Rajeev Makhija, New Delhi V. DDIT circle-1 (2), New Delhi

ITA 3148/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9653 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 03-09-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 16-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: SUNIL ARORA
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Deemed dividend
• Section: 56(2); 2(22)(e); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI D.R.SINGH, JM AND SHRI R.C.SHARMA, AM ITA NO.3148/DEL/2008 ASSESSMENT YEAR : 2002-03 SHRI RAJEEV MAKHIJA, C-74, NDSE-II, NEW DELHI 110 049. PAN NO.ANNPM5011B. VS. DY.DIRECTOR OF INCOME TAX, CIRCLE-1(2), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUNIL ARORA, CA. RESPONDENT BY : SHRI H.K.LAL, DR. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 28.5.2008 FOR THE AY 2002-03, IN THE MATTER OF ORDE R PASSED U/S 143(3)/147 OF THE IT ACT WHEREIN FOLLOWING SOLITARY GROUND HAS BEEN T AKEN BY THE ASSESSEE :- THE LEARNED ASSESSING AUTHORITY HAS GROSSLY ERRED IN MAKING AN ADDITION OF RS.8,00,000/- AS DEEMED DIVIDEND U/S 2( 22)(E) OF THE INCOME TAX ACT, 1961, TO THE RETURNED INCOME OF THE ASSESSEE ON ACCOUNT OF ADVANCE RECEIVED FROM M/S GAY LORD BUILD ERS PVT.LTD. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE AN INDIVIDUAL IS RESIDENT OF CANA DA DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS DIRECTOR OF AN INDI AN PRIVATE LIMITED COMPANY NAMELY M/S GAYLORD BUILDERS PVT.LTD. AND HAD SUBSTA NTIAL INTEREST IN THE COMPANY BY HOLDING 90% OF TOTAL SHARES OF THE COMPANY. DUR ING YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED AN ADVANCE OF RS.8 LAKH F ROM THE COMPANY, WHICH ACCORDING TO THE AO WAS LIABLE TO BE TAXED IN THE H ANDS OF ASSESSEE AS DEEMED DIVIDEND BOTH UNDER THE IT ACT AS WELL AS DOUBLE TA X AVOIDANCE AGREEMENT BETWEEN INDIA AND CANADA (IN SHORT DTAA). ON THE B ASIS OF ABOVE INFORMATION, ITA-3148/D/2008 2 THE AO INITIATED REASSESSMENT PROCEEDING AGAINST TH E ASSESSEE U/S 147 BY ISSUE OF NOTICE U/S 148 OF THE ACT. IN RESPONSE TO THE NOTI CE ASSESSEE FILED RETURN OF INCOME FOR THE YEAR ON 19.7.2006. DURING COURSE OF REASSE SSMENT PROCEEDING, THE AO HAD HELD THAT DEEMED DIVIDEND OF RS.8 LAKH RECEIVED BY ASSESSEE FROM INDIAN COMPANY WAS LIABLE TO BE TAXED U/S 56(2) READ WITH SECTION 2(22)(E) OF THE ACT AS WELL AS UNDER ARTICLE 10(2) READ WITH ARTICLE 10(4) OF DTAA . 3. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT ALL THE THREE CONDITIONS AS STIPULAT ED IN SECTION 2(22)(E) OF THE IT ACT ARE FULFILLED. ACCORDINGLY, ADVANCE OF RS.8 LA KHS WAS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. AGGRIEVED BY THIS ORDER OF CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, WE FOUND THAT ASSESSEE WAS A RESIDENT OF CANADA DURING THE RELEVANT YEAR UNDER C ONSIDERATION. SECTION 90(2) OF THE IT ACT SPECIFICALLY PROVIDES THAT IN RELATION T O THE ASSESSEE TO WHOM AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION OF INCOME APPLIES, THE PROVISIONS OF INCOME TAX ACT, 1961 SHALL APPLY TO THE EXTENT THEY ARE MORE B ENEFICIAL TO THE ASSESSEE. IT MEANS THE ACT GETS MODIFIED IN REGARD TO THE ASSESS EE INSOFAR AS THE AGREEMENT IS CONCERNED, IF IT FALLS WITHIN THE CATEGORY STATED T HEREIN. HON'BLE SUPREME COURT IN THE CASE OF P.V.A.L. KULANDAGAN CHETTIAR 267 ITR 654 HELD THAT WHERE TAX LIABILITY IS IMPOSED BY THE ACT, THE AGREEMENT MAY BE RESORTED TO EITHER FOR REDUCING THE TAX LIABILITY OR ALTOGETHER AVOIDING T HE TAX LIABILITY AND IN CASE OF ANY CONFLICT BETWEEN THE PROVISIONS OF THE AGREEMENT AN D THE ACT, THE PROVISIONS OF THE AGREEMENT WOULD PREVAIL OVER THE PROVISIONS OF THE ACT. THUS, IN THE INSTANT CASE, AGREEMENT ENTERED INTO BY INDIA WITH CANADA FOR AVO IDING DOUBLE TAXATION WILL PREVAIL OVER THE INDIAN INCOME TAX ACT. ARTICLE 10 OF DOUBLE TAXATION AVOIDANCE AGREEMENT WITH CANADA DEFINES DIVIDEND AS UNDER:- ITA-3148/D/2008 3 THE TERM DIVIDENDS AS USED IN THIS ARTICLE MEANS INCOME FROM SHARES OR OTHER RIGHTS, NOT BEING DEBT-CLAIMS, PART ICIPATING IN PROFITS, AS WELL AS INCOME ASSIMILATED TO INCOME FROM SHARES BY THE TAXATION LAW OF THE STATE OF WHICH THE COMPANY MAKING THE DI STRIBUTION IS A RESIDENT. 5. IT IS CRYSTAL CLEAR FROM THE PLAIN READING OF AR TICLE 10 THAT NOWHERE DEEMED INCOME IN THE FORM OF DEEMED DIVIDEND HAS BEEN BROU GHT INTO TAX NET. ONLY THE INCOME FROM SHARES OR OTHER RIGHTS, NOT BEING DEBTS CLAIMS, PARTICIPATING IN PROFITS, AS WELL AS INCOME ASSIMILATED TO INCOME FROM SHARES BY THE TAXATION LAWS OF THE STATE OF WHICH THE COMPANY MAKING THE DISTRIBUTION IS RESIDENT FALLS WITHIN THE TERM DIVIDEND. THE AMOUNT OF LOAN PAID CANNOT BE T REATED AS DIVIDEND PAID AS DEFINED IN ARTICLE 10 OF DTAA ENTERED INTO WITH CAN ADA. IN THIS REGARD, THE HON'BLE SUPREME COURT IN THE CASES OF J.DALMIA VS. CIT 53 ITR 83 AND BENARES STATE BANK LIMITED VS. CIT 75 ITR 167 HELD : .THE EXPRESSION PAID IN SECTION 16(2) IT IS T RUE DOES NOT CONTEMPLATE ACTUAL RECEIPT OF THE DIVIDEND BY THE M EMBER. IN GENERAL, DIVIDEND MAY BE SAID TO BE PAID WITHIN THE MEANING OF SECTION 16(2) WHEN THE COMPANY DISCHARGES ITS LIABI LITY AND MAKES THE AMOUNT OF DIVIDEND UNCONDITIONALLY AVAILABLE TO THE MEMBER ENTITLED THERETO 6. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT I N THE ACTION OF THE LOWER AUTHORITIES FOR BRINGING THE AMOUNT OF LOAN RECEIVE D BY THE ASSESSEE WHO IS RESIDENT OF CANADA, DURING THE RELEVANT YEAR, BY TR EATING THE SAME AS DEEMED DIVIDEND, WITHIN THE MEANING OF ARTICLE 10 OF DTAA. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. DECISION PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2009. SD/- SD/- (D.R.SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25.09.2009. VK. ITA-3148/D/2008 4 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR