ACIT 9(3), MUMBAI V. SIDHAM FINANCE & INVESTMENT P. LTD, MUMBAI

ITA 1678/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56250 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 07-09-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 04-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: RAJESH P SHAH; DI LIP J THAKKAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI P.M. JAGTAP (ACCOUNTANT MEMBER) ITA NO. 1678/MUM/2010 ASSESSMENT YEAR-2002-03 THE ACIT 9(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. SIDHAM FINANCE & INVESTMENT PVT. LTD., C/O SHROFF & CO., 503-DELUXE COURT, 5 TH FLOOR, RAO BUDHKAR MARG, STATION ROAD, BANDRA (W), MUMBAI-400 050 PAN-AABCS 4351E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI JITENDRA YADAV RESPONDENT BY: SHRI DILIP J. THAKKAR & SHRI RAJESH P. SHAH DATE OF HEARING :14.12.2011 DATE OF PRONOUNCEMENT: 16.12.2011 O R D E R PER B.R. MITTAL, JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2002-02 AGAINST ORDER OF LD. CIT(A) DT.23.12.2009 ON FOLLOW ING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE HAD NO LI ABILITY TO PAY ADDITIONAL INCOME-TAX U/S. 115-O ON THE PROPOSED DI VIDEND OF RS. 2,70,90,091/- STATING THAT THE PROVISIONS OF SEC. 1 15-O(1) OF THE I.T. ACT, 1961 WAS AMENDED W.E.F. 1.4.2002, AND HENCE TA X IS PAYABLE BY THE SHAREHOLDERS. ITA NO. 1678/M/2010 2 2. WE HAVE HEARD LD. REPRESENTATIVES OF PARTIES AND HAVE PERUSED ORDERS OF AUTHORITIES BELOW. 3. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE IN THE PROFIT AND LOSS ACCOUNT FOR RELEVANT ACCOUNTING YEAR 2001-02 SHOWED APPROPRIATION OF PROFIT TO THE EXTENT OF RS. 2,70,90,090/- TOWARDS PROPOSED DIVIDEND. HE OBSERVED THAT ASSESSEE DID NOT PAY ANY ADDITIONAL TAX U/S. 1 15-O(1) ON THE GROUND THAT PROVISIONS OF SEC. 115-O(1) WERE AMENDED WITH EFFEC T FROM 1.4.2002 AND AFTER THAT DATE, TAX ON DIVIDEND IS PAYABLE BY SHAR EHOLDERS. HOWEVER, AO STATED THAT EVEN THOUGH DIVIDEND WAS DECLARED ON AP PROVAL OF ANNUAL GENERAL MEETING OF SHAREHOLDERS, AFTER CLOSE OF PREVIOUS YE AR, IT RELATED BACK TO THE PREVIOUS YEAR 2001-02 AND CONSEQUENTLY PROVISIONS O F SEC. 115-O(1) AS IT EXISTED IN FINANCIAL YEAR 2001-02 WAS APPLICABLE. ACCORDINGLY, HE CHARGED ADDITIONAL TAX U/S. 115-O(1) OF RS. 28,18,453/- AND ALSO CHARGED INTEREST U/S. 115P OF RS. 24,09,778/-. 4. HOWEVER, IN THE FIRST APPEAL, LD. CIT(A) HAS HEL D THAT NO LIABILITY TO PAY ADDITIONAL INCOME TAX U/S. 115-O ON THE IMPUGNED AM OUNT OF PROPOSED DIVIDEND COULD BE LEVIED BECAUSE ASSESSEE DECLARED DIVIDEND ONLY AFTER THE CLOSE OF ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEA R UNDER CONSIDERATION AND THE PROPOSED DIVIDEND APPROPRIATED IN PROFIT & LOSS ACCOUNT OF CURRENT YEAR I.E. FINANCIAL YEAR 2001-02 DOES NOT AMOUNT TO EITH ER DECLARATION OR DISTRIBUTION OR PAYMENT OF DIVIDEND AS REFERRED TO IN SEC. 115-O(1) OF THE ACT. THE CIT(A) ALSO CONSIDERED DECISION OF HONBLE APEX COURT IN THE CASE OF MESORAM INDUSTRIES & COTTON MILLS LTD. VS CWT 59 ITR 767 (SC) WHEREIN IT WAS HELD THAT TILL THE COMPANY IN ITS GENERAL BODY MEETING ACCEPTS, RECOMMENDATION AND DECLARES THE DIVIDEND THE REPORT OF DIRECTORS RECOMMENDING FOR PAYMENT OF DIVIDEND IS ONLY RECOMM ENDATION AND IT IS NOT POSSIBLE TO HOLD THAT THERE WAS ANY DEBT OWED BY AS SESSEE TO SHAREHOLDERS ON THE VALUATION DATE. IT WAS OBSERVED BY HONBLE APE X COURT THAT DIRECTORS CANNOT DISTRIBUTE DIVIDEND BUT THEY CAN ONLY RECOMM END TO THE GENERAL BODY ITA NO. 1678/M/2010 3 OF THE COMPANY THE QUANTUM OF DIVIDEND TO BE DISTRI BUTED. HENCE DEPARTMENT HAS DISPUTED THE IMPUGNED ORDER OF LD. C IT(A). 5. DURING THE COURSE OF HEARING, LD. DEPARTMENTAL R EPRESENTATIVE SUPPORTED ORDER OF AO. ON THE OTHER HAND, LD. AR J USTIFIED ORDER OF LD. CIT(A). HE ALSO RELIED ON DECISION OF HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT VS INDIAN SMELTING & REFINING CO. LTD. 1 07 ITR 793 AND SUBMITTED THAT LIABILITY TO PAY DIVIDEND WILL ARISE ONLY FROM AND AFTER DATE OF THE RESOLUTION OF SHAREHOLDERS AT THE ANNUAL GENER AL MEETING DECLARING THE DIVIDEND AND IT WILL BE PAYABLE ONLY FROM SUCH DATE AS MAY BE SPECIFIED IN THE RESOLUTION. 6. WE OBSERVE THAT THE ONLY QUESTION WHICH HAS ARIS EN IN THIS APPEAL IS AS TO WHETHER BY MAKING APPROPRIATION FOR PROPOSED DIV IDEND IN THE PROFIT & LOSS ACCOUNT BY ASSESSEE COMPANY RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE HAD INCURRED LIABILITY TO P AY THE DISTRIBUTED PROFITS TAX U/S. 115-O OF THE I.T. ACT OR NOT. WE OBSERVE THAT P ROVISIONS OF SEC. 115-O OF THE ACT AS APPLICABLE TO ASSESSMENT YEAR 2002-03, C OMPANY WAS LIABLE TO PAY ADDITIONAL INCOME TAX ON THE AMOUNT DECLARED, DISTR IBUTED OR PAID BY WAY OF DIVIDEND. IN THE ASSESSMENT YEAR UNDER CONSIDERATIO N, ASSESSEE-COMPANY ONLY MADE APPROPRIATION FOR PAYMENT OF DIVIDEND BUT DIVIDEND WAS PAID AFTER CLOSE OF FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION AS AGM OF ASSESSEE COMPANY TOOK PLACE LATER ON. WE AG REE WITH LD. CIT(A) THAT LIABILITY TO PAY DIVIDEND IS CRYSTALLIZED ONLY WHEN PAYMENT OF DIVIDEND IS APPROVED IN AGM OF ASSESSEE COMPANY. THE DIRECTORS ONLY RECOMMEND FOR PAYMENT OF DIVIDEND AND TILL IT IS APPROVED IN THE GENERAL BODY MEETING OF SHAREHOLDERS, LIABILITY TO PAY DIVIDEND IS NOT CRYS TALLIZED. ACCORDINGLY, WE AGREE WITH LD. CIT(A) THAT MERELY BY APPROPRIATION OF PROPOSED DIVIDEND IN THE PROFIT AND LOSS ACCOUNT DOES NOT AMOUNT TO EITH ER DECLARATION OR PAYMENT OR DISTRIBUTION OF DIVIDEND AS REFERRED TO SEC. 115 -O(1) OF THE ACT. THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD IN THE C ASE OF INDIAN SMELTING & REFINING CO. LTD. (SUPRA) THAT LIABILITY TO PAY DIV IDEND ARISES ONLY FROM AND ITA NO. 1678/M/2010 4 AFTER THE DATE OF THE RESOLUTION OF THE SHAREHOLDER S AT THE ANNUAL GENERAL MEETING DECLARING THE DIVIDEND AND IT WILL BE PAYAB LE ONLY FROM SUCH DATE AS MAY BE SPECIFIED IN THE RESOLUTION. HENCE, WE AGRE E WITH LD. CIT(A) THAT ASSESSEE COMPANY IS NOT LIABLE TO PAY ANY ADDITIONA L TAX U/S. 115-O(1) OF THE ACT ON THE IMPUGNED AMOUNT OF PROPOSED DIVIDEND. T HEREFORE, THERE IS ALSO NO CONSEQUENTIAL LIABILITY TO PAY INTEREST U/S. 115 -P OF THE ACT. HENCE, WE UPHOLD THE ORDER OF LD. CIT(A) AND REJECT GROUND OF APPEAL TAKEN BY DEPARTMENT. 7. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED ON THIS 16 TH DAY OF DECEMBER, 2011 SD/- SD/- ( P.M. JAGTAP) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH DECEMBER,2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR L BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1678/M/2010 5 DATE INITIALS 1. DRAFT DICTATED ON: 14.12.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 14.12.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: