DCIT CIR 4(2), MUMBAI V. INDIA CAPITAL MARKETS P. LTD, MUMBAI

ITA 1496/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0916 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 16-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR SRIVASTAVA
• Assessee Lawyers: A V SONDE
• Keywords: Question of law; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D. K. AGARWAL, J.M. AND SHRI A.L. GEHLO T, A. M. ITA NO. 1496/M/2009 ASSESSMENT YEAR: 2005-06 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 4(2), ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 20 VS. M/S INDIA CAPITAL MARKET PVT. LTD., RESPONDENT 3/F-2, COURT CHAMBERS, 35, NEW MARINE LINES, MUMBAI 400 020. ITA NO. 949/M/2009 ASSESSMENT YEAR: 2005-06 M/S INDIA CAPITAL MARKET PVT. LTD., APPELLANT 3/F-2, COURT CHAMBERS, 35, NEW MARINE LINES, MUMBAI 400 020. VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE 4(2), ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 20 REVENUE BY : MR. AJAYKUMAR SRIVASTAVA RESPONDENT BY : MR. A.V. SONDE ORDER PER A.L. GEHLOT, A.M. THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A) IV, MUMBAI, PASSED ON 17.12.2008 FOR THE ASSESSMENT YEAR 2005-06. 2. 1 ST COMMON GROUND RAISED IN THESE APPEALS IS IN RESPEC T OF SECTION 2(22)(E) OF THE ACT, WHICH COVERS GROUND NO S. 1 TO 3 OF REVENUES APPEAL AND GROUND NO. 1 ASSESSEES APPEAL . ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 2 3. BRIEFLY, THE FACTS RELATING TO THIS GROUND ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED TH AT THE ASSESSEE RECEIVED A LOAN OF RS. 35,00,000/- FROM M/S YOGESH SECURITIES PVT. LTD. (IN SHORT YSPL) AND RS. 14,00,000/- FROM NICHE FINANCIAL SERVICES (P) LTD. (IN SHORT NFSPL) BOTH OF WHICH AR E ITS SISTER CONCERNS. THE SHAREHOLDING PATTERN OF THE ASSESSEE COMPANY AS WELL AS M/S YSPL & NFSPL WAS FOUND BY THE AO THAT M R. NIRAD D. MEHTA A SHAREHOLDER IN THE ASSESSEE COMPANY WAS HOL DING 17.34% OF THE TOTAL EQUITY IN NFSPL WHILE ANOTHER SHAREHOL DER, NAMELY, FRIENDLY FINANCIAL SERVICES OF THE ASSESSEE COMPANY WAS HOLDING 27.5% IN YSPL. THE AO FURTHER NOTICED THAT THESE S HAREHOLDERS OF THE ASSESSEE COMPANY HAD A SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY WHILE THEY HAD BENEFICIAL INTEREST IN THE C OMPANIES FROM WHICH THE ASSESSEE HAD RECEIVED LOAN. THE SHARES HE LD BY THEM WERE ACCOMPANIED WITH EQUIVALENT VOTING RIGHTS. TH E SHAREHOLDING SUMMARIZED IN CIT(A)S ORDER AT PAGE 5 IS REPRODUCE D BELOW:- SHAREHOLDER OF THE ASSESSEE COMPANY SHARE HOLDING IN THE ASSESSEE COMPANY YOGESH SECURITIES PVT. LTD. NICHE FINANCIAL SERVICES PVT. LTD. NIRAD MEHTA 52% NIL 17.345 FRIENDLY FINANCIAL SERVICES LTD. 25% 27% NIL RESERVES AND SURPLUS RS. 2,57,37,114 RS. 23,36,59,955 4. THE AO HELD THAT BOTH SHAREHOLDERS OF THE ASSESS EE COMPANY WERE BENEFICIAL SHAREHOLDERS IN YSPL AND NF SPL RESPECTIVELY. SIMULTANEOUSLY, THEY WERE SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY. THEREFORE, HE TREATED THE LOAN AM OUNT AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 5. THE CIT(A) CONFIRMED THE ADDITION OF RS. 35,00,0 00/- MADE BY THE AO IN CASE OF YSPL AFTER REJECTING ASSESSEE S CONTENTION THAT THE AMOUNT WAS ON ACCOUNT INTER-CORPORATE DEPOSIT A ND ISD ARE NOT LOANS BUT DEPOSITS. THE CIT (A) EXAMINED THE CONTEN TION OF THE ASSESSEE THAT THE AMOUNTS WERE RECEIVED IN THE ORDI NARY COURSE OF BUSINESS WHERE LENDING MONEY IS SUBSTANTIALLY PART OF THE BUSINESS ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 3 OF YSPL. THE CIT(A) NOTED THAT IT IS NOT A COMPANY WHICH IS REGISTERED AS NON BANKING FINANCIAL INSTITUTION. TH E CIT(A) DID NOT ACCEPT THE ASSESSEES CONTENTION THAT 61% OF ITS AM OUNTS ARE BLOCKED FOR MONEY LENDING BUSINESS AND 44% OF THE A MOUNTS WERE BLOCKED AS A PERCENTAGE OF TOTAL FUNDS BLOCKED IN B USINESS IS BASELESS. THE CIT(A) NOTED THAT RESERVES AND SURPLU S OF YSPL IS AT RS. 31.59 CRORES, SHARE CAPITAL IS AT RS. 23 CRORES AND THE TOTAL FUND IS AT RS. 54.59 CRORES. OUT OF THE SAME, VERY SMALL PART OF THE FUNDS I.E. LOAN TO OTHER OF RS. 48 LACS HAVE BEEN G IVEN AS LOAN. THE CIT(A) CALCULATED THE POSITION OF THE FUNDS EMPLOYE D FOR THE BUSINESS AND ADVANCES OF LOANS MADE BY THE ASSESSEE COMPANY AT 6.54% FOR THE YEAR ENDED 31.3.2005 AND 5.38% FOR TH E YEAR ENDED AT 31.03.2004. ON THE BASIS OF THE ABOVE ANALYSIS, THE CIT(A) REJECTED THE ASSESSEES CONTENTION THAT YSPL IS NOT A CONCERN WHOSE SUBSTANTIAL PART OF BUSINESS IS LENDING OF MONEY. THE CIT(A) HELD THAT ALL THE CONDITIONS OF PROVISIONS OF SECTION 2 (22)(E) ARE APPLICABLE IN RESPECT OF THE AMOUNT RECEIVED BY THE ASSESSEE FROM YSPL. THE CIT(A) FURTHER HELD THAT EVEN RETURN OF LOAN BY THE ASSESSEE TO YSPL ON 28.09.2004 IS NOT OF MUCH RELEV ANCE IN VIEW OF HONBLE SUPREME COURT DECISION OF MS.P. SHARDA VS. CIT 96 TAXMAN 11(SC). 5.1 THE CIT(A) EXAMINED THE CASE OF NFSPL AND FOUND THAT NSFSP HAD GIVEN THE SAID AMOUNT IN THE ORDINARY COURSE OF BUSINESS WHERE THE LENDING BUSINESS IS SUBSTANTIALLY PART OF THE BUSINESS OF THE COMPANY. THE CIT(A) ANALYSED THIS ASPECT AT PAG ES 33 & 34 OF HIS ORDER AND FOUND THAT 66.19% AND 57.83% OF THE F UNDS ARE EMPLOYED AS ON 31.03.04 AND 31.03.05, THE LENDING M ONEY IS TREATED TO BE SUBSTANTIAL PART OF THE BUSINESS OF T HE COMPANY. THE CIT(A) DELETED THE SAID ADDITION IN VIEW OF CLAUSE (II) TO SECTION 2(22)(E), SUCH ADVANCES OR LOAN IS NOT DIVIDEND. 5.2 THE ASSESSEE IS IN APPEAL AGAINST THE ORDER O F CIT(A) WHERE HE CONFIRMED THE ADDITION OF RS. 35,00,000/- WHILE THE REVENUE IS IN APPEAL WHERE THE CIT(A) HAS DELETED THE ADDITION OF RS.14,00,000/-. ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 4 6. THE LEARNED AR SUBMITTED THAT THE AMOUNT RECEIVE D WAS ON ACCOUNT OF INTER CORPORATE DEPOSIT (ICD), THEREFORE , THE ASSESSEE WAS LIABLE TO PAY INTEREST ON SUCH ICD. THE ASSESSE E IS REQUIRED TO REFUND THE TAX DEDUCTED AT SOURCE ON THE AMOUNT OF INTEREST AS PROVIDED UNDER CHAPTER XVII OF IT ACT. IN SUPPORT O F THE CONTENTION, THE LEARNED AR RELIED UPON VARIOUS PROV ISIONS OF THE COMPANIES ACT AND AUDIT REPORT UNDER THE COMPANIES ACT. THE LEARNED AR HAS ALSO RELIED UPON THE FOLLOWING DECIS IONS:- 1. BOMBAY OIL INDUSTRIES LTD. VS. DCIT, 28 SOT 383 (MUM.) 2. DURGA PRASAD MANDELIA AND OTHERS V. REGISTRAR O F COMPANIES, 61 COMPANY CASES, 479. 3. JHAMU U. SUGHAND VS. DCIT, 99 ITD 1 (MUM.) 4. CIT VS. NAGINDAS M. KAPADIA, 177 ITR 393 (BOM.) 5. MRS. REKHA MODI VS ITO, 13 SOT 512 (DELHI) 7. ON THE BASIS OF ABOVE SUBMISSIONS, THE LEARNED A R SUBMITTED THAT THESE ARE NOT LOANS AND ADVANCES, TH EREFORE, SECTION 2(22)(E) OF THE ACT, IS NOT APPLICABLE. HE FURTHER SUBMITTED THAT THE AMOUNTS WERE GIVEN IN THE ORDINARY COURSE OF BUSINE SS, THEREFORE, IT FALLS UNDER THE EXCEPTION TO THE SECTION 2(22)(E) O F THE ACT. THE ALTERNATE SUBMISSION OF THE LEARNED AR IS THAT THE ASSESSEE IS NEITHER BENEFICIAL NOR THE SHARES WERE REGISTERED I N THE NAME OF THE ASSESSEE COMPANY. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE DECISION OF THE SPECIAL BENCH OF IT AT IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P.) LTD., 118 ITD 1(SB). 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF AO AND SUBMITTED THAT THESE ARE THE CLEAR CUT CASES OF THE LOANS AND ADVANCES, THEREFORE, SECTION 2(22)(E) IS CLEARL Y APPLICABLE. THE LEARNED DR SUBMITTED THAT IT IS TRUE THAT IF THESE ARE THE DEPOSITS THEN SECTION 2(22)(E) IS NOT APPLICABLE. BUT THESE ARE THE LOANS AND ADVANCES AND WHAT ARE THE UNDERSTANDINGS BETWEEN TH E PARTIES IS NOT OF MUCH RELEVANCE. THE LEARNED DR SUBMITTED THA T THE ASSESSEE SUBMITTED SOMETHING AND ORALLY STATING DIFFERENT TH ING AND THE ASSESSEE HAS NOT PRODUCED ANY AGREEMENT IN SUPPORT OF THE ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 5 TRANSACTIONS. THE LEARNED DR SUBMITTED THAT ACCORDI NG TO REPAYMENT SCHEDULE AND CONFIRMATION FILED BY THE AS SESSEE, IT IS CLEARLY ESTABLISHED THAT THESE ARE SHORT-TERM LOANS . THE LEARNED DR SUBMITTED THAT THE PROVISIONS OF THE COMPANIES ACT AND AUDIT REPORT THEREIN POINTED OUT BY THE LEARNED AR ARE NO T A CONCLUSIVE PROOF. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ADMITTED FACTS OF THE C ASE ARE THAT THE ASSESSEE IS A PRIVATE LTD. COMPANY, WHO IS THE SHAR EHOLDER NEITHER IN YSPL NOR IN NFSPL. THE CASE OF THE REVENUE IS TH AT SHRI NIRAD D. MEHTA, THE SHAREHOLDER IN THE ASSESSEE COMPANY AND ANOTHER SHAREHOLDER FRIENDLY FINANCIAL SERVICES OF THE ASSE SSEE COMPANY BOTH WERE HOLDING SUBSTANTIAL SHAREHOLDING IN YSPL AND NFSPL. ON THE BASIS OF THESE ADMITTED FACTS, FIRST WE SHALL E XAMINE WHETHER THE ASSESSEE COMPANY WHO IS NOT A REGISTERED SHAREH OLDER OF YSPKL AND NFSPL WHETHER PROVISIONS OF SECTION 2(22)(E) IS APPLICABLE OR NOT. AN IDENTICAL ISSUE HAS BEEN EXAMINED BY THE HO NBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP, 313 ITR 116 (RAJ.). BRIEFLY FACTS OF THAT CASE ARE THAT THE ASSESSEE M/S HOTEL HILLTOP IS A PARTNERSHIP FIRM. THE FIRM RECEIVED RS . 10.00 LAKH FROM HILLTOP PALACE (P) LTD. TWO PARTNERS OF THE FIRM HO TEL HILLTOP ARE HOLDING SUBSTANTIAL INTEREST IN HILLTOP PALACES (P) LTD AND PARTNERSHIP FIRM ALSO. THE SHAREHOLDING PATTERN OF THE COMPANY AND THE FIRM IS SUMMARIZED BELOW:- SHAREHOLDING PATTERN OF M/S HILLTOP PALACE HOTELS ( P) LTD. 1) SHRI ROOP KUMAR KHURANA 23.33% 2) SMT. SARIOJ KHURANA 4.67% 3) VIKAS KHURANA 22% 4) DESHBANDHU KHURAMA 25% 5) SHRI RAJIV KHURANA 25% LIKEWISE, IT IS ALSO NOT IN DISPUTE, THAT AT THE R ELEVANT TIME CONSTITUTION OF THE FIRM WAS AS UNDER:- CONSTITUTION OF M/S HOTEL HILLTOP 1) SHRI ROOP KUMAR KHURANA 45% 2) SHRI DESHABANDHU KHURANA 55% ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 6 10. UNDER THAT CIRCUMSTANCES, THE RAJASTHAN HIGH CO URT HELD THAT SIGNIFICANT REQUIREMENT OF SECTION 2(22)(E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX AS DEEMED DIVIDEND COUL D BE ATTRACTED IN THE HANDS OF THE INDIVIDUAL, BEING SHAREHOLDERS, AN D NOT IN THE HANDS OF THE FIRM. 11. THE ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P.) LTD., 118 ITD 1(SB) HAS DISCUSSED SIMIL AR CONTROVERSY VIDE PARAS 24,25, & 26, WHICH ARE REPRODUCED BELOW: - 24. THE EXPRESSION 'SHAREHOLDER BEING A PERSON WHO IS T HE BENEFICIAL OWNER OF SHARES' REFERRED TO IN THE FIRS T LIMB OF S. 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AN D BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDE R BUT NOT THE BENEFICIAL THEN THE PROVISION OF S. 2(22)(E) WILL N OT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF S. 2(22)(E) WILL NOT APPLY. 25. THE NEW CATEGORY OF PAYMENT WHICH WAS CONSIDERE D AS DIVIDEND INTRODUCED BY THE FINANCE ACT, 1987 W.E.F. 1ST APRIL, 1988 BY THE SECOND LIMB OF S. 2(22)(E) IS PAYMENT ' TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST'. IT IS THIS CATEGORY OF PAYMENT WITH WHICH WE ARE CONCERNED IN THIS REFE RENCE. 26. THE FOLLOWING CONDITIONS ARE REQUIRED TO BE SAT ISFIED FOR APPLICATION OF THE ABOVE CATEGORY OF PAYMENT TO BE REGARDED AS DIVIDEND. THEY ARE : (A) THERE MUST BE A PAYMENT TO A CONCERN BY A COMPANY. (B) A PERSON MUST BE A SHAREHOLDER OF THE COMPANY BEING A REGISTERED HOLDER AND BENEFICIAL OW NER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING PO WER. THIS IS BECAUSE OF THE EXPRESSION 'SUCH SHAREHOLDER' FOUND IN THE RELEVANT PROVISION. THIS EXPRESSION ONLY REFERS TO THE SHAREHOLDER REFERRED TO IN THE EARLIER PART OF S. 2 (22)(E) VIZ., A REGISTERED AND A BENEFICIAL HOLDER OF SHARES HOLDIN G 10 PER CENT VOTING POWER. THE HON BLE RAJASTHAN HIGH COU RT IN THE CASE OF UNION OF INDIA VS. WAZIR SINGH AIR 1980 RAJ 252, WHILE DEALING WITH AN EXPRESSION 'NO SUCH APPLICATION' IN THE CONTEXT OF R. 97 OF THE RAJASTHAN HIGH COURT RULES, 1952 HA S HELD AS FOLLOWS : 'GENERALLY THE WORD SUCH REFERS ONLY TO PREVIOUSLY INDICATED, CHARACTERIZED OR SPECIFIED. SUCH IS AN ADJECTIVE MEANING, THE ONE PREVIOUSLY INDICATED OR REFERS ONL Y TO SOMETHING WHICH HAS BEEN SAID BEFORE.' THE HON BL E ALLAHABAD HIGH COURT IN THE CASE OF MOHAN LAL & ANR . VS. GRAIN CHAMBERS LTD. AIR 1959 ALL 279 HAS HELD AS FO LLOWS : 'IN FACT, IT APPEARS TO US THAT THE WORD SUCH I S USED BEFORE A NOUN IN A LATTER PART OF A SENTENCE, THE PROPER CON STRUCTION IN ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 7 THE ENGLISH LANGUAGE IS TO HOLD THAT THE SAME NOUN IS BEING USED AFTER THE WORD SUCH WITH ALL ITS CHARACTER ISTICS WHICH MIGHT HAVE BEEN INDICATED EARLIER IN THE SAME SENTE NCE.' (C) THE VERY SAME PERSON REFERRED TO IN (B) ABOVE MUST ALSO BE A MEMBER OR A PARTNER IN THE CONCERN HOLDING SUBSTANT IAL INTEREST IN THE CONCERN VIZ., WHEN THE CONCERN IS N OT A COMPANY, HE MUST AT ANY TIME DURING THE PREVIOUS YE AR, BE BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER C ENT OF THE INCOME OF SUCH CONCERN; AND WHERE THE CONCERN IS A COMPANY HE MUST BE THE OWNER OF SHARES, NOT BEING SHARES EN TITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RI GHT TO PARTICIPATE IN PROFITS, CARRYING NOT LESS THAN TWEN TY PER CENT OF THE VOTING POWER. (D) IF THE ABOVE CONDITIONS ARE S ATISFIED THEN THE PAYMENT BY THE COMPANY TO THE CONCERN WILL BE D IVIDEND. 12. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF UNIVERSAL MEDICARE, 190 TAXMAN 144 (BOM.)WHILE CONF IRMING THE ORDER OF ITAT SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR (P) LTD., HAS HELD AS UNDER:- 9. IN ORDER THAT THE FIRST PART OF CLAUSE ( E ) OF SECTION 2(22) IS ATTRACTED, THE PAYMENT BY A COMPANY HAS TO BE BY WAY OF AN ADV ANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE, AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWNER HOLDING NOT L ESS THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN TO WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST. THE TRIBUNAL IN THE PRESENT C ASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE, SINCE THE AMOUNT IN QUESTION HAD ACTUALLY BEEN DEFA LCATED AND WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESS EE. THE FACT THAT THERE WAS A DEFALCATION SEEMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BUSINESS LOSS DURING THE CO URSE OF ASSESSMENT YEAR 2006-07. CONSEQUENTLY, ACCORDING TO THE TRIBUNAL THE FIRST REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FULFILLED. IN OUR VIEW, THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HOWEVER, EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBUNAL, WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF SECTION 2(22)( E ) IS CORRECT. SECTION 2(22)( E ) DEFINES THE AMBIT OF THE EXPRESSION DIVIDEND. A LL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. T HE EFFECT OF SECTION 2(22) IS TO PROVIDE AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE ( E ) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASS IFIED AS A DIVIDEND. CLAUSE ( E ) OF SECTION 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH THE PUBLIC IS NOT SUBSTANTIALL Y INTERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO AN Y CONCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISI ON. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OF FOR THE IND IVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREATED BY CLAUSE ( E ) TO BE INCLUDED IN THE EXPRESSION DIVIDEND. CONSEQUENTLY, THE EFFECT OF CLAUSE ( E ) OF SECTION ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 8 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION DI VIDEND BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE IN DIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LE GAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREH OLDER. CONSEQUENTLY IN THE PRESENT CASE THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE H ANDS OF THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE T RIBUNAL WAS, IN THE CIRCUMSTANCES, JUSTIFIED IN COMING TO THE CONCL USION THAT, IN ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE THAT THE BASIS ON WHICH T HE ASSESSEE IS SOUGHT TO BE TAXED IN THE PRESENT CASE IN RESPECT O F THE AMOUNT OF RS. 32,00,000 IS THAT THERE WAS A DIVIDEND UNDER SECTIO N 2(22)( E ) AND NO OTHER BASIS HAS BEEN SUGGESTED IN THE ORDER OF THE ASSESSING OFFICER. 10. FOR THE AFORESAID REASONS, THE FIRST AND SECOND QUESTIONS WILL NOT GIVE RISE TO ANY SUBSTANTIAL QUESTIONS OF LAW. 13. FROM THE ABOVE DISCUSSION AND AFTER CONSIDERING THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE O F UNIVERSAL MEDICARE CITED SUPRA, WE FIND THAT THE HONBLE JURI SDICTIONAL HIGH COURT HAS CLEARLY LAID DOWN THAT SECTION 2(22)(E) I S APPLICABLE IN THE CASE OF DEEMED DIVIDEND ONLY IN THE HANDS OF SHAREH OLDERS. IN THE CASE UNDER CONSIDERATION, ADMITTEDLY THE ASSESSEE C OMPANY IS NOT SHAREHOLDER OF YSPL AND NFSPL, THEREFORE, IN THE LI GHT OF JUDGMENT OF JURISDICTIONAL HIGH COURT, WE ARE OF THE CONSIDE RED VIEW THAT DEEMED DIVIDEND U/S 2(22)(E) CANNOT BE TAKEN IN THE HANDS OF THE ASSESSEE. THE ADDITION OF RS. 35,00,000/- SUSTAINED IN THE CASE OF YSPL BY THE CIT(A) IS, THEREFORE, DELETED. SINCE WE HAVE DECIDED THE ISSUE FOLLOWING THE JURISDICTIONAL HIGH COURT WHETH ER UNDER THE FACTS AND CIRCUMSTANCES SECTION 2(22)(E) DIVIDEND I S TAXABLE IN THE HANDS OF THE ASSESSEE, OTHER CONTENTIONS OF THE ASS ESSEE IN RESPECT OF ICD WHETHER IT IS LOAN OR ADVANCES OR BUSINESS P URPOSES ETC. BECOME INFRUCTUOUS AND WE DO NOT EXPRESS ANY OPINIO N ON THOSE CONTENTIONS. 14. ONE MORE GROUND RAISED IN ASSESSEES APPEAL IS IN RESPECT OF ADDITION OF RS. 1.00 LAKH TOWARDS SHARE TRADING LOA NS. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ASSESSEE HAS DECLARED LOANS FROM T RADING (SPECULATION IN SHARES) AMOUNTING TO RS. 14,11,994/ -. THE AO ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 9 NOTED THAT THE ASSESSEE HAS NOT APPORTIONED THE EXP ENSES INCURRED FOR SPECULATION ACTIVITIES. THE SUBMISSION OF THE A SSESSEE IS THAT NO EXPENSES HAVE BEEN INCURRED FOR SPECULATION BUSINES S AND, THEREFORE, THERE SHOULD NOT BE ANY DISALLOWANCE. TH E AO ESTIMATED RS. 1.00 LAKH PERTAINED TO SHARE TRADING ACTIVITIES AND MADE ADDITION ACCORDINGLY. THE CIT(A) CONFIRMED THE ADDI TION. 16. THE LEARNED AR SUBMITTED THAT THE AO HAS MADE A D-HOC DISALLOWANCE WHICH IS NOT CORRECT. THE LEARNED DR H AS RELIED UPON THE ORDERS OF REVENUE AUTHORITIES. 17. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE CONTENTION OF THE ASSES SEE THAT THERE WERE NO EXPENSES RELATED TO SPECULATION TRANSACTION S CANNOT BE ACCEPTED. WE ARE, THEREFORE, OF THE VIEW THAT EXPEN SES PERTAINING TO THE SPECULATION TRANSACTIONS ARE TO BE CONSIDERED F OR CALCULATION OF SPECULATIVE PROFIT/LOSS. THE ASSESSEE DID NOT APPOR TION ANY AMOUNT TOWARDS SPECULATIVE TRANSACTION. IN THIS REGARDS IN PRINCIPLE WE ARE OF THE VIEW THAT EXPENDITURE RELATED TO SPECULATION TRANSACTIONS ARE TO APPORTION, THEREFORE WE DO NOT FIND SUBSTANCE IN ASSESSEES SUBMISSIONS THAT THERE WERE NO EXPENDITURE. THE ASS ESSEE DID NOT FURNISH ANY DETAILS BEFORE THE REVENUE AUTHORITIES, UNDER THE CIRCUMSTANCES THE AO ESTIMATED SUCH EXPENSES OF RS. 1,00,000/-. THERE ARE NO MATERIAL FURNISHED BEFORE US BASIS ON WHICH A DIFFERENT ESTIMATE CAN BE MADE AT THIS STAGE, WE TH EREFORE, CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. 18. NOW WE SHALL DECIDE THE OTHER GROUNDS RAISED BY THE REVENUE IN ITS APPEAL. 19. GROUND NOS. 4 TO 9 ARE IN RESPECT OF DISALLOWAN CE ON ACCOUNT OF V-SAT CHARGES, LEASE LINE AND TRANSACTIO N CHARGES. 20. THE AO MADE THE ADDITION IN RESPECT OF PAYMENTS MADE ON ACCOUNT OF V-SAT, LEASE LINE AND TRANSACTION CHARGE S AMOUNTING TO RS. 2,92,328/- ON THE GROUND THAT THE ASSESSEE DID NOT DEDUCT TAX ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 10 AT SOURCE. THE CIT(A) EXAMINED THE EXPENDITURE AND DELETED THE SAID ADDITION BY OBSERVING THAT V-SAT AND LEASE LIN E CHARGES ARE REIMBURSEMENT CHARGES PAID BY THE MEMBERS OF STOCK EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACILITIES PROVI DED BY THE STOCK EXCHANGE. V-SAT AND LEASE LINE CHARGES ARE NOT PAYM ENTS, WHICH COME WITHIN THE DOMAIN OF FEES FOR TECHNICAL SERVIC ES AND THEY ARE ALSO NOT FOR ANY WORK DONE BY NSE FOR THE MEMBER BR OKER. THE TDS IS, THEREFORE, NOT DEDUCTIBLE ON THE SAME. THE CIT (A) RELYING ON THE DECISION OF ITAT, MUMBAI IN ITA NO. 1955/MUM/08 FOR AY 05-06 IN CASE OF KOTAK SECURITIES VS. ADDL. CIT VIDE ORDER D ATED 26.08.2008 AND HELD THAT THE ASSESSEE IS NOT LIABLE TO MAKE TA X DEDUCTED AT SOURCE. 21. THE LEARNED REPRESENTATIVES OF THE PARTIES SUBM ITTED THAT THE ISSUE IS COVERED AGAINST THE REVENUE BY THE FOL LOWING DECISIONS:- 1. KOTAK SECURTIES LTD. ADDL. CIT, 25 SOT 440 2. CIT VS. BHARATI CELLULAR LTD., 319 ITR 139 (DEL HI) 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. SINCE THE ISSUE IS COVERED AGAINST THE REVENUE BY THE SAID DECISIONS, WE CONFIRM THE ORDER OF CIT(A) ON THIS COUNT. 23. GROUND NO. 10 OF REVENUES APPEAL IS AGAINST TH E ACTION OF THE CIT(A) IN DELETING THE ADDITION OF RS. 30,984/- ON ACCOUNT OF INTEREST TO SEBI AS PER THE SEBI INTEREST LIABILITY REGULARIZATION SCHEME, 2004. 24. THE AO DISALLOWED THE SAID AMOUNT OF RS. 30,984 /- ON THE GROUND THAT THE SAID PAYMENT WAS FOR THE PRIOR PERI OD AND HENCE NOT DEDUCTIBLE. THE CIT(A) DELETED THE SAID ADDITIO N OBSERVING THAT THE LIABILITY TO PAY 20% OF DISPUTED INTEREST TO SE BI HAS BEEN UTILIZED DURING FY 2004-05 IN VIEW OF SEBI INTERES T LIABILITY REGULARIZATION SCHEME, 2004. THE CIT(A) RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MAHALAXMI M ILLS CO. VS. ITA NO. 1496 & 949/M/2009 M/S INDIA CAPITAL MARKET PVT. LTD. 11 CIT 3 (1980) TAXMAN 52 (SC) WHEREIN IT WAS HELD THA T INTEREST PAYABLE ON CESS PARTAKES THE CHARACTER OF CESS ITSE LF AND IS THUS ALLOWABLE ON THE BASIS OF ACTUAL PAYMENT U/S 43B. 25. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF CIT(A) WHEREIN HE HAS RIGHTLY BEEN DELETED THE ADDI TION BY FOLLOWING THE HONBLE SUPREME COURT DECISION IN THE CASE OF M AHALAXMI MILLS CO. (SUPRA). THEREFORE, WE CONFIRM THE ORDER OF CIT (A) ON THIS ISSUE. 26. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2010. SD/- SD/- ( D. K. AGARWAL ) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED: 30 TH JULY, 2010. COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, F BENCH, I. T.A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, IT.A.T., MUMBAI. KV