Jewel Consumer Care Pvt.Ltd., Baroda V. The ACIT.,Circle-4, Baroda

ITA 1522/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60600 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-07-2012
• Assessment Year: 1998-1999
• Appeal Filed On: 14-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , .. , '# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ./ I.T.A. NOS.1522 & 1523/AHD/2009 ( & ' & ' & ' & ' / / / / ASSESSMENT YEARS:1998-99 & 2000-01 RESPECTIVELY ) JEWEL CONSUMER CARE PVT.LTD. (FOR AND ON BEHALF OF M/S.SNOWDROP BRISTLERS PVT.LTD., WHICH IS BEEN MERGED WITH M/S.JEWEL CONSUMER CARE PVT.LTD.) SUBHAAG B-15/16 RAMIN PARK OLD PADRA ROAD, BARODA 390 020 & & & & / VS. THE ACIT CIRCLE-4 BARODA ( '# ./)* ./ PAN/GIR NO. : AAACD 7010 D ( (+ / // / APPELLANT ) .. ( ,-(+/ RESPONDENT ) (+ . '/ APPELLANT BY : SHRI S.N.SOPARKAR, SR.ADV. WITH SHRI JAIMIN GANDHI ,-(+ / . ' / RESPONDENT BY : SHRI ROOPCHAND, SR.D.R. &0 / #/ // / DATE OF HEARING : 10/07/2012 12' / # / DATE OF PRONOUNCEMENT : 13/7/2012 '3/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE ARISING FROM A COMBINED ORDER OF THE LD.CIT(A)-III, VADODARA DATE D 18/03/2009. FOR BOTH THE YEARS, A COMMON ISSUE HAS BEEN RAISED PERT AINING TO THE ADDITION OF DEEMED DIVIDEND TAXED BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) ITA NOS.1522 & 1523/AHD/2009 JEWEL CONSUMER CARE PVT.LTD. VS. ACIT ASST.YEARS - 1998-99 & 2000-01 - 2 - OF IT ACT. AS PER THE GROUNDS OF APPEAL FOR A.Y. 1 998-99, THE IMPUGNED ADDITION AMOUNTED TO RS.25 LACS AND FOR AY 2000-01 , IT WAS RS.18,25,000/-. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDERS BOTH PASSED U/S.143(3) R.W.S.147 RESPECTIVEL Y DATED 31/08/2005 AND 24/11/2004 WERE THAT THE ASSESSEE-COMPANY HAS R ECEIVED LOANS FROM THE FOLLOWING COMPANIES(EXTRACTED FROM THE ASSESSME NT ORDER FOR AY 2000-01):- (I) AMIGO BRUSHES PVT.LTD. RS.14,50,000/- (II) UNIDENT BRUSHES PVT.LTD. RS.21,00,000/- ------------------ RS.35,50,000/- ------------------ 2.1. FOR AY 1998-99, THE LOAN AMOUNT WAS RECORDE D BY THE AO AS RS.25 LACS. THE REASON FOR INVOKING THE PROVISIONS OF SECTION 2(22)(E) WAS THAT ONE MRS.GEETABEN A.GORADIA HAS SHARE-HOLDI NG WITH ASSESSEE- COMPANY AS WELL AS WITH THE COMPANY WHO HAS ADVANCE D THE LOAN. THE AO HAS RECORDED THE FACTS AS FOLLOWS:- D) WITH REGARD TO LOANS OR ADVANCE GIVEN TO CONCE RN IN WHICH A SHAREHOLDER OF THE COMPANY HAS SUBSTANTIAL INTEREST , THE MAJOR SHAREHOLDINGS HELD IN ASSESSEE-COMPANY AND UNIDENT BRUSHES P.LTD., ARE AS FOLLOWS:- NAME OF THE SHAREHOLDER & THEIR HOLDINGS PATTERN IN EACH COMPANIES SNOWDROP BRISTLERS PVT.LTD. UNIDENT BRUSHES PVT.LTD. MRS.GEETABEN A.GORADIA 76% 83% MRS.NIRMALA M.GORADIA, BARODA 24% 17% ITA NOS.1522 & 1523/AHD/2009 JEWEL CONSUMER CARE PVT.LTD. VS. ACIT ASST.YEARS - 1998-99 & 2000-01 - 3 - EXPORTERS & TRADERS PVT.LTD. OTHER SHAREHOLDERS (LESS THAN 1% IN EACH COMPANY) FROM THE ABOVE, IT IS SEEN THAT MRS.GEETABEN A GORA DIA HAVING SUBSTANTIAL INTEREST IN BOTH THE CONCERNS DURING TH E PREVIOUS YEAR, THEREFORE, THE LOAN OR ADVANCE GIVEN TO ASSESSEE-CO MPANY BY UNIDENT BRUSHES P.LTD. IS FOR THE BENEFIT OF THE AS SESSEE- COMPANY. 2.2. ACCORDINGLY, FOR BOTH THE YEARS THE AMOUNT OF LOANS WERE RESPECTIVELY HELD AS DEEMED DIVIDEND INCOME IN THE HANDS OF THE ASSESSEE. BEING AGGRIEVED THE MATTER WAS CARRIED B EFORE THE FIRST APPELLATE AUTHORITY. 