M/s Hydraulic & Pneumatics (I) Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2121/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3570 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Question of law; Deemed dividend
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2121/DEL/2010 ASSESSMENT YEAR : 2006-07 M/S HYDRAULIC & PNEUMATICS (I) PVT. LTD., 499, HAVELI HAIDER QULI, CHANDNI CHOWK, NEW DELHI. PAN : AABCH0510N VS. ITO, WARD 12 (4), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT GARG, CA REVENUE BY : SMT. MONA MOHANTY, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER OF THE CIT (A) DATED 15 TH FEBRUARY, 2010 FOR ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED ON FACTS AND IN LAW IN SUSTAINING ADDITION OF RS.3,50, 000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEEMED DIVID END UNDER SECTION 2 (22) (E) OF THE INCOME TAX ACT, 196 1 IN RESPECT OF LOANS RECEIVED BY THE APPELLANT FROM NIS HIGANDHA TRADING CO. PVT. LTD. AND M/S YAKSH TRADING CO. PVT . LTD. 2. WITHOUT PREJUDICE TO THE AFORESAID, THE COMMISSI ONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN S USTAINING ADDITION ON ACCOUNT OF DEEMED DIVIDEND IN THE HANDS OF THE ITA NO.2121/DEL/2010 2 APPELLANT, WHICH IS ADMITTEDLY NOT SHAREHOLDER OF T HE LENDING COMPANIES. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. THE TREATMENT OF LOAN OF RS.3,50,000/- RECEIVED BY THE ASSESSEE FROM TWO PARTIES DETAILED BELOW AS DEEMED DIVIDEND U/S 2(22) (E) IS BEING CONTESTED BY THE ASSESSEE IN THE PRESENT APPEAL:- S.NO. NAME OF LOAN/CASH CREDITORS AMOUNT RECEIVED LOAN RECEIVING DATED 1. M/S NISHIGANDHA TRADING PVT. LTD. RS.1,00,000/ 1 4.11.2005 2. M/S YAKSH TRADING CO. PVT. LTD. RS.50,000/- 09.0 5.2005 3. M/S YAKSH TRADING CO. PVT. LTD. RS.2,00,000/- 21.12.2005 TOTAL RS.3,50,000/- 3. THOUGH IT IS NOT DISPUTED THAT DIRECTORS OF BOTH THESE COMPANIES AND THE ASSESSEE COMPANY ARE COMMON, BUT, IT IS THE CASE OF THE ASSESSEE THAT ASSESSEE COMPANY ITSELF IS NOT SHAREHOLDER OF THOSE TWO COMPANIES, THEREFORE, IN VIEW OF THE DECISION OF SPECIAL BENCH IN THE CASE O F ACIT VS. BHAUMIK COLOUR PVT. LTD. 27 SOT 207 (SB), THE SAID AMOUNT COULD NO T BE TREATED AS DEEMED DIVIDEND. 4. IT CAN BE SEEN FROM THE ASSESSMENT ORDER THAT AT PAGE 3, ONE OF THE CONTENTIONS OF THE ASSESSEE TO CONTEST THIS ADDITIO N WAS THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF M/S YAKSH TRADING C O. PVT. LTD. OR M/S NISHIGANDHA TRADING PVT. LTD.. 5. IN THIS VIEW OF THE POSITION IT HAS BEEN THE CAS E OF THE ASSESSEE THAT DEEMED DIVIDEND COULD NOT BE ASSESSED IN THE HANDS OF THE ASSESSEE. IT IS ALSO STATED THAT THE DECISION IN THE CASE OF BHAUMIK COL OUR PVT. LTD. (SUPRA) HAS BEEN RECENTLY UPHELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD. INCOME TAX APPEAL NO.2264 OF 20 09 VIDE ORDER DATED 22 ND ITA NO.2121/DEL/2010 3 MARCH, 2010 WHEREIN THE FOLLOWING QUESTIONS WERE RE FERRED TO THEIR LORDSHIPS FOR CONSIDERATION:- 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ITAT, IN LAW, WAS RIGHT IN DELETING THE ADDITIO N OF RS.35 LAC TREATED AS DEEMED DIVIDEND U/S 2 (22)(E) OF THE INC OME TAX ACT, 1961, BY STATING THAT SINCE THE TRANSACTIONS ARE NO T REFLECTED IN THE BOOKS OF ACCOUNTS, IT CANNOT BE TREATED AS DEEMED D IVIDEND? 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL IN LAW, WAS RIGHT IN HOLDING THAT THE A.O. HAS NOT ESTABLISHED THAT THE MONEY WAS ADVANCED FOR THE BEN EFIT OF ANY SHAREHOLDER AND THE SAME HAS TO BE TAXED IN THE HAN DS OF SUCH SHAREHOLDER WHO OBTAINED THE BENEFIT AND NOT IN THE HANDS OF THE ASSESSEE COMPANY, FOLLOWING THE RATIO OF DECISION I N THE CASE OF ACIT VS. BHAUMIK COLOUR P. LIMITED [27 SOT 270 (SB) ]? 