Silklens Private Limited, Bangalore V. DCIT, Bangalore

ITA 271/BANG/2012

• Counselvise Citation: 27121114 RSA 2012
• Duration Of Justice: 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDAR RAJAN
• Assessee Lawyers: C J BRITO
• Keywords: Question of law; Deemed dividend
• Section: 143(3)

Judgement Text

PAGE 1 OF 7 ITA NOS.270 & 271 /BANG/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NOS.270 & 271/BANG/2012 (ASST. YEARS 2006-07 & 2007-08) SILKLENS PVT. LTD., NO.153, BEGUR ROAD, BOMMANAHALLI, BANGALORE-68. PA NO. AACCS 6552 J VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE- 12(3), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 04.12.2012 DATE OF PRONOUNCEMENT : 14.12.2012 APPELLANT BY : SHRI C J BRITO, C.A. RESPONDENT BY : SHRI A SUNDAR RAJAN, JCIT OR DER PER JASON P BOAZ : THESE APPEALS AT THE INSTANCE OF THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A)-III, BANGALOR E, BOTH DATED 05.12.2011. THE RELEVANT ASSESSMENT YEARS ARE 2006- 07 AND 2007-08. 2. SINCE THE ISSUE INVOLVED IN BOTH THE APPEALS IS IDENTICAL, THEY WERE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLI DATED ORDER. 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- PAGE 2 OF 7 ITA NOS.270 & 271 /BANG/2012 2 3.1 THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF MANUFACTURING AND TRADING IN CONTACT LENS AND LENS CARE ACCESSORIES. THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2006-07 AND 200 7-08 WERE SELECTED FOR SCRUTINY BY ISSUANCE OF NOTICE UNDER SECTION 143( 2) OF THE ACT. THE ASSESSMENT ORDERS WERE PASSED UNDER SECTION 143(3) OF THE ACT BY ADDING A SUM OF RS.62 LAKHS AND RS.24,50,000/- FOR THE ASSES SMENT YEARS 2006-07 AND 2007-08 RESPECTIVELY UNDER SECTION 2(22)(E) OF T HE ACT AS DEEMED DIVIDEND IN RESPECT OF ADVANCE RECEIVED IN THE SAID YEARS BY THE ASSESSEE COMPANY FROM AN ASSOCIATE COMPANY M/S CRYSTAL VISION P VT. LTD.(HEREINAFTER CALLED CRYSTAL). 4. APPEALS WERE PREFERRED AGAINST THE ABOVE SAID A SSESSMENT ORDERS BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS)-III, BANGALORE ON THE FOLLOWING TWO GROUNDS:- (I) THE APPELLANT RECEIVED THE SAID AMOUNTS AS SHARE APPLICATION MONEY AND HENCE THESE AMOUNTS CANNOT BE TREATED AS A LOAN OR ADVANCE, AS CONTEMPLATED UNDER SECTION 2(22)(E). (II) THE APPELLANT IS NOT A SHAREHOLDER IN M/S CRYSTAL VISION PVT. LTD., THE COMPANY, WHICH PAID THE AMOUNT S AS SHARE APPLICATION MONEY TO THE APPELLANT, HENCE, THE PROVISIONS OF SECTION 2(22)(E) COULD NOT BE INVOKED IN THE HANDS OF A NON SHAREHOLDER IN THE LIGHT OF VARI OUS HIGH COURT AND TRIBUNAL DECISIONS IN FAVOUR OF THE APPELLANT. 5. THE CIT(A), HOWEVER, DISMISSED THE APPEALS OF T HE ASSESSEE. PAGE 3 OF 7 ITA NOS.270 & 271 /BANG/2012 3 6. AGGRIEVED BY THE DISMISSAL OF THE APPEALS BY THE CIT(A), THE ASSESSEE IS IN APPEALS BEFORE US. 7. THE LEARNED AR SUBMITTED THAT THE AMOUNTS RECEI VED BY THE ASSESSEE WERE NOT LOANS/ADVANCES BUT WERE SHARE APP LICATION MONEY AGAINST WHICH EQUITY SHARES WERE ACTUALLY ALLOTTED BY THE ASSE SSEE COMPANY TO CRYSTAL IN THE YEAR 2008. HENCE, IT WAS SUBMITTED, T HAT THE ABOVE TRANSACTION WOULD NOT COME WITHIN THE MISCHIEF OF S ECTION 2(22)(E) OF THE I T ACT. 7.1 IT WAS FURTHER CONTENDED THAT THE ASSESSEE IS NOT A SHAREHOLDER OF M/S CRYSTAL VISION PVT. LTD. SO AS TO MAKE IT LIABLE FOR PAYMENT OF INCOME TAX UNDER SECTION 2(22)(E) OF THE ACT. FOR THE ABOVE PROPOSITION, HE RELIED ON THE FOLLOWING DECISIONS:- ACIT V BHAUMIK COLOUR P. LTD. (2009) 313 ITR (AT) 1 46 (MUM.) (SB); CIT V UNIVERSAL MEDICARE PRIVATE LIMITED (2010) 324 ITR 263 (MUM.) (SB); CIT V HOTEL HILLTOP (2008) 217 CTR (RAJ.) 527; CIT V M/S SHARMAN WOOLLEN MILLS LTD. (2011-TIOL-639 -HC-P&H); ACIT V BOMBAY REAL ESTATE DEVELOPMENT COMPANY P LTD . 2011-64-DTR 137-MUMBAI ITAT; DCIT V M/S VENKATARAMANA AUTOMOBILES ITA NO.1345 HYDERABAD ITAT; DCIT V MADUSUDAN INVESTMENT & TRADING CO LTD. 201 1 48 SOT 360 KOLKATTA ITAT; ACIT V M/S M J INTERNATIONAL 2010-TIOL-693-MUMBAI ITAT & DCIT V M/S BIJIS HOTEL (INDIA) PVT. LTD. ITA NO. 3444-MUMBAI ITAT 8. THE LEARNED DR PRESENT WAS DULY HEARD. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE SHARE HOLDING PATTERN OF THE ASSESS EE, M/S SILKLENS PVT. LTD., PAGE 4 OF 7 ITA NOS.270 & 271 /BANG/2012 4 THE RECIPIENT OF THE ADVANCE AND M/S CRYSTAL VISION PVT. LTD., THE COMPANY, WHICH MADE THE ADVANCE ARE FURNISHED HEREIN BELOW: DETAILS OF SHARE HOLDING PATTERN OF SILKLENS (ASSESSEE) AS ON 31/3/2006 & ALSO ON 31/3/2007 NAME OF THE SHAREHOLDER NO. OF SHARES HELD AMOUNT OF SHARE CAPITAL PERCENTAGE OF SHARE HOLDING DR. MOHINDER SINGH 2,600 2,60,000 33.54% GURDEEP SINGH 4,750 4,75,000 61.30% MRS. SWARN PARIHAR 400 40,000 05.16% TOTAL 7,75,000 100% DETAILS OF SHARE HOLDERS OF CRYSTAL VISION PVT. LTD. AS ON 31/3/2006 & ALSO ON 31/3/2007 NAME OF THE SHAREHOLDER NO. OF SHARES HELD AMOUNT OF SHARE CAPITAL PERCENTAGE OF SHARE HOLDING DR. MOHINDER SINGH 1,000 1,00,000 33.33% GURDEEP SINGH 1,500 1,50,000 50% DARBARA SINGH 150 15,000 5% SUHAIL AHMED 150 15,000 5% Y SANTHOSH HEGDE 200 20,000 6.7% FROM THE FACTUAL POSITION EXPLAINED ABOVE AND THE S HAREHOLDING PATTERNS OF THE ASSESSEE AND CRYSTAL INDICATED IN THE TABLES ABO VE, IT IS CLEAR THAT THOUGH THERE EXIST SOME COMMON SHAREHOLDERS IN THE TWO COMPANIES, THE ASSESSEE IS NOT A SHAREHOLDER OF CRYSTAL. THIS FACT IS NOT UNDER DISPUTE. IT IS NOW A SETTLED POSITION IN LAW THAT IN ORDER TO T AX AN AMOUNT AS DEEMED DIVIDEND, THE RECIPIENT MUST BE A SHAREHOLDER WITH SUBSTANTIAL INTEREST IN THE COMPANY MAKING THE ADVANCE. IN OTHER WORDS, DEE MED DIVIDEND SHOULD NOT BE TAXED IN THE HANDS OF A PERSON OTHER THAN TH E SHAREHOLDERS, AS HELD IN THE FOLLOWING DECISIONS:- PAGE 5 OF 7 ITA NOS.270 & 271 /BANG/2012 5 (I) MUMBAI ITAT SPECIAL BENCH IN THE CASE OF ACIT V BHAUMIK COLOUR P LTD. (2009) 313 ITR (AT) 146 THE TRIBUNAL HELD IN PARA 41 THAT IN THE LIGHT OF THE ABOVE DISCUSSION, THE QUESTIONS REFERRED TO THE SPE CIAL BENCH ARE ANSWERED AS FOLLOWS:- ON THE FIRST QUESTION : DEEMED DIVIDEND CAN BE ASSE SSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER O F THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHE R THAN A SHAREHOLDER. ON THE SECOND QUESTION : THE EXPRESSION SHAREHOLDE R REFERRED TO IN SECTION 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENE FICIAL SHAREHOLDER THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. SIMILARLY, IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN A LSO THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. THE ABOVE DECISION OF MUMBAI SPECIAL BENCH OF THE TRIBUNAL WAS UPHELD BY BOMBAY HIGH COURT IN THE CASE OF CIT V UNIVERSAL MEDICARE PRIVATE LIMITED (2010) 324 ITR 263. (II) A SIMILAR VIEW WAS ALSO TAKEN EARLIER BY THE RAJASTH AN HIGH COURT IN THE CASE OF CIT V HOTEL HILLTOP (2008 ) 217 (RAJ.) 527 AND ALSO IN VARIOUS CASES BY THE HON BLE HIGH COURT OF DELHI. (III) FURTHER, A RECENT DECISION ON THE SUBJECT IS ALSO RENDERED BY THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT V M/S SHARMAN WOOLLEN MILL S LTD. (2011-TIOL-639-HC-P&H , WHEREIN IT WAS HELD THAT EVEN IF THE SHAREHOLDERS ARE COMMON OF TWO COMPANIES BUT THE FACT REMAINS THAT THE ASSESSEE IS A PAGE 6 OF 7 ITA NOS.270 & 271 /BANG/2012 6 SEPARATE JURISTIC ENTITY. THE ASSESSEE IS ASSESSED TO INCOME TAX SEPARATELY THAN ITS SHAREHOLDERS. THE LO AN HAS BEEN ADVANCED TO A COMPANY WHO IS NOT A SHAREHOLDER OF M/S ANKUR AGRO PVT. LTD. THEREFORE, WE DO NOT FIND THAT ANY SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRESENT APPEAL, ACCORDINGLY, THE DEPARTMENTAL APPEAL IS DISMISSED. (IV) FOLLOWING THE ABOVE DECISIONS OF VARIOUS HIGH COURT S, THE TRIBUNAL IN THE RECENT DECISIONS CITED BELOW HA VE CONSISTENTLY HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF THE PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER: ACIT V BOMBAY REAL ESTATE DEVELOPMENT COMPANY P LTD. 2011-64-DTR 137-MUMBAI ITAT; DCIT V M/S VENKATARAMANA AUTOMOBILES ITA NO.1345 HYDERABAD ITAT; DCIT V MADUSUDAN INVESTMENT & TRADING CO LTD. 201 1 48 SOT 360 KOLKATTA ITAT; ACIT V M/S M J INTERNATIONAL 2010-TIOL-693-MUMBAI ITAT & DCIT V M/S BIJIS HOTEL (INDIA) PVT. LTD. ITA NO. 3444- MUMBAI ITAT IN VIEW OF THE AFORESAID REASON, WE ALLOW THE APPEA LS OF THE ASSESSEE. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DAY OF DECEMBER, 2012 SD/- SD/- (P MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER PAGE 7 OF 7 ITA NOS.270 & 271 /BANG/2012 7 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.