DCIT, New Delhi V. M/s Seaview Developers Pvt. Ltd., New Delhi

ITA 2365/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7426 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 30-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARAMITA M BISHVASH
• Keywords: Wholly owned subsidiary; Deemed dividend
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2365/DEL./2013 (ASSESSMENT YEAR : 2009-10) DCIT, CIRCLE 8 (1), VS. M/S. SEAVIEW DEVELOPERS PV T. LTD., NEW DELHI. BASEMENT, 6 COMMUNITY CENTRE, SAKET, NEW DELHI 110 017. (PAN : AAJCS4143C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA, ADVOCATE REVENUE BY : SMT. PARAMITA M. BISHVASH, CIT DR DATE OF HEARING : 30.05.2016 DATE OF ORDER : 31.05.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, DCIT, CIRCLE 8 (1), NEW DELHI (HEREINAFT ER REFERRED TO AS THE REVENUE), BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 03.01.2013 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XI, NEW DELHI QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTER ALIA T HAT :- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.42,56,18,705/- U/S 2(22 )(E) OF THE INCOME TAX ACT, 1961. ITA NO.2365/DEL./2013 2 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, FOREGO OR DELETE ANY GROUND OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE : DURI NG THE SCRUTINY PROCEEDINGS, NOTICE UNDER SECTION 143(2) AND 142(1) OF THE INCOME- TAX ACT, 1961 (FOR SHORT THE ACT) ALONG WITH QUES TIONNAIRE WERE ISSUED TO THE ASSESSEE AND IN RESPONSE THERETO, SHR I MANOJ SARANGI, CA/AR PUT IN APPEARANCE FROM TIME TO TIME, FILED RE QUISITE DETAILS AND NECESSARY EVIDENCE. ASSESSEE IS INTO THE BUSIN ESS OF REAL ESTATE DEVELOPMENT AND HAS RECEIVED ADVANCE FROM THE COMPA NIES VIZ. (I) SHANTINIKETAN PROPERTIES LTD. RS.5,55,00,000/-; ( II) UNITECH INFRACON LTD. RS.7,59,70,870/-; (III) UNITECH DEV ELOPERS AND PROJECTS LTD. RS.23,29,05,028/-; (IV) UNITECH REA LTY PROJECTS LTD. RS.3,01,00,000/-; AND (V) UNITECH HI-TECH STRUCTU RES LTD. RS.7,23,00,000/-. FROM THE BALANCE-SHEET ENDING 31 .03.2010, IT IS NOTICED BY AO THAT SOME RELATED PARTY DISCLOSURES H AD BEEN MADE QUA WHICH ASSESSEE WAS CALLED UPON TO FURNISH NECES SARY INFORMATION. ASSESSEE FILED DETAIL OF GROUP STRUCT URE SHOWING AFORESAID FIVE COMPANIES ALONG WITH ASSESSEE COMPAN Y ITSELF, 60% SHARES WERE HELD BY SIX DIFFERENT COMPANIES. 3. AO NOTICED THAT 60% IN ALL THE AFORESAID FIVE CO MPANIES FROM WHOM ADVANCES WERE RECEIVED BY THE ASSESSEE CO MPANY, ITA NO.2365/DEL./2013 3 BELONGS TO CANDOR INVESTMENTS LTD. / UNITECH CORPOR ATE PARKS PLC. SIMILARLY, IN CASE OF ASSESSEE, 60% STAKE IS HELD B Y M/S. DETTEREL ESTATES LIMITED WHICH IS 100% SUBSIDIARY OF CANDOR INVESTMENTS LTD. WHICH IS IN TURN 100% SUBSIDIARY OF M/S. UNITE CH CORPORATE PARKS PLC. 4. ASSESSEE WAS CALLED UPON TO EXPLAIN AS TO WHY TH E INTERMEDIATE LAYERS BE NOT IGNORED AND IN VIEW OF T HE ACTUAL HOLDING AND EFFECTIVE CONTROL BY A SINGLE ENTITY FROM WHOM ADVANCES HAVE BEEN RECEIVED AND THE AMOUNT RECEIVED BY ASSESSEE C OMPANY AS ADVANCE BE NOT TREATED AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT. ASSESSEE FILED DETAILED REPLY. 5. FINDING THE EXPLANATION FILED BY THE ASSESSEE NO T TENABLE, AO TREATED THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY AS ADVANCE AS DEEMED DIVIDEND IN ITS HAND TO THE EXTENT ACCUMULAT ED PROFIT AVAILABLE WITH THE COMPANY GIVING ADVANCE AND COMPU TED THE DEEMED DIVIDEND TO THE TUNE OF RS.42,56,18,705/- AN D MADE THE ADDITION THEREOF TO THE TOTAL INCOME OF THE ASSESSE E. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) WHO HAS DELETED THE ADDITION BY ALLOWING THE APPEAL. FEELIN G AGGRIEVED, THE REVENUE CAME UP IN APPEAL BEFORE THE TRIBUNAL BY WA Y OF FILING THE PRESENT APPEAL. ITA NO.2365/DEL./2013 4 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. LD. DR FOR THE REVENUE TO CHALLENGE THE IMPUGNED ORDER RELIED UPON THE ORDER PASSED BY AO. HOWEVER, ON TH E OTHER HAND, LD. AR FOR THE ASSESSEE CONTENDED THAT THE ISSUE IN VOLVED IN THIS CASE IS DULY COVERED BY THE CASES CITED AS COMMISSION OF INCOME- TAX VS. ANKITECH (P.) LTD. 199 TAXMAN 341 (DELHI) A ND ACIT VS. BHAUMIK COLOUR (P.) LTD. (SB) 120 TTJ 865 (MUMB AI). 9. AO TREATED THE AMOUNT RECEIVED BY THE ASSESSEE C OMPANY AS ADVANCE FROM FIVE COMPANIES AS DEEMED DIVIDEND TO T HE EXTENT ACCUMULATED PROFIT IS AVAILABLE WITH THE COMPANY GI VING ADVANCE BY INVOKING THE PROVISIONS CONTAINED U/S 2(22)(E) O F THE ACT PRIMARILY ON THE GROUNDS INTER ALIA THAT 60% OF THE ACTUAL AND BENEFICIAL SHARES IN ALL THE FIVE COMPANIES IN QUES TION WHO HAVE GIVEN ADVANCES TO THE ASSESSEE COMPANY CONSTITUTE A SINGLE ENTITY I.E. M/S. UNITECH CORPORATE PARKS PLC.; THAT ADVANC ES WERE GIVEN TO THE AFORESAID FIVE COMPANIES TO A COMPANY IN WHICH THE COMPANY ACTUALLY AND BENEFICIALLY HOLDING 60% OF ITS SHARE; THAT THE FIVE COMPANIES THAT GAVE THE ADVANCES TO THE ASSESSEE CO MPANY DID NOT HAVE ACCUMULATED BENEFITS AS PER THEIR BALANCE SHEE T. ITA NO.2365/DEL./2013 5 10. HOWEVER, LD. CIT (A) OVERTURNED THE FINDINGS RE TURNED BY THE AO BY HOLDING THAT THE LOAN AND MONEY ADVANCED FROM THE FELLOW SUBSIDIARIES DOES NOT FALL WITHIN THE PURVIE W OF SECTION 2(22)(E) OF THE ACT AS THE ASSESSEE IS NOT A SHAREH OLDER IN ANY OF THE AFORESAID FIVE COMPANIES. 11. NOW, THE SOLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS, AS TO WHETHER THE LOANS AND ADVANCES/MONEY ADVANCE D BY FIVE FELLOW SUBSIDIARIES TO THE ASSESSEE COMPANY IS TO BE TREATED AS DEEMED DIVIDEND AND AS SUCH TAXABLE IN THE HANDS OF THE ASSESSEE COMPANY? 12. IDENTICAL ISSUE HAS COME UP BEFORE THE SPECIAL BENCH / THIRD MEMBER ORDER PASSED IN ITAT, MUMBAI BENCH E IN ACIT VS. BHAUMIK COLOUR (P.) LTD. (SB) (SUPRA) WHICH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE INTENTION OF THE LEGISLATURE IS TO TAX DIVIDEND ONLY IN HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. 13. FOR FACILITY OF REFERENCE, PROVISIONS CONTAINED U/S 2(22)(E) OF THE ACT ARE REPRODUCED AS UNDER :- 2 . (22) 'DIVIDEND' INCLUDES (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, O F ANY ITA NO.2365/DEL./2013 6 SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS O F THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MA Y, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, B EING A PERSON WHO IS THE BENEFICIAL 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 PER CENT OF THE VOTING POWER, OR TO ANY CO NCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER I N THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYM ENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS 14. OPERATIVE PART OF THE DECISION IN ACIT VS. BHAUMIK COLOUR (P.) LTD. (SB) (SUPRA) IS REPRODUCED AS UNDER :- SECTION 2(22) OF THE INCOME-TAX ACT, 1961 - DEEMED DIVIDEND - ASSESSMENT YEAR 1997-98 - WHETHER DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON WHO IS A SHAREHOLDER OF' LENDER COMPANY AND NOT IN HAND S OF A PERSON OTHER THAN A SHAREHOLDER - HELD, YES - WHETH ER EXPRESSION 'SHAREHOLDER ' REFERRED TO IN SECTION 2( 22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFIC IAL SHAREHOLDER AND, THUS, IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT BENEFICIAL SHAREHOLDER THEN PROVISIONS OF SECTION 2(22)(E) WOULD NOT APPLY AND SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO PROVISIONS OF SECT ION 2(22)(E) WOULD NOT APPLY - HELD, YES - WHETHER DEEM ING PROVISION OF SECTION 2(22)(E) AS IT APPLIES TO CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON PRESUMPTION THAT LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO SHAREHOLDERS OF COMPANY GIVING LO AN OR ADVANCE, AND, THEREFORE, INTENTION OF LEGISLATUR E IS TO TAX DIVIDEND ONLY IN HANDS OF SHAREHOLDER AND NOT I N HANDS OF CONCERN - HELD, YES ITA NO.2365/DEL./2013 7 15. UNDISPUTEDLY, ASSESSEE COMPANY HAS RECEIVED ADV ANCES FROM THE AFORESAID FIVE FELLOW SUBSIDIARIES IN THE PREVI OUS YEAR 2008-09 DULY DETAILED IN PRECEDING PARA NO.2. IT IS ALSO N OT IN DISPUTE THAT TO INVOKE THE PROVISIONS CONTAINED U/S 2(22)(E), TWO C ONDITIONS PRECEDENT ARE REQUIRED TO BE FULFILLED; ONE : THE S HAREHOLDER SHOULD BE A REGISTERED SHARE HOLDER; AND TWO : THE SHAREH OLDER SHOULD ALSO BEEN BENEFICIAL OWNER OF THE SHARES. IN OTHER WORD S, THE INTENTION OF THE LEGISLATURE IN ENACTING PROVISIONS CONTAINED U/S 2(22)(E) OF THE ACT IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOL DERS. 16. IDENTICAL ISSUE HAS COME UP BEFORE HONBLE BOMB AY HIGH COURT IN CASE CITED AS COMMISSION OF INCOME-TAX VS. UNIVERSAL MEDICARE (P.) LTD. 190 TAXMAN 144 (BOMBAY) IN WHICH HONBLE HIGH COURT EXAMINED THE SCOPE AND APPLICABILITY OF SECTION 2(22)(E) OF THE ACT BY HOLDING AS UNDER :- 8. CLAUSE (E) OF SECTION 2(22) IS NOT ARTISTICALLY WORDED. FOR FACILITY OF EXPOSITION, THE CONTENTS CA N BE BROKEN DOWN FOR ANALYSIS: (I) CLAUSE (E) APPLIES TO ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH T HE PUBLIC IS SUBSTANTIALLY INTERESTED OF ANY SUM, WHET HER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE MADE AFTER THE 31 MAY, 1987; (II) CLAUSE ( E) COVERS A PAYMENT MADE BY WAY OF A LOAN OR ADVANCE T O (A) A SHAREHOLDER, BEING A BENEFICIAL OWNER OF SHAR ES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVID END WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING PO WER; OR (B) ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMB ER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTE REST; ITA NO.2365/DEL./2013 8 (III) CLAUSE (E) ALSO INCLUDES IN ITS PURVIEW ANY P AYMENT MADE BY A COMPANY ON BEHALF OF OR FOR THE INDIVIDUA L BENEFIT, OF ANY SUCH SHAREHOLDER; (IV) CLAUSE (E) W ILL APPLY TO THE EXTENT TO WHICH THE COMPANY, IN EITHER CASE, POSSESSES ACCUMULATED PROFITS. THE REMAINING PART O F THE PROVISION IS NOT MATERIAL FOR THE PURPOSES OF THIS APPEAL. BY PROVIDING AN INCLUSIVE DEFINITION OF THE EXPRESSION 'DIVIDEND', SECTION 2(22) BRINGS WITHIN ITS PURVIEW ITEMS WHICH MAY NOT ORDINARILY CONSTITUTE T HE PAYMENT OF DIVIDEND. PARLIAMENT HAS EXPANDED THE AM BIT OF THE EXPRESSION 'DIVIDEND' BY PROVIDING AN INCLUS IVE DEFINITION. 17. NOW, ADVERTING TO THE CASE AT HAND IN THE LIGHT OF THE PROVISIONS CONTAINED U/S 2(22)(E) AND THE RATIO OF THE JUDGMENTS COMMISSION OF INCOME-TAX VS. ANKITECH (P.) LTD., AC IT VS. BHAUMIK COLOUR (P.) LTD. AND COMMISSION OF INCOME-T AX VS. UNIVERSAL MEDICARE (P.) LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT LOANS AND ADVANCES MADE BY FIVE FELLOW SU BSIDIARIES CANNOT BE TREATED AS DEEMED DIVIDEND TAXABLE IN THE HANDS OF THE ASSESSEE COMPANY FOR THE FOLLOWINGS REASON :- (I) THAT NO DOUBT, THE PAYMENT / ADVANCE HAS BEEN M ADE BY THE AFORESAID FIVE COMPANIES TO THE ASSESSEE COMPANY BUT UNDISPUTEDLY THE ASSESSEE COMPANY IS NOT A SHAREHOLDER IN ANY OF THE AFORESAID FIVE COMPANIES; ITA NO.2365/DEL./2013 9 (II) THAT ADVANCE FROM THE FELLOW SUBSIDIARIES CANN OT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY WHICH IS NEITHER A SHAREHOLDER OF FELLOW SUBSIDIARIES NOR THE AFORESAID FELLOW SUBSIDIARIES / FIVE COMPANIES HAVE ADVANCED ANY MONEY TO ANY CONCERN IN WHICH ASSESSEE COMPANY HAS ANY SUBSTANTIAL INTEREST; (III) THAT PROVISIONS CONTAINED U/S 2(22)(E) CAN ON LY BE INVOKED WHEN THE PAYMENT IS MADE TO A SHAREHOLDER, BUT IN THE INSTANT CASE UNDISPUTEDLY ASSESSEE COMPA NY IS NOT A SHAREHOLDER IN ANY OF THE FELLOW SUBSIDIAR IES; (IV) THAT NONE OF THE AFORESAID FIVE COMPANIES WHIC H HAVE MADE THE ADVANCES TO THE ASSESSEE COMPANY IS A COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED ; THAT IN THE INSTANT CASE, PAYMENT HAS NOT BEEN MADE TO A PERSON WHO IS A SHAREHOLDER; (V) THAT ITAT, MUMBAI SPECIAL BENCH IN ACIT VS. BHAUMIK COLOUR (P.) LTD. (SB) (SUPRA) HELD THAT THE REQUIREMENT TO INVOKE PROVISIONS U/S 2(22)(E) IS NO T MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES BUT IT SHOULD BE REGISTERED SHAREHOLDER, IN OTHER WORDS, ITA NO.2365/DEL./2013 10 SHAREHOLDER SHOULD BE BOTH REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER; (VI) THAT IN THE INSTANT CASE, MONEY HAS FLOWN/ADVA NCED TO HOLDING COMPANY BY THE SUBSIDIARY COMPANIES AND NOT VICE-VERSA WHEREAS PROVISIONS U/S 2(22)(E) CAN BE INVOKED WHEN MONEY HAS BEEN FLOWN/ADVANCED BY HOLDING COMPANY TO THE SUBSIDIARY COMPANY; (VII) THAT CONDITIONS SPECIFIED IN THE PROVISIONS C ONTAINED U/S 2(22)(E) FOR TREATING THE LOANS AND ADVANCES AS DEEMED DIVIDEND ARE ESTABLISHED BUT THIS DEEMED DIVIDEND CAN BE TAXED IN THE HANDS OF SHAREHOLDER O NLY AND NOT THE ASSESSEE COMPANY ITSELF. 18. SO IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE FIND NO GROUND TO INTERFERE INTO THE FINDINGS RETURNED BY L D. CIT (A) NOR LD. DR HAS BROUGHT ON RECORD ANY DECISION OF HONBLE SU PREME COURT AND HONBLE HIGH COURT TAKING DIVERGENT VIEW, HENCE , WE HEREBY DISMISS THE PRESENT APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF MAY, 2016. SD/- SD/- (J.S. REDDY) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 31 ST DAY OF MAY, 2016 TS ITA NO.2365/DEL./2013 11 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT-XI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.