Commissioner of Income Tax vs Satyanarayan Nuwal

The Respondent - Assessee is a proprietor of M/s Solar Explosives Transport, Nagpur and is engaged in a business of transportation of explosives. The Assessee holds 19.94% shares in M/s Solar Explosives Limited (For short, SEL) a Company in which the public are not substantially interested.

For the assessment year 2004-05, the assessing officer held that the amount of Rs. 73,39,572/- (Rs. 47,99,572 + 40,000/-) constituted deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 and added the same to the total income of the Assessee. The Commissioner (Appeal) partially allowed the appeal filed by the Assessee by deleting the addition of Rs. 25,00,000/- on the ground that the said amount paid by the SEL to the Assessee represented advance towards purchase of immovable property and therefore, falls outside the purview of Section 2(22)(e) of the Income Tax Act.

Being aggrieved by the aforesaid order both the Assessee and the revenue filed appeals before the Income Tax Appellate Tribunal, Nagpur Bench, Nagpur and the Tribunal by the impugned order dated 5-1-2009 dismissed the appeal filed by the revenue and partly allowed the appeal filed by the Assessee only to the extent of Rs. 17,00,000/-. Against the said order, the present appeal is filed by the revenue.

The first contention raised on behalf of the revenue is that the Tribunal committed an error in holding that the receipt of Rs. 25,00,000/- as advance towards sale of land falls outside the purview of Section 2(22)(e) of the Income Tax Act.

According to the revenue, there is no provision in the Income Tax Act for excluding such advances from the purview of Section 2(22)(e) of the Income Tax Act. The finding of fact recorded by the Tribunal is that by agreement dated 15-12-2003 the Assessee had agreed to sell a plot of land to SEL. As per that agreement, the Assessee had agreed to sell the land for a sum of Rs. 35,00,000/-, out of which a sum of Rs. 25,00,000/- were received by the Assessee on execution of the agreement and the balance were to be paid on completion of the sale-deed. There is no dispute that the sale-deed was executed on 26-2-2007 and the balance amount has been paid to the Assessee. It is pertinent to note that the assessment in the present case was completed on 28-12-2006 i.e. before execution of the sale-deed.

In the present case, the genuineness of the transaction is not disputed by the assessing officer. Section 2(22)(e) of the Income Tax Act provides that any advance or loan given by a Company in which public are not substantially interested, to its shareholders, constitutes deemed dividend. Where the amount is advanced by a Company towards part consideration of a property intended to be sold by the Assessee to the Company, it cannot be said that the Company has advanced money to its shareholders within the meaning of Section 2(22)(e) of the Income Tax Act, merely because the seller of the property happens to be the shareholder of the Company. In other words, where the amount is advanced towards part consideration of the immovable property, it cannot be said that the amount is advanced by a Company to its shareholders.

Therefore, in the fact of the present case, the decision of the Tribunal that payment of Rs. 25,00,000/- by the SEL to the Assessee towards part consideration of the sale of immovable property does not constitute deemed dividend u/s 2(22)(e) of the Income Tax Act cannot be faulted. The next contention of the revenue is that the Tribunal was not justified in holding that out of the advance amount of Rs. 47,99,572/-, the amount of Rs. 17,00,000/- represented advance towards transportation charges payable by the company to the Assessee. It is not in dispute that the Assessee is also transporting goods belonging to the SEL. In paragraph No. 12 of the judgment, the Tribunal has recorded a finding of fact that during the period from 1-4-2003 to 15.12.2003 the Assessee had transported the goods belonging to the Company without receiving any payment against such transportation. The Tribunal has further recorded a finding that the total amount outstanding on the relevant day was approximately Rs. 17,00,000/- and in those circumstances, it is quite natural that the Assessee to ask the Company - SEL to clear its outstanding bills and give some advance against the transportation work to be done.

In these circumstances, the finding recorded by the Tribunal that Rs. 17,00,000/- represented advance transportation charges being a finding of fact, no substantial question of law arises from the order of the Tribunal. Accordingly, we see no merit in the income tax appeal. The same is, hereby, dismissed.

No order as to costs.