3. LD.CIT(A) HAS EXPRESSED THAT THE BORROWINGS TAKE N FROM UNIDENT BRUSHES AND AMIGO BRUSHES WERE THE DEEMED DIVIDEND U/S.2(22)(E) OF THE IT ACT, BECAUSE MRS.GEETABEN A. GORADIA WAS HAV ING SUBSTANTIAL SHARE-HOLDING IN BOTH THE LENDING COMPANIES AS WELL AS THE ASSESSEE- COMPANY. IN HIS OPINION, SINCE MRS.GEETABEN A.GARO DIA WAS HOLDING SUBSTANTIAL INTEREST IN THE APPELLANT-COMPANY AND A LSO A REGISTERED SHARE- HOLDERS HAVING BENEFICIAL OWNER OF SHARES HOLDING M ORE THAN 10% OF THE VOTING POWER, THEREFORE THE PROVISIONS OF THE SAID SECTION WERE CLEARLY APPLICABLE. IN THE RESULT, THE ACTION OF THE AO WAS CONFIRMED. 4. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT IN THE LIGHT OF THE FACTS DISCUSSED HEREINABOV E, THE ISSUE IS SQUARELY COVERED BY SEVERAL DECISIONS OF HONBLE COURTS IN F AVOUR OF THE ASSESSEE. ITA NOS.1522 & 1523/AHD/2009 JEWEL CONSUMER CARE PVT.LTD. VS. ACIT ASST.YEARS - 1998-99 & 2000-01 - 4 - AT THE OUTSET, A CASE LAW REFERRED IS BHAUMIK COLO URS PVT.LTD. 313 ITR 146 (AT-MUM.)[SB], WHEREIN IT WAS HELD IN CLEAR TER MS THAT THAT DEEMED DIVIDEND COULD BE ASSESSED ONLY IN THE HANDS OF THE PERSON, WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN T HE HANDS OF A PERSON OTHER THAN A SHAREHOLDER, I.E. THE CONCERN. AS FAR AS THE FACTS OF THE PRESENT CASE IS CONCERNED, ADMITTEDLY THE RELATIONS HIP BETWEEN THE ASSESSEE-COMPANY AND THE LENDER-COMPANY IS NOT HOLD ING SHARES. THE PROVISIONS OF SECTION 2(22)(E) PRESCRIBES THAT THE DEEMING PROVISIONS CAN BE INVOKED IN THE HANDS OF THE PERSON WHO IS A SHAR EHOLDER OF THE LENDER- COMPANY. IN THIS REGARD, A LATEST DECISION OF HO NBLE DELHI HIGH COURT IS DIRECT ON THE ISSUE CIT VS. ANKITECH (P) LTD. (2 011) 199 TAXMAN 341 (DELHI)::: 340 ITR 14 (DELHI), WHEREIN THE TRIBUNA L HAS HELD AS UNDER:- THE INTENTION BEHIND ENACTING PROVISIONS OF S. 2(2 2)(E) IS THAT CLOSELY- HELD COMPANIES (I.E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEM BERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTR IBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INC OME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD O F DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPANIES DISTRIBU TE THEM AS LOANS OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUC H SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BE HALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYMENT BY THE COMPANY IS TREATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF S. 2(22)(E) IS T O TAX DIVIDEND IN THE HANDS OF SHAREHOLDERS. THE DEEMING PROVISION AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN W HICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON T HE PRESUMPTION THAT THE LOANS OR ADVANCES WOULD ULTIMATELY BE MADE AVAI LABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVA NCE. FURTHER, IT IS AN ADMITTED CASE THAT UNDER NORMAL CIRCUMSTANCES, S UCH A LOAN OR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREA TED UNDER S. 2(22)(E). ONE HAS TO KEEP IN MIND THAT THIS LEGAL PROVISION R ELATES TO 'DIVIDEND'. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ITA NOS.1522 & 1523/AHD/2009 JEWEL CONSUMER CARE PVT.LTD. VS. ACIT ASST.YEARS - 1998-99 & 2000-01 - 5 - ENLARGED. LEGAL FICTION DOES NOT EXTEND TO 'SHAREHO LDER'. KEEPING IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER S. 2(22) (E) WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP HERE A ND IS NOT TO BE EXTENDED FURTHER FOR BROADENING THE CONCEPT OF SHAR EHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS IN THE FORM OF DIVIDEND TO I TS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GI VEN TO NON- MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER S. 2(2 2)(E) VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER CO MPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHARE HOLDER/MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISLA TURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF 'DEEMING SHAREHOLDER', THEN THE LEGISLATURE WOULD HAVE INSER TED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT H AS NOT HAPPENED. IN A CASE LIKE THIS, THE RECIPIENT WOULD BE A SHAREHOLDE R BY WAY OF DEEMING PROVISION. IT IS NOT CORRECT ON THE PART OF THE REV ENUE TO ARGUE THAT IF THIS POSITION IS TAKEN, THEN THE INCOME 'IS NOT TAX ED AT THE HANDS OF THE RECIPIENT'. SUCH AN ARGUMENT BASED ON THE SCHEME OF THE ACT AS PROJECTED BY THE COUNSEL FOR THE REVENUE ON THE BAS IS OF SS. 4, 5, 8, 14 AND 56 WOULD BE OF NO AVAIL. SIMPLE ANSWER TO THIS ARGUMENT IS THAT SUCH LOAN OR ADVANCE, IN THE FIRST PLACE, IS NOT AN INCOME. SUCH A LOAN OR ADVANCE HAS TO BE RETURNED BY THE RECIPIENT TO T HE COMPANY, WHICH HAS GIVEN THE LOAN OR ADVANCE. PRECISELY, FOR THIS VERY REASON, THE COURTS HAVE HELD THAT IF THE AMOUNTS ADVANCED ARE F OR BUSINESS TRANSACTIONS BETWEEN THE PARTIES, SUCH PAYMENT WOUL D NOT FALL WITHIN THE DEEMING DIVIDEND UNDER S. 2(22)(E). INSOFAR AS RELI ANCE UPON CIRCULAR NO. 495, DT. 22ND SEPT., 1997 ISSUED BY CBDT IS CON CERNED, SUCH OBSERVATIONS ARE NOT BINDING ON THE COURTS. ONCE IT IS FOUND THAT SUCH LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEN D AT THE HANDS OF SUCH A CONCERN WHICH IS NOT A SHAREHOLDER, AND THAT IS THE CORRECT LEGAL POSITION, SUCH A CIRCULAR WOULD BE OF NO AVAIL. THE DEFINITION OF SHAREHOLDER IS NOT ENLARGED BY ANY FICTION.CIT VS. HOTEL HILLTOP (2008) 217 CTR (RAJ) 527 : (2008) 5 DTR (RAJ) 46 AN D CIT VS. UNIVERSAL MEDICARE (P) LTD. (2011) 237 CTR (BOM) 14 7 : (2010) 37 DTR (BOM) 409 : (2010) 190 TAXMAN 144 (BOM) CONCURR ED WITH; ASSTT. CIT VS. BHAUMIK COLOUR (P) LTD. (2009) 120 TTJ (MUM BAI)(SB) 865 : (2009) 18 DTR (MUMBAI)(SB)(TRIB) 451 : (2009) 118 I TD 1 (MUMBAI)(SB) APPROVED. ITA NOS.1522 & 1523/AHD/2009 JEWEL CONSUMER CARE PVT.LTD. VS. ACIT ASST.YEARS - 1998-99 & 2000-01 - 6 - 5. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS AND C ONSIDERING THE FACTS OF THE CASE, WE HEREBY HOLD THAT THE AO HAS W RONGLY INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT ON TH IS APPELLANT. WE, THEREFORE, REVERSE THE FINDINGS OF THE REVENUE AUTH ORITIES AND DIRECT TO DELETE THE ADDITION. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. SD/- SD/- ( .. ) ( ) '# ( T.R. MEENA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 13/ 7 /2012 ..&, .&../ T.C. NAIR, SR. PS '3 / ,4 5'4' '3 / ,4 5'4' '3 / ,4 5'4' '3 / ,4 5'4'/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. 6 / CONCERNED CIT 4. 6() / THE CIT(A)-III, BARODA 5. 49: ,& , , / DR, ITAT, AHMEDABAD 6. :; <0 / GUARD FILE. '3& '3& '3& '3& / BY ORDER, -4 , //TRUE COPY// = == =/ // / ) ) ) ) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DIRECT-DICTATION ON COMPUTER .. 10.7.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11.7.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S13.7.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13.7.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER