Harita Gopal Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 277/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96642 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reasonable cause; Deemed dividend; Condonation of delay
• Section: 143(3); 14A; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . , ' # , $ & BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO . 277/MDS/2014 ( / ASSESSMENT YEAR: 2008-09) M/S. HARITA GOPAL PVT.LTD. JAYALAKSHMI ESTATE, 29, HADDOWS ROAD, CHENNAI-600 006. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(2) CHENNAI-600 034. PAN:AAACH0926K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 17 TH NOVEMBER, 2015 /DATE OF PRONOUNCEMENT : 30 TH DECEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNA I DATED 24.10.2013 FOR THE ASSESSMENT YEAR 2008-09. 2. THE APPEAL OF THE ASSESSEE IS BARRED BY LIMITATION OF 25 DAYS. THE ASSESSEE FILED AN AFFIDAVIT EXPLAININ G THE REASON THAT THE RECORDS OF THIS CASE INADVERTENTLY GOT MIXED UP WITH OTHER FILES AND AS SOON AS RECORDS PERTAINI NG TO THIS CASE WAS TRACED, APPEAL PAPERS WERE PREPARED FOR SUBMISSION AND DELAY IN FILING OF APPEAL IS NEITHER WANTON NOR WILLFUL AND THEREFORE PRAYS FOR CONDONATION OF DELA Y. WE HAVE 2 ITA NO.277 /MDS/2014 PERUSED THE REASONS AND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE APP EAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY IN FILING OF THE APPEAL. THE PETITION FOR CONDONATION OF DELAY IS AL LOWED AND THE APPEAL IS ADMITTED. 3. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDE R SECTION 14A READ WITH RULE 8D OF THE ACT. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS GROUN D OF APPEAL IS NOT PRESSED. THUS, THIS GROUND IS DISMISS ED AS NOT PRESSED. 5. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITION OF ` 92,50,000/- MADE BY THE ASSESSING OFFICER AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE A CT. 6. BRIEF FACTS ARE THAT THE ASSESSEE, PRIVATE LIMIT ED COMPANY, FILED RETURN OF INCOME ON 28.09.2008 DECLA RING LOSS OF ` 58,03,039/-. ASSESSMENT WAS COMPLETED UNDER SECTIO N 143(3) OF THE ACT ON 28.12.2010 DETERMINING THE INC OME OF 3 ITA NO.277 /MDS/2014 THE ASSESSEE AT ` 35,20,116/-. WHILE COMPLETING THE ASSESSMENT ASSESSING OFFICER MADE ADDITION UNDER SE CTION 2(22)(E) OF THE ACT TO THE EXTENT OF ` 92,50,000/- FOR THE REASON THAT ASSESSEE HAS RECEIVED ADVANCE ON VARIOU S DATES FROM ITS SISTER CONCERN M/S. HARITA SRINIVASAN PVT. LTD. AND ARE OUTSTANDING AS ON 31.03.2008. ACCORDING TO THE ASSESSING OFFICER SINCE M/S. HARITA SRINIVASAN PVT .LTD. POSSESSED ACCUMULATED PROFITS IN EXCESS OF ADVANCE GIVEN AS ON THE DATE OF TRANSACTION, PROVISIONS OF SECTION 2 (22)(E) OF THE ACT WOULD BE APPLICABLE TO ALL THE ADVANCES IRR ESPECTIVE OF THE REASONS FOR WHICH THE ADVANCES HAVE BEEN GIVE N. THEREFORE ASSESSING OFFICER TREATED ` 92,50,000/- AS LOAN FROM M/S. HARITA SRINIVASAN PVT.LTD. AND AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 7. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ADDITION MADE UNDER SECTION 2(22)(E) OF THE ACT REJECTING THE CONTENTIONS OF THE ASSESSEE THAT ADVA NCES RECEIVED BY THE ASSESSEE WERE FOR THE PURPOSE OF PU RCHASE OF PROPERTY JOINTLY BY THE ASSESSEE AND M/S. HARITA SR INIVASAN PVT.LTD. FROM A THIRD PARTY WHICH WAS INITIATED BY THE ASSESSEE. IT WAS THE CONTENTION OF THE ASSESSEE T HAT HARITA SRINIVASAN PVT.LTD. PAID ADVANCE OF ` 92,50,000/- AS ITS 4 ITA NO.277 /MDS/2014 SHARE FOR PURCHASING OF PROPERTY. IT WAS CONTENDED THAT DUE TO UNAVOIDABLE CIRCUMSTANCES PROPERTY WAS FINALLY REGI STERED IN THE NAME OF THE ASSESSEE AND THE AMOUNT RECEIVED FR OM M/S.HARITA SRINIVASAN PVT.LTD WAS SHOWN IN THE BOOK S AS UNSECURED LOAN AS ON 31.3.2008 AND THIS AMOUNT WAS SUBSEQUENTLY RETURNED TO M/S.HARITA SRINIVASAN PVT. LTD IN THE FOLLOWING YEAR. IT WAS ALSO CONTENDED BY THE ASSESS EE THAT ASSESSEE IS NOT A SHAREHOLDER OF M/S.HARITA SRINIVA SAN PVT.LTD, THEREFORE PROVISIONS OF SECTION 2(22)(E) O F THE ACT HAVE NO APPLICATION. HOWEVER, REJECTING THE CONTENT IONS OF THE ASSESSEE COMMISSIONER OF INCOME TAX (APPEALS) CONFI RMED THE ADDITION MADE BY THE ASSESSING OFFICER. 8. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITS THAT PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED T O THE ADVANCES GIVEN TO THE ASSESSEE AS THE ASSESSEE IS N OT A SHAREHOLDER OF M/S. HARITA SRINIVASAN PVT.LTD.. FOR THIS PROPOSITION, COUNSEL PLACES RELIANCE ON THE DECISIO N OF MUMBAI SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMI K COLOUR PVT.LTD. (313 ITR (AT) 146). COUNSEL FOR THE ASSESSEE FURTHER REITERATING THE SUBMISSIONS MADE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) SUBMITS THAT T HE 5 ITA NO.277 /MDS/2014 ADVANCE WAS RECEIVED BY THE ASSESSEE FROM M/S.HARIT A SRINIVASAN PVT. LTD IS ONLY FOR THE PURCHASE OF LAN D JOINTLY FROM A THIRD PARTY AND SINCE THE PROPERTY WAS PURCHASED ONLY BY THE ASSESSEE THE ADVANCE GIVEN BY M/S.HARITA SRINIV ASAN PVT.LTD WAS TREATED AS LOAN AS ON 31.3.2008 AND THI S WAS RETURNED TO THE SAID COMPANY IN THE NEXT FINANCIAL YEAR. THEREFORE, HE SUBMITS THAT THE AMOUNT ADVANCED BY M /S. HARITA SRINIVASAN PVT. LTD FOR PURCHASE OF LAND IS NOT ADVANCE OR LOAN WITHIN THE DEFINITION OF SECTION 2(22)(E) O F THE ACT. FOR THIS PROPOSITION, HE PLACES RELIANCE ON THE DECISIO N OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHRI SATYA NARAYAN NUWAL (2010-TIOL-673-HC), COPY OF WHICH IS PLACED O N RECORD. 9. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN CONSIDERING THE ADVA NCES RECEIVED BY THE ASSESSEE AS DEEMED DIVIDEND UNDER S ECTION 2(22)(E) OF THE ACT. 10. WE HAVE HEARD BOTH SIDES, PERUSED ORDERS OF LOW ER AUTHORITIES AND THE CASE LAW RELIED ON. IT IS THE S UBMISSION OF THE ASSESSEE THAT IT IS NOT A SHAREHOLDER OF M/S.H ARITA SRINIVASAN PVT. LTD AND THEREFORE PROVISIONS OF SEC TION 6 ITA NO.277 /MDS/2014 2(22)(E) HAVE NO APPLICATION IN VIEW OF THE DECISI ON OF SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR P.LTD. (SUPRA). 11. IN THE CASE OF BHAUMIK COLOUR P.LTD. (SUPRA), T HE MUMBAI SPECIAL BENCH HELD AS UNDER:- TO ATTRACT THE FIRST LIMB OF THE PROVISIONS OF SECT ION 2(22)(E) , THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. THE WORD SHARE-HOLDER ALONE EXISTED IN THE DEFINITION OF DIVIDEND IN THE 1922 ACT AND HAS BEEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGISTERED SHAREHOLDER. THIS EXPRESSION SHAREHOLDER FOUND IN THE 1961 ACT HAS TO BE THEREFORE CONSTRUED AS APPLYING ONLY TO REGISTERED SHAREHOLDERS. IT IS A PRINCIPLE OF INTER PRETATION OF STATUTES THAT ONCE CERTAIN WORDS IN AN ACT HAVE REC EIVED A JUDICIAL CONSTRUCTION IN ONE OF THE SUPERIOR COURTS , AND THE LEGISLATURE HAS REPEATED THEM IN A SUBSEQUENT STATU TE, THE LEGISLATURE MUST BE TAKEN TO HAVE USED THEM ACCORDI NG TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION HAS GIVEN THEM. IN THE 1961 ACT, THE WORD SHAREHOLDER IN SECTION 2(22)(E) IS FOLLOWED BY THE FOLLOWING WORDS BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES. THIS EXPRESSION ONLY Q UALIFIES THE WORD SHAREHOLDER AND DOES NOT IN ANY WAY ALTE R THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERE D SHAREHOLDER NOR SUBSTITUTE THE REQUIREMENT TO A REQ UIREMENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHAR ES WITHOUT BEING A REGISTERED HOLDER OF SHARES. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHARE HOLDER THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT AP PLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. THE NEW CATEGORY OF PAYMENT WHICH WAS CONSIDERED AS DIVIDEND INTRODUCED BY THE FINANCE ACT, 1987, WITH EFFECT FROM APRIL 1, 1988, BY THE SECOND LIMB OF SECTION 2 (22)(E) IS PAYMENT TO ANY CONCERN IN WHICH SUCH SHAREHOLDER I S A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST. THE EXPRESSION SUCH SHAREHOLDER IN THE PROVISION REFERS TO THE SHAREHOLDER REFERRED TO IN THE EARLIE R PART OF SECTION 2(22)(E) NAMELY, A REGISTERED AND A BENEFIC IAL HOLDER OF SHARES HOLDING 10 PER CENT. VOTING POWER. THE VE RY SAME 7 ITA NO.277 /MDS/2014 PERSON MUST ALSO BE A MEMBER OR A PARTNER IN THE CO NCERN HOLDING SUBSTANTIAL INTEREST IN THE CONCERN. THE PROVISIONS OF SECTION 2(22)(E) AS AMENDED BY TH E FINANCE ACT, 1987, WITH EFFECT FROM APRIL 1, 1988, DO NOT SAY IN WHOSE HANDS THE DIVIDEND HAS TO BE BROUGHT TO TA X, WHETHER IN THE HANDS OF THE CONCERN OR THE SHARE HOLDER. THE INTENTION BEHIND ENACTING THE PROVISIONS OF SEC TION 2(22)(E) AROSE FROM THAT FACT THAT CLOSELY HELD COM PANIES WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, WOULD N OT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE THE DIVI DEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD, COMPANIES DISTRIBUTE THEM AS LOANS OR ADVANCES TO THE SHAREHOLDERS OR TO A CONCERN IN WHICH SUCH SHAREHOLDER HAS A SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVI SIONS SUCH PAYMENT BY THE COMPANY IS TREATED AS DIVIDEND. THE PROVISIONS CONTEMPLATE A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF A NON-SHAREHOLD ER, VIZ., THE CONCERN. THE DEFINITION OF DIVIDEND UNDER SECTION 2(22)(E) O F THE ACT IS AN INCLUSIVE DEFINITION WHICH ENLARGES THE MEANING OF THE TERM DIVIDEND ACCORDING TO ITS ORDINARY AND NATUR AL MEANING TO INCLUDE EVEN A LOAN OR ADVANCE. THE ORDINARY AND NATURAL MEANING OF THE TERM DIVIDEND WOULD BE A SHARE IN PR OFITS TO AN INVESTOR IN THE SHARE CAPITAL OF A LIMITED COMPA NY. IF THE DEFINITION OF DIVIDEND IS EXTENDED TO A LOAN OR A DVANCE TO A NON-SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVIDEND IS TAKEN AWAY. DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT CAN BE ASSESSED ONLY IN THE HANDS OF A SHAREHOLDER OF THE LENDER COMPANY AND NO T IN THE HANDS OF ANY OTHER PERSON. 12. THE FACT THAT ASSESSEE IS NOT A SHAREHOLDER OF M/S.HARITA SRINIVASAN PVT.LTD. IS NOT DISPUTED. THE REFORE, SINCE THE ASSESSEE IS NEITHER REGISTERED SHAREHOLDE R NOR BENEFICIARY SHAREHOLDER OF THE LENDER COMPANY I.E. M/S.HARITA SRINIVASAN PVT. LTD, IN VIEW OF THE DECISION OF MUM BAI SPECIAL BENCH DECISION IN THE CASE OF BHAUMIK COLOUR P.LTD. (SUPRA) 8 ITA NO.277 /MDS/2014 THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE N OT ATTRACTED TO THE ASSESSEE COMPANY SO AS TO TREAT THE ADVANCES RECEIVED BY THE ASSESSEE FROM M/S.HARITA SRINIVASAN PVT.LTD AS DEEMED DIVIDEND. 13. RESPECTFULLY FOLLOWING THE SAID DECISION OF SPE CIAL BENCH, WE DELETE THE ADDITION MADE UNDER SECTION 2( 22)(E) OF THE ACT. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2015. SD/- SD/- ( . $ ) ( & () ) (D.KARUNAKARA RAO) (CHALLA NAGENDR A PRASAD ) + / ACCOUNTANT MEMBER ( + / JUDICIAL MEMBER ( /CHENNAI, - /DATED 30 TH DECEMBER, 2015 SOMU /0 10 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 6 /DR 6. /GF .