Smt. Sunita Bhagat, Uttar Pradesh V. ITO, New Delhi

ITA 3026/DEL/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98152 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 22-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 15-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VED PRAKASH MISHRA
• Assessee Lawyers: SUNIL ARORA
• Keywords: Deemed dividend

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER ITA NO. 3025 /DEL/2015 ASSTT. YRS: 2007-08 PUNEET BHAGAT, VS. INCOME-TAX OFFICER, A-8, SECTOR-17, WARD 1(2), NEW DELHI. NOIDA, UP-201301. PAN: AACPB 3904 C AND ITA NO. 3026 /DEL/2015 ASSTT. YRS: 2007-08 SMT. SUNITA BHAGAT, VS. INCOME-TAX OFFICER, A-8, SECTOR-17, WARD 1(2), NEW DELHI. NOIDA, UP-201301 PAN: AACPB 3893 Q ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI SUNIL ARORA CA RESPONDENT BY : SHRI VED PRAKASH MISHRA SR. DR DATE OF HEARING : 22/09/2015. DATE OF ORDER : 16/12/2015. O R D E R PER S.V. MEHROTRA, A.M.. : THESE APPEALS, PREFERRED BY DIFFERENT ASSESSEES OF THE SAME GROUP, HAVE BEEN PREFERRED AGAINST SEPARATE ORDERS DATED 12-02 -2015, PASSED BY THE CIT(A)-I, NEW DELHI, RELATING TO A.Y. 2007-08. ISSUES BEING C OMMON IN BOTH THE APPEALS, THE 2 SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS OF THE CASE ARE THAT SHRI PUNEET BHA GAT WAS DIRECTOR IN M/S AESTHETE EXIM PVT. LTD. AND M/S AESTHETE INTERNATIO NAL LTD. THE OTHER DIRECTOR IN THESE COMPANIES WAS MS. SUNITA BHAGAT, THE SHARE HO LDING PATTERNS OF THESE TWO DIRECTORS IN THE COMPANIES WERE AS UNDER: S NO. NAME OF SHAREHOLDER M/S AESTHETE EXIM PVT. LTD. M/S AESTHETE INTERNATIONAL LTD. AMOUNT OF SHAREHOLDING AS ON 31.03.2007 % OF SHAREHOLDING AMOUNT OF SHAREHOLDING AS ON 31.03.2007 % OF SHAREHOLDING 1. SUNITA BHAGAT 5,00,000/- 50% 11,56,100/- 46.11% 2. PUNEET BHAGAT 5,00,000/- 50% 13,50,100/- 53.85% 3. THUS, BOTH SHRI PUNEET BHAGAT AND SMT. SUNITA B HAGAT WERE HOLDING MORE THAN 20% SHARES IN THESE COMPANIES. THE AO HAS POIN TED OUT THAT DURING THE ASSESSMENT PROCEEDINGS OF M/S AESTHETE INTERNATIONA L LTD. FOR AY 2007-08, THE THEN AO NOTICED THAT M/S AESTHETE INTERNATIONAL LT D. HAD RECEIVED AN AMOUNT OF RS. 10 LACS FROM ITS SISTER CONCERN M/S AESTHETE EX IM PVT. LTD. AND THIS AMOUNT OF LOAN WAS TREATED AS DEEMED DIVIDEND U/S 2(22)(E) IN THE HANDS OF M/S AESTHETE INTERNATIONAL LTD. HOWEVER, THE SAID ADDITION WAS D ELETED BY LD. CIT(A), INTER ALIA, OBSERVING THAT THE AMOUNT COULD BE BROUGHT TO TAX O NLY IN THE HANDS OF SHARE HOLDER OF LENDER COMPANY I.E. SHRI PUNEET BHAGAT AND SMT. SUNITA BHAGAT AND NOT IN THE HANDS OF COMPANY, WHICH IS NOT A REGISTERED SHARE H OLDER OF THE LENDER COMPANY. ACCORDINGLY, THE ASSESSEE WAS SHOW CAUSED AS TO WHY LOAN ADVANCED TO M/S AESTHETE INTERNATIONAL LTD. BY M/S AESTHETE EXIM P VT. LTD. SHOULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF SHRI PUNEET BHAG AT. SIMILAR NOTICE WAS ISSUED 3 TO SMT. SU12NITA BHAGAT. THE ASSESSEE TOOK THE PLEA THAT AS PER THE DIRECTIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANK ITECH PVT. LTD. 11 TAMAN.COM 100(DELHI), ADDITION HAD TO BE MADE IN TH E HANDS OF SHARE HOLDERS OF THE LOAN RECIPIENT COMPANY BUT THE SAID JUDGMENT DI D NOT PRESCRIBE THE MANNER IN WHICH COMPUTATION OF INCOME HAD TO BE DONE. THE ASS ESSEE POINTED OUT THAT THE SHARE HOLDING OF THE TWO DIRECTORS IN M/S AESTHETE EXIM PVT. LTD. WAS 50% EACH, WHEREAS IN M/S AESTHETE INTERNATIONAL LTD. IT WAS 53.85% (PUNEET BHAGAT) AND 46.11% (SMT. SUNITA BHAGAT). IT WAS FURTHER POINTED OUT THAT NO MANNER OF COMPUTATION FOR MAKING THE ADDITION IN THE HANDS OF THE TWO SHAREHOLDERS HAS BEEN PRESCRIBED, EITHER UNDER THE INCOME TAX ACT OR IN THE RULING OF ANKITECH PVT. LTD. (SUPRA). THEREFORE, IT WAS NOT CLEAR AS TO HOW MUCH INCOME WAS TO BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF PUNEET BHAGAT AND S UNITA BHAGAT. FURTHER, IT WAS SUBMITTED THAT IN THE ABSENCE OF ANY MECHANISM FOR COMPUTATION OF INCOME IN THE HANDS OF SHARE HOLDERS, THE CHARGING PROVISIONS WOU LD ALSO FAIL AND NO ADDITION COULD BE MADE IN SUCH A CASE. THE ASSESSEE RELIED O N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. B.C. SRINIVASA SETTY (1981) 5 TAXMANN 1 (SC), WHEREIN IT WAS, INTER ALIA, HELD AS UNDER: '. A TRANSACTION TO WHICH THOSE PROVISIONS CANNO T BE APPLIED MUST BE REGARDED AS NEVER INTENDED BY SECT ION 45 TO BE THE SUBJECT OF CHARGE. THIS INFERENCE FLOWS FROM TH E GENERAL ARRANGEMENT OF THE PROVISIONS IN THE INCOME-TAX AC T, WHERE UNDER EACH HEAD OF INCOME THE CHARGING PROVISION IS ACCOMPANIED BY A SET OF PROVISIONS FOR COMPUTING TH E INCOME SUBJECT TO THAT CHARGE. THE CHARACTER OF THE COMPUT ATION PROVISIONS IN EACH CASE BEARS A RELATIONSHIP TO T HE NATURE OF THE CHARGE. THUS, THE CHARGING SECTION AND THE COMPUTAT ION PROVISION TOGETHER CONSTITUTE AN INTEGRATED CODE. WHEN THERE IS A CASE TO WHICH THE COMPUTATION PROVISIONS CANNOT APPLY AT ALL, 4 IT IS EVIDENT THAT SUCH A CASE WAS NOT INTENDED TO FALL WITHIN THE CHARGING SECTION., OTHERWISE ONE WOULD BE DRIVEN TO CONCLUDE THAT WHILE A CERTAIN INCOME SEEMS TO FALL WITHIN T HE CHARGING SECTION, THERE IS NO SCHEME OF COMPUTATION FOR QUA NTIFYING IT. THE LEGISLATIVE PATTERN DISCERNIBLE IN THE ACT IS AGAINST SUCH A CONCLUSION. IT MUST BE BORNE IN MIND THAT THE LEGIS LATIVE INTENT IS PRESUMED TO RUN UNIFORMLY THROUGH THE ENTIRE CON SPECTUS OF PROVISIONS PERTAINING TO EACH HEAD ON INCOME. 4. THE AO, AFTER CONSIDERING THE ASSESSEES SUBMISS IONS, CONCLUDED THAT THE LOAN WAS TO BE TREATED AS DEEMED DIVIDEND IN TH E HANDS OF INDIVIDUAL DIRECTORS AND SINCE SHRI PUNEET BHAGAT AND SMT. SUN ITA BHAGAT WERE EQUAL BENEFICIARY OF SHARE TO THE TUNE OF 50% EACH IN M/S AESTHETE INTERNATIONAL LTD., THE COMPANY WHICH HAD RECEIVED THE LOAN, THER EFORE, THE AMOUNT OF LOAN OF RS. 10 LACS WAS TO BE EQUALLY DIVIDED AND A DDED TO THE INCOME OF THE ASSESSEE. HE, THEREFORE, MADE ADDITION OF RS. 5 LAC S EACH IN THE HANDS OF THE TWO DIRECTORS. 5. BEFORE LD. CIT(A) THE ASSESSEE REITERATED THE SU BMISSIONS AND, INTER ALIA, POINTED OUT THAT M/S AESTHETE EXIM PVT. LTD. HAD GIVEN LOAN OF RS. 10 LACS TO M/S AESTHETE INTERNATIONAL LTD. AND SHRI P UNEET BHAGAT WAS COMMON SHARE HOLDER ALONG WITH SMT. SUNITA BHAGAT IN BOTH THE SAID COMPANIES, BUT, THERE WAS DIFFERENT SHARE HOLDING PATTERN IN BOTH T HE COMPANIES. THEREFORE, THE ADDITION ON ACCOUNT OF THE DEEMED DIVIDEND WAS AGAINST THE PRINCIPLES 5 LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF B .C. SRINIVASA SETTY (SUPRA). LD. CIT(A) CONFIRMED THE AOS ACTION FOLLO WING THE DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. ANKITECH (P) LTD. (SUPRA) AND CIT VS. NAVYUG PROMOTERS PVT. LTD. 6. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, IN THE FACTS OF THE CASE, THE ADDITION U/S 2(22)(E) IN THE HANDS OF TWO DIRECTORS CANNOT BE DISPUTED BECAUSE BOTH THE DIRECTORS HAVE SUBSTANTIAL SHAREHO LDINGS IN THE TWO CONCERNS, HOWEVER, NO MECHANISM HAS BEEN PROVIDED IN THE ACT REGARDING COMPUTATION OF DEEMED DIVIDEND IN THE HANDS OF THE TWO DIRECTORS. 7. LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW . 8. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND PERUSED THE RECORD OF THE CASE. THE SHORT POINT FOR CONSIDERATI ON IS WHETHER THE COMPUTATION OF RS. 5 LACS EACH TREATED AS DEEMED D IVIDEND IN THE HANDS OF THE TWO DIRECTORS, IS AS PER LAW OR NOT. THERE IS NO DISPUTE THAT CUMULATIVE RESERVES OF M/S AESTHETE EXIM PVT. LTD. AS ON 31- 3-2007 WERE RS. 14,51,212/- AND, THEREFORE, THE AMOUNT OF RS. 10 LA CS GIVEN AS LOAN TO M/S INTERNATIONAL LTD. WAS TAXABLE AS DEEMED DIVIDEND IN THE HANDS OF TWO DIRECTORS AS BOTH THE DIRECTORS WERE COMMON SHAREHO LDERS IN THE TWO COMPANIES HOLDING MORE THAN 20% SHARES OF THESE COM PANIES. THE CONTENTION OF LD. COUNSEL IS THAT HAD THE LOAN WAS GIVEN TO ONE SHAREHOLDER, 6 THE SAME COULD BE COMPUTED AS PER LAW BUT WHEN THE LOAN IS GIVEN TO A CONCERN IN WHICH SUCH SHAREHOLDER IS A PARTNER OR M EMBER, THEN FOR ALLOCATION OF LOAN BETWEEN THE SHAREHOLDERS NO MECH ANISM IS PROVIDED IN THE ACT. IN FIRST BLUSH THE ARGUMENT APPEARS TO BE QUIT E CONVINCING BUT A LITTLE ANALYSIS OF RELEVANT PROVISION MAKES IT CLEAR THAT THIS ARGUMENT CANNOT BE ACCEPTED. 9. SECTION 2(22)(E) READS AS UNDER: 2(22)(E): DIVIDEND INCLUDES .. (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31 ST DAY OF MAY 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BE NEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A ME MBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREIN IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAY MENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEF IT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFITS. 10. THE INGREDIENTS OF THE SECTION ARE AS UNDER:- I. PAYMENT TO INDIVIDUAL SHAREHOLDER:- 7 (A) THE PAYMENT SHOULD BE BY A COMPANY (NOT BEING COMPA NY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED). (B) THE PAYMENT CAN BE IN CASH OR REPRESENTING A PART O F THE ASSETS OF THE COMPANY. (C) THE PAYMENT SHOULD BE IN THE NATURE OF AVANCE OR LO AN TO A SHAREHOLDER WHO IS HOLDING AT LEST 10% SHARES BENEF ICIALLY. (D) THE ABOVE PAYMENT TO THE EXTENT OF ACCUMULATED PROF ITS OF THE LENDER COMPANY WOULD BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF SHAREHOLDER QUALIFYING THE CRITERIA OF HOL DING 10% BENEFICIAL HOLDING OF SHARES. II. PAYMENT TO CONCERNS: IN THIS CASE ALL THE CONDITIONS OF PAYMENTS IN CASE OF INDIVIDUAL SHAREHOLDER NOTED ABOVE HAVE TO BE FULFILLED. THUS, EVEN IF PAYMENT IS MADE TO A CONCERN STILL THE PAYMENT TO CONCERN WILL BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF SUCH SHAREHOLDER. III. PAYMENT IS BY SUCH COMPANY ON BEHALF OR FOR IN DIVIDUAL BENEFIT OF SUCH SHAREHOLDER. HERE ALSO ALL THE CONDITIONS CONT EMPLATED IN (I) ABOVE HAVE TO BE FULFILLED. 11. THUS, THE SECTION CLEARLY COVERS THOSE CASES WH ERE PAYMENT IS TO SHAREHOLDER QUALIFYING CONDITION OF BENEFICIAL HOLD ING OF SHARES. THE LOAN TO CONCERNS ARE ALSO CONTEMPLATED IN THE SECTION ITSEL F AND, THEREFORE, IT WOULD BE TOO TECHNICAL TO HOLD THAT LEGISLATURE VISUALIZE D ONLY ONE SHAREHOLDER IN THE CONCERN. 12. THE SECTION CLEARLY STATES THAT THE SHAREHOLDER MAY BE A MEMBER OF THE CONCERN OR A PARTNER, WHICH IMPLIES THAT THE INTER EST OF THE SHAREHOLDER IN THE 8 CONCERN IS TO BE DETERMINED WITH REFERENCE TO THE P ERCENTAGE OF SHAREHOLDING OF THE DIRECTORS/ PARTNERS IN THE SAID CONCERN. IT IS NOT NECESSARY THAT IN EVERY CASE THE DETAILED MECHANISM SHOULD BE PROVIDED FOR COMPUTING THE INCOME AND, IF, BY REASONABLE CONSTRUCTION OF THE SECTION, THE INCOME CAN BE DEDUCED THEN MERELY ON THE GROUND THAT SPECIFIC PROVISION H AS NOT BEEN PROVIDED, IT CANNOT BE HELD THAT THE COMPUTATION PROVISIONS FAIL S. IT IS WELL SETTLED LAW THAT THE CONSTRUCTION WHICH ADVANCES THE OBJECT OF LEGISLATION SHOULD BE MADE AND NOT THE ONE WHICH DEFEATS THE SAME. THE PE RCENTAGE OF SHAREHOLDING IN THE CONCERN TO WHICH LOAN IS GIVEN, IS THE DETERMINING FACTOR OF THE DEEMED DIVIDEND IN CASE OF SHAREHOLDER. IN T HE PRESENT CASE, SINCE IN M/S AESTHETE INTERNATIONAL LTD., MR. PUNEET BHAGAT HAD 53.85 SHAREHOLDING. THEREFORE, RS. 5,38,500/- SHOULD HAVE BEEN ASSESSED AS DIVIDEND IN THE HANDS OF SHRI PUNEET BHAGAT AND RS. 4,61,100/- SHOULD HAV E BEEN TAXED AS DEEMED DIVIDEND IN THE HANDS OF MRS. SUNEETA BHAGAT. SINCE IN CASE OF MR. PUNEET BHAGAT, THIS WILL LEAD TO ENHANCEMENT OF INCOME, I UPHOLD THE ADDITION OF RS. 5 LAKHS ONLY IN HIS CASE. 13. IN THE RESULT. MR. PUNEET BHAGATS APPEAL IS DI SMISSED AND MRS. SUNEETA BHAGATS APPEAL IS PARTLY ALLOWED. SD/- (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 16/12/2015. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.