The DCIT, Circle-4, Ahmedabad V. GPSAR Healthcare Ltd., Ahmedabad

ITA 1674/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0521 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NO: 1674/AHD/2013 (ASSESSMENT YEAR: 2009-10) THE DCIT CIRCLE-4, AHMEDABAD V/S GPSAR HEALTHCARE LIMITED 38/1, 246/1 KANBHA KHUA ROAD, 1 SINGHARWA, TAL. DASKROI, AHMEDABAD- 382430 (APPELLANT) (RESPONDENT) PAN: AAACN5419K APPELLANT BY : SHRI DEEPAK SUTARIA, SR. D .R. RESPONDENT BY : SHRI S. N. SOPARKAR, A.R. ( )/ ORDER DATE OF HEARING : 23-09-201 6 DATE OF PRONOUNCEMENT : 26 -09-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)- VIII, AHMEDABAD DATED 22.03.2013 PERTAINING TO A.Y. 2009-10. ITA NO1674/A HD/2013 . A.Y. 2009- 10 2 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT OF RS. 4,76,42,391/-. 3. THE FACTUAL MATRIX CAN BE UNDERSTOOD BY THE FOLLOWI NG OBSERVATIONS OF THE A.O. MADE AT PARA 4 OF HIS ASSESSMENT ORDER:- 4. DURING THE YEAR UNDER CONSIDERATION IT WAS NOTI CED THAT THE ASSESSEE HAD TAKEN LOAN OF RS.4,49,47,391/- FROM ANOTHER COMPANY OF IT S GROUP CONCERNS NAMELY, M/S SAGAR DRUGS AND PHARRNACEUTICALS PVT. LTD. SHRI ROH IT J PATEL IS THE MAIN PERSON WHO IS HOLDING AND HAVING TOTAL CONTROL OVER ADMINI STRATION AND MANAGEMENT OF ALL THESE GROUP COMPANIES AND ALSO HAVING SUBSTANTI AL INTEREST AS A SHARE HOLDER IN ALL THE GROUP COMPANIES. SHRI ROHIT J. PATEL, DI RECTOR OF THE ASSESSEE COMPANY IS HOLDING 60% SHARES IN JAY INVESTMENT PVT. LTD WH ICH IS HOLDING 39.2% SHARES IN M/S SAGAR DRUGS AND PHARMACEUTICALS P LTD. FURTH ER, SHRI ROHIT PATEL IS ALSO HOLDING 60% SHARES IN SAR INVESTMENT CO PVT. LTD. W HICH IS ALSO HAVING 39% SHARES IN M7S SAGAR DRUGS AND PHARMACEUTICALS P LTD . SHRI ROHIT PATEL HIMSELF IS HAVING 15% SHARES IN M/S SAGAR HOLDING PVT. LTD. THUS HOLDING OF SHRI ROHIT PATEL IN M/S SAGAR DRUGS AND PHARMACEUTICALS COMES TO 61.91% (15+ 23.52 ON ACCOUNT OF JAY INVESTMENT + 23.40 ON ACCOUNT OF SAR INVESTMENT). FURTHER, M/S SAGAR DRUGS AND PHARMACEUTICALS P. LTD., IS HOLDING 52% SHARES IN THE ASSESSEE COMPANY. AS DISCUSSED ABOVE, IN THE CASE OF ASSESSE E COMPANY, THE HOLDING OF ROHIT PATEL COMES TO 44% (12 + 52% OF 61.91 OF SAGA R DRUGS). WORKING OF HOLDING OF SHRI ROHIT PATEL IS ENCLOSED AS PER ANNE XURE A ANNEXED AS PART OF THIS ORDER. THUS IT IS CLEAR THAT ACTUAL HOLDING OF SHRI ROHIT PATEL IN THE ASSESSEE COMPANY IS 44%. SHRI ROHIT PATEL IS HAVING ALL KIND OF CONTROL OVER ADMINISTRATION AND MANAGEMENT ON ALL GROUP COMPANIE S DISCUSSED ABOVE. THUS IT IS CLEAR THAT SHRI ROHIT PATEL IS HAVING SUBSTANTIA L INTEREST AS SHARE HOLDER OF THE ASSESSEE COMPANY AND AS PER DEFINITION OF SHARE HOL DER, HE IS A PERSON WHO IS THE GPSAR HEALTH CARE LTD. BENEFICIAL OWNER OF SHARES AS DISCUSSED ABOVE. IT WAS ALSO NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS OBTAINED LOAN OF RS.4,49,47,391/- FROM ITA NO1674/A HD/2013 . A.Y. 2009- 10 3 M/S.SAGAR DRUGS AND PHARMACEUTICALS PVT. LTD. IT IS ALSO NOTICED THAT ON 3.7.2008, THE MAXIMUM OUTSTANDING TO M/S.SAGAR DRUG S PVT. LTD. IS RS.4,76,42,391/-. IN VIEW OF THIS THE AMOUNT RECEIV ED FROM SAGAR DRUGS & PHARMACEUTICALS P LTD. IS A DEEMED DIVIDEND , THERE FORE THE ASSESSEE VIDE ORDER SHEET DATED 21.11.2011 WAS ASKED TO SHOW CAUSE AS T O WHY AMOUNT RECEIVED OF RS. 4,76,42,391/- SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. 4. ASSESSEE FILED A DETAILED REPLY VIDE LETTER DATED 2 2.11.2011 BUT FAILED TO CONVINCE THE ASSESSING OFFICER FOR INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 5. THE A.O. WAS OF THE STRONG BELIEF THAT THE PROVISIO N SQUARELY APPLY ON THE FACTS OF THE CASE AND ACCORDINGLY MADE AN ADDIT ION OF RS. 4,76,42,391/- AS DEEMED DIVIDEND U/S 2(22)(E) OF TH E ACT. 6. ASSESSEE STRONGLY AGITATED THE MATTER BEFORE THE FI RST APPELLATE AUTHORITY. 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) HELD AS UNDER:- 4.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND SUBMISSION MADE ON BEHALF OF THE APPELLANT. ON GOING THROUGH THE DEFIN ITION OF DEEMED DIVIDEND AND ON THE CASE LAWS RELIED BY THE LEARNED A.R. I AM OF THE OPINION THAT DEEMED DIVIDEND IS TO BE TAXED IN THE HANDS OF THE SHAREHO LDER IN THE SITUATION SPECIFIED IN SECTION 2(22)(E) OF THE ACT. IT IS SEEN THAT THE AP PELLANT COMPANY IS NEITHER A REGISTERED SHAREHOLDER NOR A BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY. THEREFORE, THE DEEMED DIVIDEND CANNOT BE TAXED IN T HE HANDS OF THE APPELLANT NOT BEING SHAREHOLDER OF THE LENDING COMPANY I.E. SAGAR DRUGS & PHARMACEUTICALS PVT LIMITED. THE LOAN IS GIVEN BY HOLDING COMPANY F OR MEETING DAY TO DAY WORKING CAPITAL REQUIREMENTS OF THE APPELLANT COMPA NY BEING SUBSIDIARY. BEING A ITA NO1674/A HD/2013 . A.Y. 2009- 10 4 SUBSIDIARY COMPANY THE APPELLANT COMPANY IS NOT ABL E TO RAISE FINANCE FROM THE MARKET ON HIS OWN STRENGTH AND DEPENDED UPON THE HO LDING COMPANY FOR ITS DAY TO DAY WORKING CAPITAL REQUIREMENTS. THE PERSON WHO IS SHAREHOLDER IN THE COMPANY IS ENTITLED TO RECEIVE DIVIDEND, IN THE ABSENCE OF SHAREHOLDING OF THE APPELLANT COMPANY IN LENDING COMPANY, THE APPELLANT COMPANY I S NOT ENTITLED TO ANY DIVIDEND FROM THE LENDING COMPANY. WHEN THE PERSON IS NOT ENTITLED TO DIVIDEND DECLARED, HE IS ALSO NOT ENTITLED TO DEEMED DIVIDEN D. IN SUCH CIRCUMSTANCES OF THE CASE THE APPELLANT IS NOT ENTITLED TO ANY DIVIDEND FROM LENDING COMPANY. FURTHER, FOR ESTABLISHING THAT APPELLANT COMPANY IS CONCERN IN WHICH SHAREHOLDER (HOLDING 10% OR MORE SHARES) OF THE LENDING COMPANY HAVE SUB STANTIAL INTEREST, THE A.O. HAS CONSIDERED HIS INDIRECT HOLDING IN THE APPELLAN T COMPANY DUE TO HIS HOLDING IN OTHER COMPANIES AND OTHER COMPANIES HOLDING IN LEND ING COMPANY AND CONSEQUENTIAL HOLDING OF LENDING COMPANY IN APPELLA NT COMPANY. IN THE INCOME TAX ACT, DEFINITION OF 'PERSON WHO HAS SUBSTANTIAL INTEREST IN THE COMPANY' IS GIVEN IN SECTION 2(31). ACCORDINGLY, THE PERSON WHO IS THE BENEFICIAL OWNER OF SHARES CARRYING NOT LESS THAN TWENTY PERCENT (20%) OF VOTING POWER CAN BE CONSIDERED AS A PERSON WHO HAS SUBSTANTIAL INTEREST IN THE COMPANY. THERE IS NO REQUIREMENT OF LAW TO COMPUTE THE SHAREHOLDING FOR THIS PURPOSE AS COMPUTED BY THE A.O. IN THE ASSESSMENT ORDER. THEREFORE, IT IS HELD THAT SHRI. ROHIT J PATEL IS NOT HOLDING MORE THAN 20% OF THE VOTING POWER IN TH E APPELLANT COMPANY AND THE APPELLANT COMPANY IS NOT CONCERN IN WHICH THE SHARE HOLDER, HOLDING MORE THAN 10% SHARES OF LENDING COMPANY, HAS A SUBSTANTIAL IN TEREST. THEREFORE, THE ADDITION OF RS. 4,76,42,391/- DEEMED DIVIDEND IS DE LETED. SINCE THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND IS DELETED, THERE IS NO NEED TO DETERMINE THE QUANTUM OF DEEMED DIVIDEND. 8. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. THE LD . D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE FINDINGS OF THE FIRST APPE LLATE AUTHORITY. ITA NO1674/A HD/2013 . A.Y. 2009- 10 5 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. A PERUSAL OF THE ASSESSMENT ORDE R SHOWS THAT THE SHAREHOLDING OF SHRI ROHIT J. PATEL HAS BEEN WORKE D OUT BY THE A.O. AS UNDER:- PARTICULARS SHAREHOLDING % REMARKS SHARES IN ASSESSEE COMPANY 12 DIRECTLY HELD SHARES IN ASSESSEE COMPANY DUE TO HOLDING OF RJP IN JAY INVESTMENT AND DUE TO HOLDING OF JAY INVESTMENT IN SAGAR DRUGS AND DUE TO HOLDING OF SAGAR DRUGS IN ASSESSEE COMPANY 12.23 39.20% * 60% * 52% DUE TO HOLDING IN JAY INVESTMENT SHARES IN ASSESSEE COMPANY DUE TO HOLDING OF RJP IN JAY INVESTMENT AND DUE TO HOLDING OF JAY INVESTMENT IN SAGAR DRUGS AND DUE TO HOLDING OF SAGAR DRUGS IN ASSESSEE COMPANY 12.16 39% * 60% * 52% DUE TO HOLDING IN SAGAR INVESTMENTS SHARES IN ASSESSEE COMPANY DUE TO HOLDING OF RJP IN SAGAR DRUGS AND DUE TO HOLDING OF SAGAR DRUGS IN ASSESSEE COMPANY 7.8 15% * 52% DUE TO HOLDING IN SAGAR DRUGS TOTAL 44.19 10. A PERUSAL OF THE AFOREMENTIONED CHART CLEARLY SHOWS THAT THE A.O. HAS WORKED OUT THE HOLDING OF SHRI ROHIT J. PA TEL IN THE ASSESSEE- COMPANY BY INCLUDING INDIRECT HOLDING IN THE ASSESS EE-COMPANY DUE TO HOLDING IN OTHER COMPANIES AND HOLDING OF THOSE OTH ER COMPANIES IN SAGAR DRUGS & PHARMACEUTICALS PVT. LTD. WHICH IS TH E HOLDING COMPANY OF THE ASSESSEE-COMPANY AND DUE TO HIS HOLDING IN S AGAR DRUGS & PHARMACEUTICALS PVT. LTD. ACCORDINGLY, THE A.O. CAM E TO THE CONCLUSION THAT THIS IS A FIT CASE OF DEEMED DIVIDEND. 11. IN OUR UNDERSTANDING OF THE FACTS, THE ASSESSEE IS NOT A SHAREHOLDER, THE INDIRECT SHAREHOLDING CONSIDERED B Y THE A.O. FOR THE APPLICABILITY OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS ITA NO1674/A HD/2013 . A.Y. 2009- 10 6 ERRONEOUS AND LASTLY THERE APPEARS TO BE A DIRECT B USINESS NEXUS BETWEEN THE AMOUNT OF LOAN TRANSACTED. 12. IT IS A SETTLED PROPOSITION OF LAW THAT IF THE RECI PIENT IS NOT THE SHAREHOLDER PROVISIONS OF SECTION 2(22)(E) OF THE A CT WOULD NOT APPLY AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR PVT. LTD. 120 TTJ 865 WHICH WAS CONFIRMED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF UNIVERSAL MEDICARE P VT. LTD. 324 ITR 263 WHEREIN THE HONBLE HIGH COURT HAS LAID DOWN TH E RATIO THAT DEEMED DIVIDEND HAVE TO BE TAXED IN THE HANDS OF TH E SHAREHOLDER AND NOT IN THE HANDS OF THE ASSESSEE COMPANY. A SIMILAR VIEW WAS TAKEN BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF HOT EL HILLTOP 313 ITR 116 AND ALSO BY THE HONBLE JURISDICTIONAL HIGH COU RT OF GUJARAT IN THE CASE OF DAISY PACKERS PVT. LTD. 220 TAXMAN 331. 13. CONSIDERING THE FACTS OF THE CASE IN TOTALITY AND I N THE LIGHT OF THE AFOREMENTIONED JUDICIAL DECISIONS, WE DO NOT FIND A NY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 09- 2016. SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED.