Expenses incurred on developing and maintaining land in connection with real estate activity & its deduction against forfeited amount

short Overview: There was also no dispute with regard to the fact that assessee had incurred expenses of Rs. 8.50 lakhs on development and maintaining the land and gross receipts of Rs. 100 lakhs, being advance amount forfeited, had  also arisen in respect of the very same land. Hence, there was merit in the contentions of  assessee that the development/maintenance of land is related to the real estate activity carried on by  assessee and  above said amount of Rs. 100 lakhs was also received out of  said activity only. Accordingly, assessee was entitled to claim deduction of Rs. 8.50 lakhs against gross receipts of Rs. 100 lakhs and AO was not justified in making disallowance.

Assessee claimed deduction of expenses incurred for development of land. AO held the same to be of capital in nature. Assessee’s case was that he was not the owner of land on which impugned expenditure was incurred and assessee had undertaken to sell land belonging to other person and accordingly he had entered into an agreement to sell the land with one ‘D’ as representative of the owner of the land and said activities carried on by assessee could only be considered as real estate activity carried on by assessee, therefore, question of treating impugned expenditure as capital did not arise. 

Ti is held that: There was also no dispute with regard to the fact that  assessee had incurred  expenses of Rs. 8.50 lakhs on  development and maintaining the land and  gross receipts of Rs. 100 lakhs, being  advance amount forfeited, had  also arisen in respect of the very same land. Hence, there was merit in the contentions of assessee that the development/maintenance of land is related to the real estate activity carried on by  assessee and  above said amount of Rs. 100 lakhs was also received out of  said activity only. Accordingly, assessee was entitled to claim deduction of Rs. 8.50 lakhs against gross receipts of Rs. 100 lakhs and AO was not justified in making disallowance.

Decision: In assessee’s favour.

IN THE ITAT, BANGALORE BENCH

B.R. BASKARAN, A.M. & BEENA PILLAI, J.M.

S.K. Bhaskar Raju v. Addl. CIT

ITA Nos. 1828 & 1829/Bang/2016

1 October, 2019

Appellant by: V. Srinivasan, Advocate

Respondent by: R.N. Siddappaji, Addl. CIT

B.R. Baskaran, A.M.

Both the appeals filed by the assessee are directed against the orders passed by learned Commissioner (Appeals)-6, Bengaluru and they relate to the assessment years 2007-08 and 2011-12. Both the appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.

2. The assessee is an individual and is deriving income from salary, rent and business.

3. We shall first take up the appeal filed for assessment year 2007-08. The assessee is challenging the order of learned Commissioner (Appeals) in confirming the validity of rectification order passed by the assessing officer under section 154 of the Act and also in confirming the addition made therein.

4. The facts relating to the above said issue are stated in brief.

The assessee filed his return of income for assessment year 2007-08 on 15-2-2008 and the same was processed under section 143(1) of the Act on 1-7-2008. In the return of income, the assessee had offered “other income” of Rs. 91.50 lakhs. The assessee had declared gross receipt of Rs. 100.00 lakhs and after deducting expenses of Rs. 8.50 lakhs, he had offered Rs. 91.50 lakhs as ‘other income’.

5. The facts relating to the above said ‘other income’ are stated in brief. The assessee owned certain lands at Kattigenahalli, Veersandra Village, Bangalore. He took the responsibility to sell adjacent land belonging to some other person admeasuring 12.50 acres. The assessee developed the adjacent land by incurring expenses towards cleaning the same, putting fencing, paying watchman salary, legal fees etc., aggregating to Rs. 8.50 lakhs. It is stated that the assessee incurred those expenses in order to make the land attractive and also to put it in saleable condition. The assessee identified a buyer named D.K. Sarma and entered an agreement with him and received a sum of Rs. 100 lakhs as advance from him. However, the proposed purchaser D.K. Sharma could not complete the sale transaction and hence the assessee forfeited the above said advance amount of Rs. 100 lakhs and the same was taken as his income. After deducting the expenses of Rs. 8.50 lakhs spent on development and other expenses, the assessee offered the remaining amount of Rs. 91.50 lakhs as his income.

6. Subsequently, the assessing officer reopened the assessment by issuing notice under section 148 of the Act. The assessing officer completed the re-opened assessment on 10-12-2009 by making an addition of Rs. 27,325 to the returned income. During the course of the reassessment proceedings, the assessing officer did not doubt with the claim of Rs. 8.50 lakhs made by the assessee against the gross receipts of Rs. 100 lakhs.

7. The revenue carried out search and seizure operations in the hands of a company named M/s Ind-Sing Developers Pvt. Ltd. on 26-8-2008. During the course of search, certain documents belonging to the assessee were seized and hence the assessment for assessment year 2007-08 was again reopened under section 153C of the Act. The assessing officer completed the above assessment on 16-12-2010, wherein also the assessing officer did not doubt with the claim of Rs. 8.50 lakhs made by the assessee.

8. Thereafter, the assessing officer initiated rectification proceedings under section 154 of the Act on 8-3-2012 and issued a Notice, dated 9-3-2012 to the assessee. The assessing officer mentioned in the notice that the development expenses of Rs. 8.50 lakhs is capital in nature and hence the same is proposed to be disallowed. It was also mentioned that the assessee has incurred expenses on the lands not owned by him and hence the same cannot be allowed as deduction in the hands of the assessee.

9. Before the assessing officer, the assessee submitted that he is not the owner of land and he has undertaken responsibility to sell the land as a broker. Accordingly he has incurred expenses of Rs. 8.50 lakhs in relation to the above said land in the capacity of broker.

Accordingly he submitted that the above said expenditure is directly connected with the income of Rs. 100 lakhs earned by the assessee and hence the same is allowable as deduction. The above said explanations did not find favour with the assessing officer and accordingly the assessing officer passed the rectification order by disallowing the claim of Rs. 8.50 lakhs. The learned Commissioner (Appeals) also confirmed the same.

10. Before us, the learned A.R submitted that the assessing officer has completed the assessment of the year under consideration twice, i.e., once under section 148 of the Act and again under section 153C of the Act. The assessing officer has not found fault with the impugned claim. He submitted that the assessing officer was not correct in observing that the expenditure of Rs. 8.50 lakhs incurred by the assessee is capital in nature, since the assessee is not the owner of the land. He submitted that the assessee has undertaken responsibility to sell the land as a broker and accordingly incurred the above said expenses of Rs. 8.50 lakhs in his capacity as broker. Hence those expenses are related to the real estate activity carried on by the assessee and hence the same is deductible as expenses related to the real estate income. He further submitted that, in any case, the view entertained by the assessing officer is debatable one and hence the same cannot be considered as mistake apparent from record as held by Hon’ble Supreme Court in the case of T.S. Balaram ITO v. Volkart brothers, (1971) 82 ITR 50 (SC) : 1971 TaxPub(DT) 0355 (SC). Accordingly he submitted that the impugned rectification proceedings is liable to be quashed.

11. The learned D.R, on the contrary, submitted that the assessee has not carried out any real estate activity as claimed. He has incurred expenses for development of land and hence the same was not related to the income of Rs. 100 lakhs declared by the assessee, which represented forfeiture amount of land advance. Accordingly he submitted that there was no relationship between the expenses and the income offered by the assessee. Accordingly, the Commissioner (Appeals) was justified in upholding the disallowance.

12. We heard rival contentions and perused the record. There is no dispute with regard to the fact that the assessee was not the owner of land on which the impugned amount of Rs. 8.50 lakhs was spent. Hence the question of treating the same as Capital expenditure does not arise. The assessee has undertaken to sell the land belonging to other person and accordingly he has entered into an agreement to sell the land with a person named D.K. Sharma, admittedly, as representative of the owner of the land. In our view, the above said activities carried on by the assessee can only considered as real estate activity carried on by the assessee.

There is also no dispute with regard to the fact that the assessee has incurred the expenses of Rs. 8.50 lakhs on the development and maintaining the land and the gross receipts of Rs. 100 lakhs, being the advance amount forfeited, was also arisen in respect of the very same land. Hence, we are of the view that there is merit in the contentions of the assessee that the development/maintenance of land is related to the real estate activity carried on by the assessee and the above said amount of Rs. 100 lakhs was also received out of the said activity only. Accordingly, we are of the view that the assessee is entitled to claim deduction of Rs. 8.50 lakhs against the gross receipts of Rs. 100 lakhs. Hence we are of the view that the learned Commissioner (Appeals) was not justified in confirming the disallowance of Rs. 8.50 lakhs.

13. We also find merit in the alternative contentions of the assessee that the issue relating to deduction of Rs. 8.50 lakhs against the gross receipts of Rs. 100 lakhs is a debatable issue and hence the same is outside the scope of rectification proceedings.

Accordingly the impugned orders are liable to be quashed on this ground also.

14. In view of the foregoing, we set aside the orders passed by the tax authorities.

15. We shall now take up the appeal filed for assessment year 2011-12.

During the course of assessment proceedings, the assessing officer noticed that the assessee herein is a substantial share holder in a closed held company namely M/s. B & B Infrastructure Ltd.

From the Balance Sheet of the assessee, the assessing officer noticed that the assessee has to receive Rs. 29.72 lakhs from the above said company. When questioned about this, the assessee furnished current account copy of transactions entered between the assessee and the above said company. From the scrutiny of the above said ledger copy, the assessing officer noticed that the assessee has received Rs. 100 lakhs from the above said company on 19-4-2010 and the same was repaid on 12-6-2010. When the assessing officer asked the assessee to explain as to why the above said amount of Rs. 100 lakhs should not be taxed as deemed dividend under section 2(22)(e) of the Act, the assessee submitted that the same was a business transaction and more in the nature of reimbursements. Accordingly, the assessee submitted that the above said amount is not loan/advance attracting the provisions of section 2(22)(e) of the Act. The assessing officer did not accept the submission of the assessee and accordingly taxed Rs. 100 lakhs as deemed dividend under section 2(22)(e) of the Act.

16. Before learned Commissioner (Appeals), the assessee submitted that the assessee has given personal guarantee for loans taken by M/s B & B Infrastructure Ltd., which is mentioned in the term loan sanction letter. Accordingly it was submitted that the above said payment is in return to the guarantee given by the assessee. Accordingly it was submitted that it was not a simple loan contemplated under section 2(22)(e) of the Act. In this regard, the assessee placed his reliance on the following decisions :–

(a) Pradip Kumar Malhotra, (2012) 338 ITR 538 (Cal) : 2012 TaxPub(DT) 0496 (Cal-HC)

(b) CIT v. Creative Dyeing & Printing (P) Ltd., (2009) 318 ITR 476 (Delhi) : 2009 TaxPub(DT) 2060 (Del-HC)

(c) Bagmane Constructions (P) Ltd. & Ors. v. CIT, (2015) 119 DTR 49 (Kar) : 2015 TaxPub(DT) 2337 (Karn-HC)

The learned Commissioner (Appeals) was not convinced with the contentions of the assessee and accordingly he confirmed the addition.

17. The learned A.R submitted that the assessee has given personal guarantee to the loan taken by the assessee from Canara Bank.

Further the assessee is maintaining current account with the above said company, through which the financial transactions are entered between both the parties continuously. He submitted that the Hon’ble Karnataka High Court has held in the case of Bagmane Constructions (P) Ltd. (supra) that the provisions of section 2(22)(e) are not attracted to the loan or advance given in return to an advantage conferred upon the company by such shareholder. He submitted that an identical view has been expressed by Hon’ble Calcutta High Court in the case of Pradeep Kumar Malhotra (surpa).

18. The learned A.R submitted that, in the current account transactions, the outstanding balance shall always fluctuate, i.e., sometimes it may be debit balance and sometimes it may be credit balance. He submitted that the Hon’ble Punjab & Haryana High Court has held in the case of CIT v. Suraj Dev Dada, (2014) 367 ITR 78 (P&H) : 2014 TaxPub(DT) 3828 (P&H-HC) that the loan given through current account transactions could not be treated as deemed dividend under section 2(22)(e) of the Act. He submitted that the Kolkatta bench of ITAT has expressed identical view in the case of ITO v. Gayatri Chakraborty, (ITA No. 151/Kol/2013, dated 30-10-2015 : 2016 TaxPub(DT) 0586 (Kol-Trib).

Accordingly the learned A.R submitted that the learned Commissioner (Appeals) was not justified in confirming the addition made under section 2(22)(e) of the Act.

19. On the contrary, the learned D.R submitted that the provisions of section 2(22)(e) of the Act do not exclude current account transactions.

He submitted that the provisions of section 2(22)(e) shall be attracted the moment the assessee was allowed to make withdrawals. In this regard, he placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of Miss P Sarada v. CIT, (1998) 229 ITR 444 (SC) : 1998 TaxPub(DT) 1048 (SC).

20. We heard the rival submissions and perused the record.

There is no dispute with regard to the fact that the assessee is maintaining a current account/running account with M/s B and B Infrastructure Ltd. The assessing officer has extracted the same in page Nos. 8 and 9 of the asst. order. A perusal of the same would show that the assessee’s money is always lying with M/s B and B Infrastructure Ltd. Only the payment of Rs. 100 lakhs received by the assessee from the above said company has made the account balance of the assessee into a debit balance in the books of M/s B and B Infrastructure Ltd.

21. The submission of the assessee before the assessing officer was that the above said amount was received in the normal course of business.

Before the learned Commissioner (Appeals) the assessee also pointed out that he has given personal guarantee to the term long taken by the above said company from M/s Canara Bank.

22. At this juncture we would like to refer to principles laid down by Hon’ble High Courts in this regard. The Hon’ble Calcutta High Court in the case Pradeep Kumar Malhotra (supra) has made the following observations :–

“After hearing the learned counsel for the parties and after going through aforesaid provisions of the Act, we are of the opinion that the phrase by way of advance or loan” appearing in sub-clause (e) must be construed to mean those advance or loans which a shareholder enjoys for simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right it participate in profits) holding not less than ten per cent, of the voting power but if such loan or advance is given to such shareholder consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act. Thus, for gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder.”

23. The Hon’ble Karnataka High Court in the case of Bagmane Constructions Pvt. Ltd. (supra) has made following observations :–

24. Therefore, from the aforesaid judgments it is clear that the purpose of the insertion of sub-clause (e) of section 2(22) or the Act was to bring within the tax net accumulated profits which are distributed by closely held companies to his shareholders in the form of loans to avoid payment of dividend distribution tax under section 115-0 of the Act. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding payment of tax by having these companies pay or distribute money in the form of advance or loan. Loan or advance given to the shareholders or to a concern, under normal circumstances would not qualify as dividend. If such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, In such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the Individual benefit of such shareholder, in such an event, by the deeming provisions, such payment by the company is treated as dividend. It is so made by legal fiction created under section 2(22)(e) of the Act. Thus, the definition of dividend has been enlarged, and that loan or advances given under the conditions specified under this provision would also be treated as dividend.

Thus, for gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. The intention behind the provisions of section 2(22)(e) of the Act is to tax dividend in the hands of shareholders.”

24. A perusal of the above said observations would show that if the payment of loan or advance is given in return to the advantage conferred upon the company by such shareholder then the provision of section 2(22)(e) of the Act would not apply.

25. In the instant case it is the submissions of the assessee that he has provided personal guarantee to the above said company for the term loan taken by it and hence the above said payment of Rs. 100 lakhs given by the above said company to the assessee was short accommodation in return to the above conferred by the assessee to the above said company. He submitted that the above said loan was repaid within two months.

26. The learned AR also placed reliance on the decision rendered by Hon’ble P&H High Court in the case of Suraj Dev Dada to contend that the current account transactions are not covered by section 2(22)(e) of the Act. In the above said case, the Hon’ble High Court has observed as under :–

“The learned counsel for the Revenue argued that no reasons have been assigned while declining questions Nos. (i) and (ii), which are substantial questions of law and in view of the proviso to section 260A(4) of the Act, are required to be adjudicated by this court.

Accordingly, we proceed to decide questions Nos. (i) at ii (it) is well. It would be apposite to refer to the findings of the Commissioner (Appeals) and the Tribunal on questions Nos. (i) and (ii). The Commissioner (Appeals) with respect to questions Nos. (i) and (ii) had noticed as under :–

“4. I have gone through the the assessment order passed by the assessing officer and reply submitted by the counsel of the appellant. I am of the considered opinion that section 2(22)(e) of the Act is a deeming provision which assumes existence of certain facts if the conditions specified in a particular section are fulfilled. We agree that these provisions are to be construed strictly. This legal fiction has to be carried out to logical ends and not to illogical length. The copy of account of the appellant in the books of the company clearly shows that the appellant has running current account with the company and in fact the appellant had been advancing monies to the company as and when required for the purpose of business of the company. It was only for 55 days in between the year that balance of the appellant in books of account turned credit. It is beyond doubt that this section can be invoked to curtail to misuse of the funds belonging to a private limited company by its shareholders but not when there is running current account of the appellant with the company and the appellant has in fact for most the time lent the money to the company. This section had been inserted to stop the misuse of the taxing provisions by the assessee’s by taking the funds out of the company by way of loans or advances instead of dividends and thus avoid tax. But in this case where there is no such intention of the appellant and he had in fact advanced money to the company, credit in that account for some days cannot be treated as deemed dividend under section 2(22)(e). It is evident fact that the appellant in real sense not derived any benefit from the funds of the company and, therefore, by no stretch of imagination it can be said that the company has disbursed or given dividend to its shareholder/director in the guise of loan. It will be travesty of law to apply the provisions of section 2(22)(e) of the Act to the facts of the present case whether in fact the person concerned has not gained any benefit from the funds of the company and one has to consider the totality of the facts and circumstances of the case before applying the provisions of this section. Hence, the provisions of section 2(22)(e) could not be invoked when there is a genuine business transaction between the two entities and funds of the appellant-director were in fact lying with the company for most of the time.

4.1 In view of the above discussed position of the case, the addition made by the assessing officer is not sustainable and deserves to be deleted. Hence, the same is hereby deleted. Therefore, this ground of appeal of the appellant is allowed.”

The aforesaid findings were affirmed in appeal by the Tribunal.

From the above, it emerges that the Commissioner (Appeals) and the Tribunal had concurrently recorded that the assessee had running account with the company M/s. Dada Motors Pvt. Ltd. and had been advancing money to it. It was further observed that the provisions of section 2(22)(e) of the Act were not attracted in the present case as this provision was inserted to stop the misuse by the assessee by taking the funds out of the company by way of loan advances instead of dividends and thereby avoid tax. In the present case, the assessee had in fact advanced money to the company and there was credit for only 55 days for which the provisions of section 2(22)(e) of the Act could not be invoked. These findings were not shown to be erroneous or perverse in any manner.”

27. The Calcutta Bench of Tribunal has also considered an identical issue in the case of Gayatri Chakraborty (supra), wherein also an identical view has been taken. For the sake of convenience we extract below the operative portion of the order passed by the Kolkatta Bench of Tribunal.

“11. We have given a very careful consideration to the rival submissions. A copy of the ledger of the Assessee in the books of BAPL is placed at pages 41 to 46 of the Assessee’s paper book. A copy of the statement showing the balance after every transaction in the Assessee’s ledger in the books of BAPL is placed at page 47 to 52 of the Assessee’s paper book. The same is given as annexure to this order for better appreciation of facts.

12. A perusal of the statement of balances of transactions between the Assessee and BAPL shows that as on 2-4-2008 BAPL owed Assessee a sum of 1,95,000. BAPL paid the Assessee a sum of Rs. 2-4-2008 a sum of Rs. 21,05,000 and the Assessee owed BAPL a sum of Rs. 19,10,000. The amounts given in the bracket in the last column of the enclosed balances in the running current account is the amount which BAPL owed the Assessee. Mutual transactions go on in this fashion throughout the previous year and as on the last date of the previous year the account is squared i.e., neither the Assessee owes BAPL nor BAPL owes Assessee any sum. The Assessee was beneficiary of the sums given by BAPL at some point of time during the previous year and BAPL was the beneficiary of the sums given by the Assessee at another point of time during the previous year. It was therefore a case of mutual running or current account which created independent obligations on the other and not merely transactions which created obligations on the other side, those on the other being merely complete or partial discharge of such obligations. There were reciprocal demands between the parties and the account was mutual.

13. This tribunal in the case of Purushottam Das Mimani (supra) on identical facts came to the conclusion that the account between the Assessee and a public limited company was a running mutual current account and thereafter following the decision of the Hon’ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra) held as follows :–

“4. We have heard rival submissions and gone through facts and circumstances of the case. We have gone through the facts of the case and found from the perusal of ledger account of assessee in the books of account of Ganesh Wheat Products (P) Ltd., the lender company, it is seen that as on the first day of the relevant accounting year 2005-06 (assessment year 2006-07) opening balance is at Rs. 28,07,5841. Thereafter, on several dates during the entire financial year there were several transactions through cheques and some in cash by either parties, i.e. the assessee and the loan giving company, resulting in shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was in favour of Ganesh Wheat Products (P) Ltd.

The ledger of the assessee further reveals that no payment by loan creditor is followed by a repayment by the loan debtor and, in fact, the payments by the assessee and Ganesh Wheat Products (P) Ltd. are independent of one another.

No interest was charged by either side for advancing money on mutuality inasmuch as the loan account was a current account in nature. It is thus evident that there were reciprocal demands between the parties and thus mutual in characteristic. At the close of accounting year as on 31-3-2006, debit balance stood at a sum of Rs. 18,87,5221 which was duly reflected in the balance sheet under the head Loans & Advances.

Similarly, in respect of Mima Flour Mills opening balance was Nil and there were several shifting of balance and the resultant debit balance was Rs. 5,00,8331. For assessment year 2007-08, in respect of Mima Flour Mills, opening balance was Rs. 5,00,8331 and after shifting balance, the debit balance came to nil. In respect of Ganesh Wheat Products, opening balance was Rs. 18,87,5221 and after shifting balance the credit balance came to Rs. 9 lakhs. On perusal of the ledger account of the assessee in the books of M/s. Mima Flour Mills (P) Ltd. it is seen that on several dates there were shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was in favour of Ganesh Wheat Products (P) Ltd. It is thus evident that there were reciprocal demands between the parties and thus mutual in characteristic. The account so maintained in respect of such mutual transfer of amount by way of giving and taking financial assistance is, therefore, a current account and this current account is different from a loan account for the sole reason that feature of mutuality is not present in a loan transaction.

5. Here in the present case, from the facts narrated above, it is clear that both the parties are beneficiary of the transaction being current account of the above transactions i.e. shifting balances.

This issue has been answered by Hon ‘ble Calcutta High Court in the case of Pradip Kumar Maihotra v. CIT, (2012) 338 ITR 538 (Cal) : 2012 TaxPub(DT) 0496 (Cal-HC) wherein Hon ‘ble High Court held as under :–

“The phrase “by way of advance or loan” appearing in sub-clause (e) of section 2(22) of the Income Tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares (not being 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 the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder.”

From the above facts and legal proposition decided by Hon’ble jurisdictional High Court, it is clear that section 2(22)(e) of the Act was inserted to bring within the purview of taxation those amounts which are actually a distribution of profits but are disbursed as a loan so that tax thereon can be avoided. It is pertinent to note here that when dividends are declared by a company, it is solely the shareholders who benefit from the transaction. No benefits accrue to the company by way of dividend distribution. Thus, section 2(22)(e) of the Act covers only such situations, where the shareholder alone benefits from the loan transaction, because if the company also benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. In the case of the assessee, by giving and taking financial assistance from each other, both the assessee and the company were benefited and such transactions between them were nothing but commercial IT(SS)A No. 60-62 & 73-76/Kol/12011, assessment year 6-7 to 8-9 and 2-3 to 5-6, Purushottam Das Mimani v. DCIT, CC-V, Kol Page 5 transactions and dividend attributable to the shareholder is nothing to do with such business transaction. From the above discussions it can be said that section 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual by which both sides are benefited, it is undoubtedly outside the purview of provisions of section 2(22)(e) of the Act. From the above, it is clear that the loan account differs from current account and the provisions of section 2(22)(e) of the Act, being a deeming section, cannot be applied to current account. In such circumstances, we delete the addition and this common issue of assessee’s appeals is allowed.”

14. We are of the view that in the present case also the transactions in question does not benefit the shareholder i.e., the Assessee alone and the results in no benefit to the Company BAPL. The loan account is different from a current account with a shareholder and the transactions between the Assessee and BAPL are in the nature of current account and provisions of section 2(22)(e) of the Act will not be applicable to the case of the Assessee. We therefore concur with the decision of the Commissioner (Appeals) and dismiss the appeal of the Revenue.”

28. In the instant case also, the assessee has maintained a current account/running account with the above said company and the outstanding balances were fluctuating during the course of hearing. We notice that, most of the time, the assessee’s money was lying with the above said company and only for a short period of about two months, the company’s money was available with the assessee. Hence the ratio of above said decisions can also be conveniently applied to the facts of the present case. Hence there is merit in the alternative contention of the assessee.

29. In view of the foregoing, we are of the view that the amount of Rs. 100 lakhs given to the assessee by the above said company cannot be considered as loan or advance within the meaning of provisions of section 2(22)(e) of the Act. Accordingly we set aside the order passed by the learned Commissioner (Appeals) on this issue and direct the assessing officer to delete the addition made under section 2(22)(e) of the Act.

30. In the result, both the appeals filed by the assessee are allowed.