The ACIT, 2(1), Bhopal V. M/s Makson Nutrition Food India Pvt. Ltd., Raisen

ITA 148/IND/2011

• Counselvise Citation: 14822714 RSA 2011
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 29-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: S S DESH
• Keywords: Depreciation; Deemed dividend; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.148/IND/2011 A.Y. 2007-08 ACIT-2(1), BHOPAL ... APPELLANT VS MAKSON NUTRITION FOOD INDIA PVT. LTD., MANDIDEEP PAN AACCM 4797 K ... RESPONDENT AND, CROSS-OBJECTION NO.43/IND/2011 (ARISING OUT OF ITA NO.148/IND/2011) AY: 2007-08 MAKSON NUTRITION FOOD INDIA PVT. LTD., MANDIDEEP PAN AACCM 4797 K ... OBJECTOR VS. ACIT-2(1), BHOPAL ... RESPONDENT 2 REVENUE BY : SHRI ARUN DEWAN, SR. DR ASSESSEE BY : SHRI S.S. DESHPANDE, CA DATE OF HEARING : 29.11.2011 DATE OF PRONOUNCEMENT : 29.11.2011 O R D E R PER JOGINDER SINGH THIS IS AN APPEAL BY THE REVENUE AND CROSS-OBJECTI ON BY THE ASSESSEE CHALLENGING THE ORDER OF LEARNED COMMI SSIONER OF INCOME TAX (APPEALS)-I, BHOPAL, DATED 9.3.2010. 2. THE ONLY GROUND PREFERRED BY THE REVENUE IS WITH REGARD TO DELETION OF ADDITION OF RS.1,51,93,108/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT, 1961. AT THE OUTSET, THE LEARNED C OUNSEL FOR THE ASSESSEE ASSERTED THAT THE IMPUGNED ISSUE IS COVER ED BY THE DECISION OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2006- 07, THAT TOO, IN THE CASE OF ASSESSEE ITSELF. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE LD. SR. DR. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. IN VIEW OF THE ABOV E, WE ARE 3 REPRODUCING HEREUNDER THE RELEVANT PORTION OF ORDER DATED 21.11.2011 (ITA NO.572/IND/2010 & CO NO.28/IND/2010 ) FOR ASSESSMENT YEAR 2006-07 (SUPRA): THE REVENUE HAS FILED THE PRESENT APPEAL WHEREAS TH E ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE ORDER DATED 4.5.2010 OF THE LEARNED COMMISSIONER OF INCOMETAX ( APPEALS) ON THE ISSUE OF DEEMED DIVIDEND. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MODIFIED SUGAR BOILED CANDY AND MODIFIED TOFFEE. I N ITS RETURN THE ASSESSEE SHOWED LOSS OF RS. 1,92,07,679/ -. THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/ S 143(2) OF THE ACT AND ASSESSMENT U/S 143(3) OF THE ACT WAS CO MPLETED ON 31.12.2008 DETERMINING TOTAL INCOME AT NIL AFTER ALLOWING SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION OF EARLIER YEARS. THE ASSESSING OFFICER NOTED THAT THE ASSESSE E COMPANY HAD TAKEN UNSECURED LOANS FROM THE FOLLOWING SISTER CONCERNS :- I. MAKSON HEALTH CARE P. LTD. RS. 66,87,858/- II. MAKSON IND.P. LTD. RS. 41.09,329 III. MAKPAR EXPORTS P.LTD. RS. 17,05,500 RS.1,25,02,687 THE ASSESSING OFFICER TREATED THE ABOVE AMOUNTS AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE U/S 2(22)(E) OF TH E ACT FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER. 3. FELT AGGRIEVED, THE ASSESSEE APPROACHED THE LEAR NED COMMISSIONER OF INCOMETAX (APPEALS). THE THRUST OF THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) IS THAT THE ASSESSING OFFICER W AS NOT JUSTIFIED IN TREATING THE FUNDS BORROWED BY THE ASS ESSEE COMPANY FROM THE ABOVE THREE COMPANIES AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT SINCE THE ASSESSEE WAS NEITHER A REGISTERED OR BENEFICIAL SHAREHOLDER IN A NY OF THE ABOVE COMPANIES. 4. THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) FOR THE REASONS GIVEN IN HIS APPELLATE ORDER HELD THAT IT I S AN ADMITTED FACT THAT THE ASSESSEE COMPANY WAS NOT A S HARE 4 HOLDER IN ANY OF THE OTHER THREE COMPANIES FROM WHO M FUNDS WERE BORROWED BY THE ASSESSEE. HE, THEREFORE, RELYI NG UPON THE ORDER OF THE MUMBAI ITAT SPECIAL BENCH IN THE C ASE OF ACIT VS. BHAUMIK COLOUR PRIVATE LIMITED; 118 ITD 1 HELD THAT DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT COULD BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHA REHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE P ERSON OTHER THAN THE SHAREHOLDER. 5. BEFORE US, THE LEARNED SR. DR RELIED UPON THE OR DER OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL FOR T HE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS). 2. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. SPECIAL BENCH OF THE TRI IN THE CASE OF BHAUMIK COLOUR LAB (SUPRA) AFTER CONSIDERING THE ISSUE AT LENGTH HELD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CAN BE ATTRACTED ONL Y WHEN THE ASSESSEE COMPANY IS REGISTERED AND BENEFICIAL OWNER OF SHARES IN THE LENDER COMPANY. FURTHERMORE, IN THE C ASE OF CIT VS. INDIAN TECHNOCRAFT LTD., ITA NO. 352 OF 201 1 ORDER DATED 11 TH MAY, 2011 THE HONBLE DELHI HIGH COURT BY CONSIDERING THE DECISIONS OF C.P.SARATHY MUDALIAR 1972) 83 ITR 170 AND RAMESHWARLAL SANWARMAL VS. CIT (1980) 1 22 ITR 1 (SC) HELD AS UNDER:- PAGE 46 PARA 22 IT IS THUS CLEAR FROM THE AFORESAID PRONOUNCEMENT O F THE HONBLE SUPREME COURT THAT TO ATTRACT THE FIRST LIM B OF THE PROVISIONS OF SECTION 2 (22) (E) THE PAYMENT MUST B E TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. AS AL READY MENTIONED THE CONDITION UNDER THE 1922 ACT AND THE 1961 ACT REGARDING THE PAYEE BEING A SHAREHOLDER REMAINS THE SAME AND IT IS THE CONDITION UNDER THAT SUCH SHAREHOLDER SHOULD BE BENEFICIAL OWNER OF THE SHARES AND THE PERCENTAGE O F VOTING POWER THAT SUCH SHAREHOLDER SHOULD HOLD THAT HAS B EEN PRESCRIBED AS AN ADDITIONAL CONDITION UNDER THE 196 1 ACT. THE WORD SHAREHOLDER ALONE EXISTED IN THE DEFINITION OF DIVIDEND IN THE 1922 ACT. THE EXPRESSION SHAREHOLDER HAS B EEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGISTERED SHAREHOLDER. THIS EXPRESSION SHAREHOLDER FOUND IN THE 1961 ACT HAS TO BE THEREFORE CONSTRUED AS APPLYING ONLY TO REGISTERED SHAREHOLDER. IT IS A PRINCIPLE OF INTERP RETATION OF STATUTES THAT WHERE ONCE CERTAIN WORDS IN AN ACT H AVE RECEIVED A JUDICIAL CONSTRUCTION IN ONE OF THE SUPE RIOR COURTS, AND THE LEGISLATURE HAS REPEATED THEM IN A SUBSEQUE NT STATUTE, THE LEGISLATURE MUST BE TAKEN TO HAVE USED THEM ACC ORDING TO THE MEANING WHICH A COURT OF COMPETENT JURISDICT ION HAS GIVEN THEM. PAGE 46 PARA 23 IN THE 1961 ACT, THE WORD SHAREHOLDER IS FOLL OWED BY THE FOLLOWING WORDS BEING A PERSON WHO IS THE BENE FICIAL 5 OWNER OF SHARES. THIS EXPRESSION USED IN SECTION 2 (22)(E) , BOTH IN THE 1961 ACT AND IN THE AMENDED PROVISIONS W.E.F. 1 ST APRIL ,1968 ONLY QUALIFIES THE WORD SHAREHOLDER AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOL DER HAS TO BE A REGISTERED SHAREHOLDER. THESE PROVISIONS AL SO DO NOT SUBSTITUTE THE AFORESAID REQUIREMENT TO A REQUIREM ENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE EXPRESSION BEIN G IS A PRESENT PARTICIPLE. A PARTICIPLE IS A WORD WHICH I S PARTLY A VERB AND PARTLY AN ADJECTIVE. IN SECTION 2(22) (E), THE PRESENT PARTICIPLE BEING IS USED TO DESCRIBED THE NOUN SHAREHOLDER LIKE AN ADJECTIVE. THE EXPRESSION BEING A PERSON W HO IS THE BENEFICIAL OWNER OF SHARES IS THEREFORE A FURTHER REQUIREMENT BEFORE A SHAREHOLDER CAN BE SAID TO FALL WITHIN THE PARAMETERS OF SECTION 2 (22) (E) OF THE ACT. IN THE 1961 ACT, SECTION HAS ALSO TO BE 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 P ERCENT OF THE VOTING POWER. IT IS NOT POSSIBLE TO ACCEPT THE CONT ENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT UNDER THE 1961 ACT THERE IS NO REQUIREMENT OF A SHAREHOLDER BEING A REGISTERED HOLDER AND THAT EVEN A BENEFICIAL OWNERSHIP OF SHAR ES WOULD BE SUFFICIENT. PAGE 47 PARA 24 THE EXPRESSION SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN THE FIRS T LIMB OF SECTION 2(22) (E) REFERS TO BOTH A REGISTERED SHARE HOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHARES HOLDER BUT NOT HE BENEFICIAL THEN THE PROVISION OF SECTION 2(22) (E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENE FICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTION 2 (22) (E) WILL NOT APPLY. PAGE 47 PARA 46 IN VIEW OF THE ABOVE, THIS APPEAL IS ALSO DISMISSE D. A XEROX COPY OF THE ORDER IS ENCLOSED HEREWITH. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS: - (I) ACIT VS. BHAUMIK COLOUR P.LTD (2009) 313 ITR (A.T) 146 (MUMBAI) (SB). (II) JCIT VS. KUNAL ORGANICS (P) LTD. 164 TAXMAN 169 ( AHD.) THUS EVEN WITH THE CHANGE IN THE DEFINITION UNDER T HE CURRENT PROVISIONS OF THE INCOME-TAX ACT, 1961, WHE REIN THE DEFINITION OF DEEMED DIVIDEND IS APPLICABLE TO LOAN OR ADVANCE GIVEN TO A REGISTERED AND A BENEFICIAL SHAREHOLDER, THE AFOREMENTIONED DECISION OF THE SUPREME COURT IN T HE CASE OF RAMESHWARLAL SANWARMAL (SUPRA) IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. 6 7. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, WE HOLD THAT FOR BRINGING AN ASSESSEE WITHIN THE PURVIEW OF SECTION 2(22)(E), BOTH THE CONDITIONS REGARDING ASSESSEE BE ING REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY ARE REQUIRED TO BE ESTABLISHED. IN CASE ANY OF THE CONDITIONS IS NOT SATISFIED THEN DEEMING PROVISIONS CONTAINED U/S 2(22)(E) OF THE ACT CANNOT BE ATTRACTED. SINCE IN THE PRESENT CASE, THE ASSESSEE IS NEITHER A REGISTERED NOR A BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AND CONFIRM TH E SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. 4. IN THE AFORESAID ORDER AND ALSO ON THE IDENTICAL ISSUE FOR ASSESSMENT YEAR 2006-07, IN THE CASE OF THE ASSESSE E, THE TRIBUNAL HAD ALREADY DELIBERATED UPON VARIOUS JUDIC IAL PRONOUNCEMENTS INCLUDING THE DECISION OF THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR PVT. LTD. (118 ITD 1) (SB) (MUM)/313 ITR (AT) 146 (MUM) (SB), WHEREIN IT WAS HELD THAT DEEMED DIVIDEND U/S 2(22)(E) OF TH E ACT COULD BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF THE PERSON OTHER THAN THE SHAREHOLDER. IN THE PRESENT A PPEAL, THE ASSESSEE IS NEITHER REGISTERED NOR A BENEFICIAL SHA REHOLDER OF THE LENDER COMPANY, THEREFORE, WE DONT FIND ANY IN FIRMITY IN THE 7 IMPUGNED ORDER AND CONFIRM THE SAME. THEREFORE, THI S APPEAL OF THE REVENUE IS HAVING NO MERIT, CONSEQUENTLY, DI SMISSED. 5. SO FAR AS CROSS-OBJECTION (CO NO.28/IND/2010) IS CONCERNED, THE SAME WAS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. FINALLY, THE APPEAL OF THE REVENUE AS WELL AS CROS S- OBJECTION OF THE ASSESSEE ARE HAVING NO MERIT, THER EFORE, DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN IN THE PRE SENCE OF LEARNED REPRESENTATIVES FROM BOTH THE SIDES AT THE CONCLUSION OF THE HEARING. SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29.11.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYS!