Quality Care India Limited, Hyderabad V. Dy. Commissioner of Income Tax, Circle-6(1), Hyderabad

ITA 1417/Hyd/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7808 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 26-11-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 09-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Deemed to accrue or arise in india; Additional evidence; Wholly owned subsidiary; Deemed dividend; Commercial expediency
• Section: 143(3); 2(22)(e); 115JB; 207

Judgement Text

ITA NO.1417 OF 2017 QUALITY CARE INDIA LTD HYDERABA D. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1417/HYD/2017 ASSESSMENT YEAR: 2013-14 M/S. QUALITY CARE INDIA LTD HYDERABAD PAN:AABCA7624C VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI S. RAMA RAO REVENUE BY : SMT. NIVEDITA BISWAS, DR DATE OF HEARING: 26/11/2019 DATE OF PRONOUNCEMENT: 22/01/2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14 AGAIN ST THE ORDER OF THE CIT (A)-4, HYDERABAD, DATED 25.05. 2017 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY RUNNING A SUPER SPECIALITY HOSPITAL, FILED ITS RETU RN OF INCOME FOR THE A.Y 2013-14 ON 29.11.2013 ADMITTING TOTAL INCOM E AT RS.24,22,72,410/- AND BOOK PROFIT U/S 115JB AT RS.21,37,43,832/-. DURING THE ASSESSMENT PROCEEDING S U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THERE WAS A CLOSING BALANCE OF LOANS AND ADVANCES/PAYABLE FROM RELATED PARTY VIZ., VISAKHA HOSPITALS AND DIAGNOSTICS LTD (VHDL) OF RS.6,06,24,183/- AND GANGA CARE HOSPITAL LTD (GHCL) OF RS.1.00 CRORE. HE OBSERVED THAT THESE TWO COMPANIES ARE WHO LLY OWNED ITA NO.1417 OF 2017 QUALITY CARE INDIA LTD HYDERABA D. PAGE 2 OF 6 SUBSIDIARIES OF THE ASSESSEE. HE ALSO OBSERVED THAT THE RESERVES AND SURPLUS OF VHDL IS RS.36,56,12,845/-. SINCE VHD L AND GHCL ARE WHOLLY OWNED SUBSIDIARIES OF QCIL I.E. THE ASSESSEE HEREIN, AND THERE WAS RESERVES AND SURPLUSES IN THE IR HANDS, THE SUMS ADVANCED BY THEM TO QCIL I.E. THE ASSESSEE HER EIN, AO WAS OF THE OPINION THAT SUCH ADVANCES WERE TO BE TREATE D AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT IN THE HANDS OF THE ASSESSEE. HE, THEREFORE, EXAMINED THE DETAILS OF THE TRANSACT IONS AND OBSERVED THAT THE GOVT. OF ANDHRA PRADESH HAS TAKEN AN INITIATIVE TO DEVELOP A HEALTH CITY AT VISAKHAPATNAM FOR WHICH A.P. INDUSTRIAL INFRASTRUCTURE CORPORATION LTD (APIIC) W AS ASSIGNED THE RESPONSIBILITY TO ASSIGN THE LAND TO INTERESTED PAR TIES TO SET UP MULTI SPECIALITY HOSPITAL ALONG WITH AN INTEGRATED FACILITY OF PARA MEDICAL COLLEGE FOR NURSING STAFF. THE ASSESSEE CO MPANY, DUE TO ITS LONG STANDING IN THE HEALTH CARE INDUSTRY, HAS STRATEGICALLY APPLIED TO APIIC FOR ALLOTMENT OF LAND, IN ORDER TO FACILITATE ITS EXPANSION PLANS AND MADE AN INVESTMENT TO THE TUNE OF RS.10.45 CRORES AND PROCURED THE LAND. SUBSEQUENTLY, VISAKHA HOSPITALS AND DIAGNOSTICS LTD (VHDL), A 100% SUBSIDIARY UNIT OF THE ASSESSEE HAD SHOWN INTEREST IN SETTING UP THE MULTI SPECIALITY HOSPITAL IN THE LAND PROPOSED TO BE GIVEN BY APIIC TO THE ASSESSEE AS IT IS ALREADY RUNNING ITS HOSPITAL IN VIZAG UNDE R THE NAME OF CARE HOSPITAL. THE ASSESSEE HAD AGREED TO THE SAID PROPOSAL AND IN VIEW OF THE UPFRONT INVESTMENT IN LAND, IT HAD R EQUESTED VHDL TO REPAY THE AMOUNT OF RS.10.45 CRORES, AGAINST WHI CH THE VHDL HAD PAID THE AMOUNT OF RS.6.06 CRORES AND THE BALAN CE AMOUNT WAS PROPOSED TO BE PAID BY VHDL AFTER THE FACILITY HAS COME INTO OPERATION. AS REGARDS THE LOANS AND ADVANCES FROM G HCL, THE ASSESSEE HAD SUBMITTED THAT THEY ARE FOR THE LAND P ROPOSED TO BE ACQUIRED FROM MAHARASHTRA AIRPORT DEVELOPMENT COMPA NY ITA NO.1417 OF 2017 QUALITY CARE INDIA LTD HYDERABA D. PAGE 3 OF 6 (MADC) FOR SETTING UP A MULTI SPECIALITY HOSPITAL A T NAGPUR AND HANDING IT OVER TO GANGA CARE. 3. THUS, THE CONTENTION OF THE ASSESSEE WAS THAT TH ESE ARE THE FUNDS OBTAINED FROM THE SUBSIDIARY COMPANIE S FOR STRATEGIC INVESTMENTS ON BEHALF OF THE SUBSIDIARIES FOR WHICH THE LAND WAS ALLOTTED TO THE ASSESSEE COMPANY IN VIEW O F ITS LONG STANDING BRAND IMAGE, BUT THE LAND WILL BE UTILIZED FOR SETTING UP MULTI SPECIALIZED HOSPITALS UNDER THE SUBSIDIARY CO MPANIES ONLY. THEREFORE, ACCORDING TO HIM, THESE ARE THE ADVANCES FOR THE BUSINESS PURPOSES AND HENCE DO NOT FALL WITHIN THE PURVIEW OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 4. THE ASSESSEE RELIED UPON THE DECISION OF THE ITA T HYDERABAD BENCH, IN THE CASE OF JAYADARSHINI HOUSIN G IN ITA NOS. 1360 TO 1363/HYD/2011. THE AO CONSIDERED THE S AID DECISION AND ALSO CONSIDERED THE FACT THAT THE SUBS IDIARIES OF THE ASSESSEE HAVE RESERVES AND FUNDS AND ADVANCED THE F UNDS TO THE ASSESSEE. THEREAFTER, HE HELD THAT THE SAID ADVANCE S WOULD FALL WITHIN THE DEFINITION OF SECTION 2(22)(E) OF THE AC T AND SINCE THE ASSESSEE IS THE MAJOR SHAREHOLDER HOLDING SUBSTANTI AL INTEREST IN THE SAID COMPANIES, THE DEEMED DIVIDEND IS TO BE BR OUGHT TO THE HANDS OF THE ASSESSEE. HE ALSO OBSERVED THAT THE LA ND WAS NOT TRANSFERRED TO THE SUBSIDIARY BUT THE LAND CONTINUE D TO BE IN THE NAME OF THE ASSESSEE ONLY AND THEREFORE, ACCORDING TO THE AO, IT IS NOT A CASE OF BUSINESS TRANSACTION OR TRADE ADVANCE S. THUS, HE BROUGHT THAT THE ENTIRE AMOUNT OF RS.7,06,24,183/- BEING THE ADVANCES FROM VHDL AND GHCL TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRME D THE ORDER OF ITA NO.1417 OF 2017 QUALITY CARE INDIA LTD HYDERABA D. PAGE 4 OF 6 THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS B OTH ON FACTS AND IN LAW. 2. THE LEARNED CIT (A) ERRED IN HOLDING THAT THE AM OUNT OF RS.7,06,24,183/- IS AN ADVANCE OR LOAN FOR THE PURP OSE OF SECTION 2(22)(E) OF THE I.T. ACT. THE LEARNED CIT ( A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE AMOUNT WAS PAID B Y AN 100% SUBSIDIARY FOR THE PURPOSE OF ITS BUSINESS ACT IVITY. 3. THE LEARNED CIT (A) ERRED IN HOLDING THAT THE AM OUNT OF RS.7,06,24,183/- REPRESENTS DEEMED INCOME WITHIN TH E MEANING OF SECTION 2(22)(E) OF THE I.T. ACT AND FUR THER ERRED IN HOLDING THAT IT REPRESENTS DEEMED DIVIDEND. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REIT ERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, HAS SUBMITTED THAT THE ASSESSEE HAS RECEIVED THESE FUND S IN THE FINANCIAL YEAR 2011-12, RELEVANT TO THE A.Y 2012-13 AND THEREFORE, IT CANNOT BE BROUGHT TO TAX IN THE A.Y 2013-14. HE REFERRED TO PAGE NO.158 OF THE PAPER BOOK WHEREIN THE DETAILS O F THE RECEIPTS FROM VHDL ARE GIVEN. FURTHER, HE SUBMITTED THAT HE IS NOW FILING ANOTHER PAPER BOOK CONTAINING PAGES 189 TO 217 WHIC H ARE ADDITIONAL EVIDENCE FILED FOR THE FIRST TIME BEFORE THE TRIBUNAL. HE SUBMITTED THAT THESE DOCUMENTS WOULD DEMONSTRATE TH E COMMERCIAL EXPEDIENCY OF RECEIVING FUNDS FROM VHDL AND GHCL. THEREFORE, HE PRAYED THAT THE SAME MAY BE ADMITTED AND REMANDED TO THE FILE OF THE AO FOR RE-ADJUDICATION OF THE ISSUE. 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE VHDL HAD ALL ALONG SHOWN THE ADVANCE TO THE ASSESSEE AS A LO AN OR ADVANCE AND NOT AS ANY TRADE ADVANCE. THEREFORE, IT CANNOT BE TREATED AS ITA NO.1417 OF 2017 QUALITY CARE INDIA LTD HYDERABA D. PAGE 5 OF 6 THE FUNDS ADVANCED FOR COMMERCIAL EXPEDIENCY AND TH US, IT IS TO BE TAXED AS DEEMED DIVIDEND U/S U/S 2(22)(E) OF THE ACT. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND FROM PAGE 158 OF THE PAPER BOOK THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.6,85,00,000/- ON DIFFERENT DATES, THE LAST DAY BEING 23-01-2012, I.E. WITHIN T HE FINANCIAL YEAR 2011-12 RELEVANT TO THE A.Y 2012-13. IF IT WAS CORR ECT, THEN, THE SAID SUM CAN ONLY BE BROUGHT TO TAX IN THE A.Y 2012 -13 AND NOT IN A.Y 2013-14. FURTHER, WE FIND THAT THE ADDITIONA L EVIDENCE FILED BY THE ASSESSEE ARE THE COPIES OF THE RESOLUTIONS O F THE BOARD OF DIRECTORS OF THE COMPANY FOR SETTING UP OF A HOSPIT AL AT VIZAG AND AT NAGPUR AND ALSO LAND ALLOTMENT LETTERS BY MADC O N RECEIPT OF PAYMENT FROM THE ASSESSEE. AT PAGES 197 AND 198 OF 207 ARE THE COPIES OF THE LETTERS ISSUED BY THE MINISTRY OF COR PORATE AFFAIRS DATED 31.07.2017 WHEREIN THE SCHEME OF MERGER OF VI SAKHA HOSPITALS VHDL AND M/S. QUALITY CARE INDIA LTD, THE ASSESSEE HEREIN IS APPROVED. IT IS THE ARGUMENT OF THE ASSES SEE THAT THE BUSINESS OF VHDL HAS NOW BECOME THE BUSINESS OF THE ASSESSEE W.E.F. THE APPOINTED DATE I.E. 1.4.2016. IN VIEW O F THESE FACTS, WE DEEM IT FIT AND PROPER TO ADMIT THE ADDITIONAL EVID ENCE AND REMAND THE SAME TO THE FILE OF THE AO FOR DE NOVO C ONSIDERATION IN ACCORDANCE WITH LAW, PARTICULARLY, THE CONTENTION O F THE ASSESSEE THAT THE ADVANCES FROM VHDL WERE RECEIVED IN THE FI NANCIAL YEAR 2011-12. SIMILARLY, WITH REGARD TO THE ADVANCES OF RS.1.00 CRORE FROM GHCL TO THE ASSESSEE ALSO, THE AO MAY RE-EXAMI NE THE ISSUE I.E. THE PERIOD OF RECEIPT OF INCOME, WHETHER IT HA D ACCUMULATED PROFITS DURING THE RELEVANT PERIOD AND WHETHER IT W AS FOR COMMERCIAL EXPEDIENCY AS CLAIMED BY THE ASSESSEE. ITA NO.1417 OF 2017 QUALITY CARE INDIA LTD HYDERABA D. PAGE 6 OF 6 8. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY, 2020. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 22 ND JANUARY, 2020. VINODAN/SPS COPY TO: 1 M/S. QUALITY CARE INDIA LTD, 6-3-248/1, ROAD NO.1 BANJARA HILLS, HYDERABAD 500034 2 DY. CIT, CIRCLE 16(1) IT TOWERS, AC GUARDS, HYDER ABAD 3 CIT (A)-4 HYDERABAD 4 PR. CIT 4 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER