VIR VIKRAM VAID, MUMBAI V. DCIT 10(2), MUMBAI

ITA 611/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55215 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH SR
• Keywords: Depreciation; Deemed dividend; Revenue expenditure; Capital expenditure
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI V.D.RAO, JUDICIAL MEMBER I.T.A.NO.611/MUM/2010 A.Y 2006-07 SHRI VIR VIKRAM VAID, 401, SHAM NIWAS, OPP. BASANT CINEMA, DR. C.G.ROAD, CHEMBUR, MUMBAI 400 074. PAN:AACPV 5267 A VS. DY. COMMISSIONER OF I.T. 10(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. ANIL SATHE. RESPONDENT BY : MR. SATBIR SINGH. SR. AR DATE OF HEARING: 10/08/2011 DATE OF PRONOUNCEMENT: 9/9/2011 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF T REATING THE EXPENDITURE OF RS.2.51 CRORE AS DEEMED DIVIDEND U/S .2[22][E] OR A PERQUISITE U/S.17[2][IV]. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE ASSESSING OFFICER OF NOT APPRECIATING THE FACT THAT THE APPEL LANT HAS NOT BENEFITED IN ANY WAY ON ACCOUNT OF THE EXPENDITURE INCURRED OF OFFSHORE HOOKUP & CONSTRUCTIONS SERVICES (INDIA) PV T. LTD. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THE TERMS O F ARRANGEMENT BETWEEN THE COMPANY AND THE APPELLANT IN REGARD TO THE CONSTRUCTION AND THE UTILIZATION THEREOF. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE ASSESSING OFFICER OF NOT APPRECIATING THE FACT THAT THE COMPA NY WHICH HAS INCURRED THE EXPENDITURE VOLUNTARILY PAID TAX ON RS .2.51 CRORE. 2. IN THIS CASE BRIEF FACTS ARE THAT ORIGINALLY THE RETURN OF INCOME WAS PROCESSED U/S.143[1]. LATER ON, SURVEY PROCEEDI NGS WERE TAKEN. DURING SURVEY IT CAME TO THE LIGHT THAT ASSESSEE IS AN EXECUTIVE ITA NO.611 OF 10 2 DIRECTOR OF OFFSHORE HOOKUP & CONSTRUCTION SERVICES [INDIA] PVT. LTD. [FOR SHORT OHCS (I) PVT. LTD. ] AND IS ALSO PROPRIE TOR OF OFFSHORE INTERNATIONAL SERVICES AND INSTAMAINT ENTERPRISE. I T WAS FURTHER NOTICED THAT ASSESSEE OWNS FACTORY PREMISES IN ITS PROPRIET ARY CONCERN OFFSHORE INTERNATIONAL SERVICES AT PLOT NO. W-146A MIDC, PAW ANCE, NAVI MUMBAI. IN THE OTHER PROPRIETARY CONCERN I.E. INSTA MAINT ENTERPRISE HE WAS OWNER OF ANOTHER FACTORY PREMISES AT PLOT NO.W- 168 MIC PAWANE, NEW MUMBAI. DURING THE SURVEY CERTAIN BILLS ETC. FO R PURCHASE OF MATERIALS AND OTHER EXPENSES INCURRED BY THE COMPAN Y I.E. OHCS (I) PVT. LTD. WERE FOUND. THESE EXPENSES WERE INCURRED FOR CONSTRUCTION OF SHEDS, IRON GATES AND SOME AIR CONDITIONING FACILIT Y IN THE SAID PREMISES. IT WAS ADMITTED THAT SUCH EXPENSES WERE A CTUALLY INCURRED AND IT WAS FURTHER STATED IN THE STATEMENT THAT ASS ESSEE HAD GIVEN THESE PREMISES ON RENT TO THE COMPANY. IT WAS ALSO ADMITTED THAT SUCH EXPENDITURE HAS BEEN WRONGLY CLAIMED IN THE HANDS O F THE COMPANY AND, THEREFORE, TOTAL CLAIM OF RS.2.51 CRORES ON SU CH EXPENDITURE IN THE HANDS OF THE COMPANY WAS WITHDRAWN. DURING ASSESSME NT OF THE ASSESSEE AO OBSERVED THAT ASSESSEE WAS HOLDING 76.2 6% OF EQUITY SHARES OF OHCS (I) PVT. LTD. AND ASSESSEE WAS ALSO WORKING AS AN EXECUTIVE DIRECTOR. THEREFORE, A SHOW CAUSE NOTICE WAS ISSUED AS TO WHY A SUM OF RS.2.51 CRORES SHOULD NOT BE TREATED A S DEEMED DIVIDEND. IN RESPONSE, VIDE LETTER DATED 9-1-2009 I T WAS STATED AS UNDER: ITA NO.611 OF 10 3 AS ALREADY STATED IN OUR EARLIER SUBMISSIONS, THE PROPRIETARY FIRMS OF THE ASSESSEE OFFSHORE INTERNATIONAL SERVIC E & INSTAMAINT ENTERPRISES HAVE STOPPED BUSINESS ACTIVITY SINCE LA ST 3 YEARS AND THE FACTORY SHEDS OWNED BY THESE FIRMS NAMELY W.146A & W-168 HAVE BEEN GIVEN ON LEASE TO OHCS (I) PVT. LTD. THE RENT RECEIVED FROM THE COMPANY HAS BEEN SHOWN IN THE RETURN OF INCOME OF T HE ASSESSEE. SINCE THE COMPANY WAS USING THESE SHEDS FOR ITS BU SINESS ACTIVITIES, IT WAS THE COMPANYS DECISION TO CARRY OUT CERTAIN ADDITIONS TO THESE SHEDS IN TERMS OF CIVIL WORKS, IRON GATES, CONTAINERS ETC. THE COMPANYS DECISION TO SPEND THE MONEY FOR ADDITIONS OF ASSETS AND ACCOUNT THE SAME IN ITS BOOKS WAS THEREFORE APT & P ROPER. HOWEVER, THE SAME WAS CHALLENGED BY THE CONCERNED OFFICIALS WHO CONDUCTED THE SURVEY U/S.133A. WITHOUT PREJUDICE TO HIS CONTE NTIONS IN THE MATTER AND IN ORDER TO BUY PEACE, THE ASSESSEE DECI DED TO OFFER THE SAME IN THE HANDS OF THE COMPANY AND PAY TAXES ON T HE SAME. HAVING MADE THE DECLARATION THE COMPANY PROMPTLY PA ID THE TAX AND THE INTEREST THEREON. THIS AMOUNT OF RS.2.31 CRORES WAS REMOVED FROM THE ALLOWABLE EXPENDITURE AND ADJUSTED IN THE ACCUMULAT ED PROFITS BY SHOWING THIS ADJUSTMENT BELOW THE LINE IN THE PROFI T & LOSS ACCOUNT. THE ASSESSEE HAVING PAID THE TAX THEREON RIGHTLY TH OUGHT IT FIT NOT TO ADD THE SAME IN THE BOOKS OF HIS PROPRIETARY FIRMS SINCE THESE ADDITIONS WERE EXCLUSIVELY FOR THE BENEFIT OF OHCS (I) PVT. LTD. WHO ARE CARRYING ON THEIR BUSINESS IN THE SAID PREMISES . FROM THE ABOVE GIVEN FACTS AND CIRCUMSTANCES IT IS CLEAR THAT AMOUNT WAS NOT EXPENDED BY THE COMPANY TO PASS ON A NY SPECIFIC BENEFIT TO THE ASSESSEE. THE ASSESSEE DID NOT DERIV E ANY SPECIFIC BENEFIT BY THE ADDITIONS TO THE FIXED ASSETS SINCE HE NEITHER ENHANCE HIS PERSONAL CAPITAL NOR CLAIMED ANY DEPRECIATION B ENEFIT ON THE ENHANCE VALUE OF HIS ASSETS. GIVING THE CONSIDERATION FOR THE FACTUAL CIRCUMSTA NCES AND THE SINCERITY OF THE ASSESSEE IT WILL NOT, IN OUR HUMBL E OPINION, HE APPROPRIATE TO ONCE AGAIN TAX THE SAID AMOUNT OF RS .2.31 CRORES IN THE INTEREST OF JUSTICE AND EQUITY. WE THEREFORE SINCERELY REQUEST YOU TO DROP YOUR PR OPOSAL TO TAX RS.2.31 CRORES IN THE HANDS OF THE ASSESSEE AND COMPLETE THE PROCEEDINGS ACCORDINGLY. THE AO AFTER EXAMINATION OF THE ABOVE SUBMISSIONS O BSERVED THAT SAME WERE NOT TENABLE BECAUSE OHCS (I) PVT. LTD. PA ID FOR CONSTRUCTION/RE-CONSTRUCTION/RENOVATION OF FACTORY BUILDING FOR AND ON BEHALF OF THE ASSESSEE AND WRONGLY CLAIMED SUCH PAY MENT AS ITS OWN ITA NO.611 OF 10 4 EXPENDITURE IN ITS BOOKS OF ACCOUNTS. HE OBSERVED T HAT THOUGH ASSESSEE HAS WITHDRAWN SUCH CLAIM, BUT THE FACT REM AINED THAT PAYMENTS WERE MADE BY OHCS (I) PVT. LTD. AND CONSTR UCTION OF FACTORY BUILDING ETC., AND SUCH EXPENDITURE WAS NOT FOR THE BENEFIT OF THE COMPANY BUT WAS FOR THE BENEFIT OF THE ASSESSEE. TH E WITHDRAWAL OF CLAIM OF EXPENDITURE IN THE HANDS OF OHCS (I) PVT. LTD. WAS NOT OUT OF CHARITY BUT SAME WAS WITHDRAWN BECAUSE IT WAS WRONG LY CLAIMED. THEN HE REFERRED TO THE DEFINITION OF DEEMED DIVIDEND U/ S.2[22][E] AND CONCLUDED THAT EXPENDITURE INCURRED TOWARDS CONSTR UCTION MATERIAL AND LABOUR CHARGES OF THE FACTORY BUILDING WERE ON BEHA LF OF THE ASSESSEE AND, THEREFORE, SAME WERE TREATED AS DEEMED DIVIDEN D US/.2[22][E]. 3. ON APPEAL, THE LD. CIT[A] CONFIRMED THE ACTION OF THE AO. 4. BEFORE US, LD. COUNSEL OF THE ASSESSEE A GAIN NARRATED THE FACTS AND THEN REFERRED TO PAGE 19 OF THE PAPER BOOK WHIC H IS A COPY OF THE SCHEDULE OF FIXED ASSETS IN THE CASE OF INSTAMAINT ENTERPRISE AND POINTED OUT THAT ALL ASSETS WERE TRANSFERRED TO OHC S IN APRIL, 2005. THE CHART CLEARLY SHOWS THAT NO DEPRECIATION HAS BEEN C LAIMED BY INSTAMAINT ENTERPRISE. SIMILARLY, IN THE CASE OF OF FSHORE INTERNATIONAL SERVICES THE OTHER PROPRIETARY CONCERN, ALL ASSETS EXCEPT FOR LAND, HAD BEEN TRANSFERRED AT THE BOOK VALUE TO OHCS (I) PVT. LTD. HE POINTED OUT THAT ASSESSEE WAS LEFT WITH NO BUSINESS IN HIS PROPRIETARY CONCERNS AND BUSINESS HAS BEEN TRANSFERRED TO THE COMPANY. T HE PREMISES OF TWO FACTORIES WERE ALSO LET OUT TO THE COMPANY OHCS (I) PVT. LTD. THE SAID COMPANY HAS UTILIZED THOSE PREMISES AND, THERE FORE, NO BENEFIT ITA NO.611 OF 10 5 HAS BEEN DERIVED BY THE ASSESSEE. IN FACT, LATER ON IN 2010 THE ASSESSEE HAS EVEN APPLIED FOR TRANSFER OF LEASE TO THE COMPANY. HE THEN REFERRED TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD. [233 ITR 468]. IN THAT CASE ALSO ASSESSEE HAD TAKEN CERTAIN PREMISES ON LEASE. THE A SSESSEE DEMOLISHED THE OLD PREMISES AND CONSTRUCTED A NEW B UILDING. THE EXPENDITURE ON CONSTRUCTION OF SUCH BUILDING WAS HE LD TO BE ALLOWABLE AS REVENUE EXPENDITURE BECAUSE ASSESSEE DID NOT BEC OME THE OWNER OF THAT BUILDING. SIMILARLY, IN THE CASE OF SUNDERAM I NDUSTRIES LTD. VS. CIT [258 ITR 38] THE ASSESSEE WAS NOT THE OWNER OF COMM ERCIAL VEHICLES WHICH WERE SUPPLIED BY A PERSON IN CHASSIS FORM AND ASSESSEE CONSTRUCTED TRUCK BODIES AND ASSESSEE WAS HELD TO B E ENTITLED TO TO THE INVESTMENT ALLOWANCE ON SUCH TRUCK BODIES . THEREFORE, IN PRESENT CASE EVEN THE COMPANY HAS NOT CLAIMED SUCH EXPENDITURE A ND, THEREFORE, THERE CANNOT BE ANY QUESTION OF BENEFIT IN THE HAND S OF THE ASSESSEE. THE ONLY BENEFIT ASSESSEE IS GETTING IS RECEIPT OF RENT IN THE CAPACITY OF AN OWNER AND SALARY IN THE CAPACITY OF AN EXECUTIVE DIRECTOR. 5. THEN HE REFERRED TO THE PROVISIONS OF S EC.2[22][E] AND POINTED OUT THAT THE SECTION ITSELF STARTS BY THE EXPRESSIO N ANY PAYMENT BY A COMPANY. IN THE CASE BEFORE US, NO PAYMENT HAS BEE N MADE BY THE COMPANY TO THE ASSESSEE AND THE COMPANY FOR ITS OWN PURPOSES HAS MADE CERTAIN CONSTRUCTION/RENOVATION WHICH WAS UTIL IZED BY THE SAID COMPANY. AT BEST, IT IS ONLY A CASE OF A COMMERCIAL ARRANGEMENT, WHICH ITA NO.611 OF 10 6 IS NOT COVERED BY THE DEFINITION OF DEEMED DIVIDEND AND IN THIS REGARD HE RELIED ON THE FOLLOWING DECISIONS: A) JHAMU U. SUGHAND VS. DCIT 91 ITD 1 (MUM). B) NH SECUTIRIES LTD. VS. DCIT 11 SOT 302 [MUM]. C) CIT VS. CREATIVE DYING & PRINTING (P) LTD. 318 ITR 476 IN ANY CASE, IT IS SETTLED POSITION OF LAW THAT WHE N A DEEMING PROVISION IS INTRODUCED, SAME HAS TO BE CONSTRUED STRICTLY AN D IN THIS REGARD HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. AJAX PRODUCTS PVT.LTD. [55 ITR 741] AND ANOTHER FAM OUS DECISION OF HONBLE SUPREME COURT IN THE CASE OF K.P.VERGHESE V S. ITO 131 ITR 597]. HE ALSO SUBMITTED THAT IT IS VERY MUCH POSSIB LE THAT LAND CAN BE OWNED BY ONE PERSON AND BUILDING CAN BE OWNED BY AN OTHER PERSON AND IN THIS REGARD HE RELIED ON THE FOLLOWING DECIS IONS: I. CIT VS. FAZALBHOY INVESTMENTS COMMISSIONER. (P) LTD . 109 ITR 802 (BOM) II. SAKARCHAND CHAGANLAL VS. CONTROLLER OF ESTATE DUTY 73 ITR (GUJ) III. MUKESH MALHOTRA VS. DCIT 75 ITD 355 (PUNE) THUS, IN CASE BEFORE US ALSO ASSESSEE CANNOT BE CON STRUED AS OWNER OF THE STRUCTURE MADE BY THE OHCS (I) PVT. LTD., BECAU SE SAME WAS CONSTRUCTED BY THE COMPANY FOR ITS OWN BENEFIT AND FROM ITS OWN MONEY. 6. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT A O HAS ALSO OBSERVED THAT WITHOUT PREJUDICE TO SEC.2[22][E], TH E SAME IS TAXABLE AS PERQUISITES IN TERMS OF SEC.17(2)(III) & 17(2)(IV). HE ARGUED ASSESSEE HAS NOT RECEIVED ANY BENEFIT. HE POINTED OUT THAT C LAUSE (III) OF SEC.17[2] REFERS TO THE VALUE OF ANY BENEFIT OR AME NITY GRANTED OR ITA NO.611 OF 10 7 PROVIDED FREE OF COST AND THE ASSESSEES CASE CANNO T BE COVERED BY THIS CLAUSE. CLAUSE (IV) OF SEC,17(2) REFERS TO A S UM PAID BY AN EMPLOYER IN RESPECT OF ANY OBLIGATION WHICH BUT FOR SUCH PAYMENT WOULD HAVE BEEN PAYABLE BY THE ASSESSEE. IN THE CAS E BEFORE US, THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO CO NSTRUCT SUCH FACTORY PREMISES AND, THEREFORE, CLAUSES (III) & (IV) OF SE C.17(2) ARE NOT APPLICABLE AT ALL. 7. ON THE OTHER HAND, LD. DR SUBMITTED THAT OWNERSH IP OF THE LAND WAS WITH THE ASSESSEE AND, THEREFORE, CLEARLY CONST RUCTION ON SUCH LAND WOULD ALSO BE FOR THE BENEFIT OF THE ASSESSEE. HE V EHEMENTLY ARGUED THAT THIS FACT THAT SOME CONSTRUCTION WAS MADE WOUL D NOT HAVE COME TO THE KNOWLEDGE IN THE ABSENCE OF THE SURVEY. HE P OINTED OUT THAT NO EVIDENCE IS THERE TO SHOW THAT THERE WAS AN ARRANGE MENT WITH THAT THE COMPANY CAN CONSTRUCT THE PREMISES AND, THEREFORE, CLEARLY A BENEFIT HAS BEEN GIVEN TO THE ASSESSEE. 8. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE RE FERRED TO THE COPY OF THE STATEMENT RECORDED DURING THE SURVEY. H E PARTICULARLY INVITED OUR ATTENTION TO QUESTION NO.7 AND POINTED OUT THAT IT WAS VERY CLEARLY STATED THAT, IN FACT, THIS EXPENDITURE WAS WRONGLY BOOKED AND SHOULD HAVE BEEN CAPITALIZED. THIS CLEARLY SHOWS TH AT INTENTION WAS TO CAPITALIZE THE EXPENDITURE IN THE HANDS OF THE COMP ANY. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY IN THE LIGHT OF THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT TWO SAID FACTORY PREMISES HAVE BEEN LET OUT BY THE ASSESSEE TO OHCS (I) PVT. LTD. EVEN ITA NO.611 OF 10 8 THE RENTAL INCOME HAS BEEN DECLARED WHICH BECOMES C LEAR FROM THE COPY OF RETURN AND COMPUTATION WHICH IS FILED AT PA GES 12 TO 15 OF THE PAPER BOOK. NOW, ONCE THE PREMISES WERE LET OUT TO OHCS (I) PVT. LTD. AND THEY HAVE MADE CONSTRUCTIONS/RENOVATIONS, THEN HOW THAT COMPANY COULD HAVE DEALT WITH THE SAME IS ANSWERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SE RVICE P.LTD. [SUPRA]. IN THAT CASE ASSESSEE WAS CARRYING ON THE BUSINESS OF SALE OF MOTOR PARTS. UNDER AN AGREEMENT OF LEASE ASSESSEE O BTAINED CERTAIN PREMISES AT BANGALORE. IN THAT CASE ASSESSEE HAD TH E RIGHT TO DEMOLISH THE OLD BUILDING AND CONSTRUCT A NEW BUILDING AND, ACCORDINGLY, AFTER DEMOLISHING THE OLD BUILDING, THE NEW BUILDING WAS CONSTRUCTED. A QUESTION AROSE WHETHER THE EXPENDITURE INCURRED IN CONSTRUCTION OF SUCH OLD BUILDING WAS ALLOWABLE. THE HONBLE SUPREM E COURT OBSERVED THAT SINCE ASSESSEE WAS NOT THE OWNER OF THE BUILDI NG, THEREFORE, SUCH EXPENDITURE WAS ALLOWABLE. THIS DECISION HAS BEEN R ENDERED FOR A.Y 1966.67. PERHAPS BECAUSE OF THIS DECISION AN EXPLAN ATION WAS INSERTED IN SEC.32 BY TAXATION LAWS (AMENDMENT) & MISC. PROV ISIONS ACT,1986, W.E.F. 1988 WHICH READS AS UNDER: SEC.32 [ EXPLANATION 1. WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY H IM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY S TRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVA TION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIO NS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A B UILDING OWNED BY THE ASSESSEE. ITA NO.611 OF 10 9 FROM THE ABOVE, IT IS CLEAR THAT WHERE A BUSINESS I S CARRIED OUT FROM A BUILDING WHICH IS NOT OWNED BY THE ASSESSEE AND IN RESPECT OF WHICH AN ASSESSEE HOLDS LEASE RIGHTS, THEN CONSTRUCTION ON S UCH LEASED PROPERTY HAS TO BE TREATED AS CAPITAL EXPENDITURE. THUS, IT IS CLEAR THAT WHEN SOME CONSTRUCTION/RENOVATION WAS MADE BY OHCS (I) P VT. LTD. THEN THEY COULD HAVE PERHAPS CLAIMED THAT EXPENDITURE AS CAPITAL EXPENDITURE. IT WAS ORIGINALLY CLAIMED AS REVENUE E XPENDITURE BUT AFTER THE SURVEY OHCS (I) PVT. LTD. HAD WITHDRAWN THE CLA IM. THIS MEANS THE COMPANY HAD NOT CLAIMED FOR EXPENDITURE EITHER AS R EVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THEREFORE, WE F AIL TO UNDERSTAND HOW SOMETHING CAN BE TREATED AS BENEFIT IN THE HAND S OF THE ASSESSEE WHEN NO CLAIM HAS BEEN MADE BY THE ASSESSEE IN WHIC H ASSESSEE IS A SHAREHOLDER. 10. SEC.2[22][E] READS AS UNDER: SEC.2(22) DIVIDEND INCLUDES ( E ) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) 2 [MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SH AREHOLDER , BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT B EING 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 T HE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER O R A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN T HIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH CO MPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOL DER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULA TED PROFITS. AS POINTED OUT BY THE LD. COUNSEL OF THE ASSESSEE T HE SECTION STARTS WITH THE EXPRESSION ANY PAYMENT BY A COMPANY. IN THE CASE BEFORE ITA NO.611 OF 10 10 US, NO PAYMENT HAS BEEN MADE TO THE ASSESSEE. THE P AYMENT HAS BEEN MADE FOR PURCHASE OF MATERIAL WHICH HAS BEEN U SED FOR CONSTRUCTION/RENOVATION AND SUCH CONSTRUCTION/RENOV ATION HAS BEEN USED BY OHCS (I) PVT. LTD. AND, THEREFORE, SAME CAN NOT BE SAID TO BE FOR THE BENEFIT OF THE ASSESSEE. 11. IT IS SETTLED PRINCIPLE OF LAW THAT DEEMING PRO VISIONS HAVE TO BE CONSTRUCTED STRICTLY. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. AJAX PRODUCTS LTD. [SUPRA] HAS CLEARLY HELD AS UNDE R: INTERPRETATION OF STATUTES CHARGING PROVISION-ST RICT INTERPRETATION- SUBJECT IS NOT TO BE TAXED UNLESS THE CHARGING PROV ISION CLEARLY IMPOSES THE OBLIGATION- IF THE WORDS OF A STATUTE A RE PRECISE AND UNAMBIGUOUS, THEY MUST BE ACCEPTED AS DECLARING THE EXPRESS INTENTIONS OF THE LEGISLATURE. THUS, IT IS CLEAR THAT THE DEEMING PROVISION, PARTI CULARLY THE CHARGING PROVISION, HAS TO BE CONSTRUED STRICTLY. SIMILAR VI EW WAS TAKEN BY THE HONBLE SUPREME COURT IN THE CASE OF K.P.VERGHESE V S. CIT [SUPRA]. NOW, IN THE CASE BEFORE US, IT IS A CLEAR POSITION THAT ASSESSEE HAD GIVEN THE FACTORY PREMISES ON RENT TO A COMPANY IN WHICH ASSESSEE IS A SHAREHOLDER. THERE IS NO MATERIAL BROUGHT ON RECORD TO SHOW THAT THE CONSTRUCTION/RENOVATION WAS DONE IN THE SAID PREMIS ES AT THE INSTANCE OF THE ASSESSEE. AS POINTED OUT BY THE LD. COUNSEL OF THE ASSESSEE IN FACT ASSESSEE HAS TRANSFERRED ALL HIS BUSINESSES IN TWO PROPRIETARY CONCERNS TO OHCS (I) PVT. LTD. AND ALL THE BUSINESS IS BEING CARRIED ON BY OHCS (I) PVT. LTD. THEREFORE, IN NO CASE, ASSESS EE COULD HAVE DERIVED ANY BENEFIT FROM SUCH CONSTRUCTION/RENOVATI ON. THE ONLY BENEFIT POSSIBLE WAS IN THE FORM OF RENT WHICH HAS BEEN DULY RECEIVED ITA NO.611 OF 10 11 AND OFFERED FOR TAXATION. AT BEST, GIVING OF THE PR EMISES TO THE COMPANY AND THE COMPANY MAKING ALTERNATION/RENOVATI ON OR CONSTRUCTION CAN BE CALLED A COMMERCIAL ARRANGEMENT AND CANNOT BE BROUGHT UNDER THE SCOPE OF DEEMED DIVIDEND LU/S.2[2 2][E]. THEREFORE, WE ARE OF THE OPINION THAT EVEN IF THE CLAIM FOR EX PENDITURE INCURRED ON THE CONSTRUCTION/RENOVATION IN THE SAID PREMISES WA S WITHDRAWN BY OHCS, THAT DOES NOT MEAN THAT BENEFIT HAS FLOWN TO THE ASSESSEE. 12. THE AO HAS ALSO REFERRED TO THE PROVISIONS OF S EC.17[2] AND OBSERVED THAT IF THE ABOVE PAYMENT IS NOT DEEMED DI VIDEND, THEN SAME HAS TO BE CONSTRUED AS PERQUISITES AND HAS APPLIED CLAUSES (III) & (IV) OF SEC.17(2). SECTION 17(2) READS AS UNDER: SEC.17(2 ) PERQUISITE INCLUDES (I) (II) .. ( III ) THE VALUE OF ANY BENEFIT OR AMENITY GRANTED OR P ROVIDED FREE OF COST OR AT CONCESSIONAL RATE IN ANY OF THE FOLLOWIN G CASES ( A ) BY A COMPANY TO AN EMPLOYEE WHO IS A DIRECTOR THE REOF; ( B ) BY A COMPANY TO AN EMPLOYEE BEING A PERSON WHO HA S A SUBSTANTIAL INTEREST IN THE COMPANY; ( C ) BY ANY EMPLOYER (INCLUDING A COMPANY) TO AN EMPLO YEE TO WHOM THE PROVISIONS OF PARAGRAPHS ( A ) AND ( B ) OF THIS SUB- CLAUSE DO NOT APPLY AND WHOSE INCOME [UNDER THE HEA D SALARIES (WHETHER DUE FROM, OR PAID OR ALLOWED BY , ONE OR MORE EMPLOYERS), EXCLUSIVE OF THE VALUE OF ALL BENE FITS OR AMENITIES NOT PROVIDED FOR BY WAY OF MONETARY PAYME NT, EXCEEDS [FIFTY] THOUSAND RUPEES:] [ EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT THE USE OF ANY VEHICLE PROVIDED BY A COMPANY OR AN EMPL OYER FOR JOURNEY BY THE ASSESSEE FROM HIS RESIDENCE TO HIS OFFICE OR OT HER PLACE OF WORK, OR FROM SUCH OFFICE OR PLACE TO HIS RESIDENCE, SHALL N OT BE REGARDED AS A BENEFIT OR AMENITY GRANTED OR PROVIDED TO HIM FREE OF COST OR AT CONCESSIONAL RATE FOR THE PURPOSES OF THIS SUB-CLAU SE;] ITA NO.611 OF 10 12 ( IV ) ANY SUM PAID BY THE EMPLOYER IN RESPECT OF ANY OB LIGATION WHICH, BUT FOR SUCH PAYMENT, WOULD HAVE BEEN PAYABL E BY THE ASSESSEE; CLAUSE (III) DEALS WITH THE VALUE OF ANY BENEFIT OR AMENITY GRANTED OR PROVIDED FREE OF COST OR AT CONCESSIONAL RATE. IF W E LOOK AT THE INCOME TAX RULES, 1962 ALSO THEN WE FIND THAT SUCH AMENITY WOULD INCLUDE SAY, FOR EXAMPLE, PROVISION OF GAS OR PROVISION OF A CAR FOR PERSONAL USE ETC. THE PREMISES WHICH HAVE BEEN LET OUT TO OHCS ( I) PVT. LTD. ON WHICH CONSTRUCTION RENOVATION HAS BEEN MADE CANNOT BE TREATED AS BENEFIT OR AMENITY GRANTED FREE OR AT A CONCESSIONA L RATE TO THE ASSESSEE IN THE CAPACITY OF A DIRECTOR. SIMILARLY, CLAUSE (IV) DEALS WITH A SUM PAID BY THE EMPLOYER WHICH WOULD HAVE BEEN OTHE RWISE PAYABLE BY THE EMPLOYEE. THE ASSESSEE WAS UNDER NO DUTY TO CONSTRUCT THESE BUILDINGS AND THE COMPANY THAT ITS OWN BUSINESS HAD MADE CERTAIN CONSTRUCTION/RENOVATION AND, THEREFORE, SAME CANNOT BE CONSTRUED AS PAYMENT MADE FOR WHICH OTHERWISE ASSESSEE WAS UNDER OBLIGATION TO MAKE. THEREFORE, IN OUR OPINION, CLAUSES (III) & (I V) OF SEC.17(2) ARE CLEARLY NOT APPLICABLE. 13. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 9 /9/2011. SD/- SD/- (V.D.RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 9/9/2011.