CIT Vs. HOTEL HILLTOP

JUDGEMENT

(1.) THIS appeal by the revenue, against the judgment of the Tribunal dated 16.9.2004, was admitted vide order dated 29.3.2005, by framing following substantial questions of law: 1. Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in upholding the order of learned CIT(A) deleting the addition of Rs. 10 lakhs as deemed dividend under Section 2(22)(e) of the I.T. Act?

(2.) WHETHER the assessee firm whose partners holds 100% share in M/s. Hilltop Palace Hotels (P) Ltd. had received the payment of Rs. 10 lacs by way of security and not as an advance is perverse? 2. The necessary facts are, that a return was filed by the assessee (firm) M/s. Hotel Hilltop, 5, Ambavgarh, Udaipur, declaring income of Rs. 72,000/ - on 3.1.92. The case was taken under scrutiny, and notices were issued. It appeared that the assessee had shown liability of Rs. 12,46,058/ - under the head 'other liabilities', out of which, a liability to the extent of Rs. 10,87,747/ - pertained to M/s. Hilltop Palace (P) Ltd. It also transpired to the Assessing Officer, that this liability consist of Rs. 10 lacs, received as an advance against the security from the company, to the firm, under agreement to hand over the management of the firm hotel, to the company, and balance amount of Rs. 87,747/ - are of trade credits. The assessee, vide order -sheet dated 13.8.93, was asked to explain why the security of Rs. 10 lacs be not treated as dividend, under Section 2(22)(e) of the Income Tax Act, and added to the income of the firm. It is not in dispute that the amount of Rs. 10 lacs proceeded from the company to the firm. It is also not in dispute, that the shareholding pattern of the company is as under: Share holding pattern of M/s. Hilltop Palace Hotels (P) Ltd.(1) Shri Roop Kumar Khurana 23.33%(2) Smt.Saroj Khurana 4.67%(3) Vikas Khurana 22%(4) Deshbandhu Khurana 25%(5) Shri Rajiv Khurana 25%

(3.) THE assessing Officer, in these circumstances, found the amount to be deemed dividend, under Section 2(22)(e), and assessed it in the hands of the firm. This order was challenged in appeal, and the learned Commissioner found, that since the firm is not a shareholder of the company, the amount of Rs. 10 lacs cannot be assessed to tax under Section 2(22)(e), and thus, it was deleted.