ITO, New Delhi V. M/s. PAN Portfolio (P) Ltd., New Delhi

ITA 177/DEL/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5712 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 12-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA RAMCHANDRAN
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 177/DEL/2010 ASSESSMENT YEAR: 2006-07 ITO, WARD 14(1), ROOM NO. 209, C.R. BLDG., NEW DELHI. VS. PAN PORTFOLIO P. LTD., 1515, 1 ST FLOOR, BHISHAM PITAMAH MARG, KOTLA MUBARAK PUR, NEAR SOUTH EXTN., NEW DELHI. AADCP6634K (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. VANDANA RAMCHANDRAN , SR.DR RESPONDENT BY: NONE O R D E R PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST THE ORDER OF CIT(A) DATED 16.11.2009 FOR A.Y. 2006-07. GROUNDS OF APPEAL READ AS UNDER: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 13 ,59,911/- MADE U/S 2(22)(E) OF THE ACT AS DEEMED DIVIDEND. 2. THAT LD. CIT(A) FAILED TO APPRECIATE THAT AS PER THE AMENDED PROVISIONS OF SEC. 2(22)(E), THE ASSESSEE CONCERN I S VERY MUCH LIABLE TO TAX WITH RESPECT TO THE SAID AMOUNT AND D ECISION OF THE AO TO TAX THE SAME IN THE HANDS OF THE ASSESSEE CON CERN FINDS SUPPORT FROM THE DECISIONS ON THE ISSUE IN THE CASE OF M/S SKYLINE INDIA RECRUITMENT.COM PRIVATE LIMITED VS. ITO (2008 ) 24 SOT 2 ITA NO. 177/DEL/2010 402 (MUMBAI) AND EXTEMPORE SECURITY AND INVESTMENTS PRIVATE LIMITED VS. DCIT 116 TTJ (MUMBAI) 525. CIT(A) HAS NOT APPRECIATED THE IMPOSSIBILITY OF TAX ING THE DEEMED DIVIDENDS IN THE HANDS OF SHAREHOLDERS INSTEAD OF T HE CONCERN TO WHOM THE LOAN/ADVANCE IS GIVEN. IN A GIVEN SITUATI ON IT MAY BE THAT THE QUALIFYING SHAREHOLDERS I.E. THE SHAREHOLD ERS HOLDING NOT LESS THAN 10% OF THE VOTING POWER IN THE LENDING CO MPANY AND HAVING SUBSTANTIAL INTEREST IN THE BORROWING CONCER N, HAVE DIFFERENT PERCENTAGE OF SHAREHOLDING IN THE LENDING COMPANY SAY 17% & 27% AND AGAIN DIFFERENT PERCENTAGE OF SHAREHO LDING SAY 21% & 29% INTEREST IN THE BORROWING CONCERN. IN SU CH A SITUATIONS WHAT AMOUNT OF THE DEEMED DIVIDEND WILL BE TAXED IN THE HANDS OF WHICH OF THE QUALIFYING SHAREHOLDERS, CANNOT BE DETERMINED. VIEWED FROM THIS ANGLE ALSO BE OBVIOUS INTERPRETATION OF SEC. 2(22)(E) WOULD BE THAT THE DEEMED DIVIDENDS WOULD BE ASSESSED IN HAND OF THE BORROWER, WHICH IN THIS CAS E IS THE ASSESSEE CONCERN. 3. THE APPELLANT CRAVES TO BE ALLOWED TO ADD, DELE TE OR AMEND ANY OTHER GROUNDS OF APPEAL. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MONEY LENDING DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT ASSESSEE COMPANY HAD BORROWED MONEY FOR THE PU RPOSE OF BUSINESS FROM ITS SISTER CONCERN M/S RCMC SHARE REG ISTERED AND THE SAID SUM WAS TREATED AS DEEMED DIVIDEND U/S 2(22)(E ) OF THE INCOME TAX ACT, 1961 (ACT). IT WAS FURTHER NOTICED THAT T HREE OF THE SHAREHOLDERS OF RCMC SHARE REGISTRY PRIVATE LIMITED WERE HAVING SUBSTANTIAL HOLDING IN THE ASSESSEE COMPANY AND THUS, IT WAS INFERRED B Y THE AO THAT THE SAID AMOUNT IS TO BE TREATED AS DEEMED DIVIDEND. A CCORDINGLY, AN ADDITION OF RS. 13,59,911/- WAS MADE TO THE INCOME OF THE ASSESSEE. 