ITO, New Delhi V. M/s Kaiser Export Pvt. Ltd., New Delhi

ITA 3749/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2178 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 03-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK K SAROHA
• Assessee Lawyers: S K GUPTA
• Keywords: Deemed dividend
• Section: 143(3); 2(22)(e); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B NEW DELHI BEFORE SHRI DEEPAK R SHAH, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER I.TA. NO. 3749/DEL./09 ASSTT. YEAR 2006-07 ITO, WARD 5 (1), DELHI. VS. M/S. KAISER EXPORT PVT. LTD., 140 B, ZAMRUDPUR, COMMUNITY CENTRE, NEW DELHI 110 048. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK K. SAROHA, DR RESPONDENT BY : SHRI S.K. GUPTA, CA ORDER PER DEEPAK R SHAH, ACCOUNTANT MEMBER THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 26.6.2009 IN AN APPEAL AGAINST ASSESSMENT ORD ER FRAMED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). THE REVENUE HAS RAIS ED FOLLOWING GROUNDS BEFORE US :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT (APPEALS) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 59,73,694/- MADE BY A.O. U/S 2 (22) (E) OF THE I.T. ACT. 1961. 2. THE LD. CIT (A) DID NOT APPRECIATE THE FACT THAT , SMT. JENIFER TYTLER IS HOLDING MORE THAN 10% SHARES IN BOTH THE COMPANI ES. I.E. M/S. AMAZONE EXPORTS PVT. LTD. THE CREDITOR AND THE ASSE SSEE COMPANY. 2. THE FACTS OF THE CASE AS MENTIONED IN THE ASSESS MENT ORDER ARE THAT DURING THE ASSESSMENT PROCEEDINGS IT WAS FOUND THAT THE ASSESSEE COMPANY HAS RECEIVED ADVANCE OF RS. 59,73,694/- FROM M/S. AMAZO NE EXPORTS PVT. LTD. ITA NOS. 3749/DEL/09 2 (HEREINAFTER AMAZONE). IT WAS ALSO NOTICED THAT BOT H THE ASSESSEE COMPANY AND AMAZONE HAVE SMT. JENNIFER TYTLER AS COMMON SHAREHO LDERS HAVING 22.9% AND 35% SHARE RESPECTIVELY. THE SAID AMOUNT WAS TAKEN A S DEEMED DIVIDEND U/S 2 (22)(E) OF THE ACT IN THE HANDS OF ASSESSEE COMPANY , WITH THE FOLLOWING OBSERVATIONS : AS PER ABOVE, FOR DETERMINING CHARGEABILITY AS DE EMED DIVIDEND THE FOLLOWING THREE CONDITIONS, HAVE TO BE SEEN IN RESP ECT OF AMOUNT THAT HAS BEEN PAID AS LOAN OR ADVANCE BY A PVT. LTD. COMPANY, TO THE EXTENT OF ACCUMULATED PROFITS AS PAID TO: (I) A EQUITY SHAREHOLDER, WHO IS A BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAT THEN PERCENT OF THE VOTING POWER : OR (II) ANY CONCERN [I.E. HUF, FIRM, AOP, BOI OR A COM PANY-EXPLANATION 3 TO SECTION 2 (22)(E)] IN WHICH SUCH SHARE HOLDER (HOLD ING NOT LESS THAN 10% VOTING POWER) IS A MEMBER OR A PARTNER AND IN W HICH HE HAS A SUBSTANTIAL INTEREST : (III) ANY PERSON, ON BEHALF OF FOR THE INDIVIDUAL B ENEFIT OR ANY SUCH SHAREHOLDER, SUCH SHAREHOLDER HERE MEANS A SHAREHOL DER WHICH IS BENEFICIAL OWNER OF SHARE HOLDING NOT LESS THAN 10% VOTING POWER. 4.6 IN THE LIGHT OF ABOVE PROVISIONS AND CONSIDERE D IN THE CONTEXT OF FACTS STATED IN THE PRECEDING PARAGRAPHS, IN M/S. A MAZONE EXPORTS PVT. LTD. MRS. JENNIFER TYTLER HAS VOTING POWER MORE THAN 10% AND ALSO HAS SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY HOLDING 22.9% SHAR E HOLDING WHICH MAKES THE PROVISIONS OF SECTION 2(22)(E) APPLICABLE IN TH E HANDS OF ASSESSEE COMPANY, IN RESPECT OF LOAN RECEIVED TO THE EXTENT OF ACCUMULATED PROFIT IN M/S. AMAZONE EXPORTS PVT. LTD. THEREFORE AN AMOUNT OF RS. 59,73,694/-, WHICH WAS THE MAXIMUM AMOUNT OUTSTANDING DURING TH E YEAR AS REFERRED TO IN ANNEXURE D OF FORM 3CD IS BEING ADDED AS DEEMED DIV IDEND INCOME IN THE HANDS OF THE ASSESSEE COMPANY. 3. BEFORE LD. CIT(A) IT IS SUBMITTED THAT THE RECIP IENT OF THE MONEY I.E. THE APPELLANT CANNOT BE TAXED U/S 2 (22)(E) AS THE RECI PIENT IS NOT A SHAREHOLDER OF AMAZONE AND SO ADVANCE CANNOT BE TREATED AS A DIVID END IN ITS HANDS. FOR THIS PROPOSITION OF LAW, THE APPELLANT RELIED ON CERTAIN DECISIONS WHICH ARE DISCUSSED IN FOLLOWING PARAGRAPHS :- ITA NOS. 3749/DEL/09 3 3.2.1 CIT V. HOTEL HILLTOP (2008) 217 CTR 527 (RAJ. ); WHEREIN ON THE EXPRESSION OF SECTION 2(@2)(E) PAYMENT TO ANY CONCERN IN WHIC H SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTAN TIAL INTEREST. IT IS HELD THAT DEEMED DIVIDEND COULD NOT BE BROUGHT TO T AX IN THE HANDS OF THE PARTNERSHIP FIRM, AS SUCH DEEMED DIVIDEND WOULD ONL Y BE TAXABLE IN THE HANDS OF THE INDIVIDUALS. IN OTHER WORDS, THEIR LOR DSHIP HAVE HELD THAT DEEMED DIVIDEND IN THE CASE OF THE PAYMENT BY A COM PANY TO A CONCERN IS NOT TAXABLE IN THE HANDS OF THE RECIPIENT BUT IS TA XABLE ONLY IN THE HANDS OF THE COMMON SHAREHOLDER HAVING SUBSTANTIAL INTEREST IN BOTH THE ENTITLES. 3.2.2 ACIT V. BHAUMIK COLOUR PVT. LTD. (2009) 118 I TD 1/20 TTJ 865 (SP. BENCH MUM.) WHEREIN AFTER AN ELABORATE ANALYSIS OF NUMEROUS CASE LAWS INCLUDING A CATENA OF DECISIONS OF THE SUPREME COUR T HELD THAT : I. DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HAND S OF A PERSON WHO IS A SHAREHOLDER OF A LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN THE SHAREHOLDER. II. THE EXPRESSION SHAREHOLDER REFERRED TO IN SECTI ON 2(22)(E) REFER TO BOTH REGISTERED AND BENEFICIAL SHAREHOLDERS. IF A P ERSON IS A REGISTERED SHAREHOLDER BUT NOT A BENEFICIAL SHAREHOLDER, SECTI ON 2 (22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREH OLDER BUT NOT A REGISTERED SHAREHOLDER, SECTION 2(22)(E) WILL NOT APPLY. 4. LD. CIT (A) HELD :- THUS, IT IS EVIDENT THAT EVEN AFTER THE AMENDMENT TO SECTION 2 (22)(E), THE AMOUNT RECEIVED WILL NOT BE TAXABLE IN THE HANDS OF THE RECIPIENT UNTIL AND UNLESS HE IS NOT ONLY A REGISTERED SHAREHOLDER BUT ALSO A BENEFICIAL SHAREHOLDER. THE CASE OF THE APPELLANT COMPANY DOES NOT FALL IN EITHER ITA NOS. 3749/DEL/09 4 CATEGORY AND ON THIS ACCOUNT ALSO, THE CASE MADE OU T BY THE AO CANNOT BE ACCEPTED. CONSIDERING ALL THE FACTS AND CIRCUMSTANCE OF THE C ASE, I HOLD THAT THE AMOUNT RECEIVED AS ADVANCE BY THE APPELLANT COMPANY CANNOT BE TAXED UNDER SECTION 2(22)(E). THE AO IS, THEREFORE, DIREC TED TO DELETE THE ADDITION MADE BY HIM ON THIS ACCOUNT. 5. WHEREAS LD. DR RELIED UPON ASSESSMENT ORDER, LD. COUNSEL FOR ASSESSEE REITERATED THE SUBMISSION MADE BEFORE COMMISSIONER (A) AND HIS FINDING THEREON. 6. WE HAVE CONSIDERED RIVAL SUBMISSION. SINCE LD. C OMMISSIONER (A) HAS FOLLOWED THE DECISION OF HONBLE RAJASTHAN HIGH COU RT AND THAT OF THE SPECIAL BENCH OF TRIBUNAL AND SINCE NO CONTRARY DECISION HA S BEEN CITED , THERE IS NO INFIRMITY IN THE ORDER OF LD. COMMISSIONER (A). 7. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2009. [RAJPAL YADAV] [DEEPAK.R. SHAH) JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA DATED : 18.12.2009 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, D EPUTY REGISTRAR, ITAT