M/s. Deepak Fashions (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 2314/DEL/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0170 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 30-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P D TAN EJA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC -2, NEW DELHI BEFORE SH. I.C.SUDHIR, JM ITA NO. 2314/DEL./2014 : ASSTT. YEAR : 2008-09 DEEPAK FASHIONS (P) LTD. 22-A, JANPATH NEW DELHI VS A.C.I.T., CIRCLE 10(1) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AACCD2449P APPELLANT BY : SH. TARUN KANDHARI, C.A . & SMT. RENU SURI RESPONDENT BY : SH. P.D.TAN EJA, SR. DR DATE OF HEARING : 30.06.2015 DATE OF PRONOUNCEMENT : 29.07.2015 ORDER PER I.C.SUDHIR, J.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 21.01.2014 OF THE LD. C.I.T.(A)-XVII. NEW DELHI. 2. THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORD ER MAINLY ON THE GROUND THAT THE LD. C.I.T.(A) HAS ERR ED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOU NT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 3. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTY IN VIEW OF THE ORDERS OF THE AUTHORITIES BELO W AND THE MATERIAL AVAILABLE ON THE RECORD AND THE DECISIONS RELIED UPON. ITA NO.2314/DEL/2014 2 4. THE RELEVANT FACTS ARE THAT DURING THE YEAR THE ASSESSEE HAD RECEIVED RS. 26,25,000/- FROM IDEA EST ATE (P) IN WHICH BOTH THE DIRECTORS OF THE ASSESSEE COMPANY WERE HAVING 32.5% AND 30% SHARES RESPECTIVELY AND THE CO MPANY WAS HAVING RESERVE OF RS. 1,47,66,948/-. THE AO INV OKING REQUISITIONS U/S 2(22)(E) OF THE ACT HELD THAT RS. 26,25,000/- IS THE DEEMED DIVIDEND INCOME OF THE AS SESSEE COMPANY. THE LD. CIT(A) HAS UPHELD THE SAME. 5. IN SUPPORT OF THE GROUND, LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE CONTENDED THAT THE LD. CIT(A) WHILE UPHOLDING THE DISALLOWANCE MADE BY THE AO HAS OVERLOOKED THE DECI SIONS OF HONBLE COURTS HOLDING THAT THE AMOUNT ADVANCED TO A CONCERN OWNED BY COMMON SHARE HOLDERS IS NOT TREATE D AS DEEMED DIVIDEND IN THE HANDS OF A CONCERN U/S 2(22) (E) OF THE ACT. HE SUBMITTED THAT THE ASSESSEE COMPANY IS NOT A REGISTERED SHARE HOLDER IN THE LENDER COMPANY I.E. M/S. IDEA ESTATE (P) LTD. HE SUBMITTED THAT THE SHARE HO LDER MEANS A REGISTERED SHARE HOLDER AND NOT A BENEFICIA L OWNER. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS :- 1. UNIVERSA MEDICARE (P) LTD., 190 TAXMAN 144, (B OM.) 2. CIT VS. HOTEL HILLTOP, 313 ITR 116 RAJASTHAN ( RAG) 3. CIT VS. ANKITECH (P) LTD. 340 ITR 14 DELHI 4. RAJ KR. SINGH & COMPANY 295 ITR 9 (ALL.) ITA NO.2314/DEL/2014 3 6. THE LD. DR ON THE OTHER HAND TRY TO JUSTIFY TH E ORDERS OF THE AUTHORITIES BELOW. 7. HAVING GONE THROUGH THE ABOVE CITED DECISIONS , I FIND THAT THE RATIO LAID DOWN BY THE HONBLE JURISDICTIO NAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. ANKITECH (P) LTD. (SUPRA) SUPPORTS THE CASE OF THE ASSESSEE. FOR A RE ADY REFERENCE, A RELEVANT EXTRACTS OF THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF ANKITECH (P) LTD. ( SUPRA) IS BEING REPRODUCED AS UNDER :- FURTHER, IT IS AN ADMITTED CASE THAT UNDER NO RMAL CIRCUMSTANCES, SUCH A LOAN OR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREA TED UNDER SECTION 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT THIS LEGAL PROVISION RELATES TO DIVIDEND . THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FICTION DOES NOT EXTND TO SHAREHOLDER. WHEN WE KEEP IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT WOULD ALSO BE TREATED A S DIVIDEND. THE FICTION HAS TO STOP HERE AND IS NOT T O BE EXTENDED FURTHER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMMO N CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS IN THE FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GIVEN TO NON-MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT, VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ITA NO.2314/DEL/2014 4 ADVANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE , IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISLATURE WAS T O TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HAND S OF DEEMING SHAREHOLDER, THEN THE LEGISLATURE WOU LD HAVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. INSOFAR AS RELIANCE UPON CIRCULAR NO. 495, DATED 22.9.1997 ISSUED BY CENTRAL BOARD OF DIRECT TAXES IS CONCERNE D, WE ARE INCLINED TO AGREE WITH THE OBSERVATIONS OF T HE MUMBAI BENCH DECISION IN BHAUMIK COLOUR (P) LTD.S CASE (SUPRA) THAT SUCH OBSERVATIONS ARE NOT BINDING ON THE COURTS. ONCE IT IS FOUND THAT SUCH LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEND AT THE HANDS OF SUCH A CONCERN WHICH IS NOT A SHAREHOLDER, AND THAT ACCORDING TO US IS THE CORRECT LEGAL POSIT ION, SUCH A CIRCULAR WOULD BE OF NO AVAIL. 8. UNDISPUTEDLY, IN THE PRESENT CASE, ASSESSEE CO MPANY IS NOT A REGISTERED SHARE HOLDER OF IDEA ESTATE (P) LT D. (SUPRA), I.E. THE LENDER TO THE ASSESSEE COMPANY. H ENCE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN ABOVE CITED DECISION OF THE HONBLE DELHI HIGH COURT, I HOLD TH AT THE AO WAS NOT JUSTIFIED IN TREATING THE AMOUNT OF RS. 26, 25,000/- RECEIVED BY THE ASSESSEE COMPANY FROM IDEA ESTATE ( P) LTD. AS DIVIDEND INCOME OF THE ASSESSEE U/S 2(22)(E) OF THE ACT. AT THE BEST THE DIVIDEND INCOME SHOULD HAVE BEEN AS SESSED IN THE HANDS OF THE COMMON DIRECTORS OF THE ASSESSE E COMPANY AS WELL AS THE LENDER COMPANY, TO WHICH THE LD. AR ITA NO.2314/DEL/2014 5 AGREED TO. IT IS DIRECTED ACCORDINGLY THE DISALLOWA NCE IN QUESTION MADE IN THE HANDS OF THE ASSESSEE COMPANY IS THUS, DIRECTED TO BE DELETED. THE GROUND IS ACCORDINGLY A LLOWED. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 29/07/2015). SD/- (I.C.SUDHIR) JUDICIAL MEMBER DATED: 29 / 07/2015 *B.RUKHAIYAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO.2314/DEL/2014 6 DATE INITIAL 1. DRAFT DICTATED ON 20.07.2015 2. DRAFT PLACED BEFORE AUTHOR 21.07.2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 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.