Shri Bijoy Saha, Siliguri V. DCIT, Siliguri, Siliguri

ITA 1269/KOL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5477 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 18-06-2010
• Court: TRIBUNAL
• Department Lawyers: A K PRAMANICK
• Assessee Lawyers: M BANDYOPADHYAY
• Keywords: Deemed to accrue or arise in india; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA (BEFORE HONBLE SRI B.R.MITTAL, J. M. AND HONBLE SRI C.D.RAO, A.M) I.T.A. NO. 1269/KOL/2010 ASSESSMENT YEAR 2003-04 SHRI BIJOY SAHA -VS- DY COMMISSIONER OF IT, CIR. 1, SILIGURI (PAN AVWPS 9469 G ) (APPELLANT) (RESPONDENT) APPELLANT BY : SR I M. BANDYOPADHYAY. RESPONDENT BY : SRI A.K.PRAMANICK. O R D E R PER SHRI B.R.MITTAL, J.M. THE ASSESSEE HAS FILED THIS APPEAL FOR THE ASSESSM ENT YEAR 2003-04 AGAINST THE ORDER OF THE LEARNED C.I.T(A) DATED 30.03.2010 STATING THE FOLL OWING GROUNDS : 1. THE LEARNED C.I.T(A) ERRED IN STATING IN THE LAST PARA OF HIS ORDER THAT M/S PRAKASH DISTILLERIES AND CHEMICALS CO. (P) LTD. WAS IN NO WAY BENEFITED BY INVESTING IN THE SHARES OF M/S BHOJNARAIN TEA COMPANY LTD. BY THE APPLICANT AND SOME OF HIS FAMILY MEMBERS. 2. THE LEARNED C.I.T(A) COMPLETELY OVERLOOKED THE FACT THAT BY PURCHASING THE SAID TEA GARDEN BY THE DIRECTORS OF THE DISTILLERY , IT GOT A SELF-CONTROLLED AREA FOR DUMPING OF THE DISTILLERYS EFFLUENTS INSTEAD OF RELEASING T HE EFFLUENTS TO LOCAL STREAMS THEREBY ABIDING THE WBPCB NORMS. 3. THE DISTILLERY ACTUALLY BEGAN DUMPING THE EFFLUENTS IN VARIOUS CHANNELS OF THE NEWLY ACQUIRED TEA GARDEN THROUGH TANKERS AND TH IS ENABLED THE DISTILLERY TO RESUME PRODUCTION WHICH WAS SUSPENDED BY WBPCB AUTHORITIE S FOR VIOLATION OF EFFLUENT DISPOSAL NORMS. BUT THE LEARNED C.I.T(A) ERRED IN NOT DISCUSSING THESE FACTS. 4. THE LEARNED C.I.T(A) ERRED IN NOT APPRECIATI NG THAT ACQUISITION OF THE TEA GARDEN WAS ABSOLUTELY VITAL FOR THE VERY EXISTENCE OF TH E DISTILLERY. 5. UNDER THE CIRCUMSTANCES , THE LOANS ALLOWED B Y THE DISTILLERY COMPANY TO THE DIRECTORS ARE IN THE NATURE OF BUSINESS TRANSACT IONS, NOT LOAN AS DETERMINED BY VARIOUS LEGAL JUDGMENTS BUT THE LD. C.I.T(A) ERRED IN OVER LOOKING THE SAME AND THUS ALSO ERRED IN DECIDING THAT ON THESE SO-CALLED LOANS SECTION 2(22)(E) IS APPLICABLE. 6. THE LEARNED C.I.T(A) ERRED IN APPRECIATING THE BROAD PERSPECTIVE AND TOTALITY OF THE CASE WHICH RESULTED INTO HIS ERRONEOUS JUDGMENT/DE CISION. 2. THE ONLY ISSUE INVOLVING IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL APPLY ON THE LOANS GIVEN BY M/S PRAKASH DISTILLERY AND CO. PVT. LTD. (HEREINAFTER REFERRED TO IN SHORT PDCL) TO THE ASSESSEE. 2 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE OBSERVE THAT THE AS SESSEE IS ONE OF THE DIRECTORS OF OF PDCL. THE ASSESSEE HOLDS 19.97% OF EQUITY CAPITAL OF PD CL. PDCL HAD CLOSING BALANCE OF GENERAL RESERVE AS ON 31.03.2003 OF RS.6,42,72,967 AN D OPENING GENERAL RESERVE WAS RS.5,81,82,232. DURING THE YEAR UNDER CONSIDERATION PROFIT IS SH OWN AT RS.68,27,100. WE OBSERVE THAT THE ASSESSEE HAD A DEBIT BALANCE OF RS.13,99,846 I N PDCLS BOOKS AS ON 31.03.03. THERE IS NO DISPUTE TO THE FACT THAT PDCL IS A COMPANY IN W HICH PUBLIC IS NOT SUBSTANTIALLY INTERESTED. CONSIDERING THE ABOVE FACTS , AO CONSIDERED THE SUM OF RS.13,99,846 DEBIT BALANCE AS ON 31.03.2003 AS DEEMED DIVIDEND INCOME U /S 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE. LEARNED C.I.T(A) HAS CONFIRMED THE ACTION OF TH E AO. 4. AT THE TIME OF HEARING OF THE APPEAL BEFORE U S, THE LEARNED A.R. SUBMITTED THAT PROVISION OF SECTION 2(22)(E) OF THE ACT CONSIDER DEEMED INCOME DUE TO LEGAL FICTION AND THE SAID LEGAL FICTION IS NOT TO BE EXTENDED TO THE ASSES SEE BECAUSE THE PURPOSE FOR WHICH IT IS CREATED HAS TO BE CONSIDERED AND TO BE KEPT IN VIEW. LEAR NED A.R. RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M.P.AHMED VS KU THIARAVATTAM ESTATE (1991) RECEIVER AIR 1997 (SC) 208, 214 SUBMITTED THAT LEGAL FICTIONS IS LIMITED ONLY TO THE PURPOSE TO WHICH THEY ARE CREATED . LEARNED A.R. SUBMITTED THAT THE AS SESSEE ALONG WITH OTHER FAMILY MEMBERS HAD TAKEN LOAN FROM PDCL TO ACQUIRE SHARES OF A SICK TEA COMPANY , NAMELY M/S BHOJNARAIN TEA CO. P. LTD. (HEREINAFTER REFERRED TO IN SHORT AS B TCL) TO ACQUIRE CONTROLLING INTEREST OF BTCL. LEARNED A.R. SUBMITTED THAT MAIN PURPOSE OF ACQUIRI NG CONTROL OF BTCL WAS TO OBTAIN AND ENSURE USE OF WASTE LAND OF BTCL FOR DUMPING LI QUID EFFLUENTS OF PDCL BECAUSE EFFLUENT DISPOSAL WAS A QUESTION OF SURVIVAL OF PDCL. IN THIS RESPECT LEARNED A.R. REFERRED THE LETTERS WRITTEN BY WEST BENGAL POLLUTION CONTROL BOARD (WB PCB) AND SUBMITTED THAT PRODUCTION IN PDCL WAS SUSPENDED. IT WAS ALLOWED BY WBPCB ON TH E STRENGTH THAT LIQUID WASTE RELEASED BY PDCL DISTILLERY TO BE USED IN THE LAND OF BTC L , THE NEWLY ACQUIRED COMPANY. LEARNED A.R. SUBMITTED THAT THE SAID LOAN WAS TAKEN BY T HE ASSESSEE FOR BUSINESS PURPOSES AND, THEREFORE, PROVISIONS OF SECTION 2(22)(E) COUL D NOT APPLY TO THE SAID LOAN. 5. ON THE OTHER HAND, LEARNED D.R. SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAD TAKEN LOAN FROM PDCL. HE FURTHER SUBMITTED THAT THE ASSESSEE MADE INVESTMENTS IN SHARES OF BTCL IN HIS PERSO NAL NAME AND NOT IN THE NAME OF PDCL. LEARNED D.R. SUBMITTED THAT ONCE THE CONDITIO NS LAID DOWN UNDER SECTION 2(22)(E) OF THE ACT ARE FULFILLED, THE LOAN AMOUNT HAS TO BE CONSIDE RED AS DEEMED DIVIDEND INCOME IN THE HANDS OF THE DEBTOR. LEARNED D.R. SUBMITTED THAT THE PROVIS IONS OF SECTION 2(22)(E) OF THE ACT DOES NOT LAY DOWN SUCH EXCEPTION AS CONTENDED BY LD. A.R. AND SECTION 2(22)(E) TREAT THE LOAN AS DEEMED DIVIDEND INCOME IN THE HANDS OF DEBTOR WHO HOLDS MORE THAN 10% SHARES OF A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTE RESTED AND THE ACCUMULATED PROFITS AT THE TIME OF GIVING LOAN IS MORE THAN THE AMOUNT OF LOAN. 3 6. ON CONSIDERATION OF ABOVE SUBMISSIONS OF TH E REPRESENTATIVES OF THE PARTIES AND CONSIDERING THE PROVISIONS OF SECTION 2(22)(E) OF T HE ACT, WE FIND MERITS IN THE CONTENTIONS OF THE LEARNED D.R. WE OBSERVE THAT THE ASSESSEE IS A REGISTERED SHAREHOLDER OF MORE THAN 10% SHARES IN PDCL. THERE IS NO DISPUTE TO THE FACT T HAT PDCL IS CLOSELY HELD COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. FURTHER, THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS TAKEN THE LOAN FROM PDCL IN HIS IND IVIDUAL CAPACITY AND THERE IS ALSO SUFFICIENT ACCUMULATED PROFITS IN PDCL AND UPTO THE DATE OF SUCH PAYMENT. THE CONTENTIONS OF THE LEARNED A.R. ARE THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CREATED LEGAL FICTION AND DEBT AMOUNTS COULD NOT BE CONSIDERED AS DEEMED D IVIDEND INCOME IN VIEW OF THE PURPOSE FOR WHICH THE SAID LOAN WAS UTILIZED BY THE ASSESS EE, WE ARE OF THE CONSIDERED VIEW THAT IT HAS NO MERITS. WE ARE OF THE CONSIDERED VIEW MERELY B ECAUSE THE ASSESSEE PURCHASED SHARES OF BTCL TO ACQUIRE CONTROLLING INTEREST DOES NOT TAK E OUT THE SAID LOAN OUT OF THE PURVIEW OF SECTION 2(22)(E) OF THE ACT MERELY BECAUSE LAND O F BTCL WAS USED BY PDCL TO DISCHARGE ITS EFFLUENT. THE ASSESSEE HAS TAKEN LOAN FROM PDCL IN INDIVIDUAL CAPACITY. THE ASSESSEE IS HAVING SUBSTANTIAL SHARE HOLDING IN PDCL , I.E. 19.97% . THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED IN PDCL. THEREFORE, ALL THE CONDITIONS LAID DOWN U/ S 2(22)(E) ARE FULFILLED. RELIANCE PLACED BY THE LEARNED A.R. ON THE DECISION OF THE ITAT DE LHI BENCH IN THE CASE OF SUNIL SETHI VS DCIT IN ITA NO. 2131(DEL)/07 DATED 12 TH SEPTEMBER, 2008 DOES NOT APPLY TO THE FACTS OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE OTHER CASE S CITED BY THE ASSESSEE IN THE WRITTEN SUBMISSIONS BUT OBSERVED THAT THEY ARE NOT REL EVANT TO THE FACTS BEFORE US AND ACCORDINGLY, WE DO NOT CONSIDER IT NECESSARY TO DEAL THE SAM E SPECIFICALLY. 7. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASO N TO INTERFERE WITH THE ORDER OF THE LEARNED C.I.T(A). HENCE, WE CONFIRM THE ORDER OF THE LEARNED C.I.T(A) BY REJECTING THE GROUND OF APPEAL TAKEN BY THE ASSESSEE. 8. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. OR DER PRONOUNCED IN OPEN COURT ON 26.11.2010 SD/- SD/- (C.D.RAO) (B.R.MITTAL) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 26.11.2010 COPY TO :- 1. DCIT, CIRCLE-1, SILIGURI. 2. SHRI BIJOY SAHA, 88, A.P.C.SARANI, DESHBANDHU PARA, SILIGURI. 3. C.I.T.(A), SILIGURI. 4. C.I.T., SILIGURI. 5. D.R., ITAT, KOLKATA. TRUE COPY BY ORDER BCD DY REGISTRAR 4