SATELLITE CABLE TV NETWORK P. LTD, MUMBAI V. ITO 10(2)(4), MUMBAI

ITA 4007/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92534 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NEIL PHILIP
• Keywords: Additional evidence; Question of law; Deemed dividend

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI VIJAY PAL RAO ( JM ) AND D. KARUNAKAR A RAO, (AM) , . , ./ I.T.A. NO . 4007/ MUM/20 1 3 ( / ASSESSMENT YE A R : 20 0 9 - 10 ) M/S SATELLITE CABLE T V NETWORK PVT.LTD., 1/156, GARODIA SHOPPING CENTRE, GARODIA NAGAR, GHATKOPAR (E), MUMBAI - 400077 / VS. INCOME TAX OFFICER 10(2)(4), M K ROAD, AAYAKAR BHA VAN, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAKCS0785R / ASSESSEES BY SHRI VIJAY MEHTA / ASSESSEE BY S HRI NEIL PHILIP / DATE OF HEARING : 1 4 .5.2015 / DATE OF PRONOUNCEMENT : 22. 5. 2015 / O R D E R PER VIJAY PAL RAO ( JM ) THIS APPEAL BY THE ASSESSEE IS DIRECTION AGAINST THE ORDER DATED 8.3.2013 OF LD. CIT (A) FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS : 1. ADDITION OFRS. 90,70,143/ - MADE U /S 2 (22) (E): ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SUBMITTED THAT THE HON. COMMISSIONER OF INCOME TAX APPEALS, MUMBA I ERRED IN MAKING THE ADDITION OF RS. 90,70,1431 - AS DEEMED DIVIDEND U/S 2(22)(E) AS THE APPELLANT COMPANY IS NEITHER A REGISTERED SHAREHOLDER NOR A BENEFICIAL SHAREHOLDER IN M / S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD., THE LENDING COMPANY. THE APPE LLANT SUBMITS THAT ADDITIONS OF RS. 90,70,143 / - BE DELETED. 4007 /MUM/201 3 2 2. PROVISIONS OF SECTION 2 (22) (E) DO NOT APPLY TO THE APPELLANT COMPANY: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SUBMITTED THAT THE HON. COMMISSIONER OF INCOME TAX A PPEALS, MUMBAI ERRED IN TREATING THE SHAREHOLDERS OF THE LENDING COMPANY HAVING SHAREHOLDING OF MORE THAN 10% IN THE LENDING COMPANY AS THE SHAREHOLDER OF THE APPELLANT COMPANY HAVING SUBSTANTIAL INTEREST IN THE APPELLANT COMPANY. THE APPELLANT SUBMITS T HAT THE SAID SHAREHOLDERS DO NOT HAVE ANY SUBSTANTIAL INTEREST IN THE BORROWING COMPANY AS THEY ARE NOT REGISTERED AND BENEFICIAL SHAREHOLDERS OF MORE THAN 20% SHARES IN THE APPELLANT COMPANY AND THEREFORE, THE PROVISIONS OF SECTION 2 (22) (E) DO NOT APPLY IN RESPECT OF MONEY ADVANCED BY LENDING COMPANY TO THE APPELLANT COMPANY. 3. MONEY ADVANCED IN COURSE OF NORMAL BUSINESS ACTIVITY: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SUBMITTED THAT THE HON. COMMISSIONER OF INCOME TAX APPEALS, MUMBAI ERRED IN TREATING THE ADVANCES WHICH ARE MADE IN THE NORMAL COURSE OF BUSINESS BY THE LENDING COMPANY TO THE APPELLANT COMPANY AS LOANS AND ADVANCES FOR THE PURPOSE OF TREATING IT AS DEEMED DIVIDEND U / S 2 (22) (E) FOR THE REASON TH EY WERE NOT PRODUCED BEF ORE THE ASSESSING OFFICER. THE APPELLANT SUBMITS THAT THE MONEY ADVANCED IS NOT LOAN AND ADVANCES AND THEREFORE THE ADDITION MADE U/S 2 (22) (E) IN RESPECT OF THIS AMOUNT BE DELETED. 4. MONEY ADVANCED DURING THE YEAR ONLV TO BE CONSIDERED AS DEEMED DIVIDEND : WITHOUT PREJUDICE TO THE ABOVE; ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SUBMITTED THAT THE HON. COMMISSIONER OF INCOME TAX APPEALS, MUMBAI ERRED IN NOT CONSIDERING THE OPENING BALANCE IN THE ACCOUNT OF LENDING COMPANY IN THE BOOKS OF APPELLANT COMPANY AS NOT THE LOANS & ADVANCES GIVEN DURING THE YEAR TO APPELLANT COMPANY FOR' THE REASON THAT THEY WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER. THE APPELLANT SUBMITS THAT THE OPENING BALANCE TO BE EXCLUDED WHILE COMPUTING THE LOANS & ADVANCES GIVEN DURING THE YEAR - FOR THE PURPOSE OF COMPUTING DEEMED DIVIDEND U/S 2 (22) (E). 5. THE LEARNED HON. COMMISSIONER OF INCOME TAX APPEALS HAS ERRED IN NOT CONSIDERING AND ADMITTING THE ADDITIONAL EVIDENCE AND ADDITIONAL GROUNDS RAISED BEFORE HER FOR THE FIRST TIME. 3. GROUND NO.1 - 5 ARE REGARDING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF 4007 /MUM/201 3 3 CABLE TV SERVICES. THE AO NOTICED THAT THE ASSESSEE HAS TAKEN A LOAN O F RS.1,08,71,574/ - FROM M/S WIRE & WIRELESS SATELLITE NETWORK PVT. LTD.. THE AO FOUND THAT THE SHAREHOLDINGS OF ASSESSEE AND M/S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD., IS WITH COMMON SHAREHOLDINGS. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE SH AREHOLDERS ARE DUMMY IN NATURE AND THESE COMPANIES ARE HOLDING SHARES OF EACH OTHER AND THUS LOAN TAKEN BY THE ASSESSEE FROM M/S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD., ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT . THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 4. BEFORE US, THE LD.AR REFERRED THE SHAREHOLDING PATTERN OF THE ASSESSEE COMPANY AS WELL AS M/S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD., AND SUBMITTED THAT THE ASSESSEE IS NOT A SHA REHOLDER OF M/S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD., THEREFORE , THE ADDITION U/S 2(22)(E) CANNOT BE MADE IN THE HAND OF NONE SHAREHOLDER . IN SUPPORT THIS CONTENTION, HE RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT V/S UNIVERSAL MEDICARE PRIVATE LIMITED [2010] 324 ITR 263 (BOM) AS WELL AS THE DECISION IN THE CASE OF CIT V/S IMPACT CONTAINERS P. LTD. [2014] 367 ITR 346 AND SUBMITTED THAT THE HONBLE HIGH COURT HAS CONFIRMED THE VIEW TAKEN BY THE SPECIAL BENCH IN THE CASE OF ACIT V/S BHAUMIK COLOUR P. LTD.( 2009] 313 ITR (A.T.) 146 (ITAT[MUM]). 5. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW AND SUBMI TT ED THAT WHEN THE 99% SHAREHOLDING IN M/S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD., IS WITH A COMMON SHAREHOLDERS WHICH ARE ALSO HOLDING 55% SHARES IN ASSESSEE COMPANY THEN THE AO IS JUSTIFIED IN INVOKING THE PROVIS IONS OF SECTION 2(22)(E) OF THE ACT. 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL O N RECORD, WE NOTE THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF M/S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD. MERELY BECAUSE, THE SHAREHOLDINGS OF BOTH THE COMPANIES ARE WITH COMMON SHAREHOLDERS WOULD NOT MAKE THE ASSESSEE COMPANY THE SHAREHOLDER O F THE M/S. WIRE & WIRELESS SATELLITE NETWORK PVT. LTD.. THE PROVISIONS OF SECTION 2(22)(E) IS A DEEMING PROVISION AND EX PAND THE AMBIT 4007 /MUM/201 3 4 OF EXPRESSION DIVIDEND IF THE SHAREHOLDER OF THE COMPANY HAS AVAILED THE BENEFIT OF LOAN AND THE COMPANY WAS HAVING THE SUFFICIENT FUNDS OF RE CEIVED AND SURPLUS T HEN THE SHAREHOLDER WHO IS HAVING MORE THAN 25% EQUAL CAPITAL OF THE COMPANY AND AVAILED THE LOAN WOULD BE TREATED AS RESERVE THE DEEMED DIVIDEND. THE DIVIDEND CAN BE RECEIVED OR DEEMED TO HAVE BEEN RECEIVED ONLY BY SHAREHOLDER OF THE COMPANY, THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) ENLARGING THE SCOPE OF DIVIDEND UNDER THE EXPRESS DEEMED DIVIDEND CANNOT BE INVOKED IN CASE OF A PERSON WHO IS NOT A SHAREHOLDER OF THE COMPANY WHO HAS ADVANCE THE LOAN. THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PRIVATE LIMITED (SUPRA) HAS HELD IN PARA 10 AS UNDER : 10. IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF SECTION 2(22) IS ATTRACTED, THE PAYMENT BY A COMPANY HAS TO BE BY WAY OF AN ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE, AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PER CENT. OF THE VOTING POWER OR TO ANY CONCERN OF WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE TRIBUNAL IN THE PRESENT CASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE, SINCE THE AMOUNT IN QUESTION HAD ACTUALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN THE BOOKS OF ACCOUN T OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATION SEEMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BUSINESS LOSS DURING THE COURSE OF THE ASSESSMENT YEAR 2006 - 07. CONSEQUENTLY, ACCORDING TO THE TRIBUNAL THE FIRST REQUIREMENT OF THERE B EING AN ADVANCE OR LOAN WAS NOT FULFILLED. IN OUR VIEW, THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HOWEVER, EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBU NAL, WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF SECTION 2(22)(E) IS CORRECT. SECTION 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION ' DIVIDEND' . ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RE CIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. THE 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 SECTION 2(22) I NCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN OF WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREATED BY CLAUSE (E) TO BE INCLUDED IN THE EXPRESSION ' DIVIDEND' . CONSEQUENTLY, THE EFFECT OF CLAUSE (E) OF SECT ION 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 PAYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LEGAL POSITION 4007 /MUM/201 3 5 THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. CONSEQUENTLY 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 SHAREHOLD ER. THE TRIBUNAL WAS, IN THE CIRCUMSTANCES, JUSTIFIED IN COMING TO THE CONCLUSION THAT, IN ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE THAT THE BASIS ON WHICH THE ASSESSEE IS SOUGHT TO BE TAXED IN THE P RESENT 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 THE ORDER OF THE ASSESSING OFFICER. THIS PROPOSITION OF LAW HAS BEEN REITERATED BY THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF IMPACT CONTAINERS P. LTD(SUPRA). 7 . HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF T HE CA S E AND FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE HOLD THAT NO ADDITION CAN BE MADE ON ACCOUNT OF DEE M ED DIVIDEND UNDER SE CTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE WHO IS NOT A SHAREHOLDER OF T HE COMPANY PRO VI DED LOAN. ACCORDINGLY , THE ADDITION IS DELETED. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22ND MAY , 201 5 . 22ND MAY , 2015 SD SD ( . / D. KARUNAKAR A RAO) ( / VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 22 ND MAY , 2015 . . . ./ SRL , SR. PS / COPY OF T HE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI