DCIT Circle-15 (1), V. R.C. Energy Matering (P) Ltd,

ITA 1699/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 6255 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2003-2004
• Appeal Filed On: 05-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DURGA CHARAN DASH
• Assessee Lawyers: JOYTI GUPTA
• Keywords: Deemed to accrue or arise in india; Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA : VICE PRESIDENT AN D SHRI GEORGE MATHAN : JUDICIAL MEMBER ITA NO. 1699/DEL/08 ASSTT. YR: 2003-04 DCIT CIR. 15(1), VS. M/S R.C. ENERGY METERING PV T. LTD., NEW DELHI. B-65, GATE-I, BENTEX HOUSE, NIA, PHASE-II, NEW DELHI. ( APPLICANT ) ( RESPONDENT ) APPLICANT BY : SHRI DURGA CHARAN DASH CIT DR RESPONDENT BY : SMT. JOYTI GUPTA CA O R D E R PER G.E. VEERABHADRAPPA, V.P: THIS APPEAL, PREFERRED BY THE REVENUE, IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 24-1-2008 RELATING TO THE ASSESSMENT YEAR 2003-04. 2. THE GRIEVANCE OF THE REVENUE IS IN RELATION TO AN ADDITION MADE BY THE AO U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961. 3. THE LEARNED COUNSEL FOR THE ASSESSEE PLEADED THA T THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF BOMBAY S PECIAL BENCH OF THE ITAT IN THE CASE OF ACIT VS. BHAUMIK COLOUR PVT. LT D. ( ITA NO. 5030/MUM/04 FOR ASSTT. YEAR 1997-98 ORDER DATED 19 TH NOVEMBER, 2008), WHEREIN THE SPECIAL BENCH HAS HELD AS UNDER: 38. THE BASIC CHARACTERISTIC OF DIVIDEND AS HELD B Y THE APEX COURT IN THE CASE OF KANTILAL MANILAL VS. CIT 41 ITR 275 IS A SH ARE OF PROFITS OF THE 2 COMPANY GIVEN TO ITS SHAREHOLDERS. FURTHER, SECTION 206 OF THE COMPANIES ACT, 1956 PROHIBITS PAYMENT OF DIVIDEND TO ANY PERS ON OTHER THAN THE REGISTERED SHAREHOLDER. IF ONE WERE TO BREAK UP THE NATURAL MEANING THE FOLLOWING TWO COMPONENTS EMERGE (A) DIVIDEND IS A SHARE OF PROFITS OF THE COMPANY (B) PAID TO ITS SHAREHOLDERS. SECTION 2(22) OF THE ACT ARTIFICIALLY EXTENDS THE SCOPE OF DIVIDEND FROM BEING MORE THAN ONLY A DISTRIBUTION OF PROFITS TO COVER CERTAIN OTHER TYPES DISBURSEMENTS SUCH AS LOANS PAID ETC. (THE FIRST INGREDIENT MENTIONED ABOVE). IT DOES NOT HOWEVER ALTER THE SECOND COMPONENT OF ITS NATURAL MEANING VIZ. PAID T O ITS SHAREHOLDER. IN OTHER WORDS, ALL THAT SECTION 2(22) SEEKS TO DO IS TO EXPAND THE VARIOUS TYPES PAYMENTS THAT MAY BE REGARDED AS DIVIDEND. TH E APEX COURT WHILE CONSIDERING WHAT CAN COME WITHIN THE ARTIFICIAL DEF INITION OF DIVIDEND U/S 2(22) IN THE CASE OF CIT VS. NALIN BEHARILA SINGHA , 74 ITR 849, DESCRIBES THE SCOPE OF THE DEFINITION OF DIVIDEND THUS- THE DEFINITION IS, IT IS TRUE, AN INCLUSIVE DEFINI TION AND A RECEIPT BY A SHAREHOLDER WHICH DOES NOT FALL WITHIN THE DEFINITION MAY POSSIBLY REGARDED AS DIVIDEND WITHIN THE MEANING OF THE ACT UNLESS THE CONTEXT NEGATIVE THAT VIEW. THE CONTENTION OF THE DR THAT PROVISIONS OF SECTION 8(A) OF THE ACT CREATES A FICTION BY WHICH EVEN PAYMENTS TO NON SHAREHOLDER S CAN BE CONSTRUED AS DIVIDEND CANNOT BE ACCEPTED. THOSE PROVISIONS MEREL Y FIX THE YEAR IN WHICH DIVIDEND HAS TO BE TAXED. IT IS, THEREFORE, C LEAR THAT THE SHAREHOLDER ALONE CAN, IF AT ALL, BE SUBJECTED TO TAX FOR HAVIN G EARNED DIVIDEND. 4. IT WAS STRESSED THAT IT HAS BEEN NEATLY CONCLUDE D THAT DEEMED DIVIDEND U/S 2(22)(E) CAN BE ASSESSED ONLY IN THE HANDS OF S HAREHOLDER AND NOT IN THE HAND OF ANY OTHER PERSON. IN THE INSTANT CASE, THE ASSESSEE M/S R.C. ENERGY METERING P. LTD. IS NOT A SHAREHOLDER IN M/S BENTEX PROPERTIES (P) LTD. THIS BEING SO, HONBLE SPECIAL BENCH JUDGMENT IS FULLY A PPLICABLE. 5. THE LEARNED DR SUPPORTED THE ORDER OF AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. OBSERVATIONS AND CONCLUSIONS OF MUMBAI S PECIAL BENCH HAVE BEEN REPRODUCED ABOVE, WHICH CLEARLY LAID DOWN THAT THE ADDITION ON ACCOUNT OF DEEMED INCOME U/S 2(22)(E) CAN BE MADE ONLY IN A CASE OF SHAREHOLDERS. IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE IS NOT A SH AREHOLDER OF M/S BENTEX 3 PROPERTIES (P) LTD., FROM WHICH THE BENEFIT FLOW. I N VIEW THEREOF, THE RATIO OF SPECIAL BENCH IS SQUARELY APPLICABLE TO ASSESSEES FACTS. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE APPEAL OF REVENU E. IT MAY ALSO BE STATED THAT IDENTICAL ORDER HAS BEEN PASSED BY THE ITAT DE LHI BENCH I IN ASSESSEES OWN CASE IN ITA NO. 3615/DEL OF 2007 DA TED 9-1-2009 INVOLVING A.Y. 2004-05. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30-3-2009. ( GEORGE MATHAN ) ( G.E. VEERABHADRAPPA ) JUDICIAL MEMBER VICE PRESIDENT DATED: 27-03-2009. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR