASSESSMENT YEAR 2006-07 AGAINST O RDER OF LD CIT(A) DATED 31.01.2011. 2. SINCE GROUNDS TAKEN IN THESE APPEALS ARE COMMON ON SIMILAR FACTS, WE HEARD THESE APPEALS TOGETHER AND DISPOSE OFF THE SAME BY THIS COMMON ORDER FOR THE SAKE OF BREVITY AND CONVENIENCE. 3. SINCE GROUNDS ARE COMMON IN ALL THESE APPEALS, W E TAKE UP APPEALS FOR THE ASSESSMENT YEAR 2006-07 BEING I.T.A. NO.2517/M/2011 FILED BY ASSESSEE SHRI SHANTI KUMAR D.MAJITHIA AND APPEAL FILED BY DEPARTMENT BEI NG I.T.A. NO. 3232/M/2011 FOR OUR CONSIDERATION. 4. GROUNDS RAISED BY ASSESSEE ARE AS UNDER: 1. THE LD CIT(A) HAS ERRED IN LAW AND FACTS IN PA SSING THE ORDER U/S.250 OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E 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 CAS E AND IN LAW, LD CIT(A) HAS GROSSLY ERRED IN HOLDING THAT OCCUPANCY RIGHTS RECE IVED 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 CAS E 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/-. SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 3 5. GROUNDS RAISED BY DEPARTMENT ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 9 3,95,460/- MADE U/S 2(22)(A) OF THE I T ACT IGNORING THAT THE BENEFIT RECEIVED BY T HE ASSESSEE ON ACCOUNT OF OCCUPANCY RIGHTS OF THE PREMISES ALLOTTED TO IT BY THE COMPANY IN SUBSTANCE AMOUNTED TO DISTRIBUTION OF ITS ACCUMULATED PROFITS . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THAT CAPITAL GAIN TAX & GIFT TAX W ERE NOT APPLICABLE TO THE PRESENT CASE WITHOUT GIVING A PROPER OPPORTUNITY TO THE ASS ESSING OFFICER TO BE HEARD ON THIS FINDING, WHICH DID NOT ARISE FROM THE GROUNDS OF APPEAL. 6. IN BOTH THE APPEALS I.E. APPEAL FILED BY ASSESSE E AS WELL AS DEPARTMENT, GROUNDS ARE INTER-LINKED AND, ACCORDINGLY, SAME ARE BEING D EALT WITH TOGETHER. 7. THE RELEVANT FACTS GIVING RISE TO THESE APPEALS ARE STATED BY ASSESSING OFFICER IN PARA 6 OF THE ASSESSMENT ORDER WHICH ARE AS UNDER: 6. M/S. HATANE PREMISES PVT. LTD. A FAMILY OWNED C OMPANY PURCHASED A PROPERTY CALLED JOSHI ESTATES, AROUND 1992 AT S.V.R OAD, VILE PARLE, MUMBAI. THE OBJECT OF THE COMPANY WAS TO CARRY ON THE BUSINESS OF BUILDERS AND DEVELOPERS. ACCORDINGLY, IT CONSTRUCTED THREE BUILDINGS, TWO OF WHICH WERE RESIDENTIAL AND ONE WAS SHOPPING CUM OFFICE PREMISES. ONE BUILDING WAS GIVEN AWAY TO THE LANDLORD OF JOSHI ESTATES AS A PART OF THE PURCHASE DEAL, ON E BUILDING OF SIX FLOORS WITH ONE FLAT ON EACH FLOOR GIVEN TO THE SHAREHOLDER FAMILY MEMBERS AND THE SHOPPING CUM OFFICE PREMISES WAS PARTLY GIVEN TO SHAREHOLDER FAMILY MEMBERS AND THE BALANCE CLAIMED TO HAVE BEEN SOLD TO A COMPANY CALL ED DEV HOUSING AND LAND DEVELOPMENT. THE COMPANY ISSUED LETTERS TO THE SHAR EHOLDERS STATING THAT THEIR REQUEST FOR OCCUPANCY RIGHTS OF VARIOUS FLATS HAS B EEN ACCEPTED AGAINST THEIR BLOCK OF SHARES AND THAT THEY WOULD HAVE TO PAY INT EREST FREE REFUNDABLE DEPOSIT AND FURTHER INFORMED THEM THAT THE MUNICIPAL TAXES WOULD BE PAYABLE BY THEM AND