Case Note & Summary
The case involves an appeal by the Commissioner of Income Tax against an order of the Income Tax Appellate Tribunal dated 9th September 2011. The respondent-assessee, Vir Vikram Vaid, held 76.26% equity shares of Offshore Hookup and Construction Services Pvt. Ltd. and was also an Executive Director. He owned certain premises which he let out to the company. The company incurred expenses on construction and renovation of these premises. The Revenue sought to treat these expenses as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961, arguing that the expenditure was for the benefit of the assessee. The Tribunal negated this claim. The High Court framed the question of law as whether the Tribunal erred in concluding that section 2(22)(e) was not attracted. The court analyzed the provision and held that for deemed dividend to apply, the payment or benefit must be for the benefit of the shareholder. In this case, the expenditure was incurred by the company on its own leased premises for its business purposes, and the benefit, if any, was to the company, not to the shareholder. The court found no error in the Tribunal's order and dismissed the appeal, upholding the Tribunal's decision.
Headnote
A) Income Tax - Deemed Dividend - Section 2(22)(e) - Expenditure by Company on Lessor's Property - The issue was whether amounts spent by a company on construction/renovation of premises owned by a majority shareholder and leased to the company could be treated as deemed dividend under section 2(22)(e). The court held that such expenditure, incurred for the company's own business purposes, does not fall within the ambit of deemed dividend as the benefit is not to the shareholder but to the company. The Tribunal's order negating the Revenue's claim was upheld. (Paras 1-8)
Issue of Consideration
Whether the expenditure incurred by a private limited company on construction/renovation of premises owned by a majority shareholder and leased to the company constitutes deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
Final Decision
Appeal dismissed; Tribunal's order upheld.
Law Points
- Deemed dividend under section 2(22)(e) requires that the payment or benefit be for the benefit of the shareholder
- not for the company's business
- expenditure by a company on leased premises owned by a shareholder does not constitute deemed dividend if the expenditure is for the company's own business purposes.