3 ITA NO. 177/DEL/2010 THE ASSESSEE SUBMITTED BEFORE AO THAT PROVISIONS OF SEC. 2(22)(E) WERE NOT APPLICABLE AS THE TRANSACTIONS WHICH HAVE BEEN ENTERED INTO BY THE ASSESSEE WERE CONSTITUTING PART OF BUSINESS ACTIVIT Y OF THE ASSESSEE. HOWEVER, AO DID NOT ACCEPT SUCH SUBMISSION OF THE A SSESSEE AND TREATED THE SAID AMOUNT AS DEEMED DIVIDEND. BEFORE CIT(A) IT WAS SUBMITTED THAT THE SAID AMOUNT COULD NOT BE TREATED AS DEEMED DIVIDEND ON THE GROUND, INTER-ALIA, THAT ASSESSEE COMPANY WA S NOT A REGISTERED SHAREHOLDER OF THE PAYER COMPANY AND THIS CONTENTIO N OF THE ASSESSEE IS RECORDED IN PARA 2.11 OF THE ORDER OF LD. CIT(A). REFERENCE WAS MADE TO THE DECISION OF SPL. BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOURS PRIVATE LIMITED 118 ITD 1 (MUM.) (SB) TO CONTEND TH AT THE AMOUNT COULD NOT BE ASSESSED IN THE HANDS OF THE ASSESSEE AS DEE MED DIVIDEND BECAUSE ASSESSEE COMPANY IS NOT A REGISTERED SHAREH OLDER OF THE PAYER COMPANY. LD. CIT(A) HAS ACCEPTED SUCH SUBMISSION O F THE ASSESSEE ON THE BASIS OF SPL. BENCH DECISION OF TRIBUNAL IN THE CASE OF BHAUMIK COLOURS PRIVATE LIMITED AND DEPARTMENT IS AGGRIEVED , HENCE IN APPEAL BY RELYING ON TWO DECISIONS OF ITAT AS MENTIONED IN TH E GROUNDS OF APPEAL. 3. A NOTICE OF HEARING WAS SENT TO ASSESSEE. HOWEV ER, ON THE FIXED DATE OF HEARING NONE WAS PRESENT ON BEHALF OF ASSES SEE, THEREFORE, WE PROCEED TO DECIDE THE PRESENT APPEAL AFTER HEARING LD. DR. 4. LD. DR RELYING UPON THE DECISIONS STATED IN THE GROUNDS OF APPEAL PLEADED THAT ADDITION HAS WRONGLY BEEN DELETED BY C IT(A), THEREFORE, THE ORDER OF AO SHOULD BE RESTORED AND THAT OF CIT(A) S HOULD BE SET ASIDE. 4 ITA NO. 177/DEL/2010 SHE POINTED OUT THAT CITATION HAS WRONGLY BEEN MENT IONED IN GROUND NO. 2 AS 24 SOT 420, WHEREAS THE PAGE IS 402. 5. THE DECISIONS RELIED UPON BY REVENUE IN GROUNDS OF APPEAL WERE SEEN AND THEY WERE RENDERED BY THE TRIBUNAL BEFORE THE DECISION OF SPL. BENCH, HENCE THEY CANNOT BE RELIED UPON WHILE DECID ING THE ISSUE. IT IS SEEN THAT IN THE SPL. BENCH CASE I.E. IN THE CASE O F BHAUMIK COLOURS (SUPRA), THIS TRIBUNAL HAS HELD THAT TO APPLY THE P ROVISIONS OF SEC. 2(22)(E), IT IS NECESSARY THAT THE RECEIVER COMPANY SHOULD BE REGISTERED SHAREHOLDER AS WELL AS BENEFICIAL SHAREHOLDER AND I N ABSENCE OF ANY OF THESE TWO FACTORS, THE PROVISIONS COULD NOT BE APPL IED. LD. CIT(A) HAS QUOTED THE HELD PORTION IN HIS ORDER IN PARA 7 WHIC H FOR THE SAKE OF CONVENIENCE IS REPRODUCED BELOW: - I) WHETHER DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDE R COMPANY AND NOT IN HANDS OF A PERSONS OTHER THAN A SHAREHOLDER - HELD, YES. II) WHETHER EXPRESSION SHAREHOLDER REFERRED TO IN SEC. 2(22)(E) REFERS TO BOTH REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER AND, THUS, IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT BENEFICIAL SHAREHOLD ER THEN PROVISIONS OF SEC. 2(22)(E) WOULD NOT APPLY AN D SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO PROVISIONS OF SE C. 2(22)(E) WOULD NOT APPLY HELD, YES. III) WHETHER DEEMING PROVISION OF SEC. 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, IS BASED ON PRESUMPTION 5 ITA NO. 177/DEL/2010 THAT LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO SHAREHOLDERS OF COMPANY GIVING LOAN OR ADVANCES, AND, THEREFORE, INTENTION OF LEGISLATURE IS TO TAX DIVIDEND ONLY IN HANDS OF SHAREHOLDES AND NOT IN HANDS OF CONCERN HELD, YES, (EMPHASIS SUPPLIED) 6. IN THIS VIEW OF THE SITUATION, AFTER HEARING LD. DR AND AFTER CONSIDERING THE FACTS OF THE CASE THAT THE ASSESSEE COMPANY IS NOT SHAREHOLDER OF THE PAYER COMPANY, WE FIND NO INFIRM ITY IN THE ORDER OF CIT(A). WE DECLINE TO INTERFERE. DEPARTMENTAL APP EAL IS DISMISSED. 7. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.3.2010 (R.C. SHARMA) ACCOUNTANT MEMBER (I.P. BANSAL) JUDICIAL MEMBER DATED: 12.3.2010 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR