DCIT, New Delhi V. Shri Anuj Nagpal, New Delhi

ITA 3840/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61773 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 12-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALOK SINGHDR
• Assessee Lawyers: VANKATESH MOHANARS
• Keywords: Deemed dividend; Reassessment proceedings
• Section: 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENC H BEFORE SHRI U.B.S. BEDI, JM & SHRI A.N. PAHUJA, A M ITA NO.3840/DEL/2011 ASSESSMENT YEAR:2006-07 DCIT CIRCLE 1(1),ROOM NO. 390,CR BUILDING, IP ESTATE, NEW DELHI V/S . SH. ANUJ NAGPAL M-134, GREATER KAILASH PART-1 ,NEW DELHI [PAN : ACKPN0439N] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI VED JAIN & VANKATESH MOHAN,ARS REVENUE BY SHRI ALOK SINGH,DR DATE OF HEARING 13-07-2012 DATE OF PRONOUNCEMENT 13-07-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 12.08.2011 BY THE REVENUE AGA INST AN ORDER DATED 02.06.2011 OF THE LEARNED CIT(A)-IV, NEW DELH I, RAISES THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF ` 91,52,551/- U/S 2(22) (E) HOLDING THAT THE ASSESSEE IS NOT A BENEFICIAL SHAREHOLDER, OVERLOOKING THE FACT THAT THE ASSESSEE IS A REGISTE RED AS WELL AS BENEFICIAL SHAREHOLDER IN THE COMPANY GIVIN G THE LOAN AND HOLDS 50% INTEREST IN THE FIRM RECEIVING T HE LOAN AND PROVISIONS OF SECTION 2 (22) (E) WERE RIGHTLY I NVOKED BY THE AO IN HIS HANDS IN VIEW OF JUDGMENTS OF DELH I ITAT IN THE CASE OF M/S ANKITECH PVT. LTD. ITA NO. 388/07, DEL AND CIT VS. RAJ KUMAR & CO 295 ITR 9. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F ITA NO.3840/DEL./2011 2 APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF ` .20,71,353/- FILED ON 31 OCT, 2006 BY THE ASSESSEE, WAS PROCESSED ON 31 ST MARCH 2007 U/S 143(1) OF THE INCOME TAX ACT 1961, ( HEREINAFTER REFERRED TO AS THE ACT). SUBSEQUENTLY, THE RETURN WAS REVISED ON 8 TH MARCH, 2008 DECLARING INCOME OF ` .21,93,686/-. LATER ,AN INTIMATION WAS RECEIVED BY THE ASSESSING OFFICER(AO IN SHORT) REGARDING TAXATION OF DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE FROM ADDL. CIT,RANGE-24 ON 26.2.2009.CONS EQUENTLY, THE AO ISSUED A NOTICE U/S 148 OF THE ACT ON 3 RD JULY, 2009, AFTER RECORDING THE FOLLOWING REASONS IN WRITING: DURING THE COURSE OF THE REASSESSMENT PROCEEDINGS FOR THE AY 2006-07 IN THE CASE OF M/S SHIVA COMMODITIES & DERIVATIVES, THE AO (ADDL. CIT RANGE-24,NEW DELHI) OBSERVED AND INFORMED VIDE LETTER F NO. ADD L. CIT RANGE-24/2008-09/558 DATED 26.2.2009 THAT M/S JAI SIYARAM COMMODITIES TR ADING PVT. LTD. HAD ADVANCED A LOAN OF ` 1 CRORE TO THE FIRM ,HE ALSO OBSERVED THAT ALL THE CONDITIONS REQUIRED U/S 2(22)(E) OF THE INCOME-TAX ACT WERE AP PLICABLE IN THE CASE OF M/S SHIVA COMMODITIES & DERIVATIVES. IN THIS REGARD IT WAS NOTICED THAT SH. ANUJ NAGPAL HAS HELD 10000 SHARES ,BEING 2/3 RD OF THE AGGREGATE PAID UP SHARES OF M/S JAI SIYARAM COMMODITIES TRADING PVT. LTD. .HE I S ALSO A PARTNER HAVING INTEREST OF 50% IN FIRM M/S SHIVA COMMODITIES & DER IVATIVES. THE ITAT, DELHI VIDE ORDER DATED 6.6.2008 IN ANKITE CH PVT. LTD. VS. JCIT IN ITA NO. 388/DEL/2007 HAS HELD THAT SECTION 2(22)(E) ONL Y SPECIFIES THE CONDITION WHERE THE PROVISIONS OF DEEMED DIVIDEND ARE ATTRACT ED, BUT THE SAME CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE CONCERN, BUT WOU LD HAVE TO BE TAXED IF AT ALL IN THE HANDS OF THE SHAREHOLDERS WHO HAVE SUBSTANTI AL INTEREST IN THE CONCERN. IN CONFORMITY WITH THE ORDER DATED 6.6.2008 OF HON BLE ITAT DELHI AND ALSO THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX A CT,1961, THE SUM OF ` 1 CRORE ADVANCED AS A LOAN TO M/S SHIVA COMMODITIES & DERIV ATIVES BY M/S JAI SIYARAM COMMODITIES TRADING PVT. LTD. IS THE DEEMED DIVIDEN D INCOME OF SHRI ANUJ NAGPAL. THIS AMOUNT HAS ESCAPED ASSESSMENT IN THE H ANDS OF SHRI ANUJ NAGPAL. IN VIEW OF FACTS STATED ABOVE, THE APPROPRIATE REME DIAL ACTION AVAILABLE WAS TO ISSUE NOTICE U/S 148 IN ACCORDANCE WITH PROVISO TO SECTION 147 OF THE IT ACT,1961 WHICH STATES THAT NOTICE U/S 148 CAN BE ISSUED IF ANY INCOME CHARGEABLE TO TAX HAS ESCAPED FOR SUCH AY BY THE REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR ASSESSMENT FOR THAT ASSESSMENT YEAR. ITA NO.3840/DEL./2011 3 2.1 AFTER CONSIDERING THE REPLY OF THE ASSESSEE D URING THE COURSE OF REASSESSMENT PROCEEDINGS, THE AO BROUGHT TO TAX AN AMOUNT OF ` .91,52,551/-( TO THE EXTENT OF PROFITS OF THE COMPANY FOR THE YEAR U NDER CONSIDERATION) IN TERMS OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT. 3. ON APPEAL, THE .D. CIT(A) DELETED THE ADDITION, HOLDING AS UNDER: 5 I HAVE CAREFULLY PERUSED THE IMPUGNED ORDER AND T HE SUBMISSIONS MADE BY THE LD. AR OF THE ASSESSEE. HERE, A DEPOSIT OF A PPROX. RS. 1 CRORE (RS.91,52,551/- TO BE SPECIFIC) WAS RECEIVED BY M/S SHIVA COMMODITIES & DERIVATIVES FROM M/S JAI SIYA RAM COMMODITY TRADING (P) LTD. THE ASSESSEE WAS HAVING 50% INTEREST IN M/S SHIVA COMMODITIES & DERIVATIVES, WHICH WAS THE PARTNERSHIP FIRM AND HAD RECEIVED THE LOAN/DEPOSIT. THE MONEY WAS GIVEN BY M/S JAI SIYA RAM COMMODITIES TRADING (P) LTD. WHERE THE ASSESSEE OWNED 2/3 RD OF THE AGGREGATE PAID-UP SHARES. IT IS OBSERVED THAT T HE ASSESSEE NEVER RECEIVED THE MONEY. 6.THE ISSUE HAS BEEN DECIDED BY THE SPECIAL BENCH O F THE MUMBAI TRIBUNAL WHICH HAD THE OCCASION TO CONSIDER THE PROVISIONS O F SECTION 2(22) (E) OF THE ACT AND ITS APPLICABILITY IN ACIT VS BHAUMIK COLOUR (P) LTD. (2009) 27 SOT 270 (MUM) (SB). THE SPECIAL BENCH HAS ALSO CONSIDERED C IRCULAR NO. 495 OF 22.09.1987. IN THE CASE BEFORE THE SPECIAL BENCH, T HE FACTS OF THE CASE WERE THAT THE ASSESSEE COMPANY TOOK AN INTEREST BEARING LOAN OF RS. 9 LACS FROM ANOTHER COMPANY, M/S UMESH PENCILS (P) LTD. (UPPL). IT WAS OBSERVED BY THE AO THAT THOUGH THE ASSESSEE WAS NOT A SHAREHOLDER OF UPPL, YET BOTH THE COMPANIES HAD ONE COMMON SHAREHOLDER I.E. NARMADABEN NANDLAL TRUST (NTT) AND THAT THE SAID TRUST WAS HOLDING 20% SHARES IN THE ASSESSEE C OMPANY AND 10% SHARES IN UPPL. THUS, THE AO TOOK THE VIEW THAT THE IMPUGNED TRANSACTION OF LOAN WAS COVERED BY THE PROVISIONS OF SECTION 2(22) (E). THE ASSESSEES CONTENTIONS IN THIS REGARD WERE THAT THE AFORESAID SHARES WERE HELD IN THE NAME OF 3 TRUSTEES OF NNT FOR AND ON BEHALF OF THE TRUST, THAT THE BENEFICIAR IES OF THE TRUST NNT WERE 5 IN NUMBER AND AS SUCH TO INVOKE THE PROVISIONS OF SECT ION 2(22)(E),NNT MUST BE BOTH A REGISTERED SHAREHOLDER AND ALSO BENEFICIAL S HAREHOLDER, WHICH WAS NOT THE CASE. THE AO DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND TAXED RS.9 LACS IN THE HANDS OF THE ASSESSEE COMPANY AS DEEMED DIVIDEND. ON APPEAL, THE CIT(A) DELETED THE ADDITION MADE BY THE AO HOLDING THAT NNT WAS NOT BENEFICIAL SHAREHOLDER OF SHARES IN THE ASSESSEE COMPANY OR UP PL AND THEREFORE THE PROVISIONS OF SECTION 2(22)(E) COULD NOT BE INVOKED . THE FINDINGS OF THE SPECIAL BENCH IS REPRODUCED BELOW FOR THE SAKE OF CONVENIEN CE: ' 34. WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 2(22)(E) DOES NOT SPELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAR EHOLDER OR THE CONCERN (NON-SHAREHOLDER). ITA NO.3840/DEL./2011 4 THE PROVISIONS ARE AMBIGUOUS. IT IS THEREFORE NECES SARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 35. THE INTENTION BEHIND ENACTING PROVISIONS OF SECTIO N 2(22)(E) ARE THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIAL LY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECAME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULAT ED PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONC ERN IN WHICH SUCH SHAREHOLDERS HAVE 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 INTENTION BEHIND THE PROVI SIONS OF SECTION 2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDER. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON THE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMAT ELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTI ON OF THE LEGISLATURE IS THEREFORE TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND N OT IN THE HANDS OF THE CONCERN. 36. THE BASIS OF BRINGING IN THE AMENDMENT TO SECTION 2(22)(E) OF THE ACT BY THE FINANCE ACT, 1987 WITH EFFECT FROM 1-4-1988 IS TO ENSURE THAT PE RSONS WHO CONTROL THE AFFAIRS OF A COMPANY AS WELL AS THAT OF A FIRM CAN HAVE THE PAYMENT MADE TO A CONCERN FROM THE COMPANY AND THE PERSON WHO CAN CONTROL THE AFFAIRS OF THE CONCERN CAN DRAW THE SAME FROM THE CONCERN INSTEAD OF THE COMPANY DIRECTLY MAKING PAYMENT TO THE SHAREHOLDER AS DIVIDEND. THE SOURCE OF POWER TO CONTROL THE AFFAIRS OF THE COMPANY AND THE CONCERN IS THE B ASIS ON WHICH THESE PROVISIONS HAVE BEEN MADE. IT IS THEREFORE PROPER TO CONSTRUE THOSE PROV ISIONS AS CONTEMPLATING A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF A NON-SHAREHOLDER VIZ., CONCERN. A LOAN OR ADVANCE RECEIVED BY A CONCERN IS NOT IN THE NATURE OF INCOME. IN OTHER WORDS THERE IS A DEEMED ACCRUAL OF INCOME EVEN UNDER SECTION 5(1)(B) IN THE HANDS OF THE SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE PAYEE, VIZ., NON-SHAREHOLDER (CONCERN) . SECTION 5(1)(A) CONTEMPLATES THAT THE RECEIPT OR DEEMED RECEIPT SHOULD BE IN THE NATURE O F INCOME. THEREFORE THE DEEMING FICTION CAN BE APPLIED ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT THE NON-SHAREHOLDER, VIZ., THE CONCERN. 37. THE DEFINITION OF DIVIDEND UNDER SECTION 2(22)(E ) OF THE ACT IS AN INCLUSIVE DEFINITION. SUCH INCLUSIVE DEFINITION ENLARGES THE MEANING OF THE TE RM 'DIVIDEND' ACCORDING TO ITS ORDINARY AND NATURAL MEANING TO INCLUDE EVEN A LOAN OR ADVANCE. ANY LOAN OR ADVANCE CANNOT BE DIVIDEND ACCORDING TO ITS ORDINARY AND NATURAL MEANING. THE ORDINARY AND NATURAL MEANING OF THE TERM DIVIDEND WOULD BE A SHARE IN PROFITS TO AN INVEST OR IN THE SHARE CAPITAL OF A LIMITED COMPANY. TO THE EXTENT THE MEANING OF THE WORD 'DIVIDEND' IS EX TENDED TO LOANS AND ADVANCES TO A SHAREHOLDER OR TO A CONCERN IN WHICH A SHAREHOLDER IS SUBSTANTIALLY INTERESTED DEEMING THEM AS DIVIDEND IN THE HANDS OF A SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD 'DIVIDEND' IS ALTERED. TO THIS EXTENT THE DEFINITION OF THE TERM 'DIVIDEND' CAN BE SAID TO OPERATE. 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 A WAY. IN THE LIGHT OF THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22)(E) AND IN TH E ABSENCE OF INDICATION IN SECTION 2(22)(E) TO EXTEND THE LEGAL FICTION TO A CASE OF L OAN OR ADVANCE TO A NON-SHAREHOLDER ALSO, WE ARE OF THE VIEW THAT LOAN OR ADVANCE TO A NON-SH AREHOLDER CANNOT BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF A NON-SHAREHOLDER . 38. THE BASIC CHARACTERISTIC OF DIVIDEND AS HELD BY TH E APEX COURT IN THE CASE OF KANTILAL MANILAL V. CIT [1961] 41 ITR 275 IS A SHARE OF PROFITS OF THE COMPANY GIVEN TO ITS SHAREHOLDERS. FURTHER SECTION 206 OF THE COMPANIES ACT, 1956 PROHIBITS PA YMENT OF DIVIDEND TO ANY PERSON OTHER THAN THE REGISTERED SHAREHOLDER. IF ONE WERE TO BREAK UP THE NATURAL MEANING THE FOLLOWING TO COMPONENTS EMERGE (A) DIVIDEND IS A SHARE OF PROFIT S OF THE COMPANY (B) PAID TO ITS SHAREHOLDERS. SECTION 2(22) OF THE ACT ARTIFICIALLY EXTENDS THE S COPE OF DIVIDEND FROM BEING MORE THAN ONLY A DISTRIBUTION OF PROFITS TO COVER CERTAIN OTHER TYPE S DISBURSEMENTS SUCH AS LOANS PAID ETC. (THE FIRST INGREDIENT MENTIONED ABOVE). IT DOES NOT HOWEVER AL TER THE SECOND COMPONENT OF ITS NATURAL MEANING VIZ. PAID TO ITS SHAREHOLDER. IN OTHER WORD S ALL THAT SECTION 2(22) SEEKS TO DO IS TO EXPAND THE VARIOUS TYPES PAYMENTS THAT MAY BE REGARDED AS DIVIDEND. THE APEX COURT WHILE CONSIDERING ITA NO.3840/DEL./2011 5 WHAT CAN COME WITHIN THE ARTIFICIAL DEFINITION OF D IVIDEND UNDER SECTION 2(22) IN THE CASE OF CIT V. NALIN BEHARILALL SINGHA [1964] 74 ITR 849 (SC), DESCRIBED THE SCOPE OF THE DEFINITION OF DIV IDEND THUS 'THE DEFINITION IS, IT IS TRUE, AN INCLUSIVE DEFINI TION AND A RECEIPT BY A SHAREHOLDER WHICH DOES NOT FALL WITHIN THE DEFINITION MAY POSSIBLY REGARDED AS DIVIDEND WI THIN THE MEANING OF THE ACT UNLESS THE CONTEXT NEGA TIVES THAT VIEW.' THE CONTENTION OF THE D.R. THAT PROVISIONS OF SECTI ON 8(A) OF THE ACT CREATES A FICTION BY WHICH EVEN PAYMENTS TO NON-SHAREHOLDERS CAN BE CONSTRUED AS DIVIDEND CANNOT BE ACCEPTED. THOSE PROVISIONS MERELY FIX THE YEAR IN WHICH DIVIDEND HA S TO BE TAXED. IT IS THEREFORE CLEAR THAT THE SHAREHOLDER ALONE CAN, IF AT ALL, BE SUBJECTED TO T AX FOR HAVING EARNED DIVIDEND. 39. IN THE DECISION OF THE TRIBUNAL IN THE CASE OF NIK KO TECHNO-LOGIES (I) (P.) LTD. (SUPRA) RELIANCE HAS BEEN PLACED ON CIRCULAR NO. 495, DATED 23-9-198 7 WHICH STATES AS FOLLOWS : 'FURTHER DEEMED DIVIDEND WOULD BE TAXABLE IN THE HA NDS OF THE CONCERN, WHERE ALL THE FOLLOWING CONDITI ONS ARE SATISFIED. . . .' WE ARE OF THE VIEW THAT CIRCULAR OF CBDT TO THE EXT ENT THAT THEY DO NOT TONE DOWN THE RIGOR OF THE PROVISIONS OF THE ACT IN THE SENSE TO THE EXTENT TH EY ARE NOT BENEVOLENT ARE NOT BINDING. 40. APART FROM THE ABOVE, IT IS ALSO NOTICED THAT SECT ION 2(22)(E)(III) PROVIDES RELIEF TO A SHAREHOLDER AS FOLLOWS : 'DIVIDEND DOES NOT INCLUDE : (I) & (II) ****** (III)ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OF F BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF A NY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CLAUSE (E) TO THE EXTENT TO WHICH IT IS SO SET OFF.' IN THE EVENT OF THE PAYMENT OF LOAN OR ADVANCE BY A COMPANY TO A CONCERN BEING TREATED AS DIVIDEND AND TAXED IN THE HANDS OF THE CONCERN THEN , THE BENEFIT OF SET OFF CANNOT BE ALLOWED TO THE CONCERN, BECAUSE THE CONCERN CAN NEVER RECEIVE DIVIDEND FROM THE COMPANY WHICH IS ONLY PAID TO THE SHAREHOLDER, WHO HAS SUBSTANTIAL INTERE ST IN THE CONCERN. THE ABOVE PROVISIONS ALSO, THEREFORE, CONTEMPLATE DEEMED DIVIDEND BEING TAXED IN THE HANDS OF A SHAREHOLDER ONLY. FOR THE REASONS STATED ABOVE, WE ARE OF THE VIEW THAT THE L AW LAID DOWN IN THE CASE OF NIKKO TECHNOLOGIES (I) (P.) LTD. (SUPRA) IS NOT CORRECT. WE, THEREFORE, HOLD THAT DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 CAN BE ASSESSED ONLY IN THE HANDS OF A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF ANY O THER PERSON. 41. IN THE LIGHT OF THE ABOVE DISCUSSION, THE QUESTION S REFERRED TO THE SPECIAL 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 OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER 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 BENEFIC IAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHARE HOLDER 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 ALSO THE PROVISIONS OF SECTION 2(2 2)(E) WILL NOT APPLY. (EMPHASIS,IN BOLD, ASSIGNED BY ME) 7. THE PROVISIONS OF SECTION 2(22)(E) AGAIN CAME U P FOR DELIBERATION IN CIT- 10,MUMBAI VS. UNIVERSAL MEDICARE PVT. LTD. IN ITA N O. 2264 OF 2009.IN PARA 9, THE HONBLE HIGH COURT HELD AS UNDER : CONSEQUENTLY, ACCORDING TO THE TRIBUNAL THE FIRS T REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FULFILLED. IN OUR VIEW, THE FINDING THAT TH ERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FAC T WHICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTIO N OF LAW. HOWEVER, EVEN ON THE SECOND ASPECT ITA NO.3840/DEL./2011 6 WHICH HAS WEIGHED WITH THE TRIBUNAL, WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF SECTION 2(22)(E) IS COR RECT. SECTION 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION DIVIDEND. ALL PAYMENTS BY WAY OF DIVID END HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. T HE EFFECT OF SECTION 2(22) IS TO PROVIDE AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLAUSE (E) OF SECT ION 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY IN TERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN TO WHICH SUCH SHAREHO LDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILLMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OF FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREATED BY CLAUSE (E) TO BE INCLUDED IN THE EXPRESSION DIVIDEND. CONSEQ UENTLY, THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION DIVIDEND BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAY MENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. CO NSEQUENTLY IN THE PRESENT CASE THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL W AS, IN THE CIRCUMSTANCES, JUSTIFIED IN COMING TO THE CONCLUSION THAT, IN ANY EVENT, THE PAYMENT COUL D NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE THAT THE BASIS ON WHICH T HE ASSESSEE IS SOUGHT TO BE TAXED IN THE PRESENT CASE IN RESPECT OF THE AMOUNT OF RS. 32,00, 000 IS THAT THERE WAS A DIVIDEND UNDER SECTION 2(22)(E) AND NO OTHER BASIS HAS BEEN SUGGESTED IN T HE ORDER OF THE ASSESSING OFFICER . 8. ADVERTING TO THE FACTS OF THE CASE, THE AMOUNT WAS GIVEN BY JAI SIYA RAM COMMODITY TRADING (P)) LTD. TO THE FIRM M/S SHIVA C OMMODITIES & DERIVATIVES. THE ASSESSEE WAS A SUBSTANTIAL SHAREHOLDER IN M/S J AI SIYA RAM COMMODITY TRADING (P) LTD. AND A 50% PARTNER IN M/S SHIVA COM MODITIES & DERIVATIVES. THE DEPOSIT WAS GIVEN FROM A PRINCIPAL TO ANOTHER PRINC IPAL AND THE PROCEEDS OF THE SAME WAS NOT PASSED ON TO THE SHAREHOLDERS HIMSELF. SHRI ANUJ NAGPAL, THE ASSESSEE, WAS NOT A BENEFICIAL SHAREHOLDER. ONLY TH E BENEFICIAL SHAREHOLDER COULD HAVE BEEN TAXED. IN SUCH CIRCUMSTANCES, THE P ROVISIONS OF SECTION 2(22)(E) CANNOT BE INVOKED IN THE HANDS OF SHRI ANUJ NAGPAL, THE ASSESSEE HERE. THUS, THE ASSESSEE SUCCEEDS IN GROUNDS OF APPEAL NO. 2-7. 4. THE REVENUE IS NOW IS IN APPEAL BEFORE US AGAIN ST THE AFORESAID FINDING OF THE LD. CIT(A) .THE LD. DR SUPPORTED THE ORDER OF THE A.O. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE R ELIED UPON THE DECISION IN MB STOCK HOLDING (P) LTD.,84 ITD 542(AHD.) WHILE RAIS ING A NEW PLEA THAT THE AFORESAID COMPANY HAVING BEEN INCORPORATED ON 24.5. 2005, DID NOT HAVE ANY ACCUMULATED PROFIT ON THE DATE OF LOAN OR ADVANCE. MOREOVER, THE SAID LOAN WAS MERELY TRADE ADVANCE, THE LD. AR ADDED. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE BEFORE US IS AS TO WHETHER THE AM OUNT OF LOAN OF ` 91,52,551/- RECEIVED BY M/S SHIVA COMMODITIES & DERIVATIVES FRO M M/S JAI SIYA RAM ITA NO.3840/DEL./2011 7 COMMODITY TRADING (P) LTD., COULD BE TAXED IN THE H ANDS OF THE ASSESSEE, HAVING 50% INTEREST IN M/S SHIVA COMMODITIES & DERIVATIVES , A PARTNERSHIP FIRM AND HOLDING 2/3 RD OF AGGREGATE SHAREHOLDING IN M/S JAI SIYA RAM COM MODITIES TRADING (P) LTD., BY WAY OF DEEMED DIVIDEND IN TERM S OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT. THE AO BROUGHT TO TAX THE AMOU NT IN THE HANDS OF THE ASSESSEE IN VIEW OF FINDINGS OF THE ITAT IN THEIR DECISION DATED 6.6.2008 IN ANKITECH PVT. LTD. VS. JCIT IN ITA NO. 388/DEL/2007 WHILE THE LD. CIT(A) DELETED THE ADDITION ,FOLLOWING THE VIEW TAKEN BY THE ITAT IN BHAUMIK COLOUR (P) LTD (SUPRA) AND HONBLE BOMBAY HIGH COURT IN UNIVERSAL MEDICARE PVT. LTD. (SUPRA).INDISPUTABLY, THE AMOUNT OF LOAN OF ` 1 CRORE WAS RECEIVED BY M/S SHIVA COMMODITIES & DERIVATIVES, A FIRM FROM M/S JAI SIY A RAM COMMODITY TRADING (P) LTD.. THE ASSESSEE IS HAVING 50% INTEREST IN M/ S SHIVA COMMODITIES & DERIVATIVES, A PARTNERSHIP FIRM AND HOLDING 2/3 RD OF AGGREGATE SHAREHOLDING IN M/S JAI SIYA RAM COMMODITIES TRADING (P) LTD.. A ME RE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE LD. CIT(A) DID NOT CARE TO ASCERTAIN THE AMOUNT OF ACCUMULATED PROFITS ON THE DATE OF LOAN OR ADVANCE NOR RECORDED ANY FINDINGS ON THE NATURE OF LOAN OR ADVANCE. IN FACT, EVEN THE D ATE OF LOAN OR ADVANCE IS NOT EVIDENT FROM THE IMPUGNED ORDER WHAT TO TALK OF ACC UMULATE PROFIT ON THAT DATE .IN ORDER TO BRING WITHIN THE AMBIT OF PROVISIONS OF S EC. 2(22)(E) OF THE ACT, THE AMOUNT OF LOAN OR ADVANCE PAID BY A COMPANY SHOULD BE MADE TO ANY OF THE FOLLOWING THREE PERSONS VIZ. : I) A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFIC IAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND W HETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER; OR II) ANY CONCERN IN WHICH, SUCH SHAREHOLDER IS A MEM BER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN T HIS CLAUSE REFERRED TO AS THE SAID CONCERN); OR III) A SHAREHOLDER, FOR HIS BEHALF, OR FOR HIS INDIVIDUAL BENEFIT, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. ITA NO.3840/DEL./2011 8 5.1 IN THE INSTANT CASE, THE AO OR THE LD. C IT(A) DID NOT CARE TO ASCERTAIN THE AMOUNT OF ACCUMULATED PROFITS POSSESSED BY THE AFOR ESAID COMPANY ON THE DATE OF ADVANCE OR LOAN NOR EVEN DATE OF ADVANCE OR LOAN IS EVIDENT FROM THE IMPUGNED ORDER. IN THE FACTS OF THE CASE SUBMITTED BEFORE THE LD. CIT(A) , IT IS MENTIONED THAT THE ASSESSEE RECEIVED AN AMOUNT OF ` 1 CRORE IN MARCH,2006 AS DEPOSIT/ADVANCE AS MARGIN MONEY FOR DEALING IN NCDE X. EXACT DATE OF ADVANCE OR THE AMOUNT OF ACCUMULATED PROFITS IS NOT GIVEN NOR THE LD. CIT(A) RECORDED ANY FINDINGS ON THAT ASPECT. THE EXPRESSION 'ACCUMULATED PROFITS' IN SUB-CLAUSES (E) OF SEC.2(22) OF THE ACT INCLUDES ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THE SUB-CLAU SE IN TERMS OF EXPLANATION 2 OF THE SAID SECTION. THE EXPRESSION ACCUMULATED PROFI TS MEANS PROFITS IN THE COMMERCIAL SENSE AND NOT ASSESSABLE OR TAXABLE PROF ITS LIABLE TO TAX AS INCOME UNDER THE ACT . IN CIT V. MRS. MAYA B. RAMCHANDRA, 162 ITR 460 (BOM.) AND CIT V. NAGAINDAS M. KAPADIA , 177 ITR 393 (BOM.) THE HONBLE HIGH COURT HELD THE AMOUNTS OF THE DEEMED DIVIDENDS HAS TO BE COMPUTED ON THE BASIS OF THE COMPANYS ACCUMULATED PROFITS ON EACH DAY OF LOAN O R ADVANCE. IN MB STOCK HOLDING (P) LTD.(SUPRA) RELIED UPON BY THE LD. AR, ISSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR THE PURPOSE OF WORKING OU T THE ACCUMULATED PROFITS ON EACH DAY OF ADVANCING THE LOAN TO THE ASSESSEE. IN CIT V. ROSHAN LAL [1975] 98 ITR 349 (ALL.), HONBLE HIGH COURT HELD THAT THE WO RD ACCUMULATED MEANS THE PROFIT EARNED BIT BY BIT AND ACCUMULATED. IT DOES N OT MEAN THAT IT SHOULD BE CARRIED FORWARD FROM YEAR TO YEAR. PROFITS CAN ACCU MULATE EVEN WITHIN A SINGLE YEAR. IN CIT V. JOHN, 181 ITR 1 (KER.) , IT WAS HEL D THAT SEC. 2(22)(E) OF THE ACT ROPES IN PAYMENTS TO THE EXTENT OF THE ACCUMULATED PROFITS POSSESSED BY THE COMPANY. PROFITS BECOME A PART OF AN ACCUMULATED PR OFIT ONLY ON ITS RECOGNITION AND BY AN ACT OF APPROPRIATION AND NOT AUTOMATICALL Y. CURRENT PROFIT DOES NOT BECOME PART OF ACCUMULATED PROFIT TILL SUCH TIME IT IS APPROPRIATED BY AN ACT OF THE COMPANY, WHICH ACT MAY BE PASSING OF A MERE BOOK EN TRY. A PROFIT, THOUGH EARNED, BECOMES ACCUMULATED PROFIT ONLY ON ITS RE COGNITION IN BOOKS OF ACCOUNT AS A PROFIT, OTHERWISE AVAILABLE AT THE DISPOSAL OF THE SHAREHOLDERS. IN SMT. MEENA TALUKDAR V. ITO, 15 TTJ 379 (CAL.), IT WAS HE LD THAT THE EXPRESSION ITA NO.3840/DEL./2011 9 ACCUMULATED PROFITS USED IN EXPLANATION 2 TO S. 2 (22)(E), SHOULD INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTI ON OR PAYMENT. IN OTHER WORDS, THE PHRASE ACCUMULATED PROFITS INCLUDED CURRENT P ROFITS UP TO THE DATE OF ADVANCE AND THAT THE LAW ITSELF CONTEMPLATED FICTIO NAL CURRENT PROFITS UP TO THE DATE OF DISTRIBUTION OR PAYMENT TO BE PART OF THE A CCUMULATED PROFITS AND THAT BY THE VERY NATURE OF FICTION CREATED BY LAW, ESTIMATI ON OF PROFIT ON COMMERCIAL PRINCIPLES UP TO THE DATE OF DISTRIBUTION OR PAYMEN T WAS NECESSARILY CALLED FOR. THE IMPUGNED ORDER IS SILENT ON ALL THESE ASPECTS. SINCE THE IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKING ORDER ON THE ISSUE OF ACCUMULATED PROFIT S AS ON THE DATE OF ADVANCE OR LOAN NOR THE LD. CIT(A) RECORDED ANY FINDINGS AS TO THE NATURE OF ADVANCE OR LOAN, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO HIS FILE FOR DECIDING THE AFORESAID ISSUES, AFRESH IN ACCOR DANCE WITH LAW IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, INCLU DING THOSE REFERRED TO ABOVE AND OF COURSE AFTER ALLOWING SUFF ICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE RED ECIDING THE APPEAL, THE LD. CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6 ) OF THE ACT, BRINGING OUT CLEARLY THE AMOUNT OF ACCUMULATED PR OFITS AS ON THE DATE OF ADVANCE OR LOAN AND THE NATURE OF SUCH ADV ANCE OR LOAN. WITH THESE OBSERVATIONS, GROUND NO. 1 IN THE APPEAL IS DISPOSED OF. 6. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 2 IN THE APPEAL, ACCORDINGLY, THIS GROUN D IS DISMISSED. 7. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE US. ITA NO.3840/DEL./2011 10 8. IN THE RESULT, APPEAL IS ALLOWED BUT FOR STATI STICAL PURPOSES. ORDER PRONOU NCED IN THE OPEN COURT SD/- SD/- (U.B.S. BEDI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. DCIT CIRCLE-1(1),NEW DELHI 3. CIT CONCERNED 4. CIT(APPEALS)-IV, NEW DELHI. 5. DR, ITAT,A BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI