Farida Holdings Pvt Ltd., CHENNAI V. ITO, CHENNAI

ITA 399/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58024 (ITAT-CHENNAI)
• Duration Of Justice: 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-03-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 24-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR STAND ING
• Assessee Lawyers: CA AKBER BASHA F
• Keywords: Deemed dividend
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NOS.399 & 400(MDS)/2012 ASSESSMENT YEARS : 2003-04 & 2004-05 AND S.P. NOS.36 & 37(MDS)/2012 IN ITA NOS.399 & 4009MDS)/2012 M/S. FARIDA HOLDINGS P. LTD., 151/4, MOUNT POONAMALLEE ROAD, RAMAPURAM, CHENNAI-600 089. PAN AAACF1155A. VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE II(1), CHENNAI. (APPELLANT/PETITIONER) (RESPONDENT) APPELLANT BY : SHRI CA.AKBER BASHA, F.C .A. RESPONDENT BY : SHRI KEB RENGARAJAN, JR.STAN DING COUNSEL DATE OF HEARING : 2 ND MARCH, 2012 DATE OF PRONOUNCEMENT : 13 TH MARCH, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THESE TWO APPEALS ARE FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEARS ARE 2003-04 AND 2004-05. THE APPEALS ARE DIRECTED AGAINST THE COMMON ORDER PASSE D BY THE - - ITA 399 & 400 OF 2012 2 COMMISSIONER OF INCOME-TAX(APPEALS)-III AT CHENNAI, DATED 11-1-2012. THE APPEALS ARISE OUT OF THE ASSESSMENT S COMPLETED UNDER SECTION 143(3), READ WITH SECTION 147 OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY, MAIN LY FUNCTIONING IN THE ROLE OF A HOLDING COMPANY OVER A NUMBER OF HUNDRED-PERCENT SUBSIDIARY COMPANIES. THE FULLY OW NED SUBSIDIARY COMPANIES ARE ALL ENGAGED IN CARRYING ON BUSINESS IN LEATHER INDUSTRY, MAINLY IN EXPORT OF LEATHER AND L EATHER PRODUCTS. 3. THE ASSESSEE COMPANY FILED ITS RETURNS OF INCOM E FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 AND TH E RETURNS WERE PROCESSED UNDER SECTION 143(1). THEREAFTER, O N FURTHER EXAMINATION OF THE RECORDS OF EARLIER AND SUBSEQUEN T ASSESSMENTS, THE ASSESSING OFFICER FOUND THAT THE A SSESSEE COMPANY HAD RECEIVED LOAN AMOUNTS FROM DIFFERENT SU BSIDIARIES AND THOSE BORROWED FUNDS WERE IN TURN ADVANCED TO O THER SUBSIDIARIES. ACCORDING TO THE ASSESSING AUTHORITY , THE LOANS OBTAINED BY THE ASSESSEE FROM ITS SUBSIDIARIES WERE IN THE NATURE OF DEEMED DIVIDENDS AS PER SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 AND, THEREFORE, LIABLE TO BE TAXED. THE ASSESSING - - ITA 399 & 400 OF 2012 3 AUTHORITY ISSUED NOTICES UNDER SECTION 148 AND THER EAFTER COMPLETED THE INCOME-ESCAPING ASSESSMENTS AFTER TRE ATING SUCH LOAN AMOUNTS OBTAINED BY THE ASSESSEE FROM ITS SUBS IDIARIES AS DEEMED DIVIDENDS FOR THESE TWO ASSESSMENT YEARS. 4. IN FIRST APPEALS, THE COMMISSIONER OF INCOME- TAX(APPEALS) DISCUSSED THE MATTER IN DETAIL. THE A SSESSEE HAD PRODUCED A COPY OF THE ORDER PASSED BY THE INCOME-T AX APPELLATE TRIBUNAL, D-BENCH, CHENNAI, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06, WHEREIN THE TRIBUN AL HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND HELD T HAT SUCH ADVANCES RECEIVED BY THE ASSESSEE FROM ITS SUBSIDIA RIES WERE NOT IN THE NATURE OF DIVIDENDS UNDER SECTION 2(22)( E) OF THE ACT. THE MATTER WAS CONSIDERED IN DETAIL BY THE TRIBUNAL THROUGH THEIR ORDER DATED 10 TH JULY, 2009, PASSED IN ITA NO.1835(MDS)/2008. 5. THE COMMISSIONER OF INCOME-TAX(APPEALS), AFTER GOING THROUGH THE ORDER OF THE TRIBUNAL, HELD THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MISS P.SAR ADA V. CIT, 229 ITR 444, WAS NOT BROUGHT TO THE NOTICE OF THE T RIBUNAL, WHEREAS THE ASSESSING AUTHORITY HAS RELIED ON THE S AID DECISION OF THE HONBLE APEX COURT TO DECIDE THE MATTER FOR THAT IMPUGNED - - ITA 399 & 400 OF 2012 4 ASSESSMENT YEAR 2005-06. REFERRING TO VARIOUS DECI SIONS ON THE ISSUE AND FINALLY RELYING ON THE ABOVE STATED JUDGM ENT, THE COMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT THE C ASE OF THE ASSESSEE WAS SQUARELY COVERED BY THE DECISION OF TH E HONBLE SUPREME COURT RENDERED IN THE CASE OF MISS P.SARADA VS. CIT, 229 ITR 444 AND, THEREFORE, THE ASSESSING OFFICER W AS JUSTIFIED IN MAKING THE DISPUTED ADDITIONS AS DEEMED DIVIDENDS. ACCORDINGLY, THE APPEALS WERE DISMISSED. 6. THE ASSESSEE IS AGGRIEVED AND, THEREFORE, THESE APPEALS BEFORE US. 7. THE COMMON GROUNDS RAISED BY THE ASSESSEE IN THESE APPEALS READ AS BELOW:- 1. THE CIT(A) ERRED IN SUSTAINING THE ACTION OF TH E ASSESSING OFFICER IN BRINGING TO TAX THE AMOUNTS TRANSACTED WITH SUBSIDIARY COMPANIES AS DEEMED DIVIDEND ON THE APPLICATION OF SECTION 2(22)(E) OF THE ACT IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION AND THE BUSINESS/COMMERCIAL/TRADING TRANSACTIONS WERE - - ITA 399 & 400 OF 2012 5 ERRONEOUSLY LABELED AS DEEMED DIVIDEND WITHOUT STABLING THE COMPLIANCE OF THE CONDITIONS PRESCRIBE D CUMULATIVELY ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) FAILED TO APPRECIATE THAT THE DECISIO N OF THE TRIBUNAL RENDERED IN THE ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2005-06 UNDER IDENTICAL AND SIMILAR CIRCUMSTANCES WAS WRONGLY DISTINGUISHED INASMUCH AS THE JUDGMENT OF THE SUPREME COURT IN TH E CASE OF MS. P.SARADA VS. CIT REPORTED IN 229 ITR 44 4, HAD NO APPLICATION TO THE FACTS OF THE CASE WHILE T HE SAID DECISION WAS QUOTED AND APPLIED ERRONEOUSLY AN D WRONGLY. 3. THE CIT(A) FAILED TO APPRECIATE THAT THE NON CONSIDERATION OF THE EARLIER DECISION OF THE APPELL ATE TRIBUNAL WHILE NOT FOLLOWING THE PRINCIPLES LAID DO WN THEREIN WOULD AMOUNT TO VIOLATING THE PRINCIPLES OF JUDICIAL DISCIPLINE, SMACKING THE JUDICIAL HIERARCH Y ENVISAGED UNDER THE ACT. - - ITA 399 & 400 OF 2012 6 4. THE CIT(A) FAILED TO APPRECIATE THAT MISREADING OF THE JUDGMENT OF THE SUPREME COURT WHILE NOT CONSIDERING THE RELEVANT FACTS WOULD VITIATE HIS ACTION IN SUST AINING THE ORDERS OF THE ASSESSING OFFICER IN APPLYING IN THE DEEMING PROVISIONS UNDER CONSIDERATION. 5. THE CIT(A) FAILED TO APPRECIATE THAT NON CONSIDERATION OF THE GROUNDS CHALLENGING THE VALIDI TY OF THE RE-ASSESSMENTS FRAMED WOULD VITIATE HIS ACTION IN THIS REGARD. 6. THE CIT(A) ERRED IN DISTINGUISHING THE DECISION OF THIS TRIBUNAL WHEREIN IT WAS HELD THAT AFTER CONSIDERING THE TOTALITY FACTS AND CIRCUMSTANCES OF THE CASE, THE BENEFICIAL INTEREST HAD NEVER ACCRUED TO THE APPELL ANT AT ANY CASE. 8. WE HEARD SHRI AKBER BASHA, THE LEARNED CHARTERE D ACCOUNTANT APPEARING FOR THE ASSESSEE, AND SHRI KEB RENGARAJAN, THE LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE. BEFORE PROCEEDING TO ARGUE HIS CASE, SHRI AKBER BASHA SUBMITTED ON HIS ELIGIBILITY TO APPEAR BEFORE THE INCOME- - - ITA 399 & 400 OF 2012 7 TAX APPELLATE TRIBUNAL AS A LAWFULLY CONSTITUTED AU THORIZED REPRESENTATIVE. HE STATED THAT HE WAS A MEMBER OF THE INCOME- TAX APPELLATE TRIBUNAL, WORKING IN THE HYDERABAD BE NCHES OF THE TRIBUNAL. HE RESIGNED FROM THE SERVICE AND RESUMED HIS PRACTICE AS CHARTERED ACCOUNTANT. HE FURTHER STATED THAT HE NEVER WORKED AS A MEMBER OF THE TRIBUNAL AT ITS CHENNAI BENCHES. SHRI BASHA STATED THAT A NEW RULE 13E WAS NOTIFIED BY THE GOVE RNMENT OF INDIA, MINISTRY OF LAW AND JUSTICE ON JUNE 3, 2009, WHEREBY THE INCOME-TAX APPELLATE TRIBUNAL MEMBERS (RECRUITMENT AND CONDITIONS OF SERVICE), RULES, 1963 HAS BEEN AMENDE D IMPOSING A BAN ON PRACTICE BY RETIRED MEMBERS BEFORE THE INC OME-TAX APPELLATE TRIBUNAL. RULE 13E PROVIDES THAT THE PRE SIDENT, THE SENIOR VICE-PRESIDENT, THE VICE-PRESIDENTS AND THE MEMBERS OF THE TRIBUNAL SHALL NOT PRACTISE BEFORE THE TRIBUNAL AFTER RETIREMENT FROM THE SERVICE OF THE TRIBUNAL. HE ALSO BROUGHT TO OUR NOTICE THAT A SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT THE NOTIFICATION ISSUED BY THE GOVERNMENT IS RETROSPECTIVE, IN THEIR JUDGMENT RENDERED IN THE CASE OF CONCEPT CREATIONS VS. ADDIT IONAL COMMISSIONER OF INCOME-TAX, RANGE, PANIPAT, REPORTE D IN (2009) 120 ITD 19 (DELHI) (SPECIAL BENCH). HE STATED THAT IN VIEW OF THE - - ITA 399 & 400 OF 2012 8 ABOVE, HE WAS NOT ENTITLED TO APPEAR BEFORE THE INC OME-TAX APPELLATE TRIBUNAL TO PROSECUTE ANY PROCEEDINGS BEF ORE IT. BUT HE SUBMITTED THAT THE ABOVE NOTIFICATION AS WELL AS THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL HAVE BEEN CHAL LENGED BEFORE THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF DINESH CHANDRA AGARWAL VS. UNION OF INDIA IN SERVICE MATTE R NO.62 OF 2012. THE HONBLE HIGH COURT HAS ADMITTED THE WRIT PETITION FILED BEFORE IT AND STAYED THE OPERATION OF RULE 13 E AS WELL AS THE JUDGMENT OF THE SPECIAL BENCH IN THE CASE OF CO NCEPT CREATIONS VS. ADDL.CIT, 120 ITD 19. THE COURT HELD THAT THE COMPLETE BAN ON THE PRACTICE BY RETIRED MEMBERS IS STAYED TILL THE MATTER IS DISPOSED OF BY THE COURT. THE HONBL E BENCH HAS HELD THAT IT WOULD BE OPEN FOR THE RETIRED MEMBERS TO PRACTISE BEFORE THE BENCHES OF THE TRIBUNAL WHERE THEY HAD N OT REMAINED POSTED AND HELD COURTS TEMPORARILY OR ON REGULAR BA SIS. 9. IN VIEW OF THE ABOVE STAY ORDERED BY THE HONBL E ALLAHABAD HIGH COURT, SHRI BASHA SUBMITTED THAT HE MAY BE PERMITTED TO APPEAR BEFORE THE TRIBUNAL. HE FURTHE R SUBMITTED THAT ALL THESE MATTERS ARE BROUGHT SUO MOTU TO THE NOTICE OF THE TRIBUNAL TO AVOID ANY MISGIVING AT PRESENT OR IN FU TURE. - - ITA 399 & 400 OF 2012 9 10. WE CONSIDERED THIS PRELIMINARY ISSUE. AS PER RULE 13E, RETIRED MEMBERS ARE NOT PERMITTED TO APPEAR AN D PRACTISE BEFORE THE TRIBUNAL. THIS POSITION IS ACKNOWLEDGED IN THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF CONCEPT CREATIONS VS. ACIT, 120 ITD 19. BUT, AS ON TODAY, THE OPERATION OF THE NOTIFICATION AS WELL AS THE SPECIA L BENCH DECISION HAS BEEN STAYED BY THE HONBLE ALLAHABAD H IGH COURT. IN THEIR ORDER PASSED BY THEIR LORDSHIPS ON 19-1-20 12, THEY HAVE STAYED THE OPERATION OF THE RULE AS WELL AS THE SPE CIAL BENCH DECISION AND HAVE GIVEN A POSITIVE VERDICT THAT IT WOULD BE OPEN FOR THE RETIRED MEMBERS TO PRACTISE BEFORE THE BENC HES OF THE TRIBUNAL WHERE THEY HAD NOT REMAINED POSTED AND HEL D COURTS TEMPORARILY OR ON REGULAR BASIS. THEREFORE, AS OF NOW, THERE IS NOTHING WHICH PREVENTS MR. AKBER BASHA FROM APPEARI NG BEFORE THE TRIBUNAL AS A QUALIFIED CHARTERED ACCOUNTANT. 11. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE PLACE ON RECORD ALL THE SUBMISSIONS MADE BY HIM AND HOLD THAT HE IS ENTITLED TO PRACTISE BEFORE THE INCOME-TAX APPELLAT E TRIBUNAL AT CHENNAI BENCHES. - - ITA 399 & 400 OF 2012 10 12. NOW, COMING TO THE MERITS OF THE CASE, FOLLOWI NG ARE THE DETAILS OF LOANS AVAILED BY THE ASSESSEE COMPAN Y FROM ITS SUBSIDIARIES:- AY 2003-04 AY 2004-05 ` ` 1. FARIDA CLASSIC SHOES PVT. LTD. 1,33,07,500 1,79,67,305 2. FARIDA SHOES P.LTD., AMBUR 1,01,24,206 89,11,441 3. FARIDA SHOES P.LTD., BANGALORE 39,24,000 --- 4. RIVERA SHOES P. LTD. NIL --- 5. CHENNAI FOOTWEAR P.LTD. -- - 9,13,581 6. EXETER SHOES P. LTD. 2,00,000 1,06,96,225 7. FARIDA NEWLINE STUDIO P.LTD. 80 ,000 63,175 ----------------- ---------------- TOTAL RECEIPTS 2,76,35,706 3,85,51,727 ---------------- ---------------- THE ASSESSING OFFICER HAS TREATED THE ENTIRE SUCH L OANS AS DEEMED DIVIDENDS. 13. THE SUBMISSIONS MADE BY THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE ARE SUMMARIZE D BELOW:- (I) THE ISSUE IN THE PRESENT CASE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1835(MDS)/2008, DATED 10-7-2009, IN SIMILAR AND - - ITA 399 & 400 OF 2012 11 IDENTICAL CIRCUMSTANCES. IT WAS HELD BY THE TRIBUN AL THAT PAYMENT OF LOANS OR ADVANCES SHOULD BE MADE ON BEHALF OF OR FOR THE BENEFIT OF A SHAREHOLDER. AS THIS CONDITION WAS NOT SATISFIED, THE TRIBUNAL HELD THAT THE ALLEGED PAYMENTS IN THAT CASE DID NOT COME UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT . (II) AS THE FACTS OF THE PRESENT CASE ARE DIFFEREN T FROM THE FACTS CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF MISS P.SARADA VS. CIT, 229 ITR 444, THE COMMISSIONER OF INCOME-TAX(APPEALS) WAS NOT JUSTIFIED IN NOT FOLLOWING THE ORDER OF THE JURISDICTIONAL TRIBUNAL. IN THE CASE OF MISS P.SAR ADA VS CIT, 229 ITR 444, THE HONBLE SUPREME COURT HAS HELD THAT ONCE THE PAYMENT MADE TO A SHAREHOLDER IS DEEMED AS DIVIDEND, SECTION 2(22)(E) IS ATTRACTED AND THE FACT THAT THE AMOUNT WAS LATER REPAID DOES NOT MAKE ANY DIFFERENCE. - - ITA 399 & 400 OF 2012 12 (III) THE AMPLITUDE OF SECTION 2(22)(E) HAS BEEN ELABORATED BY THE CENTRAL BOARD OF DIRECT TAXES IN THEIR CIRCULAR NO.495 DATED 22-9-1987 RELATING TO T HE EXPLANATORY NOTES TO THE FINANCE ACT, 1987. AS PER THE SAID CIRCULAR, THREE CONDITIONS NEED TO BE SATISFIED BEFORE APPLYING SECTION 2(22)(E). THOSE CONDITIONS ARE: (A) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF LOANS OR ADVANCES TO A CONCERN; (B) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOLDS TEN PER CENT OF THE VOTING POWER; AND (C) WHERE THE MEMBER OR THE PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO TWENTY PER CENT OF THE INCOME OF SUCH CONCERN. (IV) IN THE PRESENT CASE, THE CONDITION OF HOLDING TEN PER CENT OF VOTING POWER HAS NOT BEEN SATISFIED. N O - - ITA 399 & 400 OF 2012 13 MEMBER OF THE ASSESSEE COMPANY HAS A VOTING POWER OF TEN PER CENT IN THE COMPANY. THEREFORE, SECTION 2(22)(E) CANNOT BE INVOKED AGAINST THE ASSESSEE. (V) THE ASSESSEE IS IN FACT MANAGING THE ACTIVITIE S OF THE SUBSIDIARIES AND AS SUCH ITS FUNCTIONS ARE MORE OF MANAGERIAL/ADMINISTRATIVE IN NATURE. IN SUCH CIRCUMSTANCES, THERE CANNOT BE A CASE THAT THE ASSESSEE COMPANY HAD DERIVED BENEFITS OUT OF SUCH LOAN TRANSACTIONS. (VI) THE REVENUE HAS NO DISPUTE ON THE FACT THAT T HE LOANS RECEIVED FROM THE SUBSIDIARY COMPANIES HAVE FURTHER BEEN PASSED ON TO OTHER SUBSIDIARY COMPANIES FOR THE PURPOSE OF MAINTAINING CONTROL OVER FINANCIAL MATTERS AMONG THE SUBSIDIARY COMPANIES AND THE ASSESSEE COMPANY AS SUCH HAS NOT RETAINED ANY LOAN FUNDS FOR ITS OWN BENEFIT. - - ITA 399 & 400 OF 2012 14 (VII) AS THERE IS NO DIRECT OR INDIRECT BENEFIT TO THE CREDIT OF THE ASSESSEE COMPANY, THE DEEMING PROVISION CANNOT BE ALLOWED TO BE OPERATIVE, IN VIE W OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MUKUNDRAY K SHAH, 160 TAXMAN 276. 14. THE VERY SAME ISSUE WAS CONSIDERED BY THE INCOME-TAX APPELLATE TRIBUNAL IN ASSESSEES OWN CAS E FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.1835(MDS)/2008 TH ROUGH THEIR ORDER DATED 10 TH JULY, 2009. ON EXAMINING THE FACTS OF THE CASE, THE TRIBUNAL FOUND THAT THE ASSESSEE, AS A HO LDING COMPANY, IS EXERCISING CONTROL OVER ELEVEN FULLY OW NED SUBSIDIARIES, IN WHICH CAPACITY THE ASSESSEE COMPAN Y IS TAKING FUNDS FROM CERTAIN SUBSIDIARIES TO PUMP INTO THE WO RKING OF OTHER SUBSIDIARY COMPANIES AND THE ASSESSEE COMPANY HAS N OT ENJOYED ANY BENEFIT FROM THESE TRANSACTIONS. THE T RIBUNAL FOUND THAT THE QUESTION TO BE EXAMINED IS WHETHER THE ASS ESSEE COMPANY IS THE BENEFICIARY OF THE TRANSACTIONS OF D EPOSITS TO TREAT THEM AS ADVANCES OR LOANS SO AS TO TREAT THE LOANS AS DEEMED - - ITA 399 & 400 OF 2012 15 DIVIDENDS. THE TRIBUNAL HELD THAT FROM THE DETAILS FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, IT IS CLEAR THAT THE ASSESSEE WAS NOT THE ULTIMATE BENEFICIARY OF THE TR ANSACTIONS POINTED OUT BY THE ASSESSING AUTHORITY. THE TRIBUN AL OBSERVED THAT IT IS A FACT WHICH HAS NOT BEEN DISPUTED THAT THE AMOUNTS RECEIVED FROM ONE SUBSIDIARY COMPANY HAVE BEEN FURT HER PASSED ON TO OTHER SUBSIDIARY COMPANIES. ALL SUCH TRANSAC TIONS HAVE ONLY BEEN ROUTED THROUGH THE ASSESSEE COMPANY IN IT S STATUS AS THE HOLDING COMPANY. THE ASSESSEE COMPANY HAS NOT ENJOYED ANY MONETARY OR ANY OTHER GAIN OUT OF THESE TRANSAC TIONS. AS PER LAW, THE ULTIMATE BENEFICIARY IS TO BE ASSESSED UND ER SECTION 2(22)(E). IN THE ABOVE CIRCUMSTANCES, THE TRIBUNAL HELD THAT ALL THOSE LOANS WERE ORDINARY BUSINESS TRANSACTIONS AND NONE OF THE LOANS OR ADVANCES WAS ENJOYED BY THE ASSESSEE COMPA NY. THE TRIBUNAL ACCEPTED THE CONTENTION OF THE ASSESSEE. THE ABOVE ORDER OF THE TRIBUNAL WAS NOT FOLLOWED BY THE COMMI SSIONER OF INCOME-TAX(APPEALS) FOR THE REASON THAT THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF MISS P.SARADA VS. CIT, 229 ITR 444, WAS NOT CONSIDERED BY THE TRIBUNAL AND ALSO THE SAID DECISION OF THE HONBLE APEX COURT IS SQUARELY APPLICABLE TO - - ITA 399 & 400 OF 2012 16 THE ASSESSEES CASE. IN THE CASE OF MISS P.SARADA VS CIT, CONSIDERED BY THE HONBLE SUPREME COURT, THE ASSESS EE, A MAJOR SHAREHOLDER OF A COMPANY IN WHICH THE PUBLIC WERE NOT SUBSTANTIALLY INTERESTED, HAD AVAILED AMOUNTS BY WA Y OF LOAN IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. ON THE LAST DAY OF THE PREVIOUS YEAR THE ASSESSEE ADJUSTED THOS E LOANS AGAINST CREDIT BALANCE OF ANOTHER SHAREHOLDER. THE ASSESSEE HAD ADOPTED AN ARGUMENT THAT THE LOAN HAS BEEN AVAI LED AND THE SAME HAD BEEN REPAID BY WAY OF ADJUSTMENT IN THE AC COUNT OF ANOTHER CREDITOR AND THEREFORE THERE WAS NO JUSTIFI CATION IN TREATING THOSE LOANS AS DEEMED DIVIDENDS UNDER SECT ION 2(22)(E). THE HONBLE SUPREME COURT HELD THAT THE WITHDRAWALS MADE BY THE ASSESSEE FROM THE COMPANY AMOUNTED TO G RANT OF LOAN OR ADVANCE BY THE COMPANY TO THE SHAREHOLDER. THE LEGAL FICTION CAME INTO PLAY AS SOON AS THE MONEYS WERE P AID BY THE COMPANY TO THE ASSESSEE. SUBSEQUENT ADJUSTMENT MAD E BY THE ASSESSEE THROUGH THE CREDIT BALANCE OF ANOTHER SHAR EHOLDER ON THE LAST DAY OF THE PREVIOUS YEAR WOULD NOT ALTER T HE POSITION. IN OTHER WORDS, WHAT HAS BEEN HELD BY THE HONBLE SUPR EME COURT IS THAT TAKING LOAN IS ONE TRANSACTION AND REPAYMEN T OF THE LOAN IS - - ITA 399 & 400 OF 2012 17 ANOTHER TRANSACTION AND ONLY FOR THE REASON THAT TH E LOANS WERE REPAID, THERE CANNOT BE A GROUND THAT SECTION 2(22) (E) WILL NOT APPLY. THE COURT HELD THAT AS SOON AS THE SHAREHOL DER HAS AVAILED THE LOANS FROM THE COMPANY, THE DEEMING PRO VISION COMES INTO PLAY AND THE ASSESSEE BECOMES LIABLE FOR SECTION 2(22)(E). 15. BUT THE FACTS OF THE PRESENT CASE ARE DIFFEREN T FROM THE FACTS OF THE ABOVE MENTIONED CASE. IN THE PRES ENT CASE THE ASSESSEE IS A HOLDING COMPANY HAVING 11 HUNDRED-PER CENT OWNED SUBSIDIARIES. THE ASSESSEE COMPANY IS EXERCI SING ADMINISTRATIVE CONTROL OVER THE SUBSIDIARIES IN ITS STATUS AS HOLDING COMPANY. IN THAT STATUS THE ASSESSEE COMPA NY IS ALSO MANAGING THE FINANCIAL AFFAIRS OF ITS SUBSIDIARIES. THE ASSESSEE COMPANY IS MONITORING THE INFLOWS AND OUTFLOWS OF T HE SUBSIDIARY COMPANIES IN ITS ATTEMPT TO UTILIZE THE AVAILABLE F UNDS TO THE MAXIMUM ADVANTAGE OF THE GROUP COMPANIES. AS A HOL DING COMPANY, THE ASSESSEE IS BOUND TO MONITOR THE FINAN CIAL DISCIPLINE OF ITS SUBSIDIARIES, ESPECIALLY WHEN ALL THE SUBSIDIARIES ARE FULLY OWNED BY THE HOLDING COMPANY. WHEN THE A SSESSEE, AS A HOLDING COMPANY, IS EXERCISING THE MANAGEMENT AND CONTROL - - ITA 399 & 400 OF 2012 18 OVER ITS SUBSIDIARIES, IT IS QUITE NATURAL THAT THE HOLDING COMPANY WOULD BE MONITORING ALL THE ACTIVITIES OF THE SUBSI DIARIES INCLUDING TREASURY MATTERS. 16. THE ABOVE RESPONSIBILITIES ARE DISCHARGED BY THE HOLDING COMPANY WHILE EXERCISING ITS MANAGEMENT CON TROL, IN THE COURSE OF CARRYING ON OF ITS BUSINESS. THE MAIN BU SINESS CARRIED ON BY THE ASSESSEE COMPANY IS TO ACT AS THE HOLDING COMPANY OF ITS FULLY OWNED SUBSIDIARIES. THEREFORE, IT IS TO BE SEEN THAT MONITORING THE FINANCIAL MANAGEMENT OF THE SUBSIDIA RIES IS AN ACTIVITY CARRIED ON BY THE ASSESSEE IN THE ORDINARY COURSE OF CARRYING ON OF ITS BUSINESS. 17. WHEN THE HOLDING COMPANY IS CARRYING ON ITS BUSINESS IN THE MANNER STATED ABOVE, IT IS NECESSAR Y FOR THE ASSESSEE COMPANY TO ARRANGE FOR LONG-TERM AND SHORT -TERM FUNDS FOR THE PURPOSE OF CARRYING ON THE BUSINESS O F ITS FULLY OWNED SUBSIDIARIES. ONE OF THE METHODS OF ARRANGIN G SUCH FINANCE IS TO TRANSFER THE DISPOSABLE FUNDS AVAILAB LE WITH SOME OF ITS SUBSIDIARIES TO THE HELP OF SOME OTHER SUBSIDIA RIES, WHICH ARE IN NEED OF FINANCE. THIS IS A PART OF GROUP CONTRO L AND FINANCE MANAGEMENT. THIS TRANSFER OF FUNDS FROM ONE SUBSID IARY TO - - ITA 399 & 400 OF 2012 19 ANOTHER IS A CONTINUING PROCESS, DEPENDING UPON THE REQUIREMENTS OF FINANCE BY DIFFERENT SUBSIDIARIES. IT IS FOR THE PURPOSE OF MEETING THE REQUIREMENTS OF THE SUBSIDIA RY COMPANIES WHICH ARE IN NEED OF FINANCE, THAT THE AS SESSEE COMPANY IS AVAILING LOANS FROM OTHER SUBSIDIARIES H AVING DISPOSABLE FUNDS, IN ITS CAPACITY AS THE HOLDING CO MPANY EXERCISING MANAGEMENT CONTROL OVER ITS SUBSIDIARIES . THEREFORE, IT IS TO BE SEEN THAT THE ASSESSEE WAS TRANSACTING THE LOANS AS A TREASURY MANAGER FOR ITS FULLY OWNED SUBSIDIARIES. THE ASSESSEE COMPANY HAS NOT AVAILED ANY BENEFIT OUT OF THOSE LO ANS AVAILED FROM ITS SUBSIDIARIES. THE ASSESSEE COMPANY HAD NO T RETAINED THOSE LOAN FUNDS FOR ITS OWN ACTIVITIES. ALL THE L OAN AMOUNTS HAVE BEEN REDISTRIBUTED TO SUBSIDIARIES. THESE ARE NORM AL BUSINESS TRANSACTIONS CARRIED OUT BY ANY HOLDING COMPANY. 18. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOT PROPER ON THE PART OF THE LOWER AUTHORITIES TO HOLD THAT THESE ROUTINE FINANCIAL TRANSACTIONS MANAGED BY THE ASSES SEE AS A HOLDING COMPANY DO PARTAKE THE CHARACTER OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. IT IS NOTHING B UT A FALLACY TO ALLEGE THAT THOSE AMOUNTS WERE INDEPENDENT LOANS AV AILED BY THE - - ITA 399 & 400 OF 2012 20 ASSESSEE COMPANY FROM ITS SUBSIDIARIES FOR ITS BENE FIT AND ENJOYMENT. ALL THE INFLOWS AND OUTFLOWS OF FUNDS M ONITORED AND MANAGED BY THE ASSESSEE COMPANY AS A HOLDING COMPAN Y WERE MEANT ONLY FOR THE BENEFIT OF THE SUBSIDIARY COMPAN IES TO CARRY ON THEIR BUSINESS. 19. WHERE REGULAR BUSINESS TRANSACTIONS ARE CARRIE D ON BY AN ASSESSEE IN ITS ORDINARY COURSE OF BUSINESS I N THE ABOVE MANNER, THEY CANNOT BE TREATED AS DEEMED DIVIDEND F OR THE PURPOSE OF SECTION 2(22)(E) OF THE ACT. IN THE FAC TS AND CIRCUMSTANCES OF THE CASE, THE CASES DISCUSSED BY T HE COMMISSIONER OF INCOME-TAX(APPEALS) AND THE DECISIO N ULTIMATELY RELIED ON BY HIM DO NOT HAVE ANY BEARING IN THE PRESENT CASE. 20. WE, THEREFORE, DELETE THE ADDITIONS MADE BY TH E ASSESSING AUTHORITY UNDER SECTION 2(22)(E) FOR THES E TWO ASSESSMENT YEARS UNDER APPEAL. 21. AS THE APPEALS THEMSELVES HAVE BEEN DISPOSED O F, THE STAY PETITIONS FILED BY THE ASSESSEE HAVE BECOM E INFRUCTUOUS. - - ITA 399 & 400 OF 2012 21 22. IN RESULT, THE APPEALS FILED BY THE ASSESSEE A RE ALLOWED AND THE STAY PETITIONS ARE DISMISSED AS INF RUCTUOUS. ORDER PRONOUNCED ON TUESDAY, THE 13 TH OF MARCH, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 13 TH MARCH, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.