CIT V. INTERNATIONAL LAND DEVELOPMENT PVT LTD

ITA/1296/2011

AI Insights

The case involves two appeals by the Revenue against the respondent, VETSUS International Land Development Pvt Ltd, concerning the applicability of Section 2(22)(e) of the Income Tax Act for the assessment years 2005-06 and 2007-08. The Revenue challenged the Tribunal's decision which had favored the respondent, asserting that the payments made were for business purposes and not loans or advances. The main legal contention was whether the payments constituted deemed dividends under Section 2(22)(e) of the Act. The Tribunal and the CIT (Appeals) had both found that the payments were made for business exigencies, a view supported by various precedents cited in the judgment.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 739812 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 02-02-2012
• Assessment Year: misc
• Other Referred Cases: CIT v. Ankitech Pvt. Ltd., CIT v. Ambassador Travels (P) Ltd., CIT v. Creative Dyeing & Printing (P) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: ABHISHEK MARATHA; ANSHUL SHARMA
• Keywords: Business exigencies; Deemed dividend; Income tax appellate tribunal; Shareholder
• Section: 2(22)(e); 20v2or(rA)

Judgement Text

"o/o $-3&4 * ilY THE HIGH COURT OF DELHI AT NEW DELHI + tTA 1296120rl & ITA r297l20lr CIT ..... APPellant Through: Mr. Abhishek Maratha, Sr. Standing with Ms. Anshul Sharma, Adv. VETSUS INTERNATIONAL LAND DEVELOPMENT PVT LTD ..... Respondent Through CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V.EASWAR ORDER 02.02.2012 These two appeals by the Revenue impugn a common order dated 6.5.2011 passed by the Income Tax Appellate Tribunal (tribunal, for short) in the case of IWs. International Land Development Pvt. Ltd. The appeals relate to assessment year 2005-06 and 2007-08. The Assessing Officer held that Section 2(22)(e) was applicable to the following payments:- Assessment Year 2005-06 Amounts paid as Reserves Ioans and advances supplies (i) ALM Infotech CiW (Pvt.) Ltd. Rs.5,50,000/- Rs.7,01,076l- Digitally Signed By:AMULYA Signature Not Verified (i) International Land Developers Ltd. Rs.3,15,5151- Rs.94,66,972/' (ii) ILD Trade Centre Rs.37,17,194L Rs.I,22,90,6681' (iii) Shri Alimuddin Rs.10,00,000/- (iv) Goldman Malls Pvt. Ltd. Rs.1,00,25,000/- (ii) Shri Alimuddin Rs.7,00,000/- Rs.1,16,86,2761- Assessment Year 2006-07 Further, the respondent-assessee had failed to deduct tax at source on the said loans/advances. Accordingly, orders were passed under Section 20v2or(rA). CIT (Appeals) accepted the stand of the respondent-assessee inter alia holding that lws. ALM Infotech clry (p) Ltd. and International Land Developer Ltd. were not shareholders of the respondent-assessee and therefore Section 2(22)(e) of the Act was not applicable. With regard to Alimuddin and Goldman Malls Pvt. Ltd. it was observed that both of them were shareholders of the respondent company but the payments made to them were for business exigencies/business purposes and therefore the deeming provisions were not applicable. No observations were made in respect to ILD Trade Centre. Revenue filed an appeal which has been dismissed by the impugned order. With regard to the loans/advances paid to IWs. ALM Infotech City (p) Ltd. and International Land Developer Ltd. it is an admitted case that both of them were not shareholders of the respondent-assessee. We may note here that IWs. ILD Trade Centres is a unit/division of IWs. ALM Infotech Crty (P) Ltd. and is not a separate or independent person under the Act. In view of the decisions of the Delhi High Court in CIT v. Ankitech pvt. Ltd. in ITA No.46212009 and the other connected matters decided on 11.05.2011 the aforesaid view taken by the Tribunal is correct. Section Z(22)(e) cannot be invoked because the respondent assessee and IWs. ALM Infotech City (P) Ltd. and International Land Developers Ltd., have common shareholders. Dividend is paid to shareholders and IWs. ALM Infotech City (p) Ltd. and International Land Developers Ltd. are not shareholders of the respondent assessee. We may also note that the tribunal has held that the payments made to l zlls. ILD Trade Centres were for purchase of shops/offices. With regard to payments made to Alimudin and IWs. Goldman Malls P 4. Ltd., the cIT (Appeals) has observed that both of them were shareholders of the respondent-assessee. However, as noticed above both the cIT (Appeals) and the tribunal have held that the payments made to them was for business exigencies/purposes and therefore cannot be treated as loans/advances. The aforesaid distinction for the purpose of Section 2(22)(e) has been recognized by the Delhi High Court and several other High Courts. (See CIT v. Ambassador Travels (P) Ltd., [2009] 318 ITR 376 (Del) and cIT v. creative Dyeing & Printing (P) Ltd., [2009] 318 ITR 476 (Del). Learned counsel for the appellant has submitted that the finding of the tribunaUClT (Appeals) that the payments were for business exigencies/purpose is incorrect and therefore these payments should be treated as deemed dividend. We are not inclined to accept the said contention. In the present case the Assessing Officer has submitted a remand report to the CIT (Appeals). In their remand reports the Assessing Officer had stated as under:- ,'The assessee has filed the copy of agreements and memorandum of undertaking executed by the parties and other connected papers beside order of the party for the relevant assessment year also filed. The assessee has also explained the business exigencies under which such amount were paid. The assessee has in support relied upon the decisions based on ITAT's Delhi bench in the case of Smt. Nigam Chawala reported as 28 SOT 503 (Delhi), Bombay oil Industries Ltd. 28 SOT 383 (Mumbai).\" The Assessing Officer did not dispute or contest the said contention of the respondent-assessee in the first appellate proceeding in the said remand report. In view of the aforesaid, we do not find any merit in the present appeal and the same are dismissed. 4 \"U7 lle | '' Lv SANJIV KIIAI A, J lrt tt t ?J*.-t ^ FEBRUARY 02,20L2 mm R.V.EASWAR, J "