DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 1 (2), Chennai V. M/S CHECKPOINT APPAREL LABELLING SOLUTIONS INDIA PVT LTD, CHENGALPET

ITA 429/CHNY/2018

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5721 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D ROHINI
• Keywords: Deemed dividend; Set aside
• Section: 143(3); 2(22)(e)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 429/CHNY/2018 / ASSESSMENT YEAR : 2013-14 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1(2), CHENNAI 600 034. VS. M/S. CHECKPOINT APPAREL LABELLING SOLUTIONS INDIA PVT. LTD., NO. AID / AIE, INDUSTRIAL COMPLEX, ANNA SALAI, MARAIMALAI NAGAR, CHENGALPET 603 209. [PAN: AAGCS 9485A] ( / APPELLANT) ( '#% /RESPONDENT ) REVENUE BY : MS. D. ROHINI, JCIT ASSESSEE BY : SHRI. VISHAL KALRA, ADVOCATE - /DATE OF HEARING : 03.10.2018 - /DATE OF PRONOUNCEMENT : 30.11.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI IN ITA NO. 52/CIT(A )-1/16-17 DATED 29.11.2017 FOR ASSESSMENT YEAR 2013-14. :-2-: ITA NO. 429/CHNY/2018 2. M/S. CHECKPOINT APPAREL LABELLING SOLUTIONS IND IA PVT. LTD., THE ASSESSEE, IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF GARMENT ACCESSORIES LIKE LABELS, HANGTAGS, STICKERS, ETC. W HILE MAKING THE ASSESSMENT UNDER SECTION 143(3) FOR ASSESSMENT YEA R 2013-14, T HE A O FOUND , INTER ALIA, THAT DURING THE YEAR THE ASSES SEE COMPANY HAD RECEIVED A LOAN FROM M/S. OAT SYSTEM SOFTWARE INDIA PRIVATE LIMITED TO THE EXTENT OF RS.4.25 CRORES. IT HAD ALSO PAID INTEREST ON TH E SAID LOAN. THE ASSESSING OFFICER NOTED THAT THE ULTIMATE PARENT COMPANY OF T HE ASSESSEE, CHECKPOINT SYSTEMS INC., WAS ALSO THE ULTIMATE PARE NT COMPANY OF M/S. OAT SYSTEM SOFTWARE INDIA PRIVATE LIMITED. AS CHECK POINT SYSTEMS INC. HELD THE ENTIRE SHARE CAPITAL OF THE ASSESSEE AS WE LL AS THE LENDING COMPANY, THE ASSESSING OFFICER CONCLUDED THAT THE L OAN RECEIVED BY THE ASSESSEE FROM M/S. OAT SYSTEM SOFTWARE INDIA PRIVAT E LIMITED WAS IN THE NATURE OF A DEEMED DIVIDEND U/S. 2(22)(E). THE ASSE SSING OFFICER CONCLUDED THAT ALL THE CONDITIONS REQUIRED U/S. 2(2 2)(E) WERE FULFILLED IN THIS CASE AND HENCE MADE ADDITIONS ON ACCOUNT OF DEEMED DIVIDEND. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO ALLOWED THE APPEAL. 3. AGGRIEVED AGAINST THE ORDER OF THE LD CIT(A), THE R EVENUE FILED THIS APPEAL WITH FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO L AW AND FACTS AND CIRCUMSTANCES OF THE CASE. :-3-: ITA NO. 429/CHNY/2018 2. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIO N MADE OF RS.4.25 CRORES BY TREATING LOAN AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT 2.1 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PR OVISIONS OFSECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE TO THE LOANTR ANSACTION ENTERED BETWEEN THE ASSESSEECOMPANY ANDITS RELATED CONCERN, WITHOUT APPRECIATING THE FACT THAT THEADVANCES CAN ONLY BE TREATED AS DEEMED DIVI DEND. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E APEX COURT DECISION IN THE CASE OF MADHURHOUSING & DEVELOPMENT COMPANY (CIV IL APPEAL NO. 3961 OF 2013 DATED 05.10.2017) WHICH UPHELD THE DECISION OF THE DELHI HC IN THE CASE OF ANKITECH PVT LTD 11 TAXMANN.COM 100 (2011) WHEREIN IT WAS HELD THAT PROVISIONS OF SEC.2(22)(E) COULD BE INVOKED ONL Y IF THE RECIPIENT OF THE LOAN WAS BOTH A BENEFICIAL AND REGISTERED SHAREHOLDE R IN THE LENDER COMPANY, RELIED UPON IN THE INSTANT CASE HAS BEEN SUBSEQUENT LY HELD BY THE APEX COURT AS INCORRECT AND REQUIRING RECONSIDERATION VIDE ITS DECISION IN THE CASE OF M/S. NATIONAL TRAVEL SERVICES (CIVIL APPEAL NO.2068-2071 OF 2012) DATED 18.01.2018. 2.3 THE DISALLOWANCE MADE BY THE AC INVOKING PROVIS IONS OF SEC.2(22)(E) OF THE ACT IN RESPECT OF THE IMPUGNED LOAN TRANSACTION WAS REQUIRED TO BE UPHELD IN VIEW OF THE APEX COURT DECISION IN THE CA SE OF MIS. NATIONAL TRAVEL SERVICES CITED SUPRA. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) M AY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4. THE LD DR PRESENTED THE CASE ON THE ABOVE LINES AND PLEADED THAT THE ORDER OF THE LD AO BE RESTORED. PER CONTRA, THE LD AR SUBMITTED WRITTEN SUBMISSIONS AND TOOK US THROUGH IT, OF WHIC H THE RELEVANT PORTION IS EXTRACTED AS UNDER : 2.1 THE ONLY ISSUE RAISED IN THE PRESENT APPEAL BY THE REVENUE IS THAT THE LOAN AMOUNTING TO RS. 42,500,000 SHOULD BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF ASSESSEE. 2.2 IT IS SUBMITTED THAT AS PER THE PROVISIONS OF S ECTION 2(22)(E) OF THE ACT, ANY LOAN OR ADVANCE GIVEN BY A CLOSELY HELD COMPANY (I.E. A COMPANY IN :-4-: ITA NO. 429/CHNY/2018 WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED) CAN BE DEEMED AS DIVIDEND IF ANY OF THE FOLLOWING CONDITIONS ARE SATISFIED: I. LOAN OR ADVANCE IS GIVEN TO A SHAREHOLDER OF THE COMPANY BEING A BENEFICIAL OWNER OF AT LEAST 10% OF THE VOTING RIGHTS; OR II. LOAN OR ADVANCE IS GIVEN TO ANY CONCERN IN WHIC H SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND HOLDS SUBSTANTIAL INTE REST; OR III. ANY PAYMENT IS MADE BY THE COMPANY ON BEHALF OF OR FOR THE BENEFIT OF SUCH SHAREHOLDER OF THE COMPANY. IT IS EVIDENT FROM THE ABOVE THAT IN ORDER TO HOLD ANY PAYMENT OF LOAN OR ADVANCE TO BE TAXABLE AS DEEMED DIVIDEND, THE PAYME NT SHOULD BE MADE TO A SHAREHOLDER OR TO A CONCERN IN WHICH SUCH SHARE HOLDER IS MEMBER OR FOR THE BENEFIT OF SUCH SHAREHOLDER. 2.3 IN THE FACTS OF THE INSTANT CASE, THE SHAREHOLDE R OF OAT SYSTEMS INDIA (THE LENDER) IS OAT SYSTEMS INC., USA AND SHAREHOLDE R OF THE ASSESSEE IS ADS WORLDWIDE LIMITED, UNITED KINGDOM. THE SHAREHOLDING STRUCTURE OF THE ASSESSEE AND THE LENDER IS PRESENTED BELOW FOR REFERE NCE: CHECKPOINT SYSTEMS INC., USA CHECKPOINT SYSTEMS HOLDING INC., USA OAT SYSTEMS INC., USA CPI INTERNATIONAL SYSTEMS C.V., NETHERLANDS CHECKPOINT HOLLAND HOLDINGS B.V., NETHERLANDS ADS WORLDWIDE LIMITED, UK CHECKPOINT APPAREL LABELING SOLUTIONS INDIA PVT. LTD., (ASSESSEE/BORROWER) OAT SYSTEMS SOFTWARE INDIA PVT. LTD., INDIA (LENDER) :-5-: ITA NO. 429/CHNY/2018 2.4 IT WILL BE APPRECIATED THAT THE ASSESSEE IS: - NEITHER A SHAREHOLDER OF OAT SYSTEMS INDIA NOR DOE S ANY SHAREHOLDER OF OAT SYSTEMS INDIA HOLD ANY SHARES IN THE ASSESSEE COMPAN Y. - ASSESSEE HAS NOT RECEIVED ANY PAYMENT FROM OAT SYS TEMS INDIA ON BEHALF OF OR FOR THE BENEFIT OF ITS SHAREHOLDER (I.E. FOR AD S WORLDWIDE LIMITED). THUS, NONE OF THE ABOVE CONDITIONS SPECIFIED IN SECT ION 2(22)(E) OF THE ACT ARE SATISFIED IN THE ASSESSEES CASE. 2.5 THE AO, HOWEVER, WHILE FRAMING THE ASSESSMENT HA S MADE FOLLOWING OBSERVATIONS ON PAGE4, TO ALLEGE THAT THE AMOUNT RE CEIVED BY THE ASSESSEE IS EXIGIBLE TO TAX AS DEEMED DIