My Home Industries Ltd., Hyderabad V. ACIT, Hyderabad

CO 3/HYD/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6599 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 23-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHANDRASEKARAN
• Assessee Lawyers: S RAMA RAO
• Keywords: Wholly owned subsidiary; Deemed dividend
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.230/HYD/2010 ASSESSMENT YEAR 2007-08 THE ACIT, CIRCLE 14 [2], HYDERABAD VS M/S MY HOME INDUSTRIES LTD., HYDERABAD (PAN AABCM 9480 C) APPELLANT RESPONDENT C.O. NO. 3/HYD/2010 ARISING OUT OF ITA NO.230/HYD/2010 ASSESSMENT YEAR 2007-08 M/S MY HOME INDUSTRIES LTD., HYDERABAD (PAN AABCM 9480 C) VS THE ACIT, CIRCLE 14 [2], HYDERABAD APPELLANT RESPONDENT ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI M.S.CHANDRASEKARAN DATE OF HEARING : 11.08.2011 DATE OF PRONOUNCEMENT : 12.10.2011 ORDER PER CHANDRA POOJARI, A.M. THIS APPEAL PREFERRED BY THE REVENUE AND THE CROSS OBJECTION IS DIRECTED AGAINST THE ORDER PASSED BY T HE CIT(A) II, HYDERABAD DATED 07-12-2009 AND PERTAINS TO THE ASSE SSMENT YEAR 2007-08. 2. THE GROUND RAISED BY THE REVENUE IS THAT THE CI T(A) ERRED IN ALLOWING THE APPEAL ONLY ON THE GROUND THAT M/S MY HOME POWER LTD., IS NOT A SHARE HOLDER OF THE MY HOME IN DUSTRIES LTD. FURTHER THE ASSESSEE HAS RAISED THE GROUND THAT THE CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THERE IS A C OMMON ITA NO.1233/H/2010 M/S MYM TECHNOLOGIES LTD., HYD. 2 SHAREHOLDER I.E. MY HOME CONSTRUCTIONS LTD., IS HAV ING SUBSTANTIAL INTEREST IN BOTH THE LENDING AND RECIPI ENT COMPANIES AS ON 31.3.2007 AS PER SECTION 2(22)(E) READ WITH E XPLANATION 3 OF THE IT ACT. 3. BRIEF FACT OF THE ISSUE ARE THAT THERE WAS A SUR VEY ON 2.1.2008 AT THE BUSINESS PREMISES OF THE ASSESSEE U /S 133A OF THE IT ACT. IT WAS NOTICED BY THE ASSESSING OFFICE R THAT THE ASSESSEE HAD ADVANCED AN AMOUNT OF RS.18,00,09,978/ - TO M/S MY HOME POWER LTD. ACCORDING TO ASSESSING OFFICER, THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT IS APP LICABLE. ON APPEAL, THE CIT(A) OBSERVED THAT THERE IS A PEAK AD VANCE OF RS.17,19,67,195/-. IT IS ALSO OBSERVED THAT M/S MY HOME POWER LTD., I.E. RECIPIENT COMPANY IS 100% SUBSIDIA RY OF THE ASSESSEE COMPANY AND M/S MY HOME POWER LTD. IS NOT A SHARE HOLDER IN THE ASSESSEE COMPANY AND THAT IT IS NOT A CONCERN IN WHICH THE SHARE HOLDER OF MY INDUSTRIES LTD., HAS A NY SUBSTANTIAL INTEREST. ACCORDINGLY, THE CIT (A) HEL D THAT THE PROVISIONS OF SECTION 2(22)(E) AND PROVISIONS OF SE CTION 194 SHOULD NOT BE APPLICABLE. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. THE CO FILED BY THE ASSESSEE IS SUPPORT IVE OF CIT(A) ORDER. 4. WE HAVE HEARD BOTH THE PARTIES. AS SEEN FROM TH E FACTS OF THE CASE, ASSESSEE HAS MADE PAYMENT OF RS. 18,00,09 ,978 TO M/S. MY HOME POWER LTD. AND RECEIVED RS. 10,59,22,6 84 ON VARIOUS DATES BETWEEN 01.04.2006 TO 31.03.2007. TH E PEAK OF THE DEBIT BALANCE WAS RS. 17,19,67,195. ADMITTED F ACT IS THAT, M/S. MY HOME POWER LTD., IS NOT SHAREHOLDER OF ASSE SSEE COMPANY. ON THE OTHER HAND, EXCEPT 100 SHARES OF MY HOME POWER COMPANY LTD, THE BALANCE SHARES OF MY HOME PO WER COMPANY LTD. ARE HELD BY THE ASSESSEE COMPANY. IN OTHER ITA NO.1233/H/2010 M/S MYM TECHNOLOGIES LTD., HYD. 3 WORDS THE RECIPIENT COMPANY M/S. MY HOME POWER COMP ANY LTD., IS 100% SUBSIDIARY COMPANY OF ASSESSEE COMPAN Y. IN VIEW OF THIS, THE RECIPIENT COMPANY IS NOT AT ALL SHAREH OLDER OF ASSESSEE COMPANY OR IT IS NOT A PERSON WHO IS BENEF ICIAL OWNER OF SHAREHOLDING NOT LESS THAN 10% OF THE VOTING POW ER OR NOT ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER N OR A PARTNER AND IN WHICH CASE ASSESSEE IS NOT HAVING SU BSTANTIAL INTEREST OR NOT A PAYMENT BY THE ASSESSEE TO SUCH C OMPANY ON BEHALF OF OR FOR THE BENEFIT OF ANY SUCH SHAREHOLDE R, THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT ARE NO T APPLICABLE WHEN THE PAYMENT IS MADE TO NON SHAREHOLDERS AND AC CORDINGLY THE PROVISIONS OF SECTION 199 OF THE IT ACT ARE NOT APPLICABLE. FURTHER, SIMILAR ISSUE HAD COME UP FOR CONSIDERATIO N IN THE CASE OF CIT VS. ANKITECH (P) LTD. (199 TAXMAN 341) (DE L.) WHEREIN IT WAS HELD THAT: THE INTENTION BEHIND THE PROVISIONS OF S. 2(220(E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDERS. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOA NS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH THE SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON T HE PRESUMPTION THAT THE LOANS OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. FURTHER, I T IS AN ADMITTED CASE THAT UNDER NORMAL CIRCUMSTANCES, SUCH A LOAN OR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREATED UNDER S. 2(22)(E). ONE HAS TO KEEP IN MIND THAT THIS LEGAL PROVISIONS RELATES TO DIVIDEND. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FICTION DOES NOT EXTEND TO SHAREHOLDER. KEEPING IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER S. 2(22)(E) WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP AND IS NOT TO BE EXTENDED FURTH ER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY WAY O F LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPAN Y IS SUPPOSED TO DISTRIBUTE THE PROFITS IN THE FORM O F ITA NO.1233/H/2010 M/S MYM TECHNOLOGIES LTD., HYD. 4 DIVIDEND TO ITS SHARE HOLDERS / MEMBERS AND SUCH DIVIDEND CANNOT BE GIVEN TO NON-MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER S. 2(22)(E) VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANCE IS ADMITTEDLY NOT A SHAREHOLDER/ MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER/ MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF DEEMING SHAREHOLDER, THEN THE LEGISLATURE WOULD HAVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDE R AS WELL, THAT HAS NOT HAPPENED. IN A CASE LIKE THI S, THE RECIPIENT WOULD BE A SHAREHOLDER BY WAY OF DEEMING PROVISION. IT IS NOT CORRECT ON THE PART O F THE REVENUE TO ARGUE THAT IF THIS POSITION IS TAKEN, TH EN THE INCOME IS NOT TAXED AS THE HANDS OF THE RECIPIENT. SUCH AN ARGUMENT BASED ON THE SCHEME OF THE ACT AS PROJECTED BY THE COUNSEL FOR THE REVENUE ON THE BASIS OF SS. 4, 5, 8, 14 AND 56 WOUL D BE OF NO AVAIL. SIMPLE ANSWER TO THIS ARGUMENT IS THAT SUCH LOAN OR ADVANCE, IN THE FIRST PLACE, IS N OT AN INCOME. SUCH A LOAN OR ADVANCE HAS TO BE RETURNED BY THE RECIPIENTS TO THE COMPANY, WHICH HAS GIVEN THE LOAN OR ADVANCE. PRECISELY, FOR THIS VERY REASO N, THE COURTS HAVE HELD THAT IF THE AMOUNTS ADVANCED ARE FOR BUSINESS TRANSACTIONS BETWEEN THE PARTIES, SUCH PAYMENT WOULD NOT FALL WITHIN THE DEEMING DIVIDEND UNDER S. 2(22)(E). INSOFAR AS RELIANCE UP ON CIRCULAR NO. 495, DT. 22 ND SEPTEMBER, 197 ISSUE BY CBDT IS CONCERNED SUCH OBSERVATIONS ARE NOT BINDING ON THE COURTS. ONCE IT IS FOUND THAT SUCH LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEND AT THE HANDS OF SUCH A CONCERN WHICH IS NOT A SHARE HOLDER, AND THAT IS THE CORRECT LEGAL POSITION, SUC H A CIRCULAR WOULD BE OF NO AVAIL. ASST. CIT VS. BHAUM IK COLOUR (P) LTD. (2009) 120 TTJ (MUMBAI) (SB) 865; (2009) 18 DTR (MUMBAI) (SB) (TRIB) 451; (2009) 118 ITD 1 (MUMBAI) (SB) APPROVED. 5. IN VIEW OF THE ABOVE JUDGEMENT AND HAVING REGARD TO THE FACTS OF THE PRESENT CASE, THE IMPUGNED PAYMENT MAD E BY THE ASSESSEE COMPANY TO M/S. MY HOME POWER COMPANY LTD. DOES NOT FALL UNDER THE PURVIEW OF SECTION 2(22)(E) OF T HE I.T. ACT, ITA NO.1233/H/2010 M/S MYM TECHNOLOGIES LTD., HYD. 5 1961. ACCORDINGLY, PROVISIONS OF SECTION 199 ARE NOT APPLICABLE. 6. IN THE RESULT, THE REVENUE APPEAL IS DISMISSED. THE CO FILED BY THE ASSESSEE BECOMES INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT 12 TH OCTOBER, 2011 SD/- G.C. GUPTA SD/- CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 12 TH OCTOBER, 2011 COPY FORWARDED TO: 1. THE ACIT, CIRCLE 16(2), HYDERABAD 2. M/S MYM TECHNOLOGIES LTD., 7-1-307/G/6, BEHIND YELLAMMA TEMPLE, BALKAMPET, HYDERABAD 3. THE CIT(A) -V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD TPRAO ITA NO.1233/H/2010 M/S MYM TECHNOLOGIES LTD., HYD. 6