Rent paid as Ordinary Business Transaction can’t be treated as Deemed Dividend: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the payment of rent as an ordinary business transaction cannot be treated as deemed dividend under the provisions of section 2(22)(e) of the Income Tax Act, 1961.

The assessee has let-out a joint property to the tenant company and has received advance as well as security deposit of the aforesaid amounts.

The assessing Officer noted that the assessee had received substantial amounts from three companies in which he was a Director and a substantial shareholder. He, therefore, treated the amount as deemed dividend.

He further rejected the claim of assessee because the amount of advance rent and security deposit is not mentioned in the rent agreement.

On second appeal, the tribunal observed that the rent has been offered for taxation and all transactions are through banking channel.

“Therefore, merely advance rent and security deposit is not mentioned in the rent agreement would not prove that assessee has not received the advance rent and security deposit from the tenant and let-out the property in question. Since the amount is paid as regards the tenanted premises, therefore, it is in normal ordinary transaction of letting out of property. Therefore, it could not be treated as loan or advance so as to attract the provisions of Section 2(22)(e) of the I.T. Act,” the Tribunal said.

Allowing the contentions of the assessee, the Tribunal held that “The explanation of assessee is substantiated that it was an ordinary business transaction and that small imprest amount was given to the assessee to incur expenditure on behalf of the Company. Therefore, provisions of Section 2(22)(e) would not be attracted in this case. Considering the totality of the facts and circumstances of the case noted above, it is clear that all the amounts in question have not been given to the assessee for his personal benefit but these amounts have been given for the benefit of the Company. These were ordinary business transactions and as such, would not attract the provisions of Section 2(22)(e) of the I.T. Act, 1961.”