THEY WOULD BE ENTITLED TO TRANSFER THE OCCUPANC Y RIGHTS OF THE FLAT CONCERNED, BY WAY OF SALE AND CREATE THIRD PARTY RIGHTS AND GI VE POSSESSION TO THE TRANSFEREE SUBJECT TO THE TRANSFEREE DEPOSITING THE REQUIRED A MOUNT OF INTEREST FREE DEPOSITS. DURING THE PERIOD 1992 TO 2003/2004 I.E B Y THE TIME, THE PROJECT WAS COMPLETED, THE REAL ESTATE PRICES WENT THROUGH THE ROOF. IF THE COMPANY WAS TO SELL ITS ENTIRE STOCK IN TRADE, IT WOULD RESULT INT O HUGE PROFITS AND TAXES PAYABLE WOULD BE VERY HIGH. ACCORDINGLY, TO AVOID THE PAYME NT OF TAXES, THE COMPANY DISTRIBUTED THE STOCK IN TRADE AMONGST ITS SHAREHOL DERS. THE SAID DISTRIBUTION HAS BEEN DONE IN A.Y.2006-07 AND A.Y. 2007-08. ON BEING QUESTIONED, AS TO WHY THE SAID DISTRIBUTION SHOULD NOT BE CONSIDERED AS DIVID END AS PER THE PROVISIONS OF SECTION 2(22)(A) OF THE IT ACT WHICH READS AS FOLLO WS: DIVIDEND INCLUDES - A) ANY DISTRIBUTION BY A COMPA NY OF ACCUMULATED PROFITS, WHETHER CAPITALIZED OR NOT, IF SUCH DISTRI BUTION ENTAILS THE RELEASE BY THE COMPANY TO ITS SHAREHOLDERS OF ALL OR ANY PA RT OF THE ASSETS OF THE COMPANY. SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 4 IN REPLY, THE ASSESSEE VIDE ITS LETTER DATED 26.12. 2008 STATED THAT THE OCCUPANCY RIGHTS WERE GIVEN TO ITS SHAREHOLDERS IN THE YEAR E NDING 31.3.2002 AND THE COMPANY HAD NO ACCUMULATED PROFITS ON THAT DATE. TH E 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. TH E LETTERS GRANTING OCCUPANCY RIGHTS TO THE ASSESSEE OF TWO FLATS ADMEASURING CAR PET AREA OF 685 SQUARE FEET EACH ON THE FIRST AND SECOND FLOOR, SHANTI KUTIR AR E ATTACHED TO THIS ORDER AS ANNEXURE A AND B. THESE LETTERS CONFIRM THAT TH E 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 NAIL ED. AS PER THE BALANCE SHEETS OF THE COMPANY, IT HAD AN ACCUMULATED PROFIT OF 1 9 8,46,433/- AS ON 31 .3.2005 AND RS. 1,95,23,739/- AS ON 31 .3.2006. IT IS IMPOR TANT TO NOTE HERE THAT IN TERMS OF SECTION 2(22)(A), THE VALUE OF THE UNSOLD STOCK IS ALSO ACCUMULATED PROFITS AS THE WORDS USED ARE WHETHER CAPITALIZED OR NOT . IN FACT, TO CIRCUMVENT THE SAID PART OF SECTION 2(22)(A), THE ASSESSEE HAS WRONGLY DECLARED STOCK IN TRADE AS FIXED ASSETS OF RS. 4,01,00,707/- AND RS. 5,26,00,007/- AS ON 31.3.2005 AND 31.3.2006. THIS SUBTERFUGE HAS LED TO AN ABSURD SITUATION WHERE BOTH THE PARTIES I.E. COMPANY AS WELL AS SHAREHOLDER CLAIM T O BE THE DE LURE OWNER OF THE SAME FLATS WHILE THE FLAT OWNER BEING IN POSSESSION IS THE DE FACTO AND DE LURE OWNER BOTH. 8. ON THE BASIS OF ABOVE, AO HAS STATED THAT THE PR OVISIONS OF SECTION 2(22)(A) ARE SQUARELY APPLICABLE TO THE ASSESSEES CASE AND THE VALUE OF THE FLATS RECEIVED BY HIM ARE NOTHING BUT DIVIDEND GIVEN IN THE FORM OF ASSETS B Y THE COMPANY, M/S. HATANE PREMISES PVT LTD (HPPL). AO CONSIDERED THE MARKET VALUE OF THE PROPERTY AS PER STAMP DUTY RECKONER AT RS. 93,95, 460/- AND ADDED TO THE INCOM E OF ASSESSEE AS DEEMED DIVIDEND AS PER SECTION U/S.2(22)(A) OF THE INCOME TAX ACT, 1961. 9. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE TH E FIRST APPELLATE AUTHORITY. 10. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT AS SESSEE IS A SHAREHOLDER OF HPPL. THE SHARES IN THE SAID COMPANY, IE HPPL HAD ATTACHE D WITH RIGHT TO OCCUPY CERTAIN PORTIONS OF THE PROPERTY CONSTRUCTED ON A PLOT OF L AND OWNED BY IT. A SHAREHOLDER WHO HOLDS A CERTAIN BLOCK OF SHARES; COULD ON PAYMENT OF INTEREST FREE REFUNDABLE DEPOSIT TO HPPL TO BE PERMITTED TO OCCUPY A PART OF THE SAID B UILDING. THE SAID INTEREST FREE REFUNDABLE DEPOSIT WAS GIVEN BY A SHAREHOLDER TOWAR DS THE PROPORTIONATE COST OF LAND AND COST OF CONSTRUCTION/DEVELOPMENT. THE SAID OCC UPANCY RIGHTS WERE FIRST GRANTED BY HPPL TO ITS SHAREHOLDERS IN THE YEAR ENDED 31.3.200 2 AND SUBSEQUENTLY RIGHTS WERE MERELY AMENDED FROM TIME TO TIME. EACH TIME WHEN R IGHTS WERE SO AMENDED, A SHAREHOLDER WHOSE RIGHTS WERE REDUCED IN ANY MANNER , WAS COMPENSATED. THE SAID OCCUPANCY RIGHTS WERE AS SUCH TRANSFERABLE BUT ONLY WITH THE CONSENT OF HPPL. IT WAS SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 5 CONTENDED THAT HPPL HAD NO ACCUMULATED PROFITS IN T HE YEAR ENDED 31.3.2002 WHEN THE OCCUPANCY RIGHTS WERE ATTACHED TO SOME OF THE SHARE HOLDING. THE FIRST PROFIT EARNED BY SAID HPPL WAS ONLY IN THE YEAR ENDED 31.3.2005. T HE ASSESSEE IN THE YEAR ENDED 31.3.2006, CONTRIBUTED A SUM OF MONEY TOWARDS INTER EST 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 CONTE NDED THAT AO DID NOT APPRECIATE SUBMISSIONS MADE BY ASSESSEE THAT THERE WAS NO DIST RIBUTION BY HPPL SINCE THE ASSET CONTINUED TO BELONG TO HPPL AND ALSO THAT THE SHARE HOLDERS 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 N O ACCUMULATED PROFITS. ON BEHALF OF ASSESSEE, IT WAS ALSO CONTENDED THAT THE SHAREHOLDE RS 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 OC CUPANCY 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 I.E. HPPL FOR THE PROPORTIO NATE COST OF LAND, OTHER COSTS, AND EXPENSES RELATED TO THE LAND COST, COST OF CONSTRUC TION AND DEVELOPMENT OF THE BUILDING OR BUILDINGS TO BE CONSTRUCTED BY HPPL FOR THE ALLO TTED PREMISES PER SQ. FT OF CARPET AREAS OF THE ALLOTTED PREMISES. LD CIT(A) AFTER CO NSIDERING PROVISIONS OF SECTION 2(22)(A) OF THE ACT HAS STATED THAT AO HAS CONSIDER ED LETTER DATED 25.3.2006 REGARDING OCCUPANCY RIGHTS GIVEN TO THE SHAREHOLDERS ON THAT DATE AS DISTRIBUTION TO APPLY PROVISIONS OF SECTION 2(22)(A) OF THE ACT. THEREFO RE, AO HAS CONSIDERED THE DEEMED DIVIDEND U/S.2(22)(A) OF THE ACT IN A.Y. 2006-07. LD CIT(A) HAS STATED THAT INTEREST FREE REFUNDABLE DEPOSITS WERE RECEIVED BY HPPL AGAINST THE ALLOCATION OF OCCUPANCY RIGHTS AND THEREFORE, THE RESOLUTION FOR THE ALLOCATION OF OCCUPANCY RIGHT IS MEANINGLESS TILL THE PAYMENT FOR OCCUPANCY RIGHTS IS MADE SUBSTANTIALLY. LD CIT(A) HAS STATED THAT MORE THAN 51% PAYMENT HAS BEEN MADE AND, THEREFORE, IT C AN BE SAID THAT SUBSTANTIAL PAYMENT HAS BEEN MADE IN THE PERIOD RELEVANT TO ASS ESSMENT YEAR 2006-07. THEREFORE, AO HAS CHOSEN THE CORRECT ASSESSMENT YEAR FOR MAKIN G THE ADDITION. HOWEVER, LD CIT(A) HAS FURTHER STATED THAT HPPL RETAINED THE OW NERSHIP OF THE ASSETS WITH ITSELF. SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 6 THE OCCUPANCY RIGHTS OF THE FLATS WHICH FORMED THE PART OF THE ASSETS WERE GIVEN TO THE SHAREHOLDERS AGAINST PAYMENT OF INTEREST FREE REFU NDABLE DEPOSIT ONLY AND IT CANNOT BE SAID THAT THERE WAS DISTRIBUTION OF ASSETS EITHER I N PART OR FULLY. THAT THE SHAREHOLDERS NEVER COULD TRANSFER THE FLAT IN THEIR OWN NAME AND HAD TO SURRENDER IT BACK TO THE COMPANY AND IN LIEU THEREOF TO RECEIVE BACK THE REF UNDABLE DEPOSIT. LD CIT(A) HAS STATED THAT THE ADDITION MADE BY AO U/S.2(22)(A) OF THE ACT CANNOT BE SUSTAINED. 12. HOWEVER, LD CIT(A) HAS HELD THAT ASSESSEE HAD R ECEIVED BENEFIT/PERQUISITE U/S.2(24)(IV) OF THE ACT ON ACCOUNT OF OBTAINING OC CUPANCY RIGHTS IN THE BUILDING. LD CIT(A) HAS PROCEEDED TO QUANTIFY THE BENEFIT AND HA S STATED THAT WHEN THE ASSESSEE SURRENDERED THE OCCUPANCY RIGHTS IN RESPECT OF THE PART OF ALLOTTED PREMISES, THE COMPENSATION OF RS.1000 PER SQ. FT WAS PAID BY HPPL . THEREFORE, ASSESSEE HAS RECEIVED THE VALUE OF BENEFIT FROM THE PREMISES @ RS.1000 PE R SQ. FT OF THE AREA OF THE OCCUPANCY RIGHTS THAT REMAINS WITH THE ASSESSEE. L D CIT(A) HAS STATED THAT ASSESSEE IS HAVING REMAINING AREA OF 3418 SQ. FT OUT OF WHICH 1 644 SQ. FT HAS BEEN ALLOTTED IN ASSESSMENT YEAR 2006-07 AND THE BALANCE AREA 1774 S Q. FT HAS BEEN ALLOTTED IN ASSESSMENT YEAR 2007-08. THEREFORE, LD CIT(A) DETE RMINED THE VALUE OF BENEFIT U/S.2(24)(IV) OF THE ACT AT RS.16,44,000/- FOR ASSE SSMENT YEAR 2006-07 AND OF RS.17,74,000/- FOR ASSESSMENT YEAR 2007-08 AND ADDE D 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 HEREINABOV E IN PARAS 4 & 5. 13. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT AS SESSEE RECEIVED OCCUPANCY RIGHTS IN THE BUILDING OF HPPL BY VIRTUE OF BEING A SHAREH OLDER 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 WE RE 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 ASSESSE E SUBJECT TO PAYMENT OF INTEREST FREE REFUNDABLE DEPOSIT OF RS.18,00,000 PER FLAT AND ALS O AGAINST HOLDING OF BLOCK OF 80,000 EQUITY SHARES PER FLAT. HE SUBMITTED THAT LETTER D ATED 25.3.2006 BY HPPL TO THE ASSESSEE, COPY PLACED AT PAGE 43 OF PB ONLY CONFIRM ED THE RIGHT OF THE ASSESSEE TO OCCUPY THE SAID FLAT. HE SUBMITTED THAT THERE WAS DISPUTE IN RESPECT OF FLAT NO.101 AND 201 IN BUILDING NO.2, WHICH HAS BEEN ALLOTTED TO TH E ASSESSEE AND SAME WAS RESOLVED IN ASSESSMENT YEAR 2006-07 AND, THEREFORE, SAID LETTER DATED 25.3.2006 WAS ADDRESSED TO SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 7 THE ASSESSEE. HE SUBMITTED THAT AO WITHOUT GOING I NTO THE FACTS OF THAT LETTER GRANTING OCCUPANCY RIGHTS TO THE ASSESSEE ON 25.3.2006. HAS ADOPTED THE MARKET VALUE OF THE PROPERTY AS PER STAMP DUTY RECKONER FOR THE ASSESSM ENT YEAR 2006-07 AND ADDED THE SAME U/S.2(22)(A) OF THE ACT. LD A.R. SUBMITTED TH AT SAID OCCUPANCY RIGHT WAS GIVEN TO THE ASSESSEE AS A SHAREHOLDER WITH REFUNDABLE INTER EST FREE SECURITY DEPOSIT WITH A RIGHT TO SELL. THE SAID RIGHT GIVEN TO THE ASSESSEE IS PERPETUAL AS ASSESSEE HAS A RIGHT TO SELL THE OCCUPANCY RIGHTS IN THE PREMISES TO A THIRD PAR TY AND, ACCORDINGLY, IT COULD BE CONSIDERED A RELEASE OF ASSETS BY HPPL TO THE ASSES SEE. LD A.R. SUBMITTED THAT LD CIT(A) IS NOT JUSTIFIED TO APPLY PROVISIONS OF SEC TION 2(24)(IV) OF THE ACT CONSIDERING OCCUPANCY RIGHT AS VALUE OF PERQUISITE/BENEFIT PROV IDED BY HPPL TO THE ASSESSEE AS SHAREHOLDER. HE SUBMITTED THAT IF THE RIGHT IS GIV EN IN PERPETUALITY, IT DOES NOT FALL IN SECTION 2(24)(IV) OF THE ACT AS IT TANTAMOUNTS TO R ELEASE OF ASSETS. HE SUBMITTED THAT THE ORDER OF LD CIT(A) TO CONSIDER OCCUPANCY RIGHTS AS AMENITIES U/S.2(24)(IV) IS NOT VALID AND THE SAME SHOULD BE SET ASIDE.89 14. ON THE OTHER HAND, LD D.R. SUBMITTED THAT AO IS JUSTIFIED TO CONSIDER THE OCCUPANCY RIGHTS AS DEEMED DIVIDEND U/S.2(22)(A) OF THE ACT BECAUSE ASSESSEE HAS GOT OCCUPANCY RIGHTS AS IF THE ASSESSEE BECAME OWNER O F THE SAID PART OF THE BUILDING WITH A SMALL AMOUNT OF SECURITY DEPOSIT. LD D.R. BY PLA CING RELIANCE ON LETTER DATED 25.3.2006 PLACED AT PAGE 43 OF PB, SUBMITTED THAT O CCUPANCY RIGHT HAS BEEN GIVEN TO THE ASSESSEE IN ASSESSMENT YEAR 2006-07 AND, THEREF ORE, AO HAS RIGHTLY TREATED THE VALUE OF OCCUPANCY RIGHT AS DEEMED DIVIDEND U/S.2(2 2)(A) OF THE ACT. 15. LD A.R. IN HIS REJOINDER, SUBMITTED THAT IF THE SAID OCCUPANCY RIGHT IS DEEMED DIVIDEND, IT CANNOT BE TAXED IN ASSESSMENT YEAR 200 6-07 AS THE RIGHT WAS GIVEN IN ASSESSMENT YEAR 2003-04 AND, THERE IS NO DISTRIBUTI ON OF ASSETS IN ASSESSMENT YEAR 2006-07. LD A.R. FURTHER SUBMITTED THAT IF IT IS CONSIDERED AS DEEMED DIVIDEND, SAID AMOUNT CANNOT BE TAXED IN VIEW OF PROVISIONS OF SEC TION 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 SUBMISSIO N, IF THE ADDITION IS TO BE MADE AS DEEMED DIVIDEND, IT SHOULD BE LIMITED TO PROPORTION ATE TO SHARE HOLDING OF THE ASSESSEE IN THE MAXIMUM ACCUMULATED PROFIT OF HPPL. SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 8 16. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. 17. WE OBSERVE THAT ASSESSEE IS A SHAREHOLDER OF HP PL, 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 INC ORPORATED ON 30.3.1992 TO CARRY ON REAL ESTATE BUSINESS WITH JITENDRA NAVNEETLAL MEHT A, ILA JITENDRA MEHTA AND SONAL SUDHIR MAJITHIA AS SHAREHOLDERS. THIS FAMILY OWNE D COMPANY HAD PURCHASED A LAND AT ANDHERI (W) AND HAD GIVEN OCCUPANCY RIGHTS TO ITS S HAREHOLDERS BASED ON THE NUMBER OF SHARES HELD BY THEM. LD CIT(A) HAS STATED THAT HPP L DECLARED THE SAID ASSETS AS FIXED ASSETS AND DISTRIBUTED THE SAME AMONGST SHAREHOLDER S TO AVOID TAX ON SALE OF ASSETS. AO FOUND THAT LETTERS GRANTING OCCUPANCY RIGHTS WER E GIVEN BY HPPL TO ITS SHAREHOLDERS ON 25.3.2006 AND THEREFORE, IT IS COVERED BY A.Y. 2 006-07 AND A.Y. 2007-08 AND WHEREAS ASSESSEE CONTENDED THAT OCCUPANCY RIGHTS WE RE GIVEN TO THE SHAREHOLDERS FOR THE YEAR ENDING ON 31.3.2002 AND IF THE PROVISIONS OF SECTION 2(22)(A) ARE APPLIED, NO ADDITION COULD BE MADE AS DEEMED DIVIDEND BECAUSE H PPL DID NOT HAVE ANY ACCUMULATED PROFITS AS ON 31.3.2002. HOWEVER, AO, AS MENTIONED HEREINABOVE, HELD THAT ASSESSEE BY ITS LETTER DATED 25.3.2006 HAS BEE N GRANTED OCCUPANCY RIGHTS TO ITS SHAREHOLDERS AND ADOPTED MARKET VALUE OF THE PROPER TY AS PER STAMP DUTY RECKONER AND ADDED THE SAME U/S.2(22)(A) OF THE ACT. LD CIT (A) HAS ALSO AGREED WITH THE FINDINGS OF AO THAT OCCUPANCY RIGHT WAS GIVEN BY HP PL TO ITS SHAREHOLDERS IN THE ASSESSMENT YEARS 2006-07 AND 2007-08. 18. AT THE TIME OF HEARING, OUR ATTENTION WAS DRAWN TO THE SAID LETTER DATED 25.3.2006 PLACED AT PAGE 43 OF PB. WE ON PERUSAL O F THE SAID LETTER AGREE WITH THE FINDINGS OF AUTHORITIES BELOW THAT OCCUPANCY RIGHTS OF THE PREMISES WERE GIVEN TO THE ASSESSEE IN THE ASSESSMENT YEAR 2006-07 AS SAID LET TER ADDRESSED TO THE ASSESSEE CATEGORICALLY STATES THAT HE HAS TO PAY INTEREST F REE REFUNDABLE DEPOSIT AMOUNT OF RS.18 LAKHS TOWARDS THE PROPORTIONATE LAND, CONSTRUCTION AND DEVELOPMENT COST. IT IS FURTHER STATED THEREIN THAT ASSESSEE IS LIABLE TO PAY MUNIC IPAL TAXES AND OTHER OUTGOINGS IN RESPECT OF FLAT FOR THE OCCUPANCY RIGHT IS GIVEN TO THE ASSESSEE EVERY MONTH. THE MUNICIPAL TAXES ARE ALSO TO BE PAID BY THE ASSESSEE . WE OBSERVE THAT IT IS ALSO STATED IN THE SAID LETTER THAT ASSESSEE IS ENTITLED TO TRANSF ER THE OCCUPANCY RIGHTS OF THE CONCERNED FLAT BY WAY OF SALE AND TRANSFER OF BLOCK OF SHARES AND CREATE THIRD PARTY RIGHTS SUBJECT TO SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 9 TRANSFEREE DEPOSITING WITH HPPL THE REQUIRED AMOUNT OF INTEREST FREE SECURITY DEPOSIT AND ASSESSEE SHALL ALSO BE ENTITLED TO GIVE POSSESS ION OF THE SAID FLATS TO ANY TRANSFEREE AND HPPL HAVE NO OBJECTION FOR THE SAME . IT IS EVIDENT THAT ASSESSEE HAS GOT THE OCCUPANCY RIGHT OF THE PREMISES BY WAY OF LETTER DT .25.3.2006. HENCE, THE AUTHORITIES BELOW HAVE RIGHTLY HELD THAT SAID OCCUPANCY RIGHT I S GIVEN TO THE ASSESSEE IN A.Y. 2006- 07 AND NOT IN EARLIER ASSESSMENT YEARS. 19. NOW QUESTION ARISES AS TO WHETHER GRANT OF SAI D OCCUPANCY RIGHT COULD BE CONSIDERED AS DEEMED DIVIDEND U/S.2(22)(A) OF THE A CT AS CONSIDERED BY THE AO OR IT IS TO BE CONSIDERED 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 W ELL AS BY DEPARTMENT, IT IS OBSERVED THAT ASSESSEE HAS DISPUTED IN ITS GROUND O F APPEAL THE FINDINGS OF LD CIT(A) TO HOLD THAT OCCUPANCY RIGHTS RECEIVED BY THE ASSESS EE IS BENEFIT U/S.2(24)(IV) OF THE I.T.ACT, 1961 AT RS.16,44,000 FOR ASSESSMENT YEAR U NDER 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 O F LD CIT(A) NOT TO ACCEPT THE FINDINGS OF AO THAT THE ADDITION IS TO BE MADE IN R ESPECT 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 OCC UPANCY 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 REPRESENT ATIVES OF PARTIES AND THE CONTENTS OF LETTER DATED 25.3.2006, AS MENTIONED HEREINABOVE , COPY PLACED AT PAGE 43 OF PB, WE OBSERVE THAT ASSESSEE HAS RECEIVED OCCUPANCY RIGHTS IN THE PREMISES ON PERPETUAL BASIS AND IN LIEU OF WHICH, ASSESSEE TO HOLD SHARES IN HP PL AND ALSO TO GIVE INTEREST FREE REFUNDABLE DEPOSIT OF RS.18 LAKHS TOWARDS PROPORTIO NATE LAND COST AND DEVELOPMENT COST. ASSESSEE IS ALSO ENTITLED TO TRANSFER THE OC CUPANCY RIGHTS BY WAY OF SALE AND TRANSFER OF BLOCK OF ASSETS AND CREATE THIRD PARTY RIGHTS SUBJECT TO TRANSFEREE DEPOSIT THE REQUIRED AMOUNT OF INTEREST FREE REFUNDABLE SECURIT Y DEPOSIT AND ASSESSEE THEREAFTER TO GIVE POSSESSION TO THE TRANSFEREE. THEREFORE, WE A RE OF THE CONSIDERED VIEW THAT LD CIT(A) IS NOT JUSTIFIED TO HOLD THAT IT IS PERQUISI TE BENEFIT GIVEN BY HPPL TO ITS SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 10 SHAREHOLDER AND NOT THE TRANSFER OF OCCUPANCY RIGHT S TO ITS SHAREHOLDERS. HENCE, WE AGREE WITH LD A.R. THAT PROVISIONS OF SECTION 2(24) (IV) OF THE ACT DOES NOT APPLY TO GRANT OF OCCUPANCY RIGHTS BY HPPL TO THE SHAREHOLDER, I.E . ASSESSEE HEREIN, ON THE FACTS OF THE CASE BEFORE US. 22. NOW COMING TO QUESTION AS TO WHETHER SAID GRANT OF OCCUPANCY RIGHTS COULD BE TREATED AS DEEMED DIVIDEND U/S.2(22)(A) OF THE ACT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 23. WE OBSERVE THAT ASSESSEE HAS GOT THE OCCUPANCY RIGHT IN PERPETUITY AS ASSESSEE CAN TRANSFER HIS OCCUPANCY RIGHTS OF THE PREMISES U NDER CONSIDERATION BY WAY OF SALE TO A THIRD PARTY SUBJECT TO CONDITION THAT TRANSFEREE IS TO DEPOSIT THE REQUIRED AMOUNT OF INTEREST FREE SECURITY DEPOSIT WITH HPPL. IT IS OB SERVED THAT THE CONSIDERATION TO BE RECEIVED BY THE ASSESSEE ON TRANSFER OF HIS OCCUPAN CY RIGHT IS NOT TO BE REFUNDED TO HPPL. IT IS ALSO OBSERVED THAT HPPL WILL HAVE NO O BJECTION FOR CREATING THIRD PARTY RIGHTS IN THE OCCUPANCY RIGHT GIVEN TO ASSESSEE. FURTHE R, DURING THE COURSE OF HEARING, LD A.R. ALSO SUBMITTED THAT HPPL HAS GIVEN OCCUPANCY R IGHTS IN THE PREMISES TO THE ASSESSEE PERPETUALLY AND, THEREFORE, IT IS TO BE CO NSIDERED RELEASE OF ASSETS BY HPPL. LD D.R. ALSO IN HIS SUBMISSION SUBMITTED THAT ASSESSEE HAS GOT IN GUISE OF OCCUPANCY RIGHTS FULL OWNERSHIP WITH SMALL AMOUNT OF SECURITY DEPOSI T AND, THEREFORE, IT IS TO BE CONSIDERED AS DEEMED DIVIDEND U/S.2(22)(A) OF THE A CT. SECTION 2(22)(A) ALSO PROVIDES THAT ANY DISTRIBUTION BY A COMPANY OF ACCUMULATED P ROFITS, WHETHER CAPITALIZED OR NOT, IF SUCH DISTRIBUTION ENTAILS THE RELEASE BY THE COMPAN Y TO ITS SHAREHOLDERS OF ALL OR ANY PART OF THE ASSETS, IT IS A DEEMED DIVIDEND. CONSIDERIN G ABOVE SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND THE CONTENTS OF LETT ER DATED 25.3.2006, WE ARE OF THE CONSIDERED VIEW THAT AO HAS RIGHTLY HELD THAT THE V ALUE OF FLATS RECEIVED ARE NOTHING BUT DIVIDEND GIVEN IN THE FORM OF ASSETS BY HPPL. HENC E, WE UPHOLD THE ORDER OF AO THAT SAID OCCUPANCY RIGHT OF THE PREMISES ALLOTTED BY HP PL TO ASSESSEE AMOUNTS TO DEEMED DIVIDEND U/S.2(22)(A) OF THE ACT. 24. NOW THE QUESTION ARISES AS TO WHETHER SAID DEEM ED 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 LE TTER DATED 25.3.2006, WHEREIN, IT IS SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 11 STATED THAT ASSESSEE HAS AGREED TO GIVE OCCUPANCY R IGHTS OF THE FIRST FLOOR OF RESIDENTIAL BUILDING BEARING NO.2, INTER ALIA, ON PAYMENT OF IN TEREST 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 AC TION OF AO TO CONSIDER THE MARKET VALUE OF THE SAID OCCUPANCY RIGHTS AS DEEMED DIVIDE ND IN THE ASSESSMENT YEAR 2006-07 IS IN ORDER AND NO INTERFERENCE IS CALLED FOR. HOW EVER, THE ISSUE AS TO WHETHER SAID DEEMED DIVIDEND COULD BE TAXED IN ASSESSMENT YEAR U NDER CONSIDERATION OR NOT WILL BE CONSIDERED BY THE AO AS PER PROVISIONS OF LAW AT TH E TIME OF GIVING EFFECT TO OUR ABOVE ORDER. 25. IN VIEW OF ABOVE, GROUNDS TAKEN BY ASSESSEE AS WELL AS DEPARTMENT ARE ALLOWED BY CONFIRMING THE ACTION OF AO AND REVERSING THE OR DER OF LD CIT(A) FOR ASSESSMENT YEAR 2006-07. 26. NOW WE TAKE UP CROSS APPEALS IN THE CASE OF SHA NTIKUMAR D MAJITHIA FOR ASSESSMENT YEAR 2007-08 AND CROSS APPEALS IN THE CA SE OF SMT SOBHANA MAJITHIA FOR ASSESSMENT YEAR 2006-07. 27. AT THE TIME OF HEARING, IT WAS SUBMITTED THAT T HE FACTS AND ISSUE INVOLVED IN ALL THESE APPEALS ARE IDENTICAL TO ASSESSMENT YEAR 2006 -07 IN THE CASE OF ASSESSEE SHANTIKUMAR D MAJITHIA AND WHATEVER DECISION IS TAK EN IN THOSE APPEALS WILL APPLY MUTATIS MUTANDIS TO CROSS APEPALS FOR ASSESSMENT YE AR 2007-08 IN THE CASE OF SHANTIKUMAR D MAJITHIA AND CROSS APPEALS IN THE CAS E SOBHANA MAJITHIA FOR ASSESSMENT YEAR 2006-07. 28. IN VIEW OF ABOVE SUBMISSIONS OF LD REPRESENTATI VES OF PARTIES AND FOR THE REASONS GIVEN BY US IN CROSS APPEALS IN THE CASE OF SHANTIK UMAR D MAJITHIA FOR ASSESSMENT YEAR 2006-07 IN PARAS 16 TO 25, WE CONFIRM THE ACTION O F AO AND REVERSE THE ORDER OF LD CIT(A) FOR ASSESSMENT YEAR 2007-08 IN THE CASE OF S HANTIKUMAR D MAJITHIA AND CROSS APPEALS FOR ASSESSMENT YEAR 2006-07 IN THE CASE OF SOBHANA MAJITHIA BY ALLOWING GROUNDS OF APPEAL TAKEN BY ASSESSEE AND DEPARTMENT. SHANTIKUMAR D MAJITHIA, SMT. SOBHANA MAJITHIA 12 29. IN THE RESULT, CROSS APPEALS FILED IN THE CASE OF ASSESSEE SHANTIKUMAR D MAJITHIA FOR ASSESSMENT YEARS 2006-07 AND 2007-08 AND CROSS APPEALS FILED IN THE CASE OF SOBHANA MAJITHIA FOR ASSESSMENT YEAR 2006-07 ARE AL LOWED. PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER, 2012 SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 19 TH OCTOBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),3, MUMBAI 4. COMMISSIONER OF INCOME TAX,CENT-1 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI