NAMITA V SAMANT, MUMBAI V. CIT CITY II, MUMBAI

ITA 1065/MUM/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2555 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 02-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHOK JHA
• Assessee Lawyers: N R AGARWAL
• Keywords: Capital asset; Source of fund; Question of law; Deemed dividend; Competent authority; Capital expenditure
• Section: 56; 263; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI PAWAN SINGH , J M ./ I.T.A. NO. 1065/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) NAMITA V. SAMANT, 405, RAHEJA CREST BUILDING NO.1, OFF LINK ROAD, OSHIWARA, ANDHERI(W), MUMBAI - 400 053 / VS. CIT, CITY - 11/ACIT - 11(3)(2), MUMBAI ./ ./ PAN/GIR NO. AAZPS 4624 B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI N. R. AGARWAL / RESPONDENT BY : SHRI ASHOK JHA / DATE OF HEARING : 21.4.2016 / DATE OF PRONOUNCEMENT : 18 .7.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) BY THE COM MISSIONER OF INCOME TAX - 11 , MUMBAI (CIT FOR SHORT) DATED 23.2.2016 SETTING ASIDE H ER ASSESSMENT FOR THE ASSESSMENT YEAR (A.Y.) 2011 - 12 VIDE ORDER DATED 14.2.2014 . 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, AND HER HUSBAND, SHRI VIVEK V. SAM ANT (V V S), BOTH INDIVIDUALLY HOLD SUBSTANTIAL VOTING POWER ( I.E., IN EXCESS OF 10%) DURING THE RELEVANT YEAR IN THREE COMPANIES IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERESTED, I.E., Y B PL, YCPL AND YIE PL, AS UNDER: 2 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT SR. NO. NAME OF THE CONCERN % SHAREHOLDING OF SH. VIVEK D SAMANT % SHAREHOLDING OF NAMIT A V. SAMANT ACCUMULAT ED PROFITS AS ON 31.3.2010 1 YASHAM BIO SCIENCE PVT. LTD. (YBPL) 40% 20% 2 YASHAM CEMPHAR PVT. LTD. (YCPL) 84% 16% RS.1,25,65,608/ - 3 YASHAM IMPORTERS & EXPORTERS PVT. LTD. (YIEPL) 55.71% 18.57% RS.2,61,39,865/ - Y BP L HAD DURING THE RELEVANT YEAR TAKEN UNSECURED LOANS FROM YC PL AND YIE PL, AS UNDER, BOTH OF WHICH HAD ACCUMULATED P ROFITS (AS AT 31 .3. 2010) , I.E., A S AT THE BEGINNING OF THE RELEVANT YEAR, IN EXCESS OF THE AMOUNTS LENT: SR. NO. NAME OF THE PARTY FROM WHOM LOAN TAKEN LOANS DURING THE YEAR 1 YASHAM CEMPHAR PVT. LTD. RS.10,00,000/ - 2 YASHAM IMPORTERS & EXPORTERS PVT. LTD. RS.1,82,00,000/ - TOTAL RS.1,92,00,000/ - IT WAS UNDER THESE CIRCUMSTANCES, DRAWING SUPPORT FROM THE DECISIONS IN CIT VS. UNIVERSAL MEDICARE (P) LTD. [2010] 3 2 4 ITR 263 (BOM) AND A SST. CIT VS. BH A UMIK COLOUR ( P ) . LTD. [ 2009] 27 SOT 270 (MUM )(SB), HELD BY THE LD. CIT, IN EX E RCI S E OF HIS REVISIONARY POWERS U /S. 263 OF THE A CT, THAT THE AMOUNTS LENT ARE LIABLE TO BE DEEMED AS DIVIDEND U /S. 2 (2 2)( E) IN THE HANDS OF THE A SSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL, RAISING T HE FOLLOWING GROUNDS: 1. THE LEARNED CIT ERRED IN IN VOKING S. 263 OF THE INCOME TAX ACT BY STATING THAT EARLIER ORDER PASSED BY A.O. IS ERRONEOUS & PREJUDICIAL TO THE INTEREST OF THE ASSESSEE. 2. THE LEARNED CIT ERRED IN DIRECTING THE A.O. TO TAX LOANS TAKEN BY M/S. YASHAM BIO SCIENCE PVT. LTD. FROM TWO COMPANIES, I.E., YASHAM CHEMPHAR PVT. LTD. & YASHAM IMPORTER & EXPORTER PVT. LTD. WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. BEFORE US, THE L D. A UTHORISED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, WHILE CONFIRMING THAT THERE WAS NO DISPUTE A S REGARDS THE PRIMARY FACTS/ DATA , I.E., THE SHAREHOLDING AND THE AMOUNTS LENT, RAISED SEVERAL ARGUMENTS. THE MAIN THRUST OF THESE ARGUMENTS WAS THAT NO BEN EFIT HAD BEEN DERIVED BY THE ASSESSEE OR HAD ARISEN 3 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT TO HER BY THESE LOANS. THE SAME WERE , IN FACT , REPAID DURING THE RELEVANT YEAR ITSELF AND, FURTHER, WITH INTEREST. THERE WAS THUS NO OCCASION TO OR SCOPE FOR THE APPLICATION OF SECTION 2 ( 22 )(E) UNDER THE CIRCUMSTANCES. ON A QU E RY BY THE B ENCH IN RESPECT OF NO SUCH CONDITION O F EXTENSION OF BENEFIT , I.E., IN THE SECTION (PER ITS RELEVANT PART ) , HE WOULD ADVERT TO THE DECISION BY THE HONBLE A PEX C OURT IN CIT V S. MUKUNDRAY K. SHAH [ 2007 ] 2 90 ITR 433 ( SC ) , WHEREIN I T UPHELD THE APPLICATION OF SEC . 2 ( 2 2)(E) ON A FINDING BY THE T RIBUNAL THAT THE COMPANY M KSEPL , A PARTNER IN TWO FIRMS, M KF (IN WITH ASSESSEE HAD INTEREST AT 16% ) AND M KI , HAD ADVANCED RS.5.9 9 CRS. TO THE FIRMS, AND WHICH HAD BEEN UTILI Z ED BY THE ASSESSEE FOR THE PURCHASE OF (RBI) BONDS, SO THAT THE MONIES HAD BEEN DIVERTED FOR THE BENEFIT OF THE ASSESSEE HOLDING MORE THAN 10% VOTING POWER IN M KS EPL. U NDER THE SE CIRCUMSTANCES , THE HON BLE COURT UPHELD THE ORDER BY THE TRIBUNAL CONFIR MING THE APPLICATION OF S . 2 ( 22 ) (E) , REVERSING THAT OF THE HON BLE HIGH COURT, WHICH HAD EARLIER HELD OTHERWISE. RELIANCE IN THIS CONTEXT WAS ALSO PLACED BY HIM ON THE DECISION IN THE CASE OF BAGMAN E C ONSTRUCTIONS PVT. LTD. VS. CIT (IN ITA NO. 473/2013 DATED 16 .9. 2014 /COPY ON RECORD ). THE LD. D EPARTMENTAL R EPRESENTATIVE ( D R), ON THE OTHER HAND, RELIED ON THE IMPUGNED ORDER. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 4.1 THE ISSUE UNDER REFERENCE, WE MAY AT THE OUTSET CLARIFY , WAS NO T AT ALL EXAMINED BY THE A SSESSING O FFICER (AO) IN THE ASSESSMENT PROCEEDINGS. HIS ORDER IS , THUS, ERRONEOUS I N - SO - FAR IT IS PREJUDICIAL TO THE INTERESTS OF THE R EVENUE ON THE GROUND OF NON - APPLICATION OF MIND AND FAILURE TO MAKE PROPER ENQUIR Y (REFER, INTER ALIA , M ALABAR INDUSTRIAL CO. LTD. VS. CIT [2000] 243 ITR 83 ( SC ) ; TOYOTA MO T O R CORPORATION VS. CIT [2008] 306 ITR 52 ( SC) ; GEE VEE ENTERPRISES VS. ADDL. CIT [1975] 99 ITR 375 (DEL) ; AND RAJALAKSHMI MILLS LTD. VS. ITO [2009] 121 ITD 343 (CH . )(SB) ) . SO, HOWEVER, THE LD. CIT , THE COMPETENT AUTHORITY, HAS GIVEN A DEFINITE DIRECTION T O THE AO TO FRAME FRESH ASSESSMENT, SETTING ASIDE THAT MADE IN THE FIRST INSTANCE, IN TERMS OF HIS DIRECTIONS, I.E., OF THE LOAN /S AMOUNT BEING ASSESSABLE AS DEEMED DIVIDEND U /S. 2 ( 22 )(E) IN THE ASSESSEES HANDS, SO THAT IT IS A DECISION ON 4 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT MERITS AS WELL; THE AO HAVING NO SCOPE FOR ( DIFF ERENT ) ADJUDICATION. IN OTHER WORDS, IT IS INCUMBENT ON US TO, THEREFORE, ISSUE A DECISION ON MERITS OF THE ISSUE AS WELL. 4 . 2 WE MAY BEGIN BY REPRODUCING THE RELEVANT PROVISION, AS UNDER: DEFINITIONS 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES, - (1) . (22) DIVIDEND INCLUDES - (A) .. (B) . (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST D AY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PE R CENT OF THE VOTING POWER, OR TO ANY CONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR - TH E INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT' DIVIDEND' DOES NOT INCLUDE -- (I) . (IA) (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF T HE BUSINESS OF THE COMPANY; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING O F SUB - CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF. (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERGER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY 5 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT (WHETHER OR NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COMPANY). W E MAY NEXT SET OUT THE LAW IN THE MATTER A S EXPLAINED AN D LAID DOWN BY THE HON BLE A PEX COURT BY REFERRING TO SOME OF IT S DECISIONS, WHICH ARE LOCUS CLASS ICUS ON THE SUBJECT, AS FOLLOWS: IN NAVNIT LAL C. JAVERI VS. K. K. SEN , AACIT [ 1965 ] 56 ITR 198 ( SC ) , WHERE THE CHALLENGE WAS TO THE V IRES OF THE PROVISION OF SECTION 12(1B) R /W S. 2 (6A)( E ) OF THE INDIAN I NCOME T AX A CT, 1922 (HEREINAFTER THE 1922 ACT ) , THE HONBLE COURT PER IT S CONSTITUTIONAL BENCH UPHELD THE CO NSTITUTION ALITY THEREOF , AL SO FINDING THE SAME AS NOT VIOLATING FUNDAMENTAL RIGHTS GUARANTEED UND ER A RTICLE 1 9 ( 1 )(F) AND (G) OF THE CONSTITUTION. THE SCOPE OF THE RELEVANT ENTRY (IN THE L EGISLATIVE LISTS) A R E NO T POWERS BUT FIELDS OF LEGISLATI ON AND THE WIDEST IMPORT AND SIGNIFICANCE SHOULD BE ATTACHED TO THEM. WHILE SECTION 2 ( 6A ) , ANALOGOUS TO SECTION 2(22) OF THE ACT, DEFINES DIVIDEND, INCLUDING DEEMED DIVIDEND (UNDER CERTAIN SPECIFIED CONDITIONS) (BOTH PER CLAUSE (E) THEREOF), S.12(1B) PROVIDES FOR BRINGING THE AMOUNT OUTSTANDING AS ON 0 1 .4.1 955, I.E., EVEN WHERE RECEIVED OR ACC UMULATED OVER THE PAST YEARS , TO TAX. THE HONBLE C O URT NOTE D A CIRCULAR BY THE B OARD PROVIDING A WINDOW WHEREBY THE PROVISION WAS EXCEPTED ON GEN UINE REPAYMENTS OF SUCH OUTSTANDING BY 3 0.6.1955 (CIRCULAR NO. 20 (XXI - 6/55 ) DATED 10.5.1955 ). THE HON BLE COURT EXAMINED SEVERAL PRECEDENTS, INCLUDING CHALLENGES TO THE PROVISION OF SECTION 12B , ENHANCING THE SCOPE OF INCOME TO INCLUDE CAPITAL GAINS ; TO SECTION 23A (1) , PROVIDING A N ARTIFICIAL DIVIDEND PAYOUT AT A MINIMUM OF 60%, L ES T THE SHORTFALL THEREIN BE LIABLE TO SUPER - TAX, I.E., RESTRAINING THE COMPANY FROM ACCUMULATING ITS PROFIT BEYOND 40% TO BUILD UP RESERVES OR TO PROVIDE FOR CAPITAL EXPENDITURE ; AND SEC. 16(3)(A) (OF THE 1922 ACT), SEEKING TO TAX THE INCOME ARISING TO WIFE AND MINOR SON / S OF THE ASSESSEE - INDIVIDUAL IN HIS HANDS . ALL THESE PROVISIONS WERE CONSIDERED BY THE A PEX C OURT AS REASONABLE STEPS TAKEN BY THE PARLIAMENT, WITHIN IT S LEGISLATIVE COMPETENCE, TOWARD COUNTERING TAX EVASION, ALSO NOTING THE RATIONALE OF EACH PROVISION, I.E., THE MISCHIEF THAT IT WAS INTENDED OR DESIGNED TO DEFEAT. THE WORD INCOME, IT OPINED, ALSO MAKING REFERENCE TO THE PRECEDENTS WHICH CONSIDERED 6 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT LEGISLATIVE COMPETENCE, MUST RECEIVE A W IDE INTERPRETATION, THE CAV EA T BEING THAT THERE HAS TO BE A RATIONAL CONNECT ION BETWEEN THE ITEM TAXED AND THE CONCEPT OF INCOME LI B ERALLY CONSTRUED. IT ALSO NOTED SUITABLE CONDITIONS/EXCEPTIONS BEING PROVIDED FOR IN THE IMPUGNED PROVISIONS (OF SS. 2(6A)(E) AND 12(1B ) ) , AS BY WAY OF RESTRICTION O N T HEIR SCOPE T O TRANSACTION S O F / B Y COMPANIES , IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERESTED , WITH ITS MAJOR SHAREHOLDERS , I.E., HOLDING OVER A THRESHOLD (10%) VOTING POWER THEREIN; EXCLUSION OF TRANSACTIONS IN THE ORDINARY COURSE OF BUSINESS WHERE THE PAYER - COMPANY IS IN THE BUSINESS OF M ONEY - L E NDING ; AND , THIRDLY, MAKING THE DEEMING (OF THE LOAN/ADVANCE OR PAYMENT ) AS DIVIDEND SUBJECT TO AND, FURTHER, TO THE EXTENT OF, ACCUMULATED PROFITS OF SUCH COMPANY, ALL OF WHICH WERE REGARDED AS NECESSARY AND SUITABLE SAFEGUARDS. THAT THE PROVISION M AY CAUSE HARDSHIP IN SOME CASES WAS CONSIDERED AS IRRELEVANT ( F OR DETERMIN ING THE QUESTION OF LEGISLATIVE COMPETENCE). THE ARGUMENT WITH REGARD TO TH E LOAN BEING INTEREST BEARING, AND OF IT HAVING BEEN REPAID SINCE, WERE ADVANCED AND CONSIDERED AS NOT VALI D GROUNDS FOR EXCLUDING THE LOAN OR ADVANCE GIVEN FROM THE PURVIEW OF OR FOR THE PURPOSE OF DEEMING THE SAME AS DIVIDEND (REFER PGS. 208 - 210), WHICH WE MAY REPRODUCE FOR READY REFERENCE : THE LOAN MAY CARRY INTEREST AND THE SAID INTEREST MAY BE RECEIVED BY THE COMPANY; BUT THE MAIN OBJECT UNDERLYING THE LOAN IS TO AVOID PAYMENT OF TAX. IT MAY ULTIMATELY BE REPAID TO THE COMPANY AND WHEN IT IS SO REPAID, IT MAY OR MAY NOT BE TREATED AS PART OF ACCUMULATED PROFITS. IT IS THIS KIND OF A WELL - PLANNED DEVICE WHI CH S. 12(1B) INTENDS TO REACH FOR THE PURPOSE OF TAXATION. (PG. 208) NOTING THAT SUCH A DEVICE WAS ALSO ADOPTED BY PRIVATE COMPANIES IN MANY OTHER COUNTRIES AS WELL, IT QUOTE D FROM SIM O NS INCOME TAX, 2 ND EDITION, VOLUME 3, PARA. 592, P. 341 AS (AT PG. 208 ): 'GENERALLY SPEAKING, SURTAX IS CHARGED ONLY ON INDIVIDUALS, NOT ON COMPANIES OR OTHER BODIES CORPORATE. VARIOUS DEVICES HAVE BEEN ADOPTED FROM TIME TO TIME TO ENABLE THE INDIVIDUAL TO AVOID SURTAX ON HI S REAL TOTAL INCOME OR ON A PORTION OF IT, AND ONE METHOD INVOLVED THE FORMATION OF WHAT IS POPULARLY CALLED A ONE - MAN COMPANY'. THE INDIVIDUAL TRANSFERRED HIS ASSETS, IN EXCHANGE FOR SHARES, TO A LIMITED COMPANY, SPECIALLY REGISTERED FOR THE PURPOSE, WH ICH THEREAFTER RECEIVED THE 7 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT INCOME FROM THE ASSETS CONCERNED. THE INDIVIDUAL'S TOTAL INCOME FOR TAX PURPOSES WAS THEN LIMITED TO THE AMOUNT OF THE DIVIDENDS DISTRIBUTED TO HIM AS PRACTICALLY THE ONLY SHAREHOLDER, WHICH DISTRIBUTION WAS IN HIS OWN CONTROL. THE BALANCE OF THE INCOME, WHICH WAS NOT SO DISTRIBUTED, REMAINED WITH THE COMPANY TO FORM, IN EFFECT, A FUND OF SAVINGS ACCUMULATED FROM INCOME WHICH HAD NOT IMMEDIATELY ATTRACTED SURTAX. SHOULD THE INDIVIDUAL WISH TO AVAIL HIMSELF OF THE USE OF ANY PART OF THESE SAVINGS HE COULD EFFECT THIS BY BORROWING FROM THE COMPANY, ANY INTEREST PAYABLE BY HIM GOING TO SWELL THE SAVINGS FUND ; AND AT ANY TIME THE INDIVIDUAL COULD ACQUIRE THE WHOLE BALANCE OF THE FUND IN THE CHARACTER OF CAPITAL BY PUTTING THE COMPANY INTO LIQUIDATION.' ( EMPHASIS, OURS) CONTINUING FURTHER, IT HELD: WHAT SIMON SAYS ABOUT ONE - MAN COMPANY CAN BE EQUALLY TRUE ABOUT THE CONTROLLED COMPANY WHOSE AFFAIRS ARE CONTROLLED BY A GROUP OF PERSONS CLOSELY KNIT AND HAVING THE SAME INTE REST. (PG. 208) THERE IS NO ELEMENT OF UNFAIRNESS IN THE FICTION, BECAUSE THE OTHER SHAREHOLDERS HAVE DELIBERATELY AGREED TO MAKE THE LOAN OR THE ADVANCE AND THE SHAREHOLDER TO WHOM THE LOAN IS ADVANCED DELIBERATELY TAKES IT WITH A VIE W TO ASSIST THE COMPANY TO EVADE THE PAYMENT OF TAX AND TO HAVE THE BENEFIT OF THE USE OF THE AMOUNT SUBJECT TO THE PAYMENT OF INTEREST. THE COMPANY RECEIVES INTEREST , THE SHAREHOLDER ENJOYS THE USE OF THE MONEY, AND IN THE PROCESS THE PAYMENT OF DUE TAX I S EVADED. THAT IS THE ASSUMPTION MADE BY THE LEGISLATURE IN MAKING THIS PROVISION. HOW CAN IT BE URGED THAT EITHER THE SHAREHOLDER WHO IS TAXED, OR THE OTHER SHAREHOLDERS WHO DELIBERATELY MAKE THE ADVANCE TO A COLLEAGUE OF THEIRS, ARE UNFAIRLY DEALT WITH B Y THE IMPUGNED PROVISION. (PG. 210 ) ( EMPHASIS, OURS) IT WAS ALSO CLARIFIED THAT THE CONDITION OF ACCUMULATED PROFITS WOULD BE AS ON TH E DATE OF THE LOAN OR ADVANCE (PG. 202 ) . IN TARULATA SHYAM VS. CIT [1977] 108 ITR 345 (SC), IT WAS SOUGHT TO BE ARGUED THAT THE FICTION OF THE PROVISION EXTENDED ONLY TO A LOAN OR ADVANCE THAT REMAIN S OUTSTANDING AS AT THE END OF THE PREVIOUS YEAR IN WHICH THE SAME WAS TAKEN. THE INCONGRUITY OF THE PROVISION WAS SOUGHT T O EMPHASI Z E D WITH REFERENCE TO SUB - CLAUSE ( III ) OF SECTION 2(6A)(E) OF THE 1922 ACT (CORRESPONDING TO SECTION 2(22)(E)(III) OF THE ACT), SO THAT WHERE A SHAREHOLDER HAS REPAID THE LOAN/ADVANCE , HE CANNOT AVAIL THE SET OFF AND, FURTHER, MULTIPLE LOANS, SINC E RE PAID, I.E., PRIOR TO THE AVAILMENT OF THE NEXT LOAN/ADVANCE , ARE LIABLE TO BE ADDED SEPARATELY IN COMPUTING 8 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT DEEMED DIVIDEND. THE SE RESULTS, IT WAS CONTENDED, WERE DEFINITELY UN REASONABLE, OPPRESSIVE AND A BS UR D. FURTHER, THE DIVIDEND MUST BE TREATED AS PAID BY THE COMPANY ON THE LAST DAY OF THE YEAR (IN WITH THE PAYMENT IS MADE), AS INDEED WAS A CASE IN SECTION 108 OF THE COMMON W EALTH A CT, READING WHICH CONDITION INTO THE SECTION, IT WAS SUBMITTED, WOULD ELIMINATE THE ILL - EFFECTS REFERRED TO EARLIER. TH E HON BLE COURT WAS NOT IMPRESSED, NOTING WITH APPROVAL THE DECISION IN THE CASE OF NAVN I T LAL C. JHAVERI (SUPRA). TAXABILITY OF INCOME WAS WITH REFERENCE TO THE YEAR OF RECEIPT OR A CCRUAL , SO THAT IT GETS CLO TH ED WITH THE CHARACTER OF INCOME ON ITS A CCRU A L OR, AS THE CASE MAY BE , RECEIPT (PG S . 356 - 358) . IN ITS WORDS: THE CHARGE BEING ON ACCRUAL OR RECEIPT THE STATUTORY FICTION CREATED BY S. 2(6A)(E) AND S. 12(1B) WOULD COME INTO OPERATION AT THE TIME OF THE PAYMENT BY WAY OF ADVANCE OR LOAN, PROVIDED THE OTHER CONDITIONS ARE SATISFIED. (PG. 358 ) IN REJECTING THE ASSESSEES APPEAL, THE HONBLE C OURT RELIED ON THE SALUTARY PRINCIPLE OF INTERPRETATION OF STATUTES, FURTHER ADDING THAT ONCE IT IS SHOWN THAT THE CASE OF THE ASSESSEE COMES WITHIN THE LETTER OF THE LAW, HE MUST BE TAXED, HOWEVER GRE AT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE. IN ITS VIEW, THE PARLIAMENT HAD DELIBERA TELY OMITTED TO IMPORT THE LAST LI MB OF SECTION 1 08 ( 1 ) OF THE COMMON W EALTH A CT, PROVIDING INSTEAD FOR EXCLUSION ONLY FOR REPAYMENTS MADE UP TO 3 0.6. 1955. THE CONTROVERSY INVOLVED IN SA R DA ( P .) V S. CIT [1998] 2 29 ITR 444 ( SC ) WAS THAT IF THE WITHDRAWAL / S MADE BY A SHAREHOLDER FROM HIS ACCOUNT WITH A COMPANY (IN WHICH HE HAD SUBSTANTIAL INTEREST) , WHICH IS TO BE REGARDED AS A LOAN OR ADVANCE (FROM THE COMPANY TO THE SHAREHOLDER) , COULD BE SUBSEQUENTLY ADJUSTED IN THE ACCOUNT OF A NOTHER SHAREHOLDER, WHO HAD A CREDIT BALANCE WITH THE COMPANY, THUS AVOIDING TAX. THE HON BLE A PEX C OURT ANSWERED IN THE NEGATIVE, RELYING ON THE PRINCIPLE THAT THE LEGAL FICTION COMES INTO PLAY AS SOON AS THE MONIES WERE RECEIVED. THE FACT THAT THE ASSESS EE WAS STATED TO BE MAIN TAIN ING A RUNNING ACCOUNT WITH PAYER - COMPANY WAS FOUND IRRELEVANT. 9 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT 4.3 HAVING TRANSVERSE D THE SETTLED LAW, WE MAY CONSIDER THE ARGUMENT S RAISED BY THE ASSESSEE BEFORE US , I.E., IN LIGHT OF THE OBTAINING FACTS OF THE CASE. CLEARLY, THERE IS NO DISPUTE QUA THE PRIMARY FACTS, WHICH ARE ADMITTED , AND THERE IS, ACCORDINGLY, SATISFACTION OF THE CONDITIONS FOR THE APPLICATION OF THE PROVISION. THE ASSESSEES CONTENTION WITH REGARD TO TH E LOAN BEING REPAID DURING THE YEAR - THE OPENING AND CLOSING BALANCE (AT RS.88 L ACS AND R S. 60 LAKHS FOR YIE PL AND Y C P L RESPECTIVELY) BEING THE SAME, OR OF I NTEREST HAVING BEEN CHARGED TO Y BPL, THE PAY EE COMPANY, WOULD BE OF NO MOMENT IN VIEW OF THE DECISIONS IN NAVNIT LAL C. JHAVERI (SUPRA) AND TARULATA SHYAM (SUPRA) . THEN, IT IS SAID THAT THE OPENING BALANCE IS TO BE EXCLUDED. SURE ENOUGH, IT IS ONLY THE SUMS RECEIVED DURING THE RELEVANT YEAR THAT COULD BE CHARGED AS DEEMED DIVIDEND FOR TH AT YEAR. SO HOWEVER, WE FIND THAT THE AMOUNT, RECKONED BY THE LD. CIT AT RS.182 L ACS AND RS.1 0 L ACS FOR YIE PL AND Y C P L RESPECTIVELY, IS ONLY WITHOUT CONSIDERING THE OPENING BALANCE, I.E., REPRESENT S ONLY THE AMOUNTS PAID DURING THE YEAR, AND TOWARD WHICH WE HAVE PERUSED THE COPIES OF ACCOUNT OF BOTH THE PA YER (LENDER) A ND THE PAYEE (BORROWER) COMPANIES (PB P GS. 1 - 5 /ALSO REFER TABLE AT PARA 2 ABOVE ). THEN IT IS SAID THAT THE AMOUNTS LENT ARE ACTUALLY INTER - CORPORATE DEPOSITS ( ICD S ) . NO EVIDENCE TOWARD THE SAME HAS BEEN BROUGHT ON RECORD OR LED AT ANY STAGE , WITH THE LD. AR FAILING E VEN TO EXPLAIN THE ESSENTIAL DIFFERENCE BETWEEN THE TWO , I.E., LOAN OR ADVANCE PER SE AND AN ICD . THE COPIES OF ACCOUNTS OF THE PAYE E AND THE PAYE R COMPANIES IN THE BOOKS OF EACH OTHER, ADVERTED TO EARLIER, AS WELL AS THE FINAL ACCOUNTS OF THE THREE COMPANIES (FOR THE RELEVANT YEAR), CLEARLY REFLECT THE SAME AS UNSECURED LOANS , WHICH ANSWER THE DESCRIPTION OF A LOAN, AS GENERALLY UN DERSTOOD, BEING NOT DEFINED UNDER THE ACT . REFERENCE IN THIS CONTEXT MAY ALSO BE MADE TO SHITLAL KUMAR VIJ V. ASTT. CIT (IN ITA NO. 406/ASR./2009 DATED 20/9/2012), WHEREIN THE TRIBUNAL REFERS TO THE DICTIONARY (BLACK LAWS) MEANING OF THE WORD (AT PARA 7.1). TWO, THE LENDING COMPANIES ARE NOT IN THE BUSINESS OF LENDING OF MONEY. IN FACT, THE ACCOUNTS ARE IN THE NATURE OF R UNNING ACCOUNTS, WITH AMOUNTS BEING BOTH PAID AND RECEIVED; THE PAY EE (LENDEE) - COMPAN Y HAVING A DEBIT (NEGATIVE) BALANCE IN THE ACCOUNTS OF THE PAY ER - COMPANIES AT ALL MATERIAL TIMES. 10 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT THAT IS, THERE IS NOTHING TO SHOW THAT THE SUMS GIVEN ARE ICDS; TO THE CO NTRARY, THERE IS MATERIAL TO SHOW THAT THEY ARE NOT , BUT ONLY LOANS OR, IN ANY CASE, ADVANCES. RATHER, AS IT WOULD APPEAR TO US, THE DEFINING ATTRIBUTE / S OF ICDS, I.E., IN CONTRADISTINCTION TO LOANS AND ADVANCES, HAVING NOT BEEN EXPLAINED , ICDS ARE O NLY A SPECIES OF LOANS AND ADVANCES. THE LAW STATES ANY LOAN OR ADVANCE, SO THAT IT WOULD MEAN JUST THAT, I.E., A LOAN OR ADVANCE OF ANY NATURE. THE ARGUMENT WITH REGARD TO INTER - CORPORATE DEPOSITS (ICDS) IS UNDER THE CIRCUMSTANCES MISCONCEIVED AND UNTEN ABLE , BOTH ON FACTS AND IN LAW . THE MAIN THRUST OF THE ASSESSEES ARGUMENTS, RELYING ON THE DECISION IN MUKUNDRAY K. SHAH (SUPRA) , WAS THAT WHENEVER A LOAN OR ADVANCE IS GIVEN , THE BENEFIT CL AUSE OF THE PROVISION IS TO BE SATISFIED, I.E., IN ALL CASES WHER E THE PROVISION IS TO BE APPLIED. WE FIND THIS PLEA TO BE IN COMPLETE DIS REGARD OF THE CLEAR PROVISION, WHICH CASTS THE EXTENSION OF BENEFIT AS A SEPARATE LIMB ( I.E., AS ONE OF THE T H R E E I N D E P E N D E N T PREREQUISITE CONDITIONS FOR THE APPLICATION OF THE PROVISION), WHICH HAS NOT BEEN INVOKED IN THE PRESENT CASE, AS WELL AS THE DECISION S BY THE A PEX C OURT IN NAVNIT LAL C. JHAVERI (SUPRA) AND TARULATA SHYAM (SUPRA). AS A MERE READING OF THE PROVISION, LANGUAGE OF WHICH IS CLEAR AND UNAMBIGUOUS , SUGGESTS AND, IN ANY CASE, UPON A FAIR LOOK AND READING THEREO F, THE PROVISION IS TRIGGERED WHERE : A) A LOAN OR ADVANCE IS GIVEN BY A COMPANY ( IN WHICH THE P UBLIC IS NOT SUB STANTIALLY INTERESTED ) TO A SHAR EHOLDER WHO BENEFICIA LLY OWNS SHARES THE REIN TO THE EXTENT NOT LESS THAN 10% OF THE VOTING POWER THEREIN ; OR B) A LO AN OR ADVANCE IS GIVEN BY SUCH A COMPANY TO ANY CONCERN IN WHICH SUCH SHAREHOL DER HAS SUBSTANTIAL INTEREST ( EXPLAINED AS ENTITLING HIM TO A BENEFICIAL INTEREST IN 20% OF ITS INCOME) ; OR C ) ANY PAYMENT IS MADE BY SUCH A COMPANY ON BEHALF OF, OR FOR THE BENEFIT OF, SUCH A SHAREHOLDER. T HE LOAN OR ADVANCE OR PAYMENT IS , UNDER SUCH CIRCUMSTANCES , TO BE DEEMED AS DIVIDEND TO THE EXTENT THE PAYING COMPANY HAS ACCUMULATED PROFITS , THE EXCEPTION BEING WHERE THE LENDING COMPANY IS IN THE BUSINESS OF MONEY LENDING . WE HAVE ALREADY NOTED SATISFACTION OF ALL THE R E Q U I R E D CONDITIONS IN THE PRESENT CASE, AS WELL 11 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT AS OF THE LENDING COMPAN IES BEING NOT IN THE MONEY LENDING BUSINESS, SO THAT EXCEPTION S TO THE PROVISION ARE EXCLUDED . IT IS CLEARLY LIM B (B) SUPRA THAT IS ATTRACTED I N THE PRESENT CASE, AND WHICH DOES NOT PROVIDE FOR A FURT HER R EQUIREMENT TO SHOW THAT THE MONIES WERE INTENDED FOR THE BENEFIT OF SUCH SHAREHOLDER . THERE IS NOTHING IN THE DECISION TO SUGGEST SUCH A BEN EFIT BEING REQUIRED TO BE SHOWN IN ALL CASES. IN THE FACTS OF THAT CASE, IT WAS LIMB (C) SUPRA THAT WAS APPLIED. THE ASSESSEE - RESPONDENT IN MUKUNDRAY K. SHAH (SUPRA) DID NOT IN FACT HAVE SUBSTANTIAL INTEREST I N BOTH THE CONCERNS, M K F AND M K I , SO THAT LIMB (B) COULD NOT , IN ANY CASE , BE APPLIED. IN FACT, THE ASSESSMENT IN THAT CASE WAS OF UNDISCLOSED INCOME , ON THE BASIS OF A DAIRY SEIZED IN SEARCH, AND WHICH REVEALED THE SOURCE OF FUNDS INVESTED BY THE ASSESSEE IN BONDS, T R AC ING THE SOURCE THEREOF (ON THE BASIS OF THE SAID DIARY) TO TWO CONCERNS, AND WHICH HAD BEEN , IN TURN, RELEASED FUNDS BY THE PAYER COMPANY IN WHICH ( THE ASSESSEE ) HAD SUBSTANTIAL INTEREST. IT WAS ON THAT BASIS THAT THE PROVISION OF SECTION 2 (2 2 )(E) B ECAME APPLICABLE, AND WHICH WAS UPHELD BY THE HONBLE CO URT. THE RELIANCE ON THE SAID DECISION IS , THUS , COMPLETELY MISPLACED. APART FROM MUKUNDRAY K. SHAH (SUPRA), THE ASSESSEE PLACES RELIANCE ON BAGMANE CONSTRUCTIONS (P) LTD. ( SUPRA ). THE QUESTION OF LAW THAT ARISES FOR AND CONSIDERED BY THE HONBLE COURT WA S: WHETHER ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN MADE U/S. 2(22) (E) OF THE INCOME TAX ACT, 1961, TO THE EXTENT TO WHICH THE COMP ANY POSSESSED THE ACCUMULATED PROFITS INCLUDES A TRADE ADVANCE AND CONSTITUTES DEEMED DIVIDEND? . THE HONBLE COURT AFTER NOTING SOME PRECEDENTS HELD THAT WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHA REHOLDER, AS WHERE IT IS GIVEN AS A TRADE ADVANCE AS A CONSIDERATION FOR THE GOODS RECEIVED OR FOR PURCHASE OF A CAPITAL ASSET WHICH WOULD BENEFIT THE COMPANY ADVANCING THE LOAN , IT WOULD FALL OUTSIDE THE AMBIT OF LOAN OR ADVANCE AS CONTEMPLATED U/S. 2(22)(E). WE ARE UNABLE TO SEE AS TO HOW THE SAID DECISION ASSISTS THE ASSESSEES CASE WH ICH , AS AFORE - STATED, IS A CASE OF LOAN ( OR ADVANCE) PER SE . THE ASPECT OF CHARGE OF INTEREST (ON LOAN OR ADVANCE) HAS ALREADY BEEN CONSIDERED BY THE 12 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT A PEX C OURT AS IRRELEVANT , AND WHICH , BE ING CHARGED IN THE INSTANT CASE ITSELF PROVES THE LOAN (ADVANCE) TO BE NOT A TRADE ADVANCE. RATHER, WHERE THE ADVANCE IS IN THE COURSE OF A COMMERCIAL TRANSACTION BETWEEN THE ADVANCING AND THE ADVANCEE - COMPANY , I T IS NOT A LOAN OR ADVANCE P R O P E R F OR IT TO B E REGARDED AS A LOAN OR ADVANCE U/S. 2(22)(E). 5. IN VIEW OF THE FOREGOING, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER, MADE RELYING ON THE DECISIONS IN UNIVERSAL MEDICARE (P) LTD. ( SUPRA) AND BHAUMIK COLOUR (P). LTD. ( SUPRA ) , NOR HAS ANY BEEN BROUGHT TO OUR NOTICE. WE MAY FURTHER ADD THAT OUR DECISION IS ALSO IN HARMONY WITH THE LAW AS EXPLAINED IN WALCHAND & CO. LTD. VS. CIT [1975] 100 ITR 598 (BOM) (WHERE THE LOAN WAS FOR A SHORT PERIOD OF 23 DAYS) AND CIT VS. BADIANI (P.K.) [1970] 76 ITR 369 (BOM) (PROVIDING FOR A NOTIONAL REDUCTION IN THE ACCUMULATED PROFITS ON REPAYMENT OF LOAN/ADVANCE) , ALSO NOTED WITH APPROVAL IN TARULATA SHYAM (SUPRA). THE ASSESSEE HAS , WE MAY ADD, PLACED A NUMBER OF DECISIONS BY THE T R IBUNAL ON FILE, TO SOME OF WHICH REFERENCE WAS ALSO MADE DURING HEARING. WE HAVE DECIDED THE APPEAL ON THE BASIS OF THE CLEAR PROVISION OF LAW, AND AS FURTHER EXPLAINED AND UNDERSTOOD BY THE A PEX C OURT, MEETING TH E ARGUMENTS ADVANCED AND DISTINGUISHING TH E DECISION BY THE SAID COURT ON WHICH RELIANCE IS SOUGHT TO BE PLACED BEFORE US. WE DO NOT THEREFORE CONSIDER IT NECESSARY TO E N CUMBE R THIS ORDER ANY FURTHER BY DISCUSSING THOSE DECISIONS . S UFFICE TO SAY THAT WE HAVE PERUSED THE SAME, FINDING OUR DECISION AS NOT IN CONSISTENT THERE WIT H AND, FURTHER, CONSISTENT WITH THE LAW AS EXPLAINED BY THE APEX COURT AS WELL AS THE HONBLE JURISDICTIONAL HIGH COURT PER T H E I R JUDICIALLY BINDING DECISIONS. WE DECIDE ACCORDINGLY, AND THE ASSESSEE FAILS. 6. IN THE RESULT, THE A SSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 1 8 , 2016 S D / - S D / - ( PAWAN SINGH ) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 13 ITA NO. 1065/MUM/2016 (A.Y. 2011 - 12) NAMITA V. SAMANT VS. CIT MUMBAI ; DATED : 1 8 .07.2016 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI