ALFA SAI MINERALS P. LTD, MUMBAI V. ACIT 2(1), MUMBAI

ITA 2579/MUM/2010

• Counselvise Citation: 257919914 RSA 2010
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.2579/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. ALFA SAI MINERALS P. LTD., ALFA HOUSE, 5, GROUND FLOOR, VARMA CHAMBERS, HOMJI STREET, MUMBAI -400 001 .... APPELLANT VS ACIT 2(1), MUMBAI .RESPONDENT PAN: AACCA 7176 L APPELLANT BY: NONE RESPONDENT BY: SHRI SHRAVAN KUMAR O R D E R PER R.S. PADVEKAR, JM THIS APPEAL IS FILED BY THE ASSESSEE COMPANY CHALLE NGING THE IMPUGNED ORDER OF THE LD. CIT (A) IV, MUMBAI DATED 23.3.2010 FOR THE A.Y. 2006-07. THE ISSUE IN CONTROVERSY IS IN RESPE CT OF ADDITION MADE TOWARDS THE DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT . THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS:- 1. THE CIT (A) FAILED TO APPRECIATE THAT THE ASSES SEE WAS NOT THE SHAREHOLDER IN BOTH THE SAID COMPANIES, HENCE THE S AID AMOUNT CANNOT BE TREATED AS DEEMED DIVIDEND U/S. 2( 22)(E) OF ITA 2579/M/2010 M/S. ALFA SAI MINERALS P. LTD. 2 THE ACT AS HELD BY SPECIAL BENCH IN CASE OF ACIT VS . M/S. BHAUMIK COLOURS P. LTD. 313 ITR (AT) 46 (MUM) (SB). 2. THE CIT (A) ERRED IN UPHOLDING THE ADDITION U/S. 2(22)(E) OF RS 14,70,183/- IN RESPECT OF FUNDS RECEIVED FROM M/S. VULCAN DISTILLERIES P. LTD. AND ALFA DISTILLERIES P. LTD. WHICH WERE IN NATURE OF INCORPORATE DEPOSIT. 2. THE BRIEFLY, THE FACTS ARE AS UNDER. THE ASSESS EE-COMPANY IS ENGAGED IN THE PROCESSING AND TRADING OF IRON ORE. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2006-07 ON 21.11. 2006 DECLARING THE TOTAL INCOME OF ` 71,33,775/-. THE RETURN OF INCOME FILED BY THE AS SESSEE WAS SELECTED FOR THE SCRUTINY AND ASSESSMENT WAS FR AMED U/S.143(3) OF THE ACT. SO FAR AS THE ISSUE IN CONTROVERSY IS CON CERNED, AS NOTED BY THE A.O., THE ASSESSEE COMPANY HAS TAKEN LOANS FROM M/S . ALFA DISTILLERIES P. LTD. & M/S. VULCAN DISTILLERIES P. LTD. THE A.O. A SKED THE DETAILS OF THE SHARE HOLDING PATTERN OF THE DIRECTORS AS WELL AS T HE POSITION OF THE RESERVES AND SURPLUS. THE ASSESSEE FILED ALL THE D ETAILS BEFORE THE A.O. AS REQUIRED BY HIM. THE A.O. HAS NOTED THAT CAPT. PRA MOD M. SALVI WHO IS A DIRECTOR OF THE ASSESSEE-COMPANY HAS HELD 99.92% SHAREHOLDING. HE IS ALSO DIRECTOR IN THE M/S. ALFA DISTILLERIES P. LTD. HAVING 77.15% OF SHAREHOLDING AND IN M/S. VULCAN DISTILLERIES P. LTD . HAVING 69.39% SHAREHOLDING. THE A.O. HAS HOLD THAT THE RESERVES AND SURPLUS POSITION OF M/S. ALFA DISTILLERIES P. LTD. AS ON 31.3.2006 W AS ` 1,02,95,970/- AND M/S. VULCAN DISTILLERIES P. LTD. WAS RS 73,34,041/- . FROM THE BALANCE- SHEET OF THE ASSESSEE IT WAS NOTICED BY THE A.O. TH AT THE ASSESSEE HAS RECEIVED THE ADVANCES/LOANS FROM THE GROUP COMPANIE S:- I) ALFA DISTILLERIES PVT. LTD. RS 80,95,268/- II) VULCAN DISTILLERIES PVT. LTD. RS 83,16,777/- ITA 2579/M/2010 M/S. ALFA SAI MINERALS P. LTD. 3 THE A.O., THEREFORE, CAME TO THE CONCLUSION THAT TO THE EXTENT OF THE FOLLOWING AMOUNT RECEIVED BY THE ASSESSEE DURING TH E FINANCIAL YEAR RELEVANT TO THE A.Y. 2006-07, SAME ARE IN THE NATUR E OF THE DEEMED DIVIDEND U/S.2(22)(E) AND THE SAID AMOUNTS ARE TO B E ADDED TO THE TOTAL INCOME OF THE ASSESSEE I) ALFA DISTILLERIES PVT. LTD. RS 5,73,265/- II) VULCAN DISTILLERIES PVT. LTD. RS 8,96,918/- ------------------ RS 14,70,183/- ============= 3. THE A.O. FINALLY MADE THE ADDITION OF ` 14,70,183/- AS A DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. THE ASSESSEE CH ALLENGED THE SAID ADDITION BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS . NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. D.R. NONE WAS PRESENT FOR THE ASSESSEE. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . IN OUR OPINION, THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) HAS TO BE DELETED AS PRESENT ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT AND ALSO BY THE DECISION OF THE HONBLE SPECIAL BENCH OF ITAT MUMBA I IN THE CASE OF BHAUMIK COLOURS P. LTD. 313 ITR (AT) 46 (MUM) (SB). IN THE CASE OF BHAUMIK COLOURS P. LTD. (SUPRA) IT IS HELD AS UNDER :- 44. THE DEFINITION OF DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT IS AN INCLUSIVE DEFINITION. SUCH INCLUSIVE DEFINITION ENLARGES THE MEANING OF THE TERM DIVIDEND ACCORDING TO ITS ORD INARY AND NATURAL MEANING. THE ORDINARY AND NATURAL MEANING OF THE TERM DIVIDEND WOULD BE A SHARE IN PROFITS TO AN INV ESTOR IN THE SHARE CAPITAL OF LIMITED COMPANY. TO THE EXTENT TH E MEANING ITA 2579/M/2010 M/S. ALFA SAI MINERALS P. LTD. 4 OF THE WORD DIVIDEND IS EXTENDED TO LOANS AND ADV ANCES TO A SHAREHOLDER OR TO A CONCERN IN WHICH A SHAREHOLDER IS SUBSTANTIALLY INTERESTED DEEMING THEM AS DIVIDEND I N THE HANDS OF A SHAREHOLDER THE ORDINARY AND NATURAL MEA NING OF THE WORD DIVIDEND IS ALTERED. TO THIS EXTENT THE DEFINITION OF THE TERM DIVIDEND CAN BE SAID TO OPERATE. IF THE DEFINITION OF DIVIDEND IS EXTENDED TO A LOAN OR ADVANCE TO A NO N- SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVIDEND IS TAKEN AWAY. IN THE LIGHT OF THE INTENT ION BEHIND THE PROVISIONS OF SECTION 2(22)(E) TO EXTEND THE LE GAL FICTION TO A CASE OF LOAN OR ADVANCE TO A NON-SHAREHOLDER ALSO, WE ARE OF THE VIEW THAT LOAN OR ADVANCE TO A NON-SHAREHOLDER CANNOT BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE A NON- SHAREHOLDER. 45. THE BASIC CHARACTERISTIC OF DIVIDEND AS HELD BY THE APEX COURT IN THE CASE OF KANTILAL MANILAL V. CIT [1961] 41 IT R 275 IS A SHARE OF PROFITS OF THE COMPANY GIVEN TO ITS PAYMEN T OF DIVIDEND TO ANY PERSON OTHER THAN THE REGISTERED SH AREHOLDER. IF ONE WERE TO BREAKUP THE NATURAL MEANING THE FOLL OWING COMPONENTS EMERGE (A) DIVIDEND IS A SHARE OF PROFIT S OF THE COMPANY (B) PAID TO ITS SHAREHOLDERS. SECTION 2(22 ) OF THE ACT ARTIFICIALLY EXTENDS THE SCOPE OF DIVIDEND FROM BEI NG MORE THAN ONLY A DISTRIBUTION OF PROFITS TO COVER CERTAIN OTH ER TYPES DISBURSEMENTS SUCH AS LOANS PAID, ETC. (THE FIRST I NGREDIENT MENTIONED ABOVE). IT DOES NOT HOWEVER ALTER THE SE COND COMPONENT OF ITS NATURAL MEANING, VIZ., PAID TO ITS SHAREHOLDER. IN OTHER WORDS ALL THAT SECTION 2(22) SEEKS TO DO I S TO EXPAND THE VARIOUS TYPES PAYMENTS THAT MAY BE REGARDED AS DIVIDEND. THE APEX COURT WHILE CONSIDERING WHAT CA N COME WITHIN THE ARTIFICIAL DEFINITION OF DIVIDEND UNDER SECTION 2(22) ITA 2579/M/2010 M/S. ALFA SAI MINERALS P. LTD. 5 IN THE CASE OF CIT V. NALIN BEHARI LALL SINGHA [196 9] 74 ITR 849 (SC) DESCRIBED THE SCOPE OF THE DEFINITION OF D IVIDEND THUS (PAGE 851 OF 74 ITR): THE DEFINITION IS, IT IS TRUE, AN INCLUSIVE DEFINI TION AND A RECEIPT BY A SHAREHOLDER WHICH DOES NOT FALL WITHIN THE DEFINITION MAY POSSIBLY BE REGARDED AS DIVIDEND WIT HIN THE MEANING OF THE ACT UNLESS THE CONTEXT NEGATIVES THA T VIEW. 5. THE DECISION OF HONBLE SPECIAL BENCH IN THE CAS E OF BHAUMIK COLOURS P. LTD. (SUPRA) HAS BEEN AFFIRMED BY THE HO NBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P ) LTD. 324 ITR 263 AND THE OPERATIVE PART OF THE SAID DECISION IS AS U NDER:- 9. ..HOWEVER, EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBUNAL, WE ARE OF THE VIEW THAT THE CONS TRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF S.2(22)( E) IS CORRECT. SEC. 2(22)(E) DEFINES THE AMBIT OF THE EX PRESSION DIVIDEND. ALL PAYMENTS BY WAY OF DIVIDEND HAVE T O BE TAXED IN THE HANDS OF THE RECEIPT OF THE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF S.2(22) IS TO PROVIDE A N INCLUSIVE DEFINITION OF EXPRESSION DIVIDEND. CLAUSE (E) EXPA NDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIV IDEND. CLAUSE (E) OF S. 2(22) INCLUDES A P MADE BY THE COM PANY IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED BY WAY 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, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREATED BY CL. (E) TO BE INCLUDED IN THE EXPRESS ION DIVIDEND BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEH ALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. TH E DEFINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. CONSEQUENTLY, IN THE PRESENT CASE, THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVI DEND, ITA 2579/M/2010 M/S. ALFA SAI MINERALS P. LTD. 6 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 CONCLUSIO N THAT, IN ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HA NDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE THAT THE BASIS ON WHICH THE ASSESSEE IS SOUGHT TO BE TAXED IN THE PRESENT C ASE IN RESPECT OF THE AMOUNT OF RS 32,00,000 IS THAT THERE WAS A DIVIDEND UNDER S. 2(22)(E) AND NO OTHER BASIS HAS B EEN SUGGESTED IN THE ORDER OF THE AO. 6. IN THE PRESENT CASE, NOWHERE IT IS A CASE OF THE A.O. THAT THE ASSESSEE-COMPANY IS A SHAREHOLDER OF M/S. ALFA DIST ILLERIES P. LTD. OR M/S. VULCAN DISTILLERIES P. LTD. AND AS THE ASSESSE E IS NOT THE SHAREHOLDER OF THOSE COMPANIES, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE TREATING THE ADVANCES / LOANS BORROWED BY THE ASSESSEE- COMPANY FROM THOSE TWO COMPANIES. THE LD. CIT (A) TRIED TO DISTINGUISH THE CASE OF THE ASSESSEE WITH THAT OF BHAUMIK COLOU RS P. LTD. (SUPRA). WE MAY NOTE HERE THAT JUDICIAL DISCIPLINE REQUIRE T HAT ALL AUTHORITIES BELOW SHOULD FOLLOW THE RATIO AND PRINCIPLES LAID D OWN BY THE HIGHER COURTS AND TRIBUNAL IN JUDICIAL SPIRIT. WE, THEREF ORE, DELETE THE ADDITION MADE BY THE A.O. IN ENTIRETY AND ALLOW GROUNDS TAKE N BY THE ASSESSEE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 8 TH APRIL 2011. SD/- SD/- ( J. SUDHAKAR REDDY) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 8TH APRIL 2011 COPY TO:- ITA 2579/M/2010 M/S. ALFA SAI MINERALS P. LTD. 7 1) THE APPLICANT. 2) THE RESPONDENT. 3) THE CIT (A) 4, MUMBAI. 4) THE CIT II, MUMBAI. 5) THE D.R. A BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 2579/M/2010 M/S. ALFA SAI MINERALS P. LTD. 8 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 01.04.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 01.04.2011 SR.PS 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 SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER