ITO (TDS), Ward-1(3), Hyderabad, Hyderabad V. Jaypeem Granites Pvt.Ltd., Hyderabad, Hyderabad

ITA 154/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91624 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: M S DAYAKAR
• Keywords: Deemed dividend
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI P.M. JAGTAP, ACCOUNTANT MEMBER ITA.NO.154/HYD/2015 ASSESSMENT YEAR 2008-2009 THE INCOME TAX OFFICER (TDS), TDS WARD-1(3), HYDERABAD. VS. M/S. JAYPEEM GRANITES P. LTD., HYDERABAD 500 034. PAN AAACJ8260C (APPELLANT) (RESPONDENT) FOR REVENUE : MR. RAJAT MITRA FOR ASSESSEE : MR. M.S. DAYAKAR DATE OF HEARING : 30.04.2015 DATE OF PRONOUNCEMENT : 01.05.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A)-8, HYDERABAD DATED 24.1 1.2014 ON THE FOLLOWING GROUNDS : 1. THE CIT(A) ERRED IN FACTS AS WELL AS IN LAW. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT SECTION 2(22)(E) CONTEMPLATES ALL KINDS OF ADVANCES SO AS T O TREAT AS DEEMED DIVIDEND AND NO DISTINCTION IS MADE BETWEEN ADVANCES FOR TRADE AND PROCESSING CHARGES AND OTHER KIND OF ADVANCES. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT FUTURE ADJUSTMENT OF ADVANCES FOR TRADE AND PROCESSING CHARGES DOES NOT ALTER THE CHARACTER OF THE ADVANCE S SO AS TO TREAT THE SAME AS DEEMED DIVIDEND, AS HELD IN THE CASE OF A) CIT VS. PK ABUBUCKER (MAD.) 259 ITR 507 B) WALCHAND & CO. LTD., VS. CIT (BOM.) 100 ITR 598. 2 ITA.NO.154/HYD/2015 M/S. JAYPEEM GRANITES P. LTD., HYDERABAD. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF POLISHED GRANITES. A SURVEY IN ITS CASE WAS CARRIED OUT ON 19.09.2008 TO VERIFY THE COMPLIANCE OF PROVISIONS O F TDS. AS FOUND DURING THE COURSE OF SURVEY, THE ASSESSEE COM PANY HAD PAID TOTAL ADVANCE OF RS.96,20,000 TO ONE M/S. ODLI NGS MEMORIALS P. LTD. SINCE THERE WERE COMMON SHAREHOLD ERS IN THE ASSESSEE COMPANY AND M/S. ODLINGS MEMORIALS P. LTD. AND ONE SHAREHOLDER OF THE ASSESSEE COMPANY WAS HAVING SUBSTANTIAL INTEREST OF MORE THAN 20% IN M/S. ODLIN GS MEMORIALS P. LTD., THE A.O. HELD THAT THE AMOUNT OF ADVANCES WAS CHARGEABLE TO TAX IN THE HANDS OF THE SAID COMP ANY AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) AND THE ASSE SSEE COMPANY THEREFORE, WAS LIABLE TO DEDUCT TAX AT SOUR CE UNDER SECTION 194 FROM THE AMOUNT OF SUCH DEEMED DIVIDEND TO THE EXTENT OF RS.16,40,348 BEING ACCUMULATED PROFITS. S INCE NO SUCH TAX WAS DEDUCTED AT SOURCE BY THE ASSESSEE COM PANY, THE A.O. TREATED IT AS ASSESSEE IN DEFAULT FOR THE TAX SO CHARGEABLE AMOUNTING TO RS.3,68,094 BEING 22.44% AND RS.16,40, 348 UNDER SECTION 201(1) AND ALSO LEVIED INTEREST OF RS .1,03,400 UNDER SECTION 201(1A). THE ASSESSEE COMPANY THUS WA S TREATED BY THE A.O. AS IN DEFAULT FOR A SUM OF RS.4 ,71,494 VIDE HIS ORDER DATED 06.11.2009 PASSED UNDER SECTION 201(1)/201(1A) OF THE ACT. 3. AGAINST THE ORDER PASSED BY THE A.O. UNDER SECT ION 201(1)/201(1A), AN APPEAL WAS PREFERRED BY THE ASSE SSEE BEFORE THE LD. CIT(A) WHO, FOLLOWING THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YS. 2005-06 A ND 2006- 07 RENDERED VIDE ITS COMMON ORDER DATED 08.06.2012 PASSED IN ITA.NO.128 & 129/HYD/2010, HELD THAT THE PROVISI ONS OF 3 ITA.NO.154/HYD/2015 M/S. JAYPEEM GRANITES P. LTD., HYDERABAD. SECTION 2(22)(E) NOT BEING APPLICABLE IN THE CASE O F THE IMPUGNED ADVANCE PAID BY THE ASSESSEE COMPANY TO M/ S. ODLINGS MEMORIALS P. LTD., THE ASSESSEE WAS NOT LIA BLE TO DEDUCT TAX AT SOURCE FROM THE AMOUNT OF SUCH ADVANC ES. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVEN UE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES HAVE AGREED THA T THE ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 08.06.2012 FOR A.YS. 2005-06 AND 2006-07 (SUPRA) RE AD WITH M.P.NO.125 & 126/HYD/2012 DATED 03.08.2012. THE COP IES OF THE SAID ORDERS OF THE TRIBUNAL ARE ALSO PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT A SIMILAR I SSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSES SEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NOS. 12, 15 AN D 16 OF ITS ORDERS. 12. WE HEARD BOTH THE PARTIES AND PERUSED THE ORD ERS OF THE REVENUE AS WELL AS THE PAPER BOOK FIELD BEFO RE US. WE HAVE ALSO GONE THROUGH THE VARIOUS CITATIONS FIL ED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE I N GENERAL AND THE DECISION OF JAIPUR BENCH OF THE TRI BUNAL IN THE CASE OF ANZ REALITIES (SUPRA) IN PARTICULAR. IN THE FIRST PLACE AND AT THE VERY OUTSET, WE HOLD THAT AS FAR AS TRADE ADVANCES ARE CONCERNED, THERE IS NO QUESTION OF APPLICABILITY OF THE PROVISIONS OF S.194 OF THE ACT , AND CONSEQUENTLY, APPLICABILITY OF PROVISIONS OF S.201( 1) AND S.201(1)(1A) DOES NOT ARISES. AS FOR THE OTHER ADVA NCES AS WELL, WE HAVE PERUSED PARA 6 OF THE SAID ORDER OF T HE TRIBUNAL. FOR THE SAKE OF COMPLETENESS OF THIS ORDE R, WE REPRODUCE THE SAID PARA HEREUNDER- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ARGUMENTS MADE BY SHRI RAJEEV SOGANI, LEARNED AUTHORISED 4 ITA.NO.154/HYD/2015 M/S. JAYPEEM GRANITES P. LTD., HYDERABAD. REPRESENTATIVE, APPEAR TO BE CONVINCING THAT S.194 CASTS OBLIGATION FOR TDS ONLY WHEN PAYMENT IS MADE TO A SHAREHOLDER. IT IS NDISPUTED FACT IN THE PRESENT CASE THAT THE FUNDS HAVE BEEN ADVANCED BY THE ASSESSEE COMPANY TO THE FOLLOWING COMPANIES, WHICH ARE NOT SHAREHOLDERS OF THE ASSESSEE COMPANY: (1) M/S. CITYBUILD REALTORS (P)LTD. (2) M/S. INDIANA CLASSIC REALTORS (P)LTD. (3) M/S. MINU CONSTRUCTIONS (P) LTD. THE SHAREHOLDERS OF THE ASE COMPANY ARE SNRI MOHD. RAFI BAGDIA -50 PERCENT AND SHRI TEHSIN RAFI BAGDIA 50 PER CENT. THE COMPLETE PICTURE IS DEPICTED IN THE CHART PLACED ON RECORD. THE LEGISLATURE HAVE RIGHTLY RESTRICTED THE TDS REQUIREMENT ONLY WHEN PAYMENT IS MADE TO SHAREHOLDERS. UNDER THE PROVISIONS OF THE COMPANIES ACT, 1965, EVERY COMPANY IS EXPECTED TO MAINTAIN A REGISTER OF SHAREHOLDERS UNDER S.150 OF THE COMPANIES ACT, 1956. COMPANY IS NOT OBLIGED TO MAINTAIN ANY REGISTER WHEN DETAILS OF SUCH CONCERNS MAY BE MAINTAINED TO WHICH PROVISIONS OF S.2(22)(A) APPLY. UNDER THESE CIRCUMSTANCES, WHEN PAYMENT IS MADE TO A NON-SHAREHOLDER, IT IS IMPOSSIBLE FOR THE PAYER COMPANY TO ASCERTAIN WHETHER IT WILL ATTRACT THE PROVISIONS OF S.2(22)(E ) OF THE IT ACT 1961 OR NOT. THEREFORE, IN THIS VIEW OF THE MATTER, LAW DOES NOT EXPECT THE PAYER COMPANY TO DEDUCT TDS WHEN PAYMENT IS MADE TO A NON- SHAREHOLDER. THIS IS THE REASON THE LAW EXPRESSLY PROVIDES FOR TDS REQUIREMENT ONLY WHEN PAYMENT IS MADE TO A SHARE-HOLDER. THUS, S.194 REQUIRES TDS ONLY WHEN PAYMENT IS MADE TO A SHAREHOLDER. PAYMENT TO SHAREHOLDER WILL COVER BOTH TYPES OF DIVIDENDS I.E. NORMAL DIVIDEND AS WELL AS DEEMED DIVIDEND. OTHERWISE ALSO, DEEMED DIVIDEND WILL BE TAXED IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF NON-SHARE-HOLDER PAYEE. THEREFORE, S.194 DOES NOT REQUIRE TDS WHEN PAYMENT IS MADE TO A NON-SHAREHOLDER. ALSO, UNDER S.206 OF THE COMPANIES ACT, 1956, THE DIVIDEND CAN BE PAID TO A REGISTERED SHAREHOLDER ONLY. THEREFORE, S.194 OF TH E IT ACT, 1961 IS SYNCHRONIZED WITH THE REQUIREMENT 5 ITA.NO.154/HYD/2015 M/S. JAYPEEM GRANITES P. LTD., HYDERABAD. OF THE COMPANIES ACT, 1956 CONTAINED IN SS.150 AND 206 OF THE COMPANIES ACT, 1956. IN THE LIGHT OF THE ABOVE DECISION, IT IS CLEAR THA T IT IS ONLY WHERE THE PAYEE IN RELATION TO THE PAYMENTS IN QUES TION IS A SHARE-HOLDER, SUCH PAYMENTS MAY ATTRACT THE PROVI SIONS OF S.2(22)(E) OF THE ACT, AND CONSEQUENTLY LIABILIT Y TO TDS UNDER S.194 OF THE ACT. THE POINTS OF DISTINCTION B ETWEEN THE FACTS IN THE CITED CASE AND THE CASE OF THE ASS ESSEE, MADE OUT BY THE CIT(A) IN THE IMPUGNED ORDER MERELY BASING ON THE STATUS OF THE ASSESSEE, IN OUR OPINIO N, ARE TOTALLY ARTIFICIAL AND NOT VALID. IN THIS VIEW OF T HE MATTER, THE RATIO OF THE SAID DECISION OF THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF ANZ REALITY (SUPRA), APPLIE S TO THE FACTS OF THE PRESENT CASE. HENCE, IN SO FAR AS THE ASPECT OF DEEMED DIVIDED INVOLVED IN CASH ADVANCES IS CONCERN ED, ASSESSEE IS ENTITLED FOR RELIEF IN THIS REGARD. WE ACCORDINGLY ALLOW THE GROUNDS OF THE ASSESSEE IN TH IS APPEAL. 15. DURING THE PROCEEDINGS BEFORE US, LEARNED COUN SEL FOR THE ASSESSEE ARGUED STATING THAT THE CIT(A) RIGHTLY ALLOWED THE ASSESSEES APPEALS ON THE ISSUE OF APPLICABILITY OF PROVISIONS OF S.2(22)(E) OF THE AC T TO THE TWO KINDS OF ADVANCES -TRADE CREDITS ON ONE SIDE AND PROCESSING CHARGES ON THE OTHER. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STATED THAT THE ORDER OF THE CIT(A) IS SILENT ON TH E ISSUE OF THE APPLICABILITY OF THE PROVISIONS OF S.2(22)(E) T O THE PAYMENT OF PROCESSING CHARGES. 16. WE HEARD THE PARTIES AND PERUSED THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. WE FIND ON FACTS, AS NOTED ABOVE, THE CIT(A ) COLLECTED THE DETAILS OF ADVANCES AND CATEGORISED T HEM INTO TRADE ADVANCES AND PROCESSING CHARGES. SO FAR AS THESE TWO KINDS OF ADVANCES ARE CONCERNED, WE HAVE ALREADY GIVEN OUR ADJUDICATION GIVEN IN THE CONTEXT OF GROUNDS OF APPEAL OF THE ASSESSEE IN PARA 12 HEREINABOVE. IN THE LIGHT OF OUR DISCUSSION IN PARA 12 ABOVE, SINCE THE ADVANCES GIVEN TOWARDS PROCESSING CHARGES ALSO CONSTITUTE TRADE ADVANCES, THE SAME ARE OUTSIDE THE SCOPE OF THE PROVISIONS OF S.194. AND CONSEQUENTLY, THE GROUNDS RAISED BY THE REVENUE ARE LIABLE TO BE DISMISSED. CONSEQUENTLY, GROUNDS OF TH E REVENUE ARE ACCORDINGLY DISMISSED. 6 ITA.NO.154/HYD/2015 M/S. JAYPEEM GRANITES P. LTD., HYDERABAD. 4.1. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS REL EVANT THERETO ARE SIMILAR TO THE A.Y. 2005-06 AND 2006-07, WE RES PECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR THE SAID YEARS AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) CANCELLING THE DEMAND RAISED BY THE A.O. UNDER SECTION 201(1)/201(1A). 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.05.2015. SD/- SD/- (G.C. GUPTA) (P.M. JAGTAP) VICE PRESIDENT ACCOUNTANT MEMBER HYDERABAD, DATED 01 ST MAY, 2015 VBP/- COPY TO 1. THE INCOME TAX OFFICER (TDS), TDS WARD 1(3), HYD ERABAD. 2. M/S. JAYPEEM GRANITES P. LTD., 8-2-603/13/N/B, R OAD NO.10, BANJARA HILLS, HYDERABAD. 3. CIT(A)-8, HYDERABAD. 4. CIT (TDS), HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE.