Sri. Premdutt Sharma Ravdutt Sharma, Bangalore V. ITO, Bangalore

ITA 1584/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95378 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: H N KHINCHA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.1043(BNG)/2015 (ASSESSMENT YEAR : 2007-08) THE INCOME-TAX OFFICER, WARD-7(3), BANGALORE APPELLANT VS M/S PROMYX OUTSOURCE SERVICES PVT.LTD. NO.102, INDUSTRIAL LAYOUT, 4 TH B CROSS, 5 TH BLOCK, KORAMANGALA, BANGALORE -5600 0095 PAN NO.AADCP 4959R RESPONDENT REVENUE BY : SHRI NEERA MALHOTRA, CIT ASSESSEE BY : SHRI H.N.KHINCHA, CA DATE OF HEARING : 17-11-201 5 DATE OF PRONOUNCEMENT : 20-11-2015 O R D E R PER SHRI INTURI RAMA RAO, AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, BANGALORE DATED 15-03-2012 FOR THE ASSE SSMENT YEAR : 2007- 08. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS; 1. THE ORDER OF LD. CIT(A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2 ITA NO.1043(B)/2015 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) ERRED IN DELETING THE DEEMED DIVIDEND U/S 2( 22)(E) OF THE IT ACT, IN THE HANDS OF THE ASSESSEE COMPANY WI THOUT APPRECIATING THE FACT THAT THE CONDITIONS LAID DOWN IN THE PROVISIONS OF SEC.2(22)(E) OF THE ACT AND THE SAME WAS ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE. 3 ON THESE AND ANY OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE HONBLE ITAT IS PLEADED TO QUASH THE ORDER OF CIT(A) 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A DOMESTIC COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF C OMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF OUTSOURCING OF SERVICES. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 WAS FILED ON 26-10-2007 DIS CLOSING A LOSS OF RS.5,14,700/- AND THIS RETURN OF INCOME WAS REVISED ON 29-01-2009 AT LOSS OF RS.6,89,000/-. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY ASSESSMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE COMPANY RECEIVED LOAN OF RS.78,21,574/- FROM M/S TR ATUM TECHNOLOGIES PVT.LTD. THE AO FURTHER FOUND THAT M/S TRATUM TECH .PVT.LTD. IS A SISTER CONCERN OF THE COMPANY IN WHICH SHRI HARIDAS CHEMBU KAVE, IS THE DIRECTOR HOLDING 98% SHARES AND THE SAME PERSON ALSO HOLDING 90% IN THE ASSESSEE 3 ITA NO.1043(B)/2015 COMPANY AND AFTER FINDING OUT THE RESERVES AND SURP LUS OF THE SAID COMPANY I.E M/S TRATUM TECH.PVT.LTD. STOOD AT RS.7,34,54,600/- AND MADE AN ADDITION OF RS.32,26,257/- BEING THE AMOUNT RECEIVED DURING THE YEAR UNDER CONSIDERATION, AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SEC.2(22 )()E) OF THE IT ACT, 1961. 4. BEING AGGRIEVED BY THE ORDER, AN APPEAL WAS PREF ERRED BEFORE THE CIT(A), WHO VIDE IMPUGNED ORDER HELD THAT THE ADDIT ION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE COMPANY, BUT IN THE HANDS OF THE DIRECTOR OF THE SAID COMPANY. 5. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED T HE MATERIAL ON RECORD. THE RELEVANT PROVISION OF SEC.2(22)(E) OF THE IT ACT, 1961 READS AS UNDER; .. (E)ANY PAYMENT BY A COMPANY, NOT BEING A COMP ANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF A NY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF TH E COMPANY OR OTHERWISE) [MADE AFTER THE 31ST DAY OF MAY, 1987, B Y WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A ME MBER OR A 4 ITA NO.1043(B)/2015 PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR AN Y PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL B ENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFITS ; BUT 'DIVIDEND' DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAUSE (C) OR SUB- CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURP LUS ASSETS ; [(IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CL AUSE (C) OR SUB-CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS AT TRIBUTABLE TO THE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BON US SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, [AND BEFORE THE 1ST DAY OF APRIL, 1965] ;] (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY ; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PR EVIOUSLY 5 ITA NO.1043(B)/2015 PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEA NING OF SUB- CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF ; [(IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERG ED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAP ITAL IN THE DEMERGED COMPANY).] EXPLANATION 1.THE EXPRESSION 'ACCUMULATED PROFITS' , WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPITAL GAINS ARISING BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31S T DAY OF MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL, 1956. EXPLANATION 2 .THE EXPRESSION 'ACCUMULATED PROFITS' IN SUB- CLAUSES (A), (B), (D) AND (E), SHALL INCLUDE ALL PR OFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT R EFERRED TO IN THOSE SUB-CLAUSES, AND IN SUB-CLAUSE (C) SHALL INCL UDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, [BUT SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON THE COMPULSO RY ACQUISITION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT U NDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFIT S OF THE 6 ITA NO.1043(B)/2015 COMPANY PRIOR TO THRE E SUCCESSIVE PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITI ON TOOK PLACE]. [EXPLANATION 3.FOR THE PURPOSES OF THIS CLAUSE, (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN ;] 6. FROM THE ABOVE PROVISIONS, IT IS CLEAR FOR INVO KING SEC.2(22)(E) THE RECIPIENT OF LOAN SHOULD BE A REGISTERED SHARE HOLD ER. IT IS A SINQUA-NON THAT BENEFICIARY OF LOAN SHOULD BE SHAREHOLDERS OF THE COMPANY FROM WHICH LOAN WAS RECEIVED. THE MERE FACT THAT THERE ARE C OMMON SHAREHOLDERS, THE PROVISIONS OF SEC.2(22)(E) CANNOT BE INVOKED. IN S UPPORT OF THIS PROPOSITION, WE RELY ON THE FOLLOWING DECISIONS; 1. KARNATAKA TURNED COMP[ONENTS PVT.LTD VS ACIT 49 TAXMANN.COM 299 (KAR.) 2. CIT VS ANKITECH (P)LTD. 11 TAXMANN.COM 100(DEL. ) 3. IAG PROMOTERS & DEVELOPERS (P)LTD 61 TAXMANN.CO M 9(AHD.) 7 ITA NO.1043(B)/2015 6.1 IN FACT, THE CO-ORDINATE BENCH OF DELHI IN THE CASE OF IAG PROMOTERS &DEVELOPERS (P)LTD VS ACIT HELD AS FOLLO WS; WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSEE IS NOT A SHAREHOLDER OF M/S COUNTRYWIDE PROMOTERS PVT.LTD. IT IS TRITE LAW THAT THE PROVISIONS OF SE CTION 2(22)(E) HAVE NO APPLICATION TO NON-REGISTER4ED SHAREHOLDERS. THE HONBLE APEX COURT IN THE CASE O F CIT VS C.P.SARATHY MUDALIAR (1972) 83 ITR 170 WHILE CONSTITUTING THE PROVISIONS OF SEC.2(6A) (E) OF THE ACT, 1922 WHICH ARE IN PARI MATERIA WITH THE PROVISIONS OF SEC.2(22)(E) OF THE IT ACT, 1961 HELD THAT THE PROV ISIONS GOVERNING THE DEEMED DIVIDEND CAN BE MADE APPLICABLE ONLY IN THE HANDS OF THE REGISTERED SHAREHOLDERS. SINCE ADMITTEDLY, IN THE PRESENT CAS E, THE ASSESSEE IS NOT A SHAREHOLDER OF M/S COUNTRYWID E PROMOTERS (P)LTD. THE AMOUNT OF RS.1,73,262/- BE TA XED IN THE HANDS OF THE ASSESSEE-COMPANY. HENCE, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 8 ITA NO.1043(B)/2015 7. IN THE LIGHT OF THE ABOVE LEGAL POSITION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A), HENCE THE APPEAL FILED BY THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH NOVEMBER, 2015. SD/- (ASHA VIJAYARAGHAVAN SD/- (INTURI RAMARAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE D A T E D : 20-11-2015 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR,ITAT, BANGALORE