6. THE OBSERVATIONS OF THEIR LORDSHIPS FROM THE DEC ISION ON THE QUESTIONS ARE AS UNDER:- 9. IN ORDER THAT THE FIRST PART OF CLAUSE (E) O F SECTION 2(22) IS ATTRACTED, THE PAYMENT BY A COMPANY HAS TO BE BY WA Y OF AN ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE , AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER OR TO ANY CONCERN TO WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE TRIBUNAL IN TH E PRESENT CASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE, SINCE THE AMOUNT IN QUESTION HAD ACTU ALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN THE BOOKS OF AC COUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATION SE EMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BU SINESS LOSS DURING THE COURSE OF ASSESSMENT YEAR 2006-2007. CON SEQUENTLY, ACCORDING TO THE TRIBUNAL THE FIRST REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FULFILLED. IN OUR VIEW, THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT W HICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HO WEVER, EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBUNAL, WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF SECTION 2(22)(E) IS CORRECT. SECTION 2(22)(E) D EFINES THE AMBIT OF THE EXPRESSION DIVIDEND. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF THE DIV IDEND NAMELY THE SHAREHOLDER. THE EFFECT OF SECTION 2(22) IS TO PRO VIDE AN INCLUSIVE ITA NO.2121/DEL/2010 4 DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIV IDEND. CLAUSE (E) OF SECTION 2(22) INCLUDES A PAYMENT MADE BY WA Y OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILLMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OF FOR THE I NDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREATED BY CLAU SE (E) TO BE INCLUDED IN THE EXPRESSION DIVIDEND. CONSEQUENTLY , THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION DIVIDEND BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAY MENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LEGAL POSITION TH AT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. CONSEQUEN TLY IN THE PRESENT CASE THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSE SSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS, IN THE CIRCUMSTANCES, JUSTIFIED IN COMING TO THE CONCLUSION THAT, IN ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE THAT THE BASIS ON WHICH THE ASSES SEE IS SOUGHT TO BE TAXED IN THE PRESENT CASE IN RESPECT OF THE AMOU NT OF RS. 32,00,000/- IS THAT THERE WAS A DIVIDEND UNDER SECT ION 2(22)(E) AND NO OTHER BASIS HAS BEEN SUGGESTED IN THE ORDER OF T HE ASSESSING OFFICER. 10. FOR THE AFORESAID REASONS, THE FIRST AND SECOND QUESTIONS WILL NOT GIVE RISE TO ANY SUBSTANTIAL QUESTIONS OF LAW. (EMPHASIS OURS) 7. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. T HE LEGAL POSITION AS DESCRIBED IN THE AFOREMENTIONED DECISION OF THE HON BLE BOMBAY HIGH COURT IS CLEAR THAT EVEN DEFINITION DOES NOT ALTER THE LEGAL POSITION. THE DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. SINCE THE A SSESSEE COMPANY IS NOT SHAREHOLDER OF THE PAYER COMPANIES, THEREFORE, ADDI TION COULD NOT BE MADE IN THE HANDS OF THE ASSESSEE COMPANY. THE SAME IS DELETED . ITA NO.2121/DEL/2010 5 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. . THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.07.20 10. SD/- SD/- [B.C. MEENA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 16 TH JULY, 2010. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES