Tuesday, December 18, 2012

A perpetual sole occupancy right given to a shareholder in a flat is deemed dividend

Transferable occupancy rights of a flat given to shareholders by a company on perpetual basis subject to deposit of a meagre sum, are deemed dividend under section 2(22)(a)
In the instant case, HPPL, a company had constructed a building and given occupancy rights of flats in the said building to its shareholders. The assessee ( i.e. one of the shareholder) got occupancy right of flat on deposit of certain sum towards proportionate cost of land and cost of construction. The AO held that distribution of occupancy rights should be considered as dividend under section 2(22)(a), and made addition under section 2(22)(a). However, the CIT (A) treated same as perquisite under section 2(24)(iv).

On appeal, the Tribunal held in favour of revenue as under:

1) The CIT (A) was not justified to hold that it was perquisite given by HPPL to its shareholders and not the transfer of occupancy rights to its shareholders. Hence, the provisions of section 2(24)(iv) would not apply to grant of occupancy rights by HPPL;

2) The assessee had got the occupancy rights in perpetuity as assessee could transfer his occupancy rights of the premises under consideration by way of sale to a third party subject to condition that transferee was to deposit the required amount of interest free security deposit with HPPL;

3) The consideration to be received by the assessee on transfer of his occupancy right was not to be refunded to HPPL. HPPL would have no objection for creating third party rights in the occupancy rights given to assessee; and

4) The AO had rightly held that the value of flats received was nothing but dividend given in the form of assets by HPPL. Hence, the decision of the AO, that said occupancy rights of the premises allotted by HPPL to assessee amounted to deemed dividend under section 2(22)(a), was upheld - Shantikumar D. Majithia v. Dy.CIT [2012] 28 taxmann.com 149 (Mumbai - Trib.)