ACIT Cir.-1, Nashik V. M/s. Weldtech India, Nashik

ITA 1249/PUN/2009

• Counselvise Citation: 124924514 RSA 2009
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 30-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C SHIVGUNDE
• Keywords: Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 1249/PN/09 (ASSTT. YEARS: 2006-07) ASSTT. COMMISSIONER OF INCOME-TAX, .. APPELLANT CIR.1, NASHIK VS. M/S WELDTECH INDIA, .. RESPONDENT A-14, MIDC, PALKHED, DINDORI, NASHIK PAN AAAFW5610Q APPELLANT BY: SHRI S C SHIVGUNDE RESPONDENT BY: SHRI NIKHIL PATHAK ORDER PER G.S. PANNU, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, NASHIK DATED 25.8.2009 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 28.11.2008 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) OF THE INCOME- TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO T HE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ONLY ISSUE RAISED BY THE REV ENUE IS AGAINST THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN DELE TING A SUM OF RS 16,87,523/- ADDED AS DEEMED DIVIDEND BY THE ASSES SING OFFICER BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MA NUFACTURE AND RE- SELLING OF WELDING MACHINE ACCESSORIES, ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD RECEIVED A LOAN OF RS 39,43,719/- FROM M/S IMPRESS BOX MAKERS PVT. LTD. (I.E. IBMPL) AND THAT THE DIRE CTORS OF THE SAID COMPANY WERE ALSO PARTNERS OF THE ASSESSEE FIRM. AC CORDING TO THE ASSESSING OFFICER, PROVISIONS OF SECTION 2(22)(E) R EAD WITH 2 EXPLANATION 3 THEREOF WERE APPLICABLE TO THE TRANSA CTION OF LOAN RECEIVED FROM IBMPL. ACCORDINGLY, THE AMOUNT OF LOA N TO THE EXTENT OF ACCUMULATED PROFITS AVAILABLE WITH IBMPL, WAS AS SESSABLE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE FIRM. ACCORDINGLY, A SUM OF RS 6,87,52 3/- WAS ADDED AS DEEMED DIVIDEND IN TERMS OF SECTION 2(22)(E) O F THE ACT. THE PLEA OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES H AS BEEN THAT SINCE THE ASSESSEE FIRM WAS NOT A REGISTERED SHAREH OLDER OF IBMPL, WHEREAS ONLY THE PARTNERS OF THE ASSESSEE FIRM WERE THE SHAREHOLDERS OF IBMPL, THE AMOUNT OF LOAN RECEIVED FROM IBMPL COULD NOT BE ASSESSED IN THE HANDS OF THE ASSESSEE IN TERMS OF SECTION 2(22)(E) OF THE ACT. THE COMMISSIONER OF IN COME-TAX (APPEALS), FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S SHIVANANDA ELECTRONICS, NASHIK V . JCIT (ITA NO 728/PN/08 DATED 31.3.2009), DELETED THE ADDITION ON THE GROUND THAT THE ASSESSEE FIRM WAS NOT A REGISTERED SHAREHOLDER OF IBMPL AND THAT SECTION 2(22)(E) OF THE ACT PROVIDES FOR TAXAT ION OF DEEMED DIVIDEND ONLY IN THE HANDS OF A REGISTERED SHAREHOL DER AND NOT IN THE HANDS OF THE RECIPIENT OF THE LOAN WHO IS NOT A REG ISTERED SHAREHOLDER OF THE LENDING COMPANY. BEFORE THE COMM ISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE HAD ALSO RELIED UPON THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT AND RA JASTHAN HIGH COURT IN THE CASES OF CIT V RAJKUMARSINGH & CO. 295 ITR 9 (ALL), AND CIT V HOTEL HILL TOP 217 CTR 527 (RAJ.) RESPECT IVELY. AGAINST THE AFORESAID, THE REVENUE IS IN APPEAL BEFORE US. 3. BEFORE US, IT WAS COMMON GROUND BETWEEN THE PART IES THAT IN SO FAR AS THE LEGAL POSITION BROUGHT OUT BY THE COM MISSIONER OF INCOME-TAX (APPEALS) IS CONCERNED, THERE IS NO CONT RARY VIEW. IN FACT, THE VIEW ADOPTED BY THE COMMISSIONER OF INCOM E-TAX (APPEALS), ON THE BASIS OF DECISION OF THE TRIBUNAL IN THE CASE OF SHIVANANDA ELECTRONIC (SUPRA), HAS SINCE BEEN APPRO VED BY THE 3 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V UNIV ERSAL MEDICARE PVT. LTD. 324 ITR 263 (BOM). AS PER THE HONBLE BOM BAY HIGH COURT, THE INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND LAID DOWN IN SECTION 2(22)(E) OF THE ACT BROADENS THE AMBIT O F THE EXPRESSION DIVIDEND BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY MAKES BY WAY OF A LOAN OR ADVANCE OR PAYMENTS ON BEHALF O F OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. HOWEVER, AS PE R THE HONBLE HIGH COURT, SUCH AN INCLUSIVE DEFINITION WOULD NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER ALONE. THEREFORE, EVEN IF WE ASSUME THA T THE IMPUGNED LOAN RECEIVED BY THE ASSESSEE FIRM FROM IBMPL WAS I N THE NATURE OF DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) O F THE ACT, YET, IT WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSE SSEE FIRM, BUT IN THE HANDS OF THE SHAREHOLDER OF IBMPL. UNDISPUTABLY , THE ASSESSEE IS NOT A SHAREHOLDER OF IBMPL AND, THEREFORE, THE C OMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAKE IN DELETING TH E IMPUGNED ADDITION. ACCORDINGLY, THE ORDER OF CIT(A) IS HEREB Y AFFIRMED AND THE APPEAL OF THE REVENUE IS DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF MAY, 2011. SD/- SD/- (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 11 TH MAY, 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. M/S WELDTECH INDIA, NASHIK 2. THE ACIT, CIR.1, NASHIK 3. THE CIT(A)-I, NASHIK 4. THE CIT-I, NASHIK 5. THE D.R, B BENCH, PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE 4