COMMISSIONER OF INCOME TAX-I, LUDHIANA V. M/S ARORA KNIT FAB PVT. LTD. HA-51, PHASE-VI, FOCA

ITA/14/2012

AI Insights

The case revolves around the interpretation and application of Section 2(22)(e) of the Income Tax Act, 1961, concerning deemed dividends. The Assessing Officer had added an amount of `1,12,44,952 as deemed dividend to the income of M/s Arora Knit Fab Pvt. Ltd. for the assessment year 2007-08, which was contested. The Commissioner of Income Tax (Appeals) and the Tribunal both found that the provisions of Section 2(22)(e) did not apply to the company as the shareholders did not meet the required shareholding thresholds in both the assessee company and the company from which the loans were taken. The High Court, upon reviewing the case, agreed with the lower authorities' interpretation and application of the law, leading to the dismissal of the revenue's appeal.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 718967 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 19-04-2012
• Assessment Year: misc
• Other Referred Cases: CIT v. Universal Medicare (P) Ltd., CIT v. Hotel Hilltop
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: RAJESH KATOCH
• Keywords: Deemed dividend; Income Tax; Scrutiny assessment; Shareholder assessment
• Section: 143(3); 2(22)(e); 260A

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 14 of 2012 (O&M) Date of Decision: April 19, 2012 Commissioner of Income Tax-I, Ludhiana …Appellant Versus M/s Arora Knit Fab Pvt. Ltd., Ludhiana …Respondent CORAM: CORAM: CORAM: CORAM: HON’BLE MR. JUSTICE M.M. KUMA HON’BLE MR. JUSTICE M.M. KUMA HON’BLE MR. JUSTICE M.M. KUMA HON’BLE MR. JUSTICE M.M. KUMAR R R R HON’BLE MR. JUSTICE HON’BLE MR. JUSTICE HON’BLE MR. JUSTICE HON’BLE MR. JUSTICE ALOK SINGH ALOK SINGH ALOK SINGH ALOK SINGH Present: Mr. Rajesh Katoch, Advocate, for the appellant. 1. To be referred to the Reporters or not? 2. Whether the Judgment should be reported in the Digest M.M. KUMAR, J. M.M. KUMAR, J. M.M. KUMAR, J. M.M. KUMAR, J. 1. The revenue-appellant has filed the instant appeal under Section 260A of the Income Tax Act, 1961 (for brevity, ‘the Act’), against the order dated 24.8.2011, rendered by the Income Tax Appellate Tribunal, Chandigarh Bench ‘B’ (for brevity, ‘the Tribunal’), passed in ITA No. 514/CHANDI/2011, in respect of Assessment Year 2007-08. The Tribunal has upheld the order of the Commissioner of Income Tax (Appeals), deleting the additions of `1,12,44,952/-, which were made by the Assessing Officer on account of deemed dividend under Section 2(22)(e) of the Act. 2. Brief facts of the case are that the assessee-respondent filed its return of income for the assessment year 2007-08 on 15.11.2007 declaring income of `29,65,142/-. The case was ITA No. 14 of 2012 (O&M) 2 selected for scrutiny and the assessment was completed under Section 143(3) of the Act at an income of `1,57,87,650/- on 29.12.2009, which included the addition of `1,12,44,952/-, made on account of deemed dividend under Section 2(22)(e) of the Act. The assessee-respondent challenged the order of the Assessing Officer, dated 29.12.2009, before the CIT (A). The appeal was allowed by the Commissioner holding that the provisions of Section 2(22)(e) of the Act would not apply. It has been observed that only the share holder can be assessed on account of deemed dividend and not the Company under Section 2(22)(e). In support of the aforesaid view the CIT (A) placed reliance on CIT CIT CIT CIT v. v. v. v. Universal Medicare (P) Ltd. Universal Medicare (P) Ltd. Universal Medicare (P) Ltd. Universal Medicare (P) Ltd., , , , (2010) 190 Taxman, 144 (Bom) (2010) 190 Taxman, 144 (Bom) (2010) 190 Taxman, 144 (Bom) (2010) 190 Taxman, 144 (Bom) and the view of the Rajasthan High Court in the case of CIT CIT CIT CIT v. v. v. v. Hotel Hilltop Hotel Hilltop Hotel Hilltop Hotel Hilltop, (200 , (200 , (200 , (2009) 313 ITR 116 (Raj) 9) 313 ITR 116 (Raj) 9) 313 ITR 116 (Raj) 9) 313 ITR 116 (Raj). 3. The CIT (A) further held that there cannot be any clubbing of different share holders such as individual, HUF, minor and wife. It has reached the conclusion that none of the share holder who is the beneficial owner of the share, holding not less than 10% of the voting power of the assessee company holds substantial interest in M/s AFPL (Arora Fabric Private Ltd.). Ms. Neena Arora is holding 58.84% share in the assessee company but she had only 9.32% shares in M/s AFPL, which is below 10%. Likewise, Ms. Harjit Kaur had 9.26% share holding in the assessee company, which is less than 20% and she has 63.54% share holding in AFPL. If the share holding in the assessee company is less than 20% then it cannot be said that the person has substantial interest in the company to whom loans and advances were given. The CIT (A), thus, concluded that the condition laid down in Section 2(22)(e) ITA No. 14 of 2012 (O&M) 3 with regard to minimum share holding by the share holder in the assessee company vis-a-vis M/s AFPL is not fulfilled. The share holding of different persons cannot be clubbed to decide the issue of fulfilling the conditions laid down in Section 2(22)(e) of the Act. On the basis of the aforesaid analysis, the CIT (A) allowed the appeal of the assessee-respondent and decided the matter against the revenue-appellant. 4. Feeling aggrieved, the revenue preferred appeal before the Tribunal, which has upheld the order of the CIT(A) holding that the Commissioner Appeals has recorded a categorical finding in para 4.3 of the appellate order that the basic conditions and ingredients postulated by Section 2(22)(e) of the Act with regard to minimum share holding by the share holders in the assessee company vis-a-vis M/s AFPL were not fulfilled and that the share holders of different holdings, cannot be clubbed to decide the issue of fulfillment of the conditions laid down therein. The Tribunal also approved the reasoning of the Commissioner Appeals that only the share holder can be assessed on account of deemed dividend and not the company under Section 2(22)(e) of the Act. 5. We have heard learned counsel for the revenue- appellant. During the course of hearing we asked a pointed question to the learned counsel for the revenue about the status of the judgments rendered by the Bombay High Court and Rajasthan High Court in the cases of Universal Medicare (P) Ltd. (supra) Universal Medicare (P) Ltd. (supra) Universal Medicare (P) Ltd. (supra) Universal Medicare (P) Ltd. (supra) and Hotel Hilltop (supra) Hotel Hilltop (supra) Hotel Hilltop (supra) Hotel Hilltop (supra) respectively, on which reliance has been placed by the Commissioner Appeals and the Tribunal. There was no satisfactory answer. Learned counsel has not been able to point ITA No. 14 of 2012 (O&M) 4 out that the assessee-respondent fulfilled the basic ingredients of Section 2(22)(e) of the Act so as to warrant addition of `1,12,44,952/- on account of deemed dividend. We find that no substantive question of law warranting admission of appeal would arise, particularly when the revenue-appellant has not challenged the judgments of Bombay and Rajasthan High Courts. The aforesaid interpretation of Section 2(22)(e) of the Act would not, therefore, be open to challenge. The appeal is wholly without merit. Dismissed. (M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) JUDGE JUDGE JUDGE JUDGE ( ( ( (ALOK SINGH ALOK SINGH ALOK SINGH ALOK SINGH) ) ) ) April 1 April 1 April 1 April 19 9 9 9, 201 , 201 , 201 , 2012 2 2 2 JUDGE JUDGE JUDGE JUDGE PKapoor "