ACIT CIR 1, THANE V. GANSONS LTD, MUMBAI

ITA 2048/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9059 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 12-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRANAV N FURIA
• Keywords: Deemed dividend

Judgement Text

I.T.A NO.2048/ MUM/2010 M/S. GANSONS LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. [ CORAM: PRAMOD KUMAR, AM AND V. DURGA RAO, JM ] I.T.A NO.2048/ MUM/2010 ASSESSMENT YEAR: 2006-07 ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1 .. APP ELLANT VARDAAN BLDG., LOWER GROUND FLOOR, WAGLE INDL. ESTATE, MIDC, THANE VS M/S. GANSONS LIMITED ,. RESPONDEN T 157/158, AKBAR CAMP ROAD, SANDOZ BAUG, KOLSHET ROAD, THANE (W)-400 607 PA NO.AAACG 1699 Q MRS MALATI SHRIDHARAN , FOR THE APPELLANT SHRI PRANAV N FURIA, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CAL LED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 19 TH NOVEMBER, 2009, FOR THE ASSESSMENT YEAR 2006-97, ON THE FOLLOWING GROUND: THE LEARNED CIT (A) ERRED IN FACT AND IN LAW BY DE LETING THE ADDITION OF RS. 18,27,026 MADE ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) AS THE ASSESSEE IS NEITHER REGISTERED NOR BENEFICIAL SHARE HOLDER OF M/S. GANSONS MARKETING PVT LTD. THEREBY NOT CONSIDERING AP PLICABILITY OF SECTION WHICH IS NOT ONLY FOR LOANS TO SHAREHOLDERS BUT ALSO TO CONCERN WHERE CONCERNED SHARE HOLDER HAS MORE THAN 10% OF VOT ING POWER. 2. BRIEFLY STATED THE MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE AND SALE OF TAILORMADE MA CHINERY, PLANTS AND EQUIPMENTS FOR PHARMACEUTICAL AND FOOD PROCEEDING UN ITS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT T HE ASSESSEE COMPANY I.T.A NO.2048/ MUM/2010 M/S. GANSONS LIMITED 2 HAS SHOWN INTER-CORPORATE LOAN OF ` ` . 18,27,076. IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAID LOAN WAS TAKEN FROM ONE M/S. GANSONS MARKE TING P LTD. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILS OF SHARE HOLDING PATTERN(10% OF VOTING POWER). IN REPLY, THE ASSESSEE SUBMITTED THE SHA RE HOLDING PATTERN BEFORE THE ASSESSING OFFICER. ON SCRUTINISHING THE SHARE HOLDING PAT TERN OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT SHRI N.N.BANERJEE, A COM MON DIRECTOR IN ASSESSEE COMPANY AND M/S. GANSON MARKETING P.LTD., WAS HOLDING MORE THAN 20% SHARE IN BOTH THE COMPANIES. IN VIEW OF THIS BACKGROUND, THE ASSESSEE WAS SHOW CAUSE AS TO WHY THE LOANS RECEIVED AMOUNTING TO ` ` . 18,27,076 SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S.2(22)(E) OF THE INCOME TAX ACT AND TAXE D ACCORDINGLY. SINCE THE ASSESSEE FAILED TO REPLY IN RESPONSE TO ASSESSING OFFICERS QU ERY, THE ADVANCE OF ` . 18,27,076 RECEIVED BY THE ASSESSEE WAS TREATED AS DEEMED DIVIDEND AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). AFTER CONSIDERING SUBM ISSIONS OF THE ASSESSEE, THE CIT (A) FOLLOWING THE DECISION OF THE ITAT (SB) IN THE C ASE OF ACIT V BHUMIK COLOUR PVT LTD, 27 SOT 270(MUM)(SB), 118 ITD 1 AND ALSO THE HO NBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. HOTEL HILLTOP (2009) 313 ITR 116 (RAJ) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED BY THE STAND SO TAKE N BY THE CIT (A), THE ASSESSING OFFICER IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. LEARNED REPRESENTATIVES AGREED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION ITAT MUMBAI (SB) IN THE CASE OF BHAUMIK COLOUR (P)LT D (SUPRA), WHEREIN, ON PAGE 35, IT IS HELD AS UNDER: 5. THE INTENTION BEHIND ENACTING PROVISIONS OF SECTION 2(22)(E) ARE THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHICH PUB LIC ARE NOT SUBSTANTIALLY INTERESTED_, WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOU LD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED T HE DIVIDEND INCOME WOULD BECAME TAXABLE IN THE HANDS OF THE SHAREHOLDER S. INSTEAD OF DISTRIBUTING ACCUMULATE PROFITS AS DIVIDEND, COMPAN IES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN I N WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDE R. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS SUCH PAYMENT BY THE COMPANI ES TREATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF S ECTION 2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDER. THE DEEMI NG PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPA NY TO A CONCERN IN I.T.A NO.2048/ MUM/2010 M/S. GANSONS LIMITED 3 WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON THE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMAT ELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCES. THE INTENTION OF THE LEGISLATURE IS THER EFORE TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. 4. LEARNED COUNSEL POINTS OUT THAT THE ISSUE IN APPEAL IS NOW ALSO COVERED BY HONBLE JURISDICTIONAL HIGH COURTS JUDGEMENT IN THE CASE OF CIT V. UNIVERSAL MEDICARE (P)LTD., (324 ITR 26(), WHEREIN, THEIR LOR DSHIPS HAVE HELD THAT UNLESS THE PAYMENT MADE IS IN THE NATURE OF LOAN OR ADVANCE AND UNTIL THE PAYMENT IS MADE TO THE SHAREHOLDER, THE PROVISIONS U/S.2(22)(E) ARE NOT A TTRACTED. 5. IT IS NOT EVEN IN DISPUTE THAT THE ASSESSEE BEFORE US I S NOT A SHAREHOLDER IN GANSONS MARKETING PVT LTD., WHO IS ALLEGED TO HAVE PAI D DEEMED DIVIDENDS TO THE ASSESSEE. IN THIS VIEW OF THE MATTER, AND AS IS THE SETTLE D LEGAL POSITION DISCUSSED ABOVE, THE ASSESSEE, NOT BEING SHAREHOLDER IN THE GANSONS MARKETING PVT LTD., CANNOT BE TREATED AS HAVING RECEIVED DEEMED DIVIDEND FROM GANSONS MARKETING PVT LTD. THE CIT (A) RIGHTLY DELETED THE IMPUGNED ADDI TION. 6. FOR THE REASONS SET OUT ABOVE, WE APPROVE THE CONCL USIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE STANDS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARIN G I.E. ON 4 TH JANUARY, 2011. SD/- (V. DURGA RAO ) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 4 TH JANUARY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)II, THANE 4. COMMISSIONER OF INCOME TAX, I, THANE 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER \ ASSTT. REGISTRAR, ITAT, MUMBAI I.T.A NO.2048/ MUM/2010 M/S. GANSONS LIMITED 4