ITO,Wd.6(1), V. Raj Infrastructure P.Ltd.,

ITA 1188/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3323 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 01-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Assessee Lawyers: VIPIN GUJARATHI
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRAKUMAR YADAV AND SHRI D. KARUN AKARA RAO ITA NO. 1188/PN/09 (ASSTT. YEAR 2001-02) INCOME-TAX OFFICER, WARD-6(1), PUNE .... APPELLANT VS. RAJ INFRASTRUCTURE PVT. LTD. 410, PRIDE SILICON PLAZA, S.B. ROAD, PUNE 411016 PAN NO. AACCR1172M . RESPONDENT APPELLANT BY : SHRI ABHAY DAMLE RESPONDENT BY : SHRI VIPIN GUJARATHI ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF T HE CIT(A) DATED 31/07/2009. REVENUE FILED THIS APPEAL AGAINST THE DECISION OF THE CIT(A) GIVING RELIEF TO THE ASSESSEE IN CONNECTION WITH AN ADDITI ON ON ACCOUNT OF DEEMED DIVIDEND INVOKING THE PROVISIONS OF SEC. 2(22)(E) O F THE ACT. 2. AT THE VERY OUTSET LD. COUNSEL FOR THE ASSESSEE TAKE US THROUGH PARA 4.3 OF THE IMPUGNED ORDER TO DEMONSTRATE THAT CIT(A) DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON COMPLYING WITH THE DECISION OF THE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR (P) LTD. (2009) 120 TTJ (MUMBAI)(SB) 865. FURTHER THE LD. COUNSEL MENTIONED THAT THE PRINCIPLE LAID DOWN IN T HE SAID SPECIAL BENCH WAS AFFIRMED BY THE JURISDICTIONAL HIGH COURT OF BOMBAY IN ANOTHER CASE OF UNIVERSAL MEDICARE (P) LTD VIDE CITATION IE (2010) 37 DTR (BO M) 409. ON THE OTHER HAND LD. DR FOR REVENUE RELIED ON THE ORDER OF THE A.O. 3. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDER OF REVENUE AS WELL AS THE PAPER BOOK WHICH IS FILED BEFORE US. WE HAVE AL SO GONE THROUGH THE CITATIONS ITA NO. 1188/PN/2009 A.Y 2001-02 PAGE 2 OF 3 RELIED UPON BY THE COUNSEL. FROM THE PERUSAL OF THE ORDERS IT IS FOUND OUT THAT CIT(A) HAS RELIED UPON THE DECISION OF THE SPECIAL BENCH. IN THIS REGARD, PARA 4.3 OF THE IMPUGNED ORDER IS RELEVANT AND THE SAME READ S AS UNDER:- 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND FACTS AVAILABLE ON RECORD. IT IS NOTICED THAT THE FIRST C ONTENTIONS OF THE APPELLANT IS RELYING ON THE DECISION OF THE SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (2009) 120 TTJ (MUMBAI)(SB) 865. IN THIS CASE, THE SPECIAL BENCH, HAS DECIDED T HE ISSUE REGARDING A LOAN GIVEN TO A SHAREHOLDER VIS--VIS TO A CONCERN IN WHICH THE SHAREHOLDER IS A MEMBER/ PARTNER, DISCUSSING THE PR OVISIONS OF SECTION 2(22)(E) IN THIS REGARD. IT WAS HELD BY THE SPECIAL BENCH AS UNDER:- DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NO I N THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. THE PROVISIONS OF S. 2(22)(E) DO NOT SPELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OR THE CONCERN (NON- SHAREHOLDER). THE PROVISIONS ARE AMBIGUOUS. IT IS THEREFORE NECESSARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF S. 2(22)(E). THE INTENTI ON BEHIND ENACTING PROVISIONS OF S. 2(22)(E) IS THAT CLOSELY HELD COM PANIES (I.E., COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED) W HICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUM ULATED PROFITS WOULD NOT DISTRIBUTE SUCH PROFITS AS DIVIDEND BECAU SE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS O F THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVI DEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVANCE TO SHAREHOLDERS OR TO CONCERNS IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST O R MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYMENT BY T HE COMPANY IS TREATED AS DIVIDED. THE INTENTION BEHIND THE PROVIS IONS OF S. 2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDER. THE DEEMI NG PROVISION AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPA NY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST IS B ASED ON THE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE. THE INTENTION OF THE LEGISLATURE IS THEREFORE TO TAX DI VIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONC ERN. THE BASIS OF BRINGING IN THE AMENDMENT TO S. 2(22)(E) BY THE FIN ANCE ACT, 1987, W.E.F. 1 ST APRIL 1988 IS TO ENSURE THAT PERSONS WHO CONTROL T HE AFFAIRS OF A COMPANY AS WELL AS THAT OF A FIRM CAN HAVE THE PAYM ENT MADE TO A CONCERN CAN DRAW THE SAME FROM THE CONCERN INSTEAD OF THE COMPANY DIRECTLY MAKING PAYMENT TO THE SHAREHOLDER AS DIVID END. THE SOURCE OF POWER TO CONTROL THE AFFAIRS OF THE COMPANY AND THE CONCERN IS THE BASIS ON WHICH THESE PROVISIONS HAVE BEEN MADE. IT I THER EFORE PROPER TO CONSTRUE THOSE PROVISIONS AS CONTEMPLATING A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF A NON- SHAREHOLDER VIZ., CONCERN . FURTHER, SIMILAR DECISION WAS ALSO GIVEN BY THE HON BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HILLTOP (2008) 217 CTR (RAJ) 527, IN WHICH IT WAS HELD THAT THE AMOUNT ADVANCED BY A COMPANY TO A FIRM CANNOT BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE FIR M WHICH IS NOT A SHAREHOLDER OF THE COMPANY, EVEN THOUGH ALL THE PAR TNERS OF THE FIRM ARE SHAREHOLDERS IN THE COMPANY. IT WAS FURTHER HELD TH AT, THE DEEMED DIVIDEND WOULD ONLY BE ASSESSED IN THE HANDS OF THE INDIVIDUAL WHO WAS A SHAREHOLDER IN THE COMPANY. IN VIEW OF THE DECISION OF THE ITAT SPECIAL BENCH, MUMBAI AS WELL AS RAJASTHAN HIGH COURT, THE APPELLANTS CONTENTION, THAT THE DEEMED DIVIDEND CANNOT BE ASSESSED IN THE HAND OF THE APPELLANT SINCE THE APPELLANT WAS NOT A SHAREHOLDER IN THE COMPANY RPCEPL, IS ACCEPTABLE. ITA NO. 1188/PN/2009 A.Y 2001-02 PAGE 3 OF 3 4. FURTHER WE HAVE ALSO PERUSED THE DECISION BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE (P) LTD. (SUPRA), CONCLUSION OF THE SAID DECISION IS AS FOLLOWS:- CONCLUSION : AMOUNT RECEIVED FROM A COMPANY HAVING BEEN MISAPPROPRIATED BY SHAREHOLDER, THERE WAS NO LOAN O R ADVANCE; FURTHER, EVEN ASSUMING THAT IT WAS A DIVIDEND , IT WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT IN THE HANDS OF TH E SHAREHOLDER . 5. THUS, IT IS A SETTLED ISSUE AT THE LEVEL OF THE BOMBAY HIGH COURT THAT THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND CANNOT BE MA DE IN THE HANDS OF THE ASSESSEE WHO IS NOT A SHAREHOLDER IN THE COMPANY. A CCORDINGLY, GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DISMISSED . 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED ON 09 TH SEPTEMBER, 2010. SD/- SD/- (SHAILENDRAKUMAR YADAV) (D.KARUNAKAR A RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 09 TH SEPTEMBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. ITO, WARD 6(1), PUNE 2. ASSESSEE 3. CIT(A)-II, PUNE 4. CIT-III, PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE