D.Sachithanantham (HUF), CHENNAI V. DCIT, Tiruppur

CO 73/CHNY/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1150 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 29-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R KUMAR
• Assessee Lawyers: DR B NISCHAL
• Keywords: Depreciation; Deemed dividend; Condonation of delay

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A.NO . 975/MDS/2015 & C.O. NO.73/MDS/2015 (IN ITA NO.975/MDS/2015) ( / ASSESSMENT YEAR: 2011-12) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I, 121, 60 FEET ROAD, TIRUPUR VS MR. D.SACHIDANANTHAM(HUF) 43, PARASAKTHI KOIL STREET KONGU NAGAR, TIRUPUR-641 607. PAN:AABHD7353J ( /APPELLANT) ( /RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : DR.B.NISCHAL, JCIT /RESPONDENT BY : MR. R.KUMAR, ADVOCATE /DATE OF HEARING : 21 ST JULY, 2015 /DATE OF PRONOUNCEMENT : 11 TH SEPTEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THE APPEAL AND THE CROSS OBJECTION ARE FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, COIMBATORE DATED 23.12.2014 FOR THE ASSESSMENT YEAR 2011-12. 2. THE APPEAL OF THE REVENUE IS BARRED BY SEVEN DAY S. THE REVENUE FILED AN AFFIDAVIT EXPLAINING REASON TH AT DUE TO DELAYED RECEIPT OF THE MISCELLANEOUS RECORDS AND IN TERVENING HOLIDAYS THERE WAS A DELAY OF SEVEN DAYS IN FILING OF APPEAL AND PRAYS FOR CONDONATION OF DELAY. WE HAVE PERUSE D THE 2 ITA NO.975/MDS/2015 & C.O. NO.73/MDS/2015 REASONS AND ARE SATISFIED THAT THERE IS A REASONABL E CAUSE FOR THE DELAY IN FILING OF THE APPEAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY IN FILING OF THE APPEAL. THE PETI TION FOR CONDONATION OF DELAY IS ALLOWED AND THE APPEAL IS A DMITTED. 3. THE REVENUE CONTENDED IN ITS APPEAL THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN REDUC ING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTI ON 2(22)(E) OF THE ACT HOLDING THAT DEPRECIATION AS PER INCOME TAX ACT HAS TO BE REDUCED FROM COMMERCIAL PROFITS F OR THE PURPOSE OF COMPUTING DEEMED DIVIDEND. 4. ASSESSEE FILED CROSS OBJECTION CONTENDING THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT ACCEPTING THE ASSESSEES CONTENTION THAT THE ASSESS EE HUF NOT BEING SHAREHOLDER OF M/S. HOTEL JACLYN PVT. LT D. THE AMOUNT ADVANCED BY SUCH COMPANY TO THE ASSESSEE CAN NOT BE ASSESSED AS DEEMED DIVIDEND WITHIN THE MEANING O F SECTION 2(22)(E) OF THE ACT. 3 ITA NO.975/MDS/2015 & C.O. NO.73/MDS/2015 5. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS THAT THE ASSESSEE HUF IS NOT A SHAREHOLDER OF M/S. HOTEL JAC LYN PVT. LTD. THEREFORE AMOUNT ADVANCED TO THE ASSESSEE BY T HE COMPANY IS NOT ASSESSABLE AS DEEMED DIVIDEND AND T HE ISSUE IS SQUARELY COVERED BY THE DECISION OF MUMBAI SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. BHAU MIK COLOUR CO .PVT.LTD., WHEREIN IT WAS HELD THAT FOR T HE PURPOSE OF SECTION 2(22)(E) THE TERM SUCH SHAREHOLDER O CCURRING IN THE LAST LIMB MUST BE BOTH BENEFICIAL AND REGISTERE D SHAREHOLDER. COUNSEL FOR THE ASSESSEE ALSO PLACES RELIANCE ON THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. RAJENDRA KUMAR R.AHUJA, HUF VS. IT O IN ITA NO.3045/AHD/2010 DATED 03.08.2012 WHICH IS PLAC ED AT PAGE 10 OF THE PAPER BOOK AND ALSO THE DECISION OF JODHPUR BENCH OF THE TRIBUNAL IN THE CASE OF ASHOK KUMAR BOHRA(HUF) VS. DCIT IN ITA NO 440/JP/2011 DATED 20.10.2014, WHICH IS PLACED AT PAGE 25 OF THE PAPER BOOK. WITHOUT PREJUDICE TO THE ABOVE, COUNSEL FOR THE ASS ESSEE SUBMITS THAT WHILE COMPUTING DEEMED DIVIDEND ONLY DEPRECIATION AS CALCULATED AS PER INCOME TAX RULES HAS TO 4 ITA NO.975/MDS/2015 & C.O. NO.73/MDS/2015 BE REDUCED AND NOT DEPRECIATION COMPUTED UNDER COMP ANIES ACT. 6. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN HOLDING THAT AMOUNT RECEIVED B Y THE ASSESSEE FROM THE ASSESSEE HUF FROM M/S. HOTEL JACL YN PVT. LTD AS DEEMED DIVIDEND. 7. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE ASSESSEE HUF IS H AVING CURRENT ACCOUNT IN THE NAME OF ANGEL ZIPPEL DIVISIO N WITH THE COMPANY M/S. HOTEL JACLYN PVT. LTD. THE ASSESSEE IN HIS INDIVIDUAL CAPACITY IS A SHAREHOLDER OF M/S. HOTEL JACLYN PVT. LTD. THE ASSESSEE HUF IS NOT A SHAREHOLDER IN M/S. HOTEL JACLYN PVT. LTD. IT IS THE SUBMISSION OF THE ASSESS EE THAT IN VIEW OF THE CURRENT ACCOUNT MAINTAINED BY THE ASSES SEE HUF IN M/S. HOTEL JACLYN PVT. LTD. THERE ARE AMOUNTS DU E TO THE COMPANY BY ASSESSEE HUF AT ` 1,00,11,918/- AS ON 31.3.2011 AND AN AMOUNT OF ` 1,46,93,000/- IS DUE FROM THE COMPANY TO THE BUSINESS OF ASSESSEE HUF AS ON 31.3 .2011 WHICH IS IN THE NAME OF ANGEL ZIPPEL . THEREFORE, C OUNSEL SUBMITTED THAT THE ASSESSING OFFICER HAS CONSIDERED ONLY 5 ITA NO.975/MDS/2015 & C.O. NO.73/MDS/2015 AMOUNT DUE TO THE COMPANY AND NOT CONSIDERED THE AM OUNT DUE BY THE COMPANY TO HUF. HE SUBMITTED THAT IF BO TH THE AMOUNTS DUE TO THE COMPANY AND DUE BY THE COMPANY A RE CONSIDERED, PROVISIONS OF SECTION 2(22)(E) DOES NOT ATTRACT. THE ISSUE AS TO WHETHER THE ASSESSEE TAKEN LOAN FRO M THE COMPANY SHOULD BE A SHAREHOLDER OR NOT FOR THE PURP OSE OF TREATING THE AMOUNTS AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) HAS BEEN CONSIDERED BY THE VARI OUS BENCHES OF THE TRIBUNAL INCLUDING MUMBAI SPECIAL B ENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR CO.PVT.LTD. WH ICH WAS LATER AFFIRMED BY THE HONBLE BOMBAY HIGH COURT WH EREIN IT WAS HELD THAT PROVISIONS OF SECTION 2(22)(E) APPLY ONLY IF THE ASSESSEE SHAREHOLDER IS BOTH BENEFICIAL AS WELL AS REGISTERED SHAREHOLDER. IN THE CASE OF RAJENDRAKUMAR R.AHUJA HUF VS. ITO (SUPRA), THE AHMEDABAD BENCH OF THE TRIBUNAL H ELD AS UNDER:- 8. THE NEXT PLANK OF ARGUMENT OF THE APPELLANT IS THAT THE SHARES WERE NEITHER IN THE NAME OF THE ASSESSEE-HUF NOR I N THE NAME OF INDIVIDUAL, I.E. SHRI RAJENDRAKUMAR R.AHUJA. BUT AS PER THE ADMITTED FACT, THE SHARES WERE IN THE NAME OF THE F ATHER NAMELY, SHRI RAMKRISHNA AHUJA. IN THIS REGARD, WE HAVE PERU SED THE DECISION OF CP. SARATHY MUDALIAR (SUPRA), WHEREIN THE HON'BLE SUPREME COURT HAS OPINED THAT A 'SHARE-HOLDER' FOR THE PURPOSE OF SECTION 2(6A)(E) REFERS TO ONLY REGISTERED SHARE-HO LDER AND NOT BENEFICIAL OWNERS OF THE SHARES. RATHER, IT WAS OPI NED THAT SHARES 6 ITA NO.975/MDS/2015 & C.O. NO.73/MDS/2015 ACQUIRED BY MEMBERS OF HUF BY UTILIZING HUF FUNDS, THEN AN HUF CANNOT BE SHAREHOLDER OF THE COMPANY. I T WAS CONCLUDED BY THE HON'BLE COURT THAT IT WAS ONLY THE LOAN GRANTED TO THE MEMBERS WHO IN TURN WERE HOLDING THE SHARES. IN THIS REGARD, OUR ATTENTION HAS ALSO BEEN DRAWN ON THE DE CISION OF M/S.BHAUMIK COLOUR CO.PRIVATE LIMITED(SUPRA), WHERE IN THE RESPECTED SPECIAL BENCH HAS OPINED THAT FOR THE PUR POSE OF SECTION 2(22)( E) THE TERM 'SUCH SHAREHOLDER', OCCURRING IN THE LAST LIMB, MUST BE BOTH BENEFICIAL AND REGISTERED SHAREHOLDER. IN THAT CASE, IT WAS HELD THAT LOAN TO SHAREHOLDER VIS-A-VIS CONCERN IN WHICH SHAREHOLDER IS A MEMBER THEN DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE BORROWING CONCE RN IN WHICH SUCH SHAREHOLDER IS A MEMBER. KEEPING THAT LEGAL AS PECT IN MIND, THE HON 'BLE DELHI HIGH COURT IN THE CASE OF CRT VS . ANKITECH (P) LTD. (2011)57 DTR 345 (DELHI) HAS HELD THAT QUOTE ' THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FICTION DOES NOT EXTEND TO 'SHAREHO LDER'. KEEPING IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOU S, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER SECTION 2(22)( E) WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION H AS TO STOP HERE AND IS NOT TO BE EXTENDED FURTHER FOR BROADENI NG THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A CO MMON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS I N THE FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVID END CANNOT BE GIVEN TO NON-MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER S.2(22)( E) VIZ., A CONCERN (LIKE THE ASSESSEE HERE IN , 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. I F THE INTENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF 'DEEMING SHAREHOLDER', THE N THE LEGISLATURE WOULD HAVE INSERTED DEEMING PROVISION I N RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED.' UNQUOT E. RESPECTFULLY FOLLOWING THESE DECISIONS, WE HEREBY HOLD THAT BECA USE OF THIS LEGAL ASPECT AS WELL THE AO HAS WRONGLY INVOKED THE PROVI SIONS OF SECTION 2(22)(E) OF IT ACT IN THE HANDS OF THE ASSE SSEE. 8. SIMILARLY IN THE CASE OF A.K.BOHRA(HUF) VS. DCIT (SUPRA) THE JODHPUR BENCH OF THE TRIBUNAL HELD AS U NDER:- 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT LEGAL AND FACTUAL CONTENTIONS OF THE 7 ITA NO.975/MDS/2015 & C.O. NO.73/MDS/2015 ASSESSEE TO BE CORRECT. THE SHARES HELD BY SHRI ASH OK KUMAR BOHRA, WERE IN INDIVIDUAL CAPACITY AND HAD NO CONNECTION WITH THE ASSESSEE HUF. THE HUF CURRENT ETC WITH THE COMPANY IS NOT A LOAN A/C BESIDES MOST OF THE 'TIME HUF IS CREDITOR IN THE A/C. THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE DECISION OF HON'BLE APEX COURT IN FAVOUR OF THE ASSESSEE IN CASE OF CIT VS. C. P . SARATHY MUDALIAR, 8TITR 170 (SC) WHEREIN IT HAS BEE N HELD THAT SHAREHOLDER MUST BE REGISTERED SHAREHOLDE R AND NOT TO THE BENEFICIAL OWNER. THIS ISSUE STANDS FURTHER DECIDED BY THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP, 313 ITR 116 (RAJ .), HOLDING AS UNDER:- (I) THAT THE ASSESSEE WAS NOT SHOWN TO BE THE SHAREHOLDER OF THE COMPANY AND THE TWO INDIVIDUALS WHO WERE PARTNERS OF THE FIRM WERE THE MAJORITY SHAREHOLDERS OF THE COMPANY. THEREFORE THE SECURITY ADVANCED BY THE COMPANY TO THE ASSESSEE' COULD NOT BE DEEMED TO BE DIVIDEND AS THE ASSESSEE WAS NOT A SHAREHOLDER IN THE COMPANY. THE AMOUNT WAS PAID BY THE COMPANY TO THE ASSESSEE ON BEHALF OF THE INDIVIDUALS. THEREFORE, THE LIABILITY OF TAX AS DEE MED DIVIDEND COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS IN THE COMPANY. THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ORDER O F THE COMMISSIONER (APPEALS) DELETING THE ADDITION OF RS. 10 LAKHS MADE AS DEEMED DIVIDEND UNDER SECTION 2(22)( E) OF THE ACT.' 9. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE HO LD THAT ASSESSEE HUF IS NOT A REGISTERED SHAREHOLDER OF M/S . HOTEL JACLYN PVT. LTD. AND THEREFORE PROVISIONS OF SECTIO N 2(22)(E) OF THE ACT HAVE NO APPLICATION. SINCE WE HAVE HELD THA T PROVISIONS OF SECTION 2(22)(E) OF THE ACT HAVE NO A PPLICATION IN THE CASE OF THE ASSESSEE, WE REJECT THE GROUNDS RAISED BY 8 ITA NO.975/MDS/2015 & C.O. NO.73/MDS/2015 THE REVENUE AND ALLOW THE CROSS OBJECTION RAISED BY THE ASSESSEE. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2015. SD/- SD/- ( . ) ( ' )* ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) , / ACCOUNTANT MEMBER ) , / JUDICIAL MEMBER ) /CHENNAI, . /DATED 11 TH SEPTEMBER, 2015 SOMU 12 32 /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .