ACIT, New Delhi V. M/s. Alankit Assignment Ltd., New Delhi

ITA 2095/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7382 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Assessee Lawyers: AMIT GOEL
• Keywords: Business income; Deemed dividend

Judgement Text

1 ITA NO. 2095/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEM BER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO. 2095/DEL/2013 (ASSESSM ENT YEAR-2009-10) ACIT CIRCLE-1(1), ROOM NO. 390, C. R. BUILDING, I. P. ESTATE NEW DELHI (APPELLANT) VS ALANKIT ASSIGNMENT LTD. 205-208, ANARKALI COMPLEX JHANDEWALAN EXTENSION NEW DELHI AAACA9483E (RESPONDENT) APPELLANT BY SH. K. K. JAISWAL, DR RESPONDENT BY SH. AMIT GOEL, CA ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ORDER DATED 10/01/ 2013 PASSED BY CIT(A)-IV, NEW DELHI, FOR ASSESSMENT YEAR 2009-10. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: 1. WHETHER THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.33,79,166/- ON ACCOUNT OF DEEMED DIV IDEND U/S 2(22)(E) IGNORING THE FACT THAT IN THE LOAN BOOKS O F THE ASSESSEE COMPANY WAS TREATED AS DEEMED DIVIDEND TO THE EXTEN T OF ACCUMULATED PROFITS CALCULATED ON PRO RATA BASIS. DATE OF HEARING 02.06.2016 DATE OF PRONOUNCEMENT 20.06.2016 2 ITA NO. 2095/DEL/2013 3. THE ASSESSEE COMPANY IS IN THE BUSINESS OF REGIS TER & TRANSFER AGENT, DEPOSITORY PARTICIPANTS AND SHARE GROUP. THE ASSES SEE FILED RETURN OF INCOME DECLARING INCOME OF RS.6,04,285/-. DURING THE COURS E OF ASSESSMENT PROCEEDING THE ASSESSEE WAS ASKED TO PROVIDE COPY O F ACCOUNTS RELATED TO ITS CONCERNS. THE ASSESSING OFFICER OBSERVED THAT M/S. ALANKIT TECHNOLOGIES LTD. HAS LOAN ACCOUNT WITH ALANKIT ASSIGNING LTD. THE A SSESSEE COMPANY IS A MAJORITY SHARE HOLDER, REGISTERED AND BENEFICIAL OF ALANKIT TECHNOLOGIES LTD. IT IS THE ASSESSEES CASE THAT THE LOAN WAS GIVEN BY A SUBSIDIARY COMPANY WHO IS IN THE BUSINESS OF ADVANCING LOAN, I.E. ALANKIT TEC HNOLOGIES LTD. THE ASSESSING OFFICER HELD THAT ALL THE CONDITIONS LAID DOWN IN S ECTION 2 (22) (E) OF THE ACT WERE SATISFIED IN RESPECT OF LOAN FROM ALANKIT TECH NOLOGIES LTD. TO THE ASSESSEE COMPANY. THE ASSESSING OFFICER FURTHER OBSERVED TH AT THE CASE IS NOT COVERED BY ANY OF THE EXCEPTIONS PROVIDED IN CLAUSES (I) TO (V) OF THE SAID SECTION. THEREFORE, A SUM OF RS. 33,79,166/- WAS HELD AS DEE M DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY TO THE EXTENT OF ACCUMULATED P ROFITS OF ALANKIT TECHNOLOGIES LTD. AND IS ADDED UNDER THE HEAD INCOM E FROM OTHER SOURCES. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) DISCUSSED VARIOUS CASE LAWS AND HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING PROVISIONS OF SECTION 2(22) (E) OF THE INCOME-TAX ACT. THE REVENUE IS IN APPEAL BEFORE US . 5. THE LD. DR SUBMITTED THAT THE ASSESSEE AT NO POI NT OF TIME HAS GIVEN RECEIPTS OR DOCUMENTS AS RELATES TO LOAN OPTING FRO M A COMPANY IN WHICH THE ASSESSEE COMPANY IS A MAJOR SHARE HOLDER AND BENEFI CIARY. THUS, THE ASSESSING OFFICER HAS RIGHTLY INVOKED SECTION 2(22) (E). 6. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A) A ND ALSO ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . PARLE PLASTICS LTD. [2011] 196 TAXMAN 62 (BOM) WHEREIN PARA 11 HELD AS FOLLOWS :- .. THE EXPRESSION USED UNDER CLAUSE (II) OF SEC TION 2(22) IS SUBSTANTIAL PART OF THE BUSINESS. WE WOULD, THEREFORE, HAVE TO ASCERTAIN THE MEANING OF THE 3 ITA NO. 2095/DEL/2013 WORD SUBSTANTIAL, APPEARING IN THE EXPRESSION SU BSTANTIAL PART OF THE BUSINESS. STROUD'S JUDICIAL DICTIONARY, FIFTH EDIT ION, GIVES THE FIRST MEANING OF WORD SUBSTANTIAL AS A WORD OF NO FIXED MEANING, IT IS AN UNSATISFACTORY MEDIUM FOR CARRYING THE IDEA OF SOME ASCERTAINABLE PROPORTION OF THE WHOLE. THE DECISION OF TERRY'S MOTORS LT. V. RINDER [1948] S.A .S.R. 167) IS GIVEN IN SUPPORT OF THIS MEANING. IN THE MEANING NO.8, WHILE CONSIDERIN G SUBSTANTIAL AMOUNT, IT IS STATED THAT OUT OF A RENT OF 80 P.A., 13 P.A. ATT RIBUTABLE TO THE AMOUNT PAID FOR FURNITURE, WAS A SUBSTANTIAL AMOUNT, ON THE BASIS O F THE DECISION IN MACLAY V. DIXON 170 L.T. 49. IN MEANING NO.15, RELYING UPON T HE DECISION OF LADBROOKE (FOOTBALL) 17 V. WILLIAM HILL (FOOTBALL) [1964] 1 W .L.R. 273, IT IS SAID THAT IN DECIDING WHETHER THE REPRODUCED PART OF COPYRIGHT M ATERIAL IS A SUBSTANTIAL PART OF THE WHOLE, IT IS THE QUALITY RATHER THAN TH E QUANTITY OF THE PART THAT SHOULD BE CONSIDERED. BLACK'S LAW DICTIONARY, SIXTH EDITIO N DEFINES THE WORD SUBSTANTIAL AS OF REAL WORTH AND IMPORTANCE; OF CONSIDERABLE VALUE; VALUABLE; BELONGING TO SUBSTANCE; ACTUALLY EXISTING; REAL; NO T SEEMING OR IMAGINARY; NOT ILLUSIVE; SOLID; TRUE; VERITABLE. SOMETHING WORTHWH ILE AS DISTINGUISHED FROM SOMETHING WITHOUT VALUE OR MERELY NOMINAL. NO DECI SION WAS CITED BEFORE US WHEREIN A VIEW HAS BEEN TAKEN THAT IN ORDER TO SHOW THAT A PART OF THE WHOLE TO BE TREATED AS SUBSTANTIAL PART, THE PART MUST EXC EED 50% OF THE WHOLE. IN OUR VIEW, THE EXPRESSION SUBSTANTIAL PART DOES NOT CO NNOTE AN IDEA OF BEING THE MAJOR PART OR THE PART THAT CONSTITUTES MAJORITY OF THE WHOLE. IF THE LEGISLATURE REALLY INTENDED THAT MORE THAN 50% OF THE BUSINESS OF THE LENDING COMPANY MUST COME FROM THE BUSINESS OF LENDING, NOTHING PREVENTE D THE LEGISLATURE FROM USING THE EXPRESSION MAJORITY OF BUSINESS. IF THE LEGIS LATURE AT ALL INTENDED THAT A PARTICULAR MINIMUM PERCENTAGE OF THE BUSINESS OF A LENDING COMPANY SHOULD COME FROM THE BUSINESS OF LENDING, THE LEGISLATURE COULD HAVE SPECIFICALLY PROVIDED FOR THAT PERCENTAGE WHILE DRAFTING CLAUSE (II) OF SECTION 2(22) OF THE ACT. THE LEGISLATURE HAD DELIBERATELY USED THE WORD SUB STANTIAL INSTEAD OF USING THE WORD MAJOR AND/OR SPECIFYING ANY PERCENTAGE OF TH E BUSINESS OR PROFIT TO BE COMING FROM THE LENDING BUSINESS OF THE LENDING COM PANY FOR THE PURPOSE OF CLAUSE (II) OF SECTION 2(22) OF THE ACT. WE WOULD G IVE AN ILLUSTRATION TO ASCERTAIN THE MEANING OF THE EXPRESSION SUBSTANTIAL BUSINESS OR SUBSTANTIAL INCOME OF A COMPANY. IN THE MODERN DAYS, LARGE NUMBER OF COMP ANIES DO NOT RESTRICT TO ONE OR TWO BUSINESSES. THEY CARRY ON NUMEROUS ACTIVITIE S AND CARRY ON NUMEROUS BUSINESSES AND HAVE NUMEROUS BUSINESS DIVISIONS. LE T US TAKE A CASE OF A FIRST COMPANY WHICH HAS 3 DIVISIONS OF WORKS CONSISTING O F THREE DIFFERENT TYPES OF BUSINESS. TURN OVER AS WELL AS THE PROFIT OF THE FI RST DIVISION IS 40%; TURNOVER AND PROFIT OF SECOND DIVISION IS 30% AND THE TURNOVER A ND PROFIT OF THE THIRD LINE OF BUSINESS IS 30% . IN THE CASE OF THIS COMPANY NO PA RT OF THE BUSINESS HAS TURN OVER EXCEEDING 50% AND NO PART OF THE BUSINESS COMP ANY GENERATES PROFIT OF 4 ITA NO. 2095/DEL/2013 MORE THAN 50% OF THE TOTAL. IN SUCH A CASE CAN IT B E SAID THAT NONE OF THE BUSINESSES OF THE SAID COMPANY IS A SUBSTANTIAL BUS INESS OF THE COMPANY. IN OUR VIEW NOT. THE FIRST BUSINESS WHICH CONSTITUTES 40% OF THE TURNOVER AND CONTRIBUTES 40 % TO THE PROFIT WOULD BE THE SINGLE LARGEST PART OF THE BUSINESS OF THE COMPANY, THE SECOND AND THIRD DIVISIONS OF THE BUSINESS, EACH OF WHICH CONTRIBUTES 30% OF THE TURN OVER AS WELL AS PROFIT OF THE COMPANY, THOUGH NOT THE MAJOR AND NOT EVEN SINGLE LARGEST PART OF THE BUSIN ESS OF THE COMPANY, WOULD STILL BE A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPAN Y, BECAUSE IF ANY PART OF THE THREE DIVISIONS OF THE BUSINESS OF THE COMPANY WAS TO BE CLOSED DOWN, THAT WOULD RESULT IN LOSS OF TURN OVER AND/OR BUSINESS O F 30%, ORDINARILY NO COMPANY WOULD REGARD SUCH PART OF THE BUSINESS AS INSIGNIFI CANT. AS RIGHTLY OBSERVED IN STROUD'S JUDICIAL DICTIONARY, IT IS NOT POSSIBLE TO GIVE ANY FIXED DEFINITION OF THE WORD SUBSTANTIAL IN RELATION TO A SUBSTANTIAL BU SINESS OF A COMPANY. ANY BUSINESS OF A COMPANY WHICH THE COMPANY DOES NOT RE GARD AS SMALL, TRIVIAL, OR INCONSEQUENTIAL AS COMPARED TO THE WHOLE OF THE BUS INESS IS SUBSTANTIAL BUSINESS. VARIOUS FACTORS AND CIRCUMSTANCES WOULD B E REQUIRED TO BE LOOKED INTO WHILE CONSIDERING WHETHER A PART OF THE BUSINESS OF A COMPANY IS ITS SUBSTANTIAL BUSINESS. SOMETIMES A PORTION WHICH CONTRIBUTES SUB STANTIAL PART OF THE TURNOVER, THOUGH IT CONTRIBUTES A RELATIVELY SMALL PORTION OF THE PROFIT, WOULD BE SUBSTANTIAL PART OF THE BUSINESS. SIMILARLY, A PORTION WHICH RE LATIVELY A SMALL AS COMPARED TO THE TOTAL TURNOVER, BUT GENERATES A LARGE, SAY MORE THAN 50 % OF THE TOTAL PROFIT OF THE COMPANY WOULD ALSO BE SUBSTANTIAL PART OF ITS B USINESS. PERCENTAGE OF TURNOVER IN RELATION TO THE WHOLE AS ALSO THE PERCE NTAGE OF THE PROFIT IN RELATION TO THE WHOLE AND SOMETIMES EVEN PERCENTAGE OF A MANPOW ER USED FOR A PARTICULAR PART OF BUSINESS IN RELATION TO THE TOTAL MAN POWER OR WORKING FORCE OF THE COMPANY WOULD BE REQUIRED TO BE TAKEN INTO CONSIDER ATION. EMPLOYEES OF A COMPANY ARE NOW CALLED ITS HUMAN RESOURCES AND, T HEREFORE, THE PERCENTAGE OF HUMAN RESOURCES USED BY THE COMPANY FOR CARRYING ON A PARTICULAR DIVISION OF BUSINESS MAY ALSO BE REQUIRED TO BE TAKEN INTO CONS IDERATION WHILE CONSIDERING WHETHER A PARTICULAR BUSINESS FORMS SUBSTANTIAL PAR T OF ITS BUSINESS UNDISPUTEDLY, THE CAPITAL EMPLOYED BY A COMPANY FOR CARRYING ON A PARTICULAR DIVISION OF ITS BUSINESS AS COMPARED TO THE TOTAL C APITAL EMPLOYED BY IT WOULD ALSO BE RELEVANT WHILE CONSIDERING WHETHER THE PART OF THE BUSINESS OF THE COMPANY CONSTITUTES SUBSTANTIAL PART OF THE BUSINE SS OF THE COMPANY. 7. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH T HE PARTIES. WHILE INVOKING SECTION 2(22)(E) THERE ARE CERTAIN PARAMET ERS ON WHICH THE ASSESSING OFFICER HAS TO MAKE AN ADDITION. THE ASSESSING OF FICER ALSO HAS TO TAKE COGNIZANCE TO THE EXCEPTION TO THE SAID SECTION. T HE ASSESSING OFFICER HAS NOT 5 ITA NO. 2095/DEL/2013 DONE THE SAME. IN THE PRESENT CASE, THE CIT(A) AFTE R GOING THROUGH ALL THE RECORDS AS WELL AS SUBMISSIONS OF THE ASSESSEE, HAS GIVEN A CLEAR FINDING THAT IN THE CASE OF ALANKIT TECHNOLOGIES LTD. OUT OF TOTAL ASSETS OF RS. 2,85,14,90/- ABOUT 70% OF ASSETS ARE DEPLOYED IN LOANS AND ADVAN CES. THE TOTAL PROFIT OF ALANKIT TECHNOLOGIES LTD. AS PER PROFIT AND LOSS AC COUNT IS RS.28,23,306/- WHEREAS THE INTEREST INCOME IS RS.6,55,814/-. THUS , THE INTEREST INCOME IS APPROXIMATELY 23.23%. THE INTEREST INCOME HAS BEEN SHOWN AS BUSINESS INCOME BY ALANKIT TECHNOLOGIES LTD. THE VARIOUS JU DGMENTS SPECIFICALLY SUPPORTS THE FACTS OF THE ASSESSEES CASE THAT LEND ING IS THE SUBSTANTIAL PART OF THE BUSINESS OF THE ALANKIT TECHNOLOGIES LTD. ACCOR DINGLY THE ASSESSEES CASE IS COVERED BY THE EXEMPTION PROVIDED IN CLAUSE (II) OF SECTION 2(22)(E). THE CIT (A) HAS GIVEN A CORRECT FINDING AND THERE IS NO NEC ESSITY OF INTERFERING WITH THE SAME. IN LIGHT OF THE DECISION IN THE CASE OF CIT VS. PARLE PLASTICS LTD. (SUPRA) THE APPEAL OF THE REVENUE DOES NOT SUSTAIN. 8. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20 TH OF JUNE, 2016. SD/- SD/- (J. SUDHAKAR REDDY) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 20/06/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 6 ITA NO. 2095/DEL/2013 ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 02/06/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 03/06/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 2 0 .06.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 0 .06.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.