DCIT CIR 7(1), MUMBAI V. ORYX FISHERIES P.LTD, MUMBAI

ITA 1627/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83757 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JH JH JH UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.1627/MUM/2013 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2009-10 DCIT-7(1), ROOM NO. 622, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI 400 020 VS.` M/S ORYX FISHERIES PVT. LTD., MEDLEY HOUSE, D-2, M.I.D.C AREA, ANDHERI EAST MUMBAI - 93 PAN:- AACCB9075H APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 3.12.2012 OF CIT(A)| FOR THE A.Y. 2009-10. THE ASSESSEE HAS RAIS ED FOLLOWING GROUNDS IN THIS APPEAL:- (I) THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING THE ADDITION OF RS. 19,00,000/- U/S 2(22)(E) OF THE INCOME TAX ACT, 196 1 WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARL Y BROUGHT OUT BY THE ASSESSING OFFICER. (II) THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DE LETING THE ADDITION OF RS. 19,00,000/- U/S U/S 2(22)(E) OF THE ACT, HOLDING TH AT THE DEEMED DIVIDEND IS TAXABLE ONLY IN THE HANDS OF SHARE HOLDERS BY PLACI NG RELIANCE UPON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOURS PVT. LTD, 118 ITD., IGNORING THE INTENT OF LEGISLATION A S ENVISAGED IN CBDT CIRCULAR NO. 495 DATED 22.09.1987 REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SMT. PARMINDER ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS PRAKASH JOTWANI DATE OF HEARING 04.09.2014 DATE OF PRONOUNCEMENT 10.09.2014 M/S ORYX FISHERIES PVT. LTD., 2 | P A G E 2. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSI DERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 19,00,000/- U/S 2(22)(E) BEING DEEMED DIVIDEND ON ACCOUNT OF ADVANC E RECEIVED BY THE ASSESSEE FROM M/S MEDLEY LABORATORIES P. LTD. ON APP EAL, THE CIT(A) HAS DELETED THE ADDITION BY FOLLOWING THE DECISION OF THIS TRIBUNA L FOR A.Y. 2004-05 AS WELL AS THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN TH E CASE OF ACIT VS. M/S. BHAUMIK COLOURS PVT. LTD (2009) (313 ITR 146). WE FURTHER NOTE THAT FOR THE A.Y. 2007-08, THE TRIBUNAL HAS AGAIN CONSIDERED AN IDENTICAL ISSUE I N THE CASE OF THE ASSESSEE IN ITA 5148/MUM/2012 IN PARA 4 AS UNDER:- 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION ON ACCOUNT OF ADVANCE RECEIVED B Y THE ASSESSEE COMPANY FROM GROUP COMPANY AS DEEMED DIVIDEND UNDER SECTION 2(22)(E). UNDER THE SAID PROVISION, DIVIDEND INCLUDES ANY PAYMENT BY A COMPANY, NOT BEING A COMP ANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUCH SUM BY WAY OF ADVANCE OR LOAN TO A SHARE HOLDER BEING A PERSON WHO IS BENEFICIAL OWNER OF SHARES NOT BEING SHARES ENTITLED TO FIXED RATE OF DIVIDEND, WHETHER WITH OR WITHOUT RIGHT TO PARTICIPATE IN THE PROFITS, HOLDING NOT LESS THAN 10% OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE IS SUBSTANTIALLY INTERESTED. IT IS THEREFO RE CLEAR THAT LOAN/ADVANCE RECEIVED BY A PERSON FROM THE COMPANY CAN BE TREATED AS DEEMED DI VIDEND IN ITS NAME ONLY IF THE PERSON IS A SHARE HOLDER IN THE COMPANY HAVING NOT LESS THAN 10% VOTING POWER. THUS ADDITION CAN BE MADE ONLY IN THE CASE OF SHARE HOLDER. THIS VIEW IS SUPPORTED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOR (P) LTD. (SUPRA), IN WHICH IT HAS BEEN HELD THAT THE ADDITION CAN BE MADE ONLY IN CASE OF SHARE HOLDER WHO IS NOT ONLY REGISTERED SHARE HOLDER BUT ALSO BENEFICIAL SHARE HOLDER. IN THE PRE SENT CASE ASSESSEE COMPANY IS NOT A SHARE HOLDER. THE ADDITION HAS BEEN MADE BY AO ONLY ON TH E GROUND THAT BOTH RECIPIENT COMPANY AND COMPANY WHO ADVANCED THE LOANS HAD GOT COMMON SHARE HOLDER I.E. SHRI SAHIR KHATIB. THE ADDITION, IF ANY, COULD HAVE BEEN CONSIDERED ONLY IN CASE OF SHRI SAHIR KHATIB AND NO T IN CASE OF THE ASSESSEE. ORDER OF CIT(A) UPHOLDING THE ADDITION THEREFORE CANNOT BE SUSTAINE D. THE SAME IS SET ASIDE AND ADDITION MADE DELETED. 3. THE ORDER OF THIS TRIBUNAL WAS CHALLENGED BY THE REVENUE BEFORE THE HONBLE HIGH COURT AND THE HON'BLE HIGH COURT VIDE ITS ORDER DA TED 4.7.2014 IN THE CASE CIT VS. IMPACT CONTAINERS PVT. LTD & OTHERS IN BUNCH OF APPEALS INVOLVING COMMON ISSUES, HAS CONFIRMED THE DECISION OF THIS TR IBUNAL AS UNDER:- 27 WE HAVE PERUSED THE PROVISION CAREFULLY AND EQU ALLY ALL JUDGMENT IN THE CASE OF UNIVERSAL MEDICARE AND THE VIEW FOLLOWING THE SAME RENDERED BY SEVERAL HIGH COURTS. WE ARE O F THE OPINION THAT THERE IS NO MERIT IN THE CONTENT IONS OF THE REVENUE THAT M/S ORYX FISHERIES PVT. LTD., 3 | P A G E UNIVERSAL MEDICARE WAS EITHER ERRONEOUSLY DECIDED O R THAT THE VIEW TAKEN IN UNIVERSAL MEDICARE REQUIRES RECO NSIDERATION. IN THAT REGARD, WE MUST NOT BRUSH ASIDE THE BIN DING PRECEDENT OF THE JUDGMENT OF A COORDINATE BENCH SIMPLY BECAUSE SOME OF THE ARGUMENTS CANVASSED BEFORE US WERE EITHER NOT CANVA SSED OR IF CANVASSED WERE NOT CONSIDERED. THE BINDING PRECEDE NT CAN BEIGNORED ONLY IF IT IS PERINC U R I A M . S U C H I S N O T T H E S T A N D B E F O R E U S . ALL THAT IS URGED IS SEVERAL FACETS AND WHICH EMERG E FROM A READING OF SECTION NAMELY SECTION 2(22) TOGETHER WITH ITS S UBCLAUSES HAVE NOT BEEN NOTICED BY THE DIVISION BENCH WHILE DECID ING UNIVERSAL'S CASE. 28 WE ARE UNABLE TO AGREE WITH THE REVENUE IN THIS BEHALF. WHAT WE HAVE NOTED IS THAT THE LEGISLATURE HAS INCORPOR ATED AND INSERTED THE DEFINITION OF THE TERM DIVIDEND. IT IS MADE INCLUSIVE OF DISTRIBUTION OF PROFITS, ANY DISTRIBUTION TO THE SH AREHOLDERS BY A COMPANY OF DEBENTURES, DEBENTURESTOCK, OR DEPOSIT CERTIFICATE IN ANY FORM, OR DISTRIBUTION MADE TO THE SHAREHOLDERS UPON LIQUIDATION OF A COMPANY. EQUALLY, AMOUNT DISTRIBUTED ON REDUC TION OF CAPITAL IS TERMED AS DIVIDEND. WHAT IS ALSO THEN INCLUDED IS A PAYMENT MADE BY A COMPANY TO ITS SHAREHOLDER. THAT IS BY W AY OF ADVANCE OR LOAN TO HIM. THIS IS INCLUDED SO AS TO VISIT TH E SHAREHOLDER WITH LIABILITY TO PAY TAX. IT IS EVENTUALLY, THE SHARE HOLDER WHO WILL PAY TAX ON THE SAME. THE SHAREHOLDER CANNOT ESCAPE THAT LIABILITY MERELY BECAUSE THE LOAN OR ADVANCE HAS BEEN MADE OV ER TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. EARLIER, LEGISL ATURE NOTED THAT THE SHAREHOLDER WOULD RECEIVE THE SUM FROM A COMPANY AN D WHICH IS NOT STRICTLY FALLING WITHIN THE CONCEPT OF DIVIDEND. FIRSTLY, BECAUSE THAT WAS RECEIVED BY WAY OF ADVANCE OR LOAN , SECONDLY, AN ATTEMPT WAS M ADE T O SH OW T HA T T HE ADV AN CE OR LOAN IS NO T TO THE SHAREHOLDER WHO IS REGISTERED AS SUCH BUT TO A CONC ERN IN WHICH HE IS A MEMBER OR A PARTNER AND IN WHICH HE MAY HAVE A SUBSTANTIAL INTEREST BUT THAT CANNOT BE TERMED AS ADVANCE OR LOAN TO THE SHAREHOLDER. WITH A VIEW TO TAKE CARE OF SUCH STAND OF THE SHAREHOLDERS AND NOT ALLOW THEM TO ESCAPE THE LIAB ILITY TO PAY TAX THAT THE DEFINITION CAME TO BE BROADLY WORDED BY INDICATING THEREIN THE REFERENCE TO ANY CONCERN. EQUALLY, ANY PAYMENT MADE BY SUCH COMPANY ON BEHALF OF THE SHAREHOLDER OR FOR INDIVIDUAL BENEFIT OF ANY SHAREHOLDER TO THE EXTENT TO WHICH T HE COMPANY IN OTHER CASE POSSESSES ACCUMULATED PROFITS HAS ALSO B EEN BROUGHT IN. THUS, IN ADDITION TO DISTRIBUTION OF ACCUMULATED PR OFIT, DEBENTURE STOCK OR DEPOSIT CERTIFICATE ETC, A PAYMENT OF THE AFORESAID NATURE HAS BEEN TERMED AS DIVIDEND AND INCLUDED IN THE D EFINITION. AT THE SAME TIME, THE LEGISLATURE HAS TAKEN CARE NOT T O INCLUDE ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID C ONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS SUBSTANTIAL INTEREST IN THE ORDINARY COURSE OF THE BUSINESS OF THE COMPANY AND WHERE LENDING OF MONEY IS SUBSTANTIAL P ART OF THE M/S ORYX FISHERIES PVT. LTD., 4 | P A G E BUSINESS OF THE COMPANY. EQUALLY, ANY DIVIDEND PAID BY THE COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST TH E WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED A S A DIVIDEND WITHIN THE MEANING OF SUBCLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF, IS ALSO EXCLUDED ADVISEDLY. 29 WE ARE ALSO OF THE OPINION THAT ANY REFERENCE TO EXPLANATION 3 AND PARTICULARLY THE DEFINITION OF TERM CONCERN W ILL NOT ADVANCE OR CARRY THE REVENUE'S CASE ANY FURTHER . EVENTUALLY, IT IS THE SHAREHOLDER WHO IS REGISTERED AS SUCH WHO IS ENTITL ED TO RECEIVE THE DIVIDEND. MERELY BECAUSE THE PAYMENT IS MADE TO HI M BY WAY OF ADVANCE OR LOAN WAS NOT TERMED AS SUCH EARLIER THAT THE LEGISLATURE HAS INSERTED SUCH A PAYMENT IN THE DE FINITION OF THE TERM DIVIDEND AND MADE THE DEFINITION WIDE AND BROAD SO ALSO INCLUSIVE. 30 WE DO NOT SEE HOW WITH THIS LEGAL POSITION AND T HE STATUS OF THE SHAREHOLDER RECOGNIZED IN LAW CAN B E IGNORED WHILE INTERPRETING SECTION 2 (22) (E) OF THE I. T. ACT. PRECISELY, THIS IS WHAT HAS BEEN DONE BY THIS COURT IN THE JUDGMENT RE NDERED IN THE CASE OF UNIVERSAL MEDICARE. IT IS NOT NECESSARY F OR US TO MAKE A DETAILED REFERENCE TO THE ORDER OF THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR PVT LTD. SUFFICE IT TO HOLD THAT THE VIEW TAKEN BY THIS COURT IN THE CASE OF M/S. UNIVER SAL MEDICARE DOES NOT REQUIRE ANY RECONSIDERATION. WE ARE NOT IN AGREEMENT WITH SHRI GUPTA THAT THE DEFINITION DOES NOT CONTEM PLATE OR DOES NOT STIPULATE ANY REQUIREMENT OF ASSESSEE BEING A S HAREHOLDER OF THE ASSESSEE LIKE THE ONE IN THE PRESENT CASE. THE VI EW TAKEN IN THE PRESENT CASE THAT THE RECIPIENT/ASSESSEE WAS NOT A SHAREHOLDER, THUS IS IN CONSONANCE WITH THE LEGAL POSITION NOTED BY U S HEREINABOVE. 4. FOLLOWING THE DECISION OF HON'BLE HIGH COURT IN A SSESSEES OWN CASE, WE UPHOLD THE ORDER OF CIT(A) QUA THIS ISSUE. 5. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 10-9-2 014 SD/- SD/- (N.K. BILLAIYA) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 10-9 -2014 SKS SR. P.S, M/S ORYX FISHERIES PVT. LTD., 5 | P A G E COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI