ITO 9(1)(3), MUMBAI V. DOLPHIN VENTURES P.LTD, MUMBAI

ITA 4253/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4009 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 20-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D K SINHA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 4253/MUM/2012 ASSESSMENT YEAR: 2009-10 ITO 9(1)(3) MUMBAI VS. DOLPHIN VENTURES P. LTD. 701, KALAK BELA, 31 PERRY CROSS ROAD, BANDRA WEST, MUMBAI-400 050 (APPELLANT) (RESPONDENT) RESPONDENT BY : SHRI D.K. SINHA APPELLANT BY : NONE DATE OF HEARING : 22.07.2013 DATE OF PRONOUNCEMENT : 22.07.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT (A)-19, MUMBAI DATED 19.04.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. THE SOLITARY ISSUE ARISING OUT OF THE GROUNDS OF APPEAL RAISED BY THE REVENUE RELATE TO THE LD.CIT(A) DELETING THE ADDITION OF RS .37,28,809/- MADE BY THE AO U/S 2(22)(E) OF THE INCOME TAX ACT. 3. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF LEASING, PROVIDING SERVICES AND ALLIED ACTIVITIES WHILE DECL ARING A TOTAL INCOME OF RS.28,02,493/- HAD SHOWN AN AMOUNT OF RS.46,00,000/ - AS UNSECURED LOAN FROM M/S MOTOR HOUSE LTD, A GROUP COMPANY HAVING SUBSTANTIAL COMMON SHAREHOLDING PATTERN. THE AO, IN THE ASSESSMENT FRAMED U/S 143(3 ) HAD OBSERVED THAT BOTH THE COMPANIES HAD COMMON DIRECTORS WHO TOGETHER HOLD 10 0% OF THE SHARES IN THE ASSESSEES COMPANY AS WELL AS IN M/S MOTOR HOUSE LT D. AS THE CONDITIONS STIPULATED IN SECTION 2(22)(E) WERE FULFILLED, IN THAT A PAYME NT HAD BEEN MADE BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC WERE SUBSTA NTIALLY INTERESTED TO A CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER A ND IN WHICH HE HAS A SUBSTANTIAL ITA NO. 4253/MUM/2012 DOLPHIN VENTURES P. LTD. ASSESSMENT YEAR: 2009-10 2 INTEREST AS DEFINED IN EXPLANATION 3(B) OF SECTION 2(22)(E) AND THEREBY MADE THE IMPUGNED ADDITION. 4. ON APPEAL, THE LD.CIT(A) BY RELYING ON THE ORDER OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF ACIT VS. BHAUMIK COLOR PVT. LTD . [118 ITD 0001] DELETED THE IMPUGNED ADDITION MADE BY THE AO. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE IS IN APPEAL BEFORE US. 5. NO ONE HAS APPEARED ON BEHALF OF THE ASSESSEE DE SPITE THE NOTICE HAVING BEEN SENT TO THE ASSESSEE WELL IN ADVANCE. WE, THER EFORE, PROCEED TO DECIDE THE APPEAL OF THE REVENUE EX PARTE AFTER CONSIDERING TH E SUBMISSIONS OF THE LD. DR AND ALSO PERUSING THE ORDERS OF THE LOWER AUTHORITIES. IT IS PERTINENT TO MENTION THAT THE SPECIAL BENCH OF THE ITAT IN THE CASE OF BHAUMIK CO LOR PVT. LTD [118 ITD 0001] HAS HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN T HE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN SHAREHOLDER. THE EXPRESSION SHAREHOLDER REFERRED TO IN SEC 2(22)(E) REFERS BOTH A REGISTERED SHAREHOLDER AND BENEFICIARY SHAREHOLDER. IF A PERSON IS A BENEFICIARY SHAREHOLDER BUT NOT REGISTERED THEN THE SECTION 2(2 2)(E) SHALL NOT APPLY. SIMILARLY, IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT A BENE FICIARY SHAREHOLDER THEN ALSO THE PROVISION OF SEC. 2(22)(E) WILL NOT APPLY. THE INTE NTION BEHIND ENACTING PROVISIONS OF SEC. 2(22)(E) ARE THAT CLOSELY HELD COMPANIES WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PR OFITS WOULD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE TAXABLE IN THE HAND S OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPA NIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUC H SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MADE ANY PAYMENT ON BEHALF OF OR FOR TH E 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 BEHIN D THE PROVISIONS OF SEC. 2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDER. THE INTENTION OF THE LEGISLATURE IS THEREFORE, TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. THE CONTENTION OF THE REVENUE THAT THE SAID DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT CANNOT BE THE BASIS FOR NOT FOLLOWING THE EXISTING RATIO LAID DOWN BY THE SPECIAL BENCH OF THE ITAT. IN VIEW OF THE FACT THAT THE LD.CIT(A) HAS CORRECTLY RELIED ON THE SAID SPECIAL BENCH DECI SION OF THE ITAT FOR DELETING THE ITA NO. 4253/MUM/2012 DOLPHIN VENTURES P. LTD. ASSESSMENT YEAR: 2009-10 3 IMPUGNED ADDITION MADE BY THE AO, WE DO NOT FIND AN Y JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE S AME IS UPHELD. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 2 ND DAY OF JULY, 2013. SD/- SD/- (R. S. SYAL) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.07.2013. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR D BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.