DCIT, Madurai V. Global Polybags Idnustries (P) Limited, Virudhunagar

ITA 1596/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95956 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 10-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN IRS
• Assessee Lawyers: V RAJASEKARAN
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , ! , ' #$ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO. 1596/MDS/2015 / ASSESSMENT YEAR : 2009-2010 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE I, MADURAI VS. GLOBAL POLYBAGS INDUSTRIES (P) LIMITED, 500A PERALI ROAD, VIRUDHUNAGAR 626 001. [PAN AABCG 2203K] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. P. RADHAKRISHNAN, IRS, JCIT. /RESPONDENT BY : SHRI.V. RAJASEKARAN, C.A. / DATE OF HEARING : 26-08-2015 / DATE OF PRONOUNCEMENT : 28-08-2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, MADURA I, DATED 27.04.2015 FOR THE ASSESSMENT YEAR 2009-2010. ITA NO.1596/MDS/2015. :- 2 -: 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 2. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT LOAN IS IN THE NATURE OF TRA DE ADVANCE WITHOUT BRINGING SPECIFIC FACTS ON RECORD T O ARRIVE AT SUCH A FINDING AND THUS HOLDING THAT THE LOAN COULD NOT FALL WITHIN THE MEANING OF DEEMED DIVIDEND U/S.2(22)(E)OF THE INCOME TAX ACT. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT SINCE THE ASSESSEE THE COMPANY IS NOT A SHAREHOLDER IN THE LENDING COMPANY, THE PROVISION OF DEEMED DIVIDEND AS PER SECTION 2(22)(E) WOULD NOT BE APPLICABLE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS TAK EN LOAN FROM THEIR SISTER CONCERN M/S. UNIVERSAL POLYBAGS INDUSTRIES P. LTD TO THE TUNE OF E2,53,05,071/-. ACCORDING TO THE ASSES SING OFFICER, SMT. SADHANA AND SMT. SEETHALAKSHMI ARE HOLDING 49% SH ARE IN M/S. GLOBAL POLYBAGS INDUSTRIES LTD. SIMILARLY, THERE WA S ALSO 49.5% SHARE HOLDING IN M/S. UNIVERSAL POLYBAGS INDUSTRIES LTD. ACCORDING TO HIM, PROVISION OF SEC. 2(22)(E) OF THE ACT IS APPLICABLE AT THE END OF FINANCIAL YEAR I.E 31.03.2009, AS THERE WAS ACCUMUL ATED PROFITS IN M/S. UNIVERSAL POLYBAGS INDUSTRIES LTD I.E LENDING COMPA NY AT E64,03,780/- ACCORDINGLY, HE INVOKED PROVISION OF SEC. 2(22)(E) AND THEREBY MADE AN ADDITION OF E64,03,780/-. AGGRIEVED, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS). 4. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) T HE ASSESSEE PLEADED THAT THE ASSESSEE PURCHASED EXTRU SION AND BAG ITA NO.1596/MDS/2015. :- 3 -: MAKING WORKS ON JOB BASIS FROM M/S. UNIVERSAL POL YBAGS INDUSTRIES PVT. LTD. SUCH JOB WORKS FROM THEM FOR THE ASSESSME NT YEAR 2009- 2010 IS E61,80,757/- ON WHICH TDS WAS DEDUCTED. TH E AMOUNT PAID/ RECEIVED WAS A COMMERCIAL TRANSACTION AND ADJUSTED THEN AND THERE AND ALSO AGAINST SUBSEQUENT DUES TO THE COMPANY. T HE TRANSACTIONS DURING THE YEAR INCLUDE ADVANCES AS WELL AS PAYMENT S OF AMOUNTS WHICH ARE TOWARDS THE BUSINESS TRANSACTIONS WITH TH E COMPANY ON ACCOUNT OF WHICH DEEMED DIVIDED IS NOT APPLICABLE. FURTHER, THE ASSESSEE SUBMITTED THAT IN MANY JUDICIAL DECISION S IT WAS HELD THAT WHERE ASSESSEE ITSELF IS NOT SHAREHOLDER OF LENDING COMPANY, EVEN THOUGH THERE IS COMMON SHAREHOLDERS TO BOTH CONCERN S, DEEMED DIVIDEND UNDER PROVISIONS OF SECTION 2(22)(E) CANNO T BE MADE IN THE HANDS OF THE ASSESSEE COMPANY. HE RELIED ON THE FO LLOWING DECISIONS: (I) DR. FREIDE ARDHESHIR MEHTA VS. UNION OF INDIA (1991) COMP. CAS 210 (BOMBAY), WHEREIN IT WAS HELD THAT LOANS MEANS AN ADVANCE OF MONEY, UPON THE UNDERSTANDING THAT IT SHALL BE PAID BACK, AND I T MAY OR MAY NOT CARRY INTEREST. A CREDIT SALE RESULTING IN A BOOK DEBT DOES NOT ACCOUNT TO A LOAN . (II) CIT VS. RAJ KUMAR (2009) 181 TAXMANN 155 (DEL), WHEREIN IT WAS HELD THAT THE USUAL ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WITH THE ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN. IT GENERALLY CARRIES INTEREST A ND THERE IS AN OBLIGATION OF REPAYMENT. (III) CIT VS. CREATIVE DYEING & B PRINTING (P) LTD 201031(I) ITCL 93 (DELHI) WHEREIN IT WAS HELD THAT WORD ADVANCE HAS TO BREAD IN CONJUNCTION WITH THE WORD LOAN. USUALLY ATTRIBUTES OF A LOAN ARE ITA NO.1596/MDS/2015. :- 4 -: THAT IT INVOLVES POSITIVE ACT OF LENDING, COUPLED W ITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN. IT GENERALLY CARRIED ON INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, IN ITS WIDEST MEANING THE TERM ADVANCE MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES, THEN IT WOULD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING WOULD ATTRIBUTE TO THE TERM ADVANCE. THE RULE OF CONSTRUCTION, TO OUR MINDS, WHICH ANSWERS THIS CONUNDRUM IS A NOCTURNE A SOCIALS. THEREFORE, THE WORD HAS TO BE CONSTRUCTED WITH REFERENCE TO WORD FOUND IN ITS PROXIMITY. ACCORDINGLY, IT WAS HELD THAT THE ADVANCE COULD NOT BE DEEMED AS DIVIDEND BECAUSE THE SAME WAS RECEIVED FOR SUPPLY OF GOODS. (IV) ITAT, MUMBAI, SPECIAL BENCH IN ACIT VS. BAHUMIK COLOUR LAB (P) LTD 118 ITR 1 (MUM) (SB) WHEREIN HELD THAT THE SEC 2(22) OF THE INCOME TAX ACT,1961- DEEMED DIVIDEND ASSESSMENT YEAR 1997-98- WHETHER DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON OTHER THAN A SHAREHOLDER HELD, YES WHETHER EXPRESSION SHAREHOLDER REFER RED TO IN SECTION 2(22) (E) RE FERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER AND, THUS, IF A PERSON IS A REREGISTERE D SHAREHOLDER BUT NOT BENEFICIAL SHAREHOLDER THEN PROVISIONS OF SECTION 2(22) (E) WOULD NOT APPLY AND SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO PROVISIONS O F SECTION 2(22) (E) WOULD NOT APPLY- HELD, YES- WHETHER DEEMING PROVISION OF SECTION 2(22) (E) AS IT APPLIES TO CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, I S BASED N PRESUMPTION THAT LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO SHAREHOLDERS OF COMPANY GIVING LOAN OR ADVANCE AND THEREFORE, INTENTION OF LEGISLATURE IS TO TAX DIVIDEND ONLY IN HANDS OF SHAREHOLDER AND NOT IN HANDS OF CONCERN- HELD, YES. (V) THE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. JIGNESH P. SHAH (2015) 54 TAXMANN.COM 293, WHEREIN HELD THAT THE ASSESSEE WAS A 50% SHAREHOLDER OF L. L HAD ADVANCED MONEY TO ONE N COMPANY WHO IN TURN ADVANCED MONEY TO ITA NO.1596/MDS/2015. :- 5 -: ASSESSEE. THE ASSESSING OFFICER BROUGHT TO TAX THE AMOUNT OF LOAN REEIVED BYTHE ASSESSEE FROM N AS DEEMED DIVIDEND U/S.2(22) (E). ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE LOAN GIVEN BY N TO THE ASSESSEE WAS NOT THE PAYMENT MADE BY IT TO ITS SHAREHOLDER. THUS, THE SECTION 2(22)(E) HAD NO APPLICATION. ACCORDINGLY, THE COMMISSIONER OF INCOME TAX (APPEAL S) DELETED THE ADDITION BY OBSERVING THAT THE ABOVE DECISION RELI ED BY THE ASSESSEE INCLUDING A SPECIAL BENCH DECISION OF ITAT MUMBAI, HAD HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON WHO IS A SHAREHOLDER OF A LENDER COMPANY AND NOT IN HANDS O F A PERSON OTHER THAN SHAREHOLDER AND THAT MEANING OF SECTION 2(22)( E) CANNOT BE EXTENDED TO INCLUDE OTHERS ON THE GROUND OF COMMON SHAREHOLDING. THE FACTS IN THE INSTANT CASE ARE IDENTICAL AS SMT. SADHANA AND SMT. SEETHALAKSHMI ARE THE MAJOR SHAREHOLDERS IN ASSESSE E COMPANY M/S. GLOBAL POLYBAGS INDUSTRIES P.LTD. ITSELF WAS NOT S HAREHOLDER OF LENDING COMPANY M/S. UNIVERSAL POLYBAGS INDUSTRIES P. LTD. SINCE THE ASSESSEE COMPANY WAS NOT A SHAREHOLDER IN THE LENDING COMPAN Y, DULY FOLLOWING THE ABOVE DECISIONS, IT WAS HELD THAT THE DEEMED DI VIDEND UNDER PROVISIONS OF SECTION 2(22)(E) CANNOT BE MADE IN TH E HANDS OF THE ASSESSEE. AGAINST THIS, THE REVENUE IS IN APPEAL B EFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CONCEDED BEFORE THE ASSESSING OFFICER THAT THE ADDITION TO THE EXTENT OF ACCUMULATED PROFIT TO BE MADE. FURTHE R, THERE WAS NO ITA NO.1596/MDS/2015. :- 6 -: PLEA OF THE ASSESSEE REGARDING BUSINESS EXPEDIENCY FOR NOT MAKING ADDITION. BEING SO, HE PLEADED THAT THE ISSUE MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDE RATION. IN OUR OPINION, THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATI VE HAS NO MERIT. ADMITTEDLY, IN THIS CASE THE ASSESSEE COMPANY IS NO T SHAREHOLDER IN THE LENDING COMPANY. AS HELD BY THE SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR PVT. LTD (SUPRA) THE DEEMED DIVIDEND COULD BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO WAS A SHARE HOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. IT WAS HELD BY THE TRIBUNAL IN THAT C ASE AT PARA 39 AND 40 OF ITS ORDER AS UNDER:- 39. IN THE DECISION OF THE TRIBUNAL IN THE CASE O F NIKKO TECHNOLOGIES (I) (P) LTD. (SUPRA), RELIANCE HAS BEE N PLACED ON CIRCULAR NO.495 DATED 22 ND SEPTEMBER, 1987 WHICH STATES AS FOLLOWS:- FURTHER DEEMED DIVIDEND WOULD BE TAXABLE IN THE HA NDS OF THE CONCERN, WHERE ALL THE FOLLOWING CONDITIONS ARE SAT ISFIED.. WE ARE OF THE VIEW THAT CIRCULARS OF CBDT TO THE E XTENT THAT THEY DO NOT TONE DOWN THE RIGOR OF THE PROVISIONS OF THE AC T IN THE SENSE TO THE EXTENT THEY ARE NOT BENEVOLENT ARE NOT BINDING. 40. APART FROM THE ABOVE, IT IS ALSO NOTICED THAT S. 2(22)(E)(III) PROVIDES TO A SHAREHOLDER AS FOLLOWS: DIVIDEND DOES NOT INCLUDE: (I) TO (II). (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CL. (E) TO THE EXTENT TO WHICH IT IS SO SET OFF. ITA NO.1596/MDS/2015. :- 7 -: IN THE EVENT OF THE PAYMENT OF LOAN OR ADVANCE BY A COMPANY TO A CONCERN BEING TREATED AS DIVIDEND AND TAXED IN THE HANDS OF THE CONCERN THEN THE BENEFIT OF SET OFF CANNOT BE ALLOW ED TO THE CONCERN, BECAUSE THE CONCERN CAN NEVER RECEIVE DIVIDEND FROM THE COMPANY WHICH IS ONLY PAID TO THE SHAREHOLDER, WHO HAS SUBS TANTIAL INTEREST IN THE CONCERN. THE ABOVE PROVISIONS ALSO THEREFORE C ONTEMPLATE DEEMED DIVIDEND BEING TAXED IN THE HANDS OF A SHARE HOLDER ONLY. FOR THE REASONS STATED ABOVE, WE ARE OF THE VIEW TH AT THE LAW LAID DOWN IN THE CASE OF NIKKO TECHNOLOGIES (I) (P) LTD. (SUPRA) IS NOT CORRECT. WE THEREFORE HOLD THAT DEEMED DIVIDEND UN DER S. 2(22)(E) OF THE I.T. ACT, 1961 CAN BE ASSESSED ONLY IN THE HAND S OF A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF ANY O THER PERSON . 6. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, IN OUR OPINION THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE . ACCORDINGLY, WE ARE INCLINED TO DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1596/MDS/2015 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, 28TH DAY OF AUGUST 2015 , AT CHENNAI. SD/- SD/- ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ) (CHANDRA POOJARI) ' / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:28.08.2015 KV %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF