DCIT, Circle - 7, Kolkata, Kolkata V. M/s. Madhusudan Investment & Trading Co. Pvt. Ltd., Kolkata

ITA 1802/KOL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7224 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 20-09-2010
• Court: TRIBUNAL
• Assessee Lawyers: S K TULSIYAN
• Keywords: Deemed dividend; Assessment record; Prejudicial to interest
• Section: 143(3); 263; 63

Judgement Text

1 , , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH C, KOLKATA [ () , ,, , , . .. .'# '#'# '#. .. . , , , , $% ] ]] ] [BEFORE SRI N.VIJAYAKUMARAN, JM & SRI C. D. RA O, AM] ' / I.T.A NO. 1802(KOL) OF 2010 () *+/ ASSESSMENT YEAR : 2003-04 DEPUTY COMMISSIONER OF INCOME-TAX- - M/S.MADHUSUDAN INVESTMENT & KOLKATA -VERSUS- TRADING CO.PVT.LTD. KOLKATA (PAN: AADCM 5355 Q) (-. / APPELLANT ) ( /0-. /RESPONDENT) -. 1 2 $/ FOR THE APPELLANT: SHRI A.K.SINGH, CIT /0-. 1 2 $/ FOR THE RESPONDENT: SHRI S.K.TULSIYAN 3 1 #% /DATE OF HEARING : 15.09.2011. 4* 1 #% /DATE OF PRONOUNCEMENT : 14.10.2011 $5 / ORDER ( (( ( . .. .'# '#'# '#. .. . ) )) ), , , , $% PER SHRI C.D.RAO, AM THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST T HE ORDER OF LD. C.I.T.(A), CENTRAL-II, KOLKATA DATED 25/5/2010 FOR ASSESSMENT YEAR 2003-04. THE GROUNDS RAISED IN THIS APPEAL BY THE DEPARTMENT READ AS UNDER :- 1) THAT UNDER THE FACTS & CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT IN TREATING THE ADVANCE AGAINST RENT AM OUNTING TO RS. 3.8 CRORE BY M/S. M. K. DALMIYA & CO. TO THE ASSESSEE COMPANY AS SECU RITY DEPOSIT WHEREAS THE SAME WAS SHOWN UNDER THE HEAD OF ADVANCE AGAINST RENT WITHIN THE BROAD HEAD OF CURRENT LIABILITIES AS PER SCHEDULE-6 OF THE AUDI TED ACCOUNTS OF THE ASSESSEE COMPANY FOR THE F.Y. 2002-03. 2) THAT UNDER THE FACTS & CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS. 3,66,31,403 MADE BY THE A.O. U/S. 2(22)(E) OF THE INCOME TAX ACT, 1962. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ORI GINAL ASSESSMENT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION WAS MADE U/S. 143(3) 2 DETERMINING THE TOTAL INCOME AS RETURNED BY THE ASS ESSEE AT RS. 22,38,540/-. THE LD. C.I.T. VIDE HIS ORDER DATED 29/2/2008 PASSED U/S. 2 63 OF THE ACT SET ASIDE THE MATTER FOR DENOVO ASSESSMENT ON THE GROUND THAT NO REQUISI TE ENQUIRY WAS MADE BY THE A.O. ON THE ISSUES OF TREATMENT OF RECEIPT OF ADVANCE RENT RECEIVED BY THE ASSESSEE FROM M/S. M.L. DALMIYA & CO. LTD. AS DEEMED DIVIDEND U/S. 2(2 2)(E) OF THE ACT. THE ASSESSEE APPEALED TO THE TRIBUNAL AGAINST THE SAID DIRECTION OF LD. C.I.T. GIVEN IN HIS ORDER U/S. 263 OF THE ACT, BUT WAS UNSUCCESSFUL. DURING THE C OURSE OF SET ASIDE PROCEEDINGS, THE ASSESSEE APPEARED ON SEVERAL DATES AND ALSO FILED D ETAILS/EVIDENCES AS REQUIRED VIDE NOTICES U/S. 143(2)/142(1) OF THE ACT. IT WAS STAT ED THAT THE ASSESSEE IS THE OWNER OF A PROPERTY LOCATED AT 32, SHAKESPEARE SARANI, KOLKA TA. THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 10/8/1998 WITH M/S. M.L. DALMIYA & CO. LTD. TO GIVE THE SAID PROPERTY TO THIS COMPANY ON LEASE FOR 22 YEARS AGAINST AN AD VANCE RENT OF RS. 3.20 CRORES TO BE ADJUSTED AGAINST THE RENT PAYABLE BY THE LESSEE (M. L.DALMIYA & CO. LTD.). THE TOTAL OF SUCH ADVANCE ADJUSTED TILL 31/3/2003 AMOUNTED TO RS. 73,06,957/-. IT WAS FURTHER STATED BY THE ASSESSEE BEFORE THE A.O. THAT DUE TO A DISPUTE AROSE ON 12/11/2002, THE ASSESSEE REQUIRED THE LESSEE-COMPANY TO VACATE THE LEASED PREMISES. HOWEVER, THE MATTER WAS SUBSEQUENTLY SETTLED AFTER SEVERAL CORRE SPONDENCES BETWEEN THE PARTIES AND A NEW AGREEMENT WAS ENTERED INTO BETWEEN THE SA ID TWO PARTIES ON 31/3/2003, ACCORDING TO WHICH IT WAS DECIDED THAT M.L. DALMIYA & CO. LTD. SHALL PAY AS SECURITY DEPOSIT SUM OF RS. 3,80,00,000/- TO THE ASSESSEE-COMPANY TO BE REFUNDE D TO THEM AT THE END OF THE LEASE PERIOD AND AFTER THE HANDING O VER OF THE POSSESSION OF THE PROPERTY TO THE ASSESSEE. IT WAS FURTHER STATED BY THE ASSESSEE THAT THE SAID SECURITY DEPOSIT RECEIVED BY VIRTUE OF A NEW AGREEMENT SUPER SEDING THE EARLIER AGREEMENT DOES NOT COME UNDER THE AMBIT OF DIVIDEND AS DEFINED IN SEC. 2(22)(E) OF THE ACT, BECAUSE THE SAID AMOUNT HAS NEITHER BEEN GIVEN AS AN ADVANC E NOR A LOAN IN THIS CASE BUT HAS BEEN GIVEN AS A SECURITY DEPOSIT FOR OBTAINING A LE ASE FROM THE ASSESSEE-COMPANY. IT WAS FURTHER STATED THAT THE SUCH SECURITY DEPOSIT C ANNOT BE TREATED AS DEEMED DIVIDEND BY INVOKING PROVISIONS OF SEC. 2(22)(E) OF THE ACT ON THE GROUND THAT THE BENEFICIAL SHAREHOLDERS OF THE LESSEE-COMPANY, M/S. M.L. DALMIYA & CO. LTD., WERE ALSO SUBSTANTIALLY INTERESTED IN THE ASSESSEE-COMPANY. IT WAS FURTHER STATED THAT NO MONEY 3 WAS ACTUALLY RECEIVED BY THE ASSESSEE-COMPANY FROM M.L.DALMIYA & CO. LTD. DURING THE RELEVANT YEAR. THE ENTIRE AMOUNT OF SECURITY DEPOS IT WAS RECEIVED BY VIRTUE OF A JOURNAL ENTRY AND THERE WAS NO ACTUAL MOVEMENT OF C ASH FROM THE BANK ACCOUNT OF M.L. DALMIYA & CO. LTD. TO THE BANK ACCOUNT OF THE ASSES SEE. M/S. M.L.DALMIYA & CO. LTD. HAD AN OUTSTANDING BALANCE OF RS. 3.80 CRORES WITH INSPIRATION CLOTHES & U WHICH WAS TRANSFERRED IN FAVOUR OF THE ASSESSEE-COMPANY IN LI EU OF SECURITY DEPOSIT PAYABLE TO IT AND THE ASSESSEE-COMPANY WAS TO RECOVER THE SAID AM OUNT FROM INSPIRATION CLOTHES & U TRANSFER OF BALANCE IN FAVOUR OF A PERSON BY VIRTUE OF JOURNAL ENTRY IN THE BOOKS OF ACCOUNT WITHOUT ANY ACTUAL PAYMENT OF THE AMOUNT AN D THE SAME DOES NOT FALL WITHIN THE PURVIEW OF SEC. 2(22)(E) OF THE ACT. 2.1. THE A.O., HOWEVER, WAS NOT CONVINCED/SATISFIE D WITH THE SUBMISSIONS OF THE ASSESSEE AND PASSED REVISED ASSESSMENT ORDER U/S. 1 43(3)/263 OF THE ACT DATED 26/12/2008 ADDING THEREIN RS. 3,66,31,403/- AS DEEMED DIVIDEND U/S. 2(22)(E) OF T HE ACT BY OBSERVING AS UNDER :- I HAVE EXAMINED THE ABOVE SUBMISSION OF THE ASSESSE E AND IT IS OBSERVED THAT DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE DE RIVED INCOME FROM HOUSE PROPERTY, SUPERVISION CHARGES AND INTEREST. THE REN TAL INCOME WAS FROM A HOUSE PROPERTY LOCATED AT 32, SHAKESPEARE SARANI, KOLKATA 700 017 GIVEN ON RENT TO M.L. DALMIYA & COMPANY PRIVATE LIMITED. DURING THE YEAR THE TENANT, M/S. M.L. DALMIYA & COMPANY PRIVATE LIMITED HAD GIVEN ADVANCE RENT OF R S.3,80,00,000/- TO THE ASSESSEE COMPANY. AS ON 31.03.2003 OUT OF TOTAL ISS UED AND SUBSCRIBED SHARES, TWO SHARE HOLDERS NAMELY, AVISHEK DALMIYA AND SMT. CHAN DRALEKHA DALMIYA WERE HAVING SHARE HOLDING OF 40% AND 12.27% RESPECTIVELY IN THE ASSESSEE COMPANY. ON PERUSAL OF THE ASSESSMENT RECORD OF M/S. M.L. DALMIYA & COM PANY PRIVATE LIMITED, IT WAS FOUND THAT THE ABOVE TWO PERSONS WERE ALSO HAVING B ENEFICIAL SHARE HOLDING OF 60% AND 15.48% IN THE SAID COMPANY AS ON 31.03.2004. M/ S. M.L. DALMIYA & COMPANY PRIVATE LIMITED WAS A CLOSELY HELD COMPANY AND MONE Y LENDING WAS NOT A SUBSTANTIAL PART OF ITS BUSINESS. MOREOVER, M/S. M.L. DALMIYA & COMPANY PRIVATE LIMITED WAS HAVING ACCUMULATED PROFIT OF RS.3,66,31,403/- AS ON 31.03.2004. SINCE ALL THE CONDITIONS LAID DOWN U/S.2(22)(E) OF THE I.T. ACT W ERE SATISFIED, THE ADVANCE RENT RECEIVED BY THE ASSESSEE COMPANY FROM M/S. M.L. DAL MIYA & COMPANY PRIVATE LIMITED WAS CONSIDERED TO BE DEEMED DIVIDEND IN THE HAND OF ASSESSEE COMPANY. DURING THE COURSE OF HEARING IT IS SUBMITTED THAT THE ASSESSEE COMPANY RECEIVED THE SAID AMOUNT NOT AS ADVANCE RENT BUT A SECURITY DEPOSIT THROUGH JOURNAL ENTRY AND THERE WAS NO ACTUAL MOVEMENT OF CASH FROM THE B ANK ACCOUNT OF M/S. M.L. DALMIYA & CO LTD. TO THE BANK ACCOUNT OF ASSESSEE C OMPANY. THE CONTENTION OF THE 4 ASSESSEE HAS NO LEGAL IMPLICATION AS IT DOES NOT CH ANGE THE CHARACTER OF THE UNDER RECEIVED U/S 2(22)(E) OF THE IT ACT . BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFO RE THE LD. C.I.T.(A). 3. BEFORE THE LD. C.I.T.(A), THE LD. A/R FILED A W RITTEN SUBMISSION DETAILING THE FACTS AND EXPLAINING THE ISSUE AND SEVERAL CASE LAWS WERE RELIED UPON IN SUPPORT OF THE CASE, WHICH HAS BEEN REPRODUCED AT PAGES 3 TO 8 OF THE AP PELLATE ORDER. THE LD. C.I.T.(A) CALLED FOR COMMENTS TWICE FROM THE A.O. ON SUCH SUB MISSION OF THE ASSESSEE AND COUNTER REPLY ON THE REMAND REPORT, WHICH ARE REPRO DUCED AT PAGES 8 TO 18 OF THE APPELLATE ORDER. THE CRUX OF THE SUBMISSIONS MADE BY THE LD. A/R ON BEHALF OF THE ASSESSEE BEFORE THE LD. C.I.T.(A) ARE AS UNDER :- (A) THAT THE ASSESSEE-COMPANY VIDE EARLIER AGREEME NT DATED 10/8/1998 GAVE ON LEASE ITS PREMISES TO ITS SISTER CONCERN M/S. M.L.D ALMIYA & CO. ON AN ADVANCE OF RS. 3.20 CRORES TO BE ADJUSTED AGAINST RENT PAYABLE. TH IS AGREEMENT WAS REQUIRED TO BE ANNULLED DUE TO DISPUTE BETWEEN THE PARTIES AND ON AN AMICABLE SETTLEMENT AS A RESULT OF SEVERAL CORRESPONDENCES, THE NEW AGREEMENT DATED 31/3/2003 IN SUPERSESSION OF EARLIER AGREEMENT WAS ENTERED INTO, BY VIRTUE OF WH ICH M/S. M.L.DALMIYA & CO. LTD. SHALL PAY AS SECURITY DEPOSIT OF RS. 3.80 CRORES TO THE ASSESSEE-COMPANY IN LIEU OF LEAS E OF ITS PREMISES TO BE REFUNDED AT THE END OF THE LEASE PER IOD AND AFTER HANDING OVER THE LEASED OUT PROPERTY. THE ASSESSEE-COMPANY NEITHER H OLDS ANY SHARE IN M.L. DALMIYA & CO. LTD. NOR HAS ANY BENEFICIAL INTEREST IN THE SAI D COMPANY. THE ASSESSEE-COMPANY ONLY DERIVES RENTAL AND SUPERVISION CHARGES FROM THE SAI D COMPANY FOR LEASING OUT ITS SAID PROPERTY. HE SUBMITTED THAT DEEMED DIVIDEND IN TER MS OF SEC. 2(22)(E) OF THE ACT CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHARE HOLDER. RELIANCE WAS MADE ON ACIT VS. BHAUMIK COLOUR (P) LTD. [27 SOT 270 (MUM)] & CI T VS. HOTEL HILLTOP [313 ITR 116 (RAJ)]. (B) THAT IN ORDER TO INVOKE PROVISION OF SEC. 2(22 )(E) OF THE ACT, THE CONDITION WHICH IS TO BE SATISFIED IS THAT A SUM MUST HAVE BEEN ADV ANCED AS A LOAN OR ADVANCE FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. SECURITY DEPO SIT IS NOT A LOAN OR ADVANCE BECAUSE THE AMOUNT PAID IN ADVANCE WOULD EVENTUALLY BECOME DUE. ON THE OTHER HAND, SECURITY 5 DEPOSIT IS THE DEPOSIT OF A PROPERTY, BONDS, CASH E TC. BY OR ON BEHALF OF A PERSON IN ORDER TO SECURE HIS FULFILLMENT OF AN OBLIGATION AN D IT IS FORFEITABLE IN THE EVENT OF NON- FULFILLMENT AND IS PAID TO SECURE SOMEBODYS VALUAB LE ASSET, WHICH IS IN THE PRESENT CASE THE ASSESSEES PROPERTY AT 32, SHAKESPEARE SARANI, KOLKATA. RELIANCE IN THIS CONNECTION WAS PLACED ON SERIES OF DECISIONS, INTER ALIA, IN T HE CASES OF SEAMIST PROPERTIES VS. ITO [95 TTJ 201 (MUM), SHARDUL SECURITIES LTD. VS. JCIT [307 ITR (AT) 109 (MUM)], ORIENTAL INSURANCE CO. LTD. VS. DCIT [89 ITD 520 (D EL)], RAM JANKI DEVI VS. JUGI LAL KAMLAPAT [AIR 1971 SC 2551], CIT VS. ETACHI AGENCIE S [248 ITR 525 (BOM) ETC. (C) THAT THE ENTIRE TRANSACTION WAS A COMMERCIAL T RANSACTION AND THE ASSESSEE RECEIVED THE AMOUNT IN THE NORMAL COURSE OF ITS BUS INESS OF LETTING OUT THE PROPERTY ON RENT. THEREFORE, SUCH TRANSACTION CANNOT BE BROUGH T INTO THE NET OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. IN SUPPORT OF SUBMISSION , RELIANCE WAS PLACED ON CIT VS. F. PRAVEEN [(2009) 26(I) ITCL 107 (MAD-HC)], CIT VS. R AJ KUMAR [(2009) 23 DTR 304 (DEL)], ETC. 3.1. SUBMISSION OF THE ASSESSEE WAS FORWARDED TO T HE A.O. FOR HIS COMMENTS. THE A.O. SUBMITTED HIS COMMENTS TWICE AND THE ASSESSEE WAS ALSO PROVIDED OPPORTUNITY TO COUNTER THE COMMENTS OF THE A.O. AFTER ELABORATELY DISCUSSING THE SUBMISSIONS OF THE ASSESSEE, COMMENTS OF THE A.O. AND CONSIDERING THE FACTS AND EVIDENCE ON RECORD, THE LD. C.I.T.(A) HELD THAT THE A.O. HAS INCORRECTLY CO NSIDERED THE SECURITY DEPOSIT AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE-COMPAN Y AND, THEREFORE, DIRECTED THE A.O. TO REDUCE THE TOTAL INCOME BY EXCLUDING THE AM OUNT OF RS.3,66,31,403/- FROM THE TOTAL INCOME OF THE APPELLANT AS DEEMED DIVIDEND. THE RELEVANT OBSERVATION OF THE LD. C.I.T.(A) VIDE PARA-6, PAGES 24 TO 28 OF THE APPELL ATE ORDER IS REPRODUCED BELOW :- 6. I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMI SSIONS OF APPELLANT AND ASSESSING OFFICER. THE FACTS OF THE CASE SHOW THAT APPELLANT HAD GIVEN ITS PROPERTY AT SHAKESPEARE SARANI, KOLKATA ON 22 YEARS LEASE TO M.L. DALMIYA & CO. LTD. VIDE AGREEMENT, DATED 10.08.1998. THE ANNUAL RENT IS ABO UT RS. 31-32 LAKH AS PER ASSESSMENT ORDER AND AFTER CLAIMING DEDUCTION U/S 2 4 OF THE I.T.ACT, APPELLANT HAS RETURNED THE INCOME FROM HOUSE PROPERTY AT RS.22,09 ,788/- WHICH THE ASSESSING OFFICER HAS NOT DISPUTED. M.L. DALMIYA & CO. LTD., THE LESSEE, VIDE AGREEMENT, DATED 10.08.1998 HAD PAID RS.3,20,00,400/- TO THE APPELLA NT, OUT OF WHICH APPELLANT HAS ADJUSTED ABOUT RS.15-16 LAKH OF SUCH ANNUAL RENT FR OM THE ADVANCE RENT EVERY YEAR WHICH IS EVIDENT FROM THE RECONCILIATION FIGURES OF ADVANCE, AGAINST RENT RECEIVED 6 FROM M.L DALMIYA & CO LTD SUBMITTED DURING THE APP ELLATE PROCEEDINGS BY THE APPELLANT AS UNDER: ADVANCE AGAINST RENT RECEIVED FROM M L DALMIYA & CO . LTD . ADVANCE RECEIVED ON 10.08.1998 32,000,400 ADJUSTED TILL 31.03.2002 5,728,537 BALANCE ON 31.03.2002 26,271,863 ADJUSTED UPTO 31.03.2003 1,578,420 SECURITY DEPOSIT RECEIVED ON 31.03.2003 38,000,00 0 BALANCE AMOUNT 62,693,443 A DISPUTE AROSE BETWEEN APPELLANT AND M.L DALMIYA & CO LTD, WHICH IS MENTIONED IN PARA 5.3 OF THE AGREEMENT DATED 31.03.2003 BETWEEN THE TWO. IT APPEARS THAT THOUGH THE LEASE AGREEMENT DATED 10.08.1998 WAS MAD E FOR 22 YEARS, THERE WAS A TACIT UNDERSTANDING BETWEEN APPELLANT AND M.L DALMI YA & CO LTD THAT M.L DALMIYA & CO LTD WOULD USE THE PREMISES OF APPELLANT ONLY DUR ING THE PERIOD ITS CALCUTTA LEATHER COMPLEX AT BATALA WOULD BE UNDER CONSTRUCT ION AND AFTER THE COMPLETION OF ITS CONSTRUCTION, M.L DALMIYA & CO WOULD VACATE THE PREMISES OF APPELLANT. APPELLANT SUBMITTED THAT DISPUTE WAS SETTLED BY THE INTERVENTION OF A THIRD PARTY, SHRI SHYAMANAND JALAN, ADVOCATE, ON WHOSE ADVICE TH E TERMS OF SETTLEMENT WERE DECIDED UPON. THEREFORE A FRESH LEASE AGREEMENT WAS MADE ON 3 1.3.2003 BETWEEN APPELLANT AND M.L DALMIYA & CO WHERE IT WAS AGREED THAT THE RENT WILL CONTINUE TO REMAIN THE SAME AS IN THE EARLIER AGREEMENT AND THE ADVANCE RENT OF RS. 3,20,00,400 RECEIVED VIDE EARLIER AGREEMENT DATED 1 0.08.1998 WILL CONTINUE TO BE ADJUSTED IN THE SAME MANNER AS IN THAT AGREEMENT AN D AFTER THE ADJUSTMENT OF THE ENTIRE AMOUNT OF RENT FROM SUCH ADVANCE RENT THE EN TIRE RENT WILL BE REQUIRED TO BE PAID BY M.L DALMIYA & CO. HOWEVER M.L DALMIYA & CO WAS ASKED TO PAY A SECURITY DEPOSIT OF RS 3.8 CRORE VIDE PARA 6.5 OF THIS AGREE MENT TO THE APPELLANT WHICH THE APPELLANT WOULD RETURN TO M.L DALMIYA & CO AFTER TH EY VACATE THE PREMISES OF THE APPELLANT. AS PER PARA 6.23 OF THIS AGREEMENT, THE LEASE WAS TO BE REVIEWED BEFORE THE EXPIRY OF 10 YEARS WHEN ALL OR ANY OF THE TERMS OF LEASE COULD BE MODIFIED BY MUTUAL CONSENT OF APPELLANT AND M.L DALMIYA & CO. T HOUGH IT IS MENTIONED IN THE FRESH AGREEMENT THAT THE RENT WOULD BE ALLOWED TO B E ADJUSTED AGAINST THE ADVANCE RENT OF RS. 3,20,00,400 TAKEN AT THE TIME OF EARLIER AGREEMENT IN THE SAME MANNER AS IN EARLIER AGREEMENT, NOWHERE IT IS MENTIONED IN THE AGREEMENT THAT SUCH ADJUSTMENT WILL BE MADE AGAINST THE SECURITY D EPOSIT OF RS. 3.8 CRORE. THEREFORE THE NATURE OF SECURITY DEPOSIT TAKEN ON 31.03.2003 VIDE AGREEMENT DATED 3 1.03.2003 BY THE APPELLANT IS CERTAINLY NOT AN ADVANCE OF THE NATURE WHICH THE AMOUNT OF RS 32,000,400/- TAKEN ON 10.08.1998 W AS. THE MERGER OF BOTH THE AMOUNTS IN THE BALANCE SHEET OF THE APPELLANT MIGHT HAVE LED THE ASSESSING OFFICER TO BELIEVE THAT THE AMOUNT OF RS 3.8 CRORE RECEIVED ON 31.3.2003 IS ALSO OF THE SAME NATURE AS THE AMOUNT OF RS.3,20,00,400/ RECEIV ED ON 10.08.1998. IN REMAND REPORT ASSESSING OFFICER HAS TAKEN A STAND THAT THE AMOUNT OF RS. 3.8 CRORE RECEIVED ON 31.03.2003 IS SAME IN NATURE AS AMOUNT OF RS.3,20,00,400/- RECEIVED ON 10.08.1998 AND THE NAME OF SECURITY DEPOSIT IS ON LY A CHANGE OF NOMENCLATURE. I DO NOT FIND MERIT IN THE ARGUMENT OF ASSESSING OFFI CER BECAUSE THE FACTS, AS 7 APPARENT FROM THE LEASE AGREEMENTS, CLEARLY SHOW TH AT BOTH THE AMOUNTS ARE DIFFERENT IN NATURE. WHERE RS.3,20,00,400/- RECEIVE D ON 10.08.1998 WAS CLEARLY AN ADVANCE, RS. 3.8 CRORE RECEIVED ON 31.03.2003 IS A SECURITY DEPOSIT. THE PARA 6.5 OF THE LEASE AGREEMENT DATE 31.03.2003 CLEARLY SAYS THAT THE SECURITY DEPOSIT OF RS. 3.8 CRORE IS TO BE RETURNED TO THE M.L DALMI YA & CO. AS AND WHEN THEY VACATE THE PREMISES. THIS SHOWS THAT RS. 3.8 CRORE IS A SE CURITY FOR THE APPELLANT AGAINST ANY LOSS OF THE PREMISES. THE SECURITY DEPOSIT OF R S. 3.8 CRORE REMAINS THE SAME THROUGHOUT THE LEASE PERIOD UNLIKE THE ADVANCE RENT OF RS.3,20,00,400/- WHICH KEEPS DIMINISHING DURING THE LEASE PERIOD DUE TO AD JUSTMENT AFTER THE RENT FALLS DUE. APPELLANT HAS SUBMITTED A NUMBER OF COURT DECI SIONS WHERE IT IS HELD THAT A DEPOSIT OR A SECURITY DEPOSIT IS DIFFERENT FROM ADV ANCE AND LOAN. IN RESPONSE TO THESE COURT DECISIONS, SUBMITTED BY THE APPELLANT, ASSESSING OFFICER HAS RAISED ANOTHER SUSPICION IN THE REMAND REPORT THAT THE SEC URITY DEPOSIT OF RS. 3.8 CRORE PAID TO APPELLANT BY M.L DALMIYA & CO. IN REVISED A GREEMENT DATED 31.03.2003, WITH A VIEW TO SETTLE A DISPUTE BETWEEN THEM, APPEARS AR TIFICIAL AND INDICATES AT OTHER MOTIVES BECAUSE THE TWO PARTIES, APPELLANT AND M.L. DALMIYA & CO. LTD. ARE CLOSELY RELATED. THE ARGUMENT PRESENTED BY THE ASSESSING OF FICER HAS SOME FORCE BECAUSE SHRI AVISHEK DALMIYA CONTROLS 60% OF STAKE IN M/S M .L.DALMIYA & COMPANY AND 40% STAKE IN APPELLANT COMPANY AND CHANDRALEKHA DALMIYA CONTROLS 15.48% OF STAKE IN M/S. M.L.DALMIYA & COMPANY AND 12.27% STAKE IN APPE LLANT COMPANY BUT NO FURTHER FACTS WERE SUBMITTED BY THE ASSESSING OFFICER IN RE SPECT OF SHARES HOLDING OF OTHER PERSONS IN APPELLANT COMPANY WHO MAY HAVE HAD CONFLICT OF INTEREST WITH SHRI AVISHEK DALMIYA WHICH RESULTED IN REVISING OF LEASE AGREEMENT. THOUGH ASSESSING OFFICER HAS STATED THAT BOTH THE PARTIES HAVE USED THE SAME ADDRESS OF OFFICE IN THE CORRESPONDENCE OF DISPUTE SUBMITTED DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER DID NOT SUBMIT ANY OTHER EVIDENCE OR RESULT OF ANY ENQUIRY TO FIND FAULT WITH THE SUBMISSIONS OF APPELLANT IN RES PECT OF CORRESPONDENCE OF DISPUTE AND THE SUBMISSION OF APPELLANT THAT THE DISPUTE WA S SETTLED BY THE INTERVENTION OF A THIRD PARTY, SHRI SHYAMANAND .JALAN, ADVOCATE. MO REOVER, I FIND FROM THE COPY OF AGREEMENT DATED 31.03.2003 THAT SHRI AVISHEK DALMIY A HAS SIGNED ON BEHALF OF M.L DALMIYA & CO. AND SHRI RAUSHAN AGARWAL HAS SIGNED O N BEHALF OF APPELLANT COMPANY AND THEREFORE IT IS DIFFICULT TO INFER THAT THE SAM E PERSON HAS MANAGED THE AGREEMENT FOR ANY PURPOSE OTHER THAN RESOLVING THE DISPUTE AS MENTIONED IN THE AGREEMENT. THERE ARE ENOUGH EXAMPLES OF FAMILY DISP UTES IN BUSINESS WORLD WHICH RENDER THE ARGUMENT OF ASSESSING OFFICER THAT THERE CAN BE NO DISPUTE AMONG THE FAMILY MEMBERS UNACCEPTABLE IN ABSENCE OF ANY SUBST ANTIAL EVIDENCE. THE ACCOUNTS OF APPELLANT AND THE LEASE AGREEMENT SHOW THAT THE ADVANCE RENT RECEIVED EARLIER BY APPELLANT ON 10.08.1998 WAS DIMINISHING WITH ADJ USTMENT OF RENT WITH THE PASSAGE OF TIME AND THERE WAS NO SECURITY AGAINST T HE LOSS OF PROPERTY WHICH THE APPELLANT HAD GIVEN TO THE LESSEE FOR 22 YEARS WITH A TACIT UNDERSTANDING OF VACATING IT EARLIER AND THEREFORE REVISING THE LEAS E AGREEMENT WITH A SECURITY DEPOSIT WHEN THE LESSEE IS ALLOWED TO FURTHER KEEP AND SUBLET THE PROPERTY MAY BE A NORMAL BUSINESS TRANSACTION IN ABSENCE OF ANY CONTR ADICTORY EVIDENCE AND ARGUMENT. THE MATERIAL AVAILABLE IN RECORDS SHOULD BE AUTHENT IC AND ARGUMENTS CANNOT BE BASED ON PRESUMPTIONS BECAUSE NOTIONAL OR ARTIFICIA L INCOME IS BEING ASSESSED THROUGH A FICTION UNDER SECTION 2(22)(E). THEREFORE , THE SECURITY DEPOSIT OF RS. 3.8 8 CRORE, RECEIVED BY APPELLANT BY VIRTUE OF AGREEMENT DATED 31.03.2003, IS A SECURITY AGAINST THE LOSS OF APPELLANTS PROPERTY AT SHAKESP EARE SARANI, TO BE RETURNED TO THE LESSEE AFTER THE PROPERTY IS RECEIVED BACK FROM THE LESSEE, AND AS THE AGREEMENT IS NOT PROVED TO BE A DESIGN, SUCH SECURI TY DEPOSIT CANNOT BE CONSIDERED AN ADVANCE OR LOAN. IN ANY CASE, THE FACTS STATED I N THE ASSESSMENT ORDER SHOW THAT SHRI AVISHEK DALMIYA AND SMT. CHANDRALEKHA DALMIYA HAD BENEFICIAL SHAREHOLDING OF 60% AND 15.48% RESPECTIVELY IN THE COMPANY M/S M.L. DALMIYA & COMPANY. THE COMPANY M/S M.L.DALMIYA & COMPANY HAD GIVEN THE DIS PUTED AMOUNT OF RS. 3.8 CRORE TO THE APPELLANT COMPANY IN WHICH SHRI AVISHE K DALMIYA AND SMT CHANDRALEKHA DAIMIYA HAD 40% AND 12.27% BENEFICIAL SHAREHOLDING IN APPELLANT COMPANY. APPELLANT HAS SUBMITTED THAT APPELLANT COM PANY NEITHER HOLDS ANY SHARE IN M. L. DALMIYA & CO. LTD. NOR HAS ANY BENEFICIAL INT EREST IN THE SAID COMPANY AND THIS FACT HAS NOT BEEN CONTRADICTED BY THE ASSESSING OFF ICER IN HIS REMAND REPORT. THEREFORE WHEN M. L. DALMIYA & CO. LTD. COULD NOT H AVE ISSUED ANY DIVIDEND TO THE APPELLANT UNDER NORMAL CIRCUMSTANCES, THE QUESTION OF TAXING DEEMED DIVIDEND IN CASE OF APPELLANT WHO IS NOT A REGISTERED SHAREHOLD ER IN M.L. DALMIYA & CO. LTD. DOES NOT ARISE IN VIEW OF THE DECISION OF THE SPECIAL BE NCH OF THE I.T.A.T. IN THE CASE OF ASSTT. COMMISSIONER OF INCOME TAX VS. BHAUMIK COLOU R (P) LTD. REPORTED IN 27 SOT 270 (120 TTJ 865), MUMBAI E SPECIAL BENCH, RELEV ANT TO ASSESSMENT YEAR 1997- 98, WHEN THE AMENDED PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE, IT WAS HELD IN THIS ORDER OF HBLE-ITAT-SPECIAL BENCH THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF TH E LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. THIS VI EW IS FURTHER SUPPORTED BY THE DECISION OF HBLE RAJASTHAN HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME- TAX VS. HOTEL HILLTOP REPORTED IN 313 ITR 116 AND AS PE R THE DECISION OF HBLE RAJASTHAN HIGH COURT THE DEEMED DIVIDEND COULD AT BEST BE TAX ED IN THE PRESENT SITUATION IN THE HANDS OF SHRI AVISHEK DALMIYA WHO IS A REGISTER ED SHARE HOLDER IN M. L DALMIYA & CO. LTD. AND HAS A SUBSTANTIAL INTEREST IN APPELL ANT COMPANY, IF OTHER CONDITIONS U/S 2(22)(E) WERE SATISFIED. IN VIEW OF THE ABOVE P OSITION OF FACTS AND LAW I HOLD THAT ASSESSING OFFICER HAS INCORRECTLY, CONSIDERED THE SECURITY DEPOSIT TO THE EXTENT OF ACCUMULATED PROFITS OF THE COMPANY M.L. D ALMIYA & CO. LTD. AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT COMPANY AND THEREFORE ASSESSING OFFICER IS DIRECTED TO REDUCE THE TOTAL INCOME BY EXCLUDING TH E AMOUNT OF RS.3,66,31,403/- FROM THE TOTAL INCOME OF THE APPELLANT AS DEEMED DI VIDEND. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, THE LD. DEPAR TMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE A.O. HE FURTHER SUBMITTED THAT BO TH THE PARTIES ARE CLOSELY RELATED TO EACH OTHER AND TWO OF THE SHAREHOLDERS HELD CONS IDERABLE SHARES IN BOTH THE COMPANIES. THEREFORE, IT DOES NOT MAKE MUCH LOGICA L SENSE AS TO GUESS A DISPUTE BETWEEN THE PARTIES, WHICH HAS RESULTED IN INTRODUC TION OF NEW AGREEMENT FOR GIVING SECURITY DEPOSIT BY THE LESSOR COMPANY TO THE ASSES SEE-COMPANY. HE SUBMITTED THAT 9 THE FRESH AGREEMENT WAS DRAWN JUST TO GIVE THE COLO UR OF ADVANCE PAID AS SECURITY DEPOSIT TO CIRCUMVENT THE RIGOURS OF SEC. 2(22)(E) OF THE ACT. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO RELIED ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF L. ALAGUSUNDARAM CHETTIAR VS. CIT [252 ITR 893]. 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF LD. C.I.T.(A) AND REITERATED THE ARGUMENTS MADE BEFORE HIM. A PAPER BOOK CONTAINING 54 PAGES HAS ALSO BEEN FILED BY THE ASSESSEE. HE FURT HER SUBMITTED THAT THE A.O. ERRED IN TREATING THE SECURITY DEPOSIT AS DEEMED DIVIDEND U/ S. 2(22)(E) OF THE ACT AND THUS MISCONCEIVED THE FACTS AND WRONGLY THE ABOVE SECTIO N. THAT THE A.O. FAILED TO CONSIDER THE FACT THAT THE SUM WAS ON ACCOUNT OF SECURITY DE POSIT AND NOT ADVANCE FOR OBTAINING LEASE OF THE ASSESSEES PROPERTY BY M.L. DALMIYA & CO. LTD. TO BE REFUNDED ON EXPIRY OF LEASE PERIOD. HE FURTHER SUBMITTED THAT THE A.O. F AILED TO APPRECIATE THAT RS. 3.80 CRORES WAS RECEIVED BY WAY OF JOURNAL ENTRY AND NO ACTUAL MOVEMENT OF CASH WAS EFFECTED BETWEEN THE ASSESSEE-COMPANY AND THE LESSE E-COMPANY. HE SUBMITTED THAT THE ASSESSEE-COMPANY NEITHER HOLDS ANY SHARE IN M.L . DALMIYA & CO. LTD. NOR HAS ANY BENEFICIAL INTEREST IN THE SAID COMPANY. IT ONLY D ERIVES RENTAL INCOME FROM THE SAID COMPANY FOR LEASING OUT ITS PREMISES AT 32, SHAKESP EARE SARANI, KOLKATA. HE, THEREFORE, SUBMITTED THAT THE A.O. COULD NOT MAKE O UT ANY CASE TO INVOKE SEC. 2(22)(E) OF THE ACT AS THE SAID SECTION APPLIES ONLY IN THE CASE OF A SHAREHOLDER AND TO NOBODY ELSE. IN THIS CONNECTION, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO SPECIAL BENCH DECISION OF I.T.A.T., MUMBAI IN THE CASE OF ACIT VS . BHAUMIK COLOUR (P) LTD. [120 TTJ 865 (MUM-SB)] AND DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. ANKITECH (P) LTD. & ORS. [(2011) 242 CTR 129 (DEL), COPIES O F WHICH HAVE ALSO BEEN FILED BEFORE US. HE, THEREFORE, SUBMITTED THAT THE LD. C.I.T.(A ) HAS APPRECIATED THE FACTS OF THE CASE IN PROPER PERSPECTIVE VIS--VIS SEC. 2(22)(E) OF THE ACT AND HIS ORDER SHOULD BE UPHELD. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIAL AVAILABLE ON RECORD THE LD. DEPARTMENTAL REPRESENTATIVE HAS R ELIED ON A DECISION OF HONBLE SUPREME COURT IN THE CASE OF L. ALAGUSUNDARAM CHETT IAR VS. CIT (SUPRA). THIS DECISION, IN OUR CONSIDERED OPINION, IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE 10 OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE-INDIVI DUAL WAS THE MANAGING DIRECTOR OF A COMPANY. A LOW PAID EMPLOYEE OBTAINED LARGE AMOUNT OF LOAN FROM THE COMPANY AND IN TURN GIVEN BY THAT EMPLOYEE TO THE ASSESSEE (M.D.) AS LOANS AND THIS WAS A FREQUENT OCCURRENCE AS AND WHEN REQUIRED BY THE SAID MANAGIN G DIRECTOR. IN SUCH CIRCUMSTANCES, IT WAS HELD THAT THE LOANS ADVANCED BY THE COMPANY TO THE SAID EMPLOYEE WERE FOR THE BENEFIT OF THE ASSESSEE AND COULD BE ASSESSED AS DI VIDENDS IN THE HANDS OF THE ASSESSEE. IN THE CASE BEFORE US, THE ASSESSEE IS N OT A SHAREHOLDER/MEMBER OF M.L. DALMIYA & CO. LTD. OR VICE VERSA. 6.1. IT IS FURTHER OBSERVED THAT THE ASSESSEE-COMP ANY LEASED OUT ITS PROPERTY AT SHEKESPEARE SARANI, KOLKATA TO M/S. M.S. DALMIYA & CO. LTD. FOR 22 YEARS AGAINST AN ADVANCE OF RS. 3.20 CRORES TO BE ADJUSTED AGAINST THE RENT PAYABLE BY THE LESSEE (M.L.DALMIYA & CO. LTD.). A DISPUTE AROSE BETWEEN THESE TWO COMPANIES AND FOR AMICABLE SETTLEMENT, A NEW AGREEMENT WAS ENTERED IN TO BETWEEN THEM ON 31/3/2003 AGREEING THEREBY THAT M.L. DALMIYA & CO. LTD. SHALL PAY AS SECURITY DEPOSIT RS. 3,80,00,000/- TO THE ASSESSEE-COMPANY TO BE REFUNDE D TO THEM AT THE END OF THE LEASE PERIOD AND AFTER HANDING OVER OF THE POSSESSION OF THE PROPERTY TO THE ASSESSEE. ACCORDING TO THE ASSESSEE, THIS SECURITY DEPOSIT DO ES NOT COME UNDER THE AMBIT OF SEC. 2(22)(E) OF THE ACT, WHEREAS ACCORDING TO THE A.O. THIS SECURITY DEPOSIT WAS NOTHING BUT DEEMED DIVIDEND INASMUCH AS TWO OF THE BENEFICI AL SHAREHOLDERS OF LESSEE-COMPANY WERE ALSO SHAREHOLDERS AND SUBSTANTIALLY INTERESTED IN THE ASSESSEE-COMPANY. ACCORDING TO THE A.O., THIS WAS ADVANCE. FROM THE ASSESSMENT ORDER WE OBSERVE THAT AS ON 31.03.2003 OUT OF TOTAL ISSUED AND SUBSCRIBED SHARES, TWO SHARE HOLDERS NAMELY, AVISHEK DALMIYA AND SMT. CHANDRALEKHA DALMIYA WERE HAVING SHARE HOLDING OF 40% AND 12.27% RESPECTIVELY IN THE ASSESSEE COMPANY AND THE SE TWO PERSONS WERE ALSO HAVING SHARE HOLDING OF 60% AND 15.48% RESPECTIVELY IN M.L . DALMIYA & CO. LTD. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE-COMPANY LET OUT ITS PREM ISES TO M.L. DALMIYA & CO. LTD. FOR EARNING RENTAL INCOME, WHICH IS A COMMERCIAL TRANSA CTION. 6.2. IN THE ABOVE CONTEXT, WE WOULD LIKE TO REFER T O THE RELEVANT PROVISION OF SECTION 2(22)(E) OF THE IT ACT AS WELL AS EXPLANATION 3 TO SECTION 2(22)(E) OF THE ACT WHICH DEFINES AS UNDER : 11 (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY, SUM (WHETHER AS R EPRESENTING. A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH S HAREHOLDER IS A MEMBER OR .A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOL DER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PR OFITS. EXPLANATION 3 TO SEC. 2(22)(E) OF THE ACT DEFINES CONCERN AS UNDER : (A) CONCERN MEANS AN HUF, OR A FIRM OR AN AO P OR A BOI OR A COMPANY. ON CAREFUL PERUSAL OF PROVISIONS OF SEC. 2(22)(E) O F THE ACT AS WELL AS EXPLANATION 3 ATTACHED TO THE SAME, WHICH ARE EXTRACTED ABOVE, WH EREIN THE WORD CONCERN HAS BEEN DEFINED, WE ARE OF THE VIEW THAT THESE PROVISIONS A RE NOT ATTRACTED TO THE FACTS OF THE PRESENT CASE. 6.3. ON CAREFUL PERUSAL OF THE ABOVE IN THE LIGHT OF THE FACTS OF THE CASE WE ARE OF THE VIEW THAT TO ATTRACT THE FIRST LIMB OF THE PROV ISIONS OF S.2(22)(E) THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES . THE CONDITION UNDER THE 1922 ACT AND THE 1961 ACT REGARDING THE PAYEE BEING A SHAREH OLDER REMAINS THE SAME AND IT IS THE CONDITION THAT SUCH SHAREHOLDER SHOULD BE BENEF ICIAL OWNER OF THE SHARES AND THE PERCENTAGE OF VOTING POWER THAT SUCH SHAREHOLDER SH OULD HOLD THAT HAS BEEN PRESCRIBED AS AN ADDITIONAL CONDITION UNDER THE 1961 ACT. IT I S A PRINCIPLE OF INTERPRETATION OF STATUTES THAT WHERE ONCE CERTAIN WORDS IN AN ACT HA VE RECEIVED A SUBSEQUENT STATUTE, THE LEGISLATURE MUST BE TAKEN TO HAVE USED THEM ACC ORDING TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION HAS GIVEN THEM. IN THE 1961 ACT, THE WORD SHAREHOLDER IS FOLLOWED BY THE FOLLOWING WORDS B EING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES. THIS EXPRESSION USED IN S.2(22)(E ), BOTH IN THE 1961 ACT AND IN THE AMENDED PROVISIONS W.E.F. 1 ST APRIL, 1988 ONLY QUALIFIES THE WORD SHAREHOLDER AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOL DER HAS TO BE A REGISTERED 12 SHAREHOLDER. THESE PROVISIONS ALSO DO NOT SUBSTITUT E THE AFORESAID REQUIREMENT TO A REQUIREMENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE EXPRESSION SHAREH OLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN THE FIRS T LIMB OF S.2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL THEN THE PROVISI ON OF S.2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF S.2(22)(E) WIL L NOT APPLY. THE NEW CATEGORY OF PAYMENT WHICH WAS CONSIDERED AS DIVIDEND INTRODUCED BY THE FINANCE ACT, 1987 W.E.F. 1 ST APRIL, 1988 BY THE SECOND LIMB OF S.2(22)(E) IS PA YMENT TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMB ER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE FOLLOWING CONDITIONS A RE REQUIRED TO BE SATISFIED FOR APPLICATION OF THE ABOVE CATEGORY OF PAYMENT TO BE REGARDED AS DIVIDEND. THEY ARE : (A) THERE MUST BE A PAYMENT TO A CONCERN BY A COMPANY. (B) A PERSON MUST BE SHAREHOLDER OF THE COMPANY BEING A REGISTERED HOLDER AND BENEFI CIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN P ER CENT OF THE VOTING POWER. THIS IS BECAUSE OF THE EXPRESSION SUCH SHAREHOLDER FOUND IN THE RELEVANT PROVISION. THIS EXPRESSION ONLY REFERS TO THE SHAREHOLDER REFERRED TO IN THE EARLIER PART OF S.2(22)(E), VIZ/. A REGISTERED AND A BENEFICIAL HOLDER OF SHARE S HOLDING 10 PER CENT VOTING POWER. (C) THE VERY SAME PERSON REFERRED TO IN (B) ABOVE MUST ALSO BE A MEMBER OR A PARTNER IN THE CONCERN HOLDING SUBSTANTIAL INTEREST IN THE CON CERN VIZ., WHEN THE CONCERN IS NOT A COMPANY, HE MUST AT ANY TIME DURING THE PREVIOUS YE AR, BE BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE INCOME OF SUCH CON CERN; AND WHERE THE CONCERN IS A COMPANY HE MUST BE THE OWNER OF SHARES, NOT BEING S HARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS, CARRYING NOT LESS THAN TWENTY PER CENT OF THE VOTING POWER. IN THE CASE OF THE ASSESSEE IT IS SEEN THAT CONDITIONS (B) AND (C) ARE NOT SATISFIED INASMUCH A S NNT HELD SHARES IN UPPL AND BCPL ONLY AS A LEGAL AND REGISTERED OWNER BUT NOT AS A B ENEFICIAL OWNER. IN THE CASE OF THE ASSESSEE IT IS SEEN THAT THE THREE TRUSTEES OF NNT HELD SHARES IN UPPL AND BCPL ONLY 13 AS A LEGAL AND REGISTERED OWNER. THEY HELD SHARES F OR AND ON BEHALF OF 5 BENEFICIARIES OF THE TRUST WHO ARE DIFFERENT INDIVIDUALS. THEY WE RE THEREFORE NOT BENEFICIAL OWNERS OF THE SHARES. THEREFORE, THE FIRST REQUIREMENT OF HOLDING OF SHARES BOTH AS A LEGAL REGISTERED OWNER AND BENEFICIAL OWNER OF SUCH SHARE S IS NOT SATISFIED IN THE CASE OF THE ASSESSEE. THEREFORE, PROVISIONS OF S.2(22)(E) WOULD NOT BE APPLICABLE AT ALL TO THE CASE OF THE ASSESSEE. DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS O F A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER. THE PROVISIONS OF S.2(22)(E) DO NOT SP ELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OR THE CONCERN (NON-SHAREHOLDER). THE PROVISIONS ARE AMBIGUOUS. IT IS THEREFORE NECESSARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF S.2(22)(E). THE INTENTIO N BEHIND ENACTING PROVISIONS OF S.2(22)(E) IS THAT CLOSELY HELD COMPANIES (I.E., CO MPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTRIBUT E SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED P ROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYMENT BY THE COMPANY IS TREATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF S.2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF SHARE HOLDER. THE DEEMING PROVISION AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPA NY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST IS BASED ON TH E PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTION OF THE LEGISLATU RE IS THEREFORE TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS O F THE CONCERN. THE BASIS OF BRINGING IN THE AMENDMENT TO S.2(22)(E) BY THE FINANCE AFT, 1987, W.E.F. 1 ST APRIL, 1988 IS TO ENSURE THAT PERSONS WHO CONTROL THE AFFAIRS OF A CO MPANY AS WELL AS THAT OF A FIRM CAN HAVE THE PAYMENT MADE TO A CONCERN FROM THE COMPANY AND THE PERSON WHO CAN CONTROL 14 THE AFFAIRS OF THE CONCERN CAN DRAW THE SAME FROM T HE CONCERN INSTEAD OF THE COMPANY DIRECTLY MAKING PAYMENT TO THE SHAREHOLDER AS DIVID END. THE SOURCE OF POWER TO CONTROL THE AFFAIRS OF THE COMPANY AND THE CONCERN IS THE B ASIS ON WHICH THESE PROVISIONS HAVE BEEN MADE. IT IS THEREFORE PROPER TO CONSTRUE THOSE PROVISIONS AS CONTEMPLATING A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND N OT IN THE HANDS OF A NON-SHAREHOLDER VIZ., CONCERN. A LOAN OR ADVANCE RECEIVED BY A CONC ERN IS NOT IN THE NATURE OF INCOME. IN OTHER WORDS THERE IS A DEEMED ACCRUAL OF INCOME EVE N UNDER S.5(1)(B) IN THE HANDS OF THE SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE PA YEE VIZ., NON-SHAREHOLDER (CONCERN). SEC. 5(1)(A) CONTEMPLATES THAT THE RECEIPT OR DEEME D RECEIPT SHOULD BE IN THE NATURE OF INCOME. THEREFORE, THE DEEMING FICTION CAN BE APPLI ED ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT THE SHARE-HOLDER VIZ., THE CONC ERN. CBDT CIRCULAR NO.495, DT. 22 ND SEPT., 1987, TO THE EXTENT NOT BENEVOLENT IS NOT BI NDING. IN THE EVENT OF THE PAYMENT OF LOAN OR ADVANCE BY A COMPANY TO A CONCERN BEING TRE ATED AS DIVIDEND AND TAXED IN THE HANDS OF THE CONCERN THEN, THE BENEFIT OF SET OFF A S PER S.2(22)(E)(III) CANNOT BE ALLOWED TO THE CONCERN, BECAUSE THE CONCERN CAN NEV ER RECEIVE DIVIDEND FROM THE COMPANY WHICH IS ONLY PAID TO THE SHAREHOLDER, WHO HAS SUBSTANTIAL INTEREST IN THE CONCERN. THE PROVISIONS OF SUB-CL.(III) OF S.2(22)( E) ALSO THEREFORE CONTEMPLATE DEEMED DIVIDEND BEING TAXED IN THE HANDS OF A SHAREHOLDER ONLY. HENCE IN OUR OPINION PROVISION OF SECTION 2(22)(E) IS NOT APPLICABLE TO THE PRESEN T FACTS OF THE CASE. 6.4. AS REGARDING THE ISSUE THAT THE TRANSACTIONS ENTERED BY ASSESSEE WITH M/S. M.K.DALMIYA & CO. WHETHER IT IS SECURITY DEPOSIT OR OF ADVANCE AGAINST RENT WE ARE OF THE VIEW THAT SINCE WE HAVE ALREADY EXPRESSED OUR O PINION THAT THE PROVISIONS ARE NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE THE NAT URE OF TRANSACTIONS HAS NO EFFECT. 6.5. KEEPING IN VIEW OF THE ABOVE, WE FIND NO INFIR MITY IN THE ORDERS OF LD.CIT(A) TO BE INTERFERED WITH. WE CONFIRM THE SAME AND DISMISS THE APPEAL OF THE REVENUE. 15 7. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 14.10.2011. SD/- SD/- , , , , ( ( ( ( N.VIJAYAKUMARAN, JUDICIAL MEMBER . .. .'# '#'# '#. .. . , , , , $% $% $% $% , C.D.RAO, ACCOUNTANT MEMBER. ( (( (#% #% #% #%) )) ) DATE: 14.10.2011. $5 1 /(( 6$*7- COPY OF THE ORDER FORWARDED TO: 1. M/S.MADHUSUDANN INVESTMENT & TRADING CO.PVT. LTD., 32, SHAKESPEARE SARANI, KOLKATA-700017. 2 THE D.C.I.T., CIRCLE-7, KOLKATA 3. THE CIT, 4. THE CIT(A)-CENTRAL-II, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA 0 /(/ TRUE COPY, $5/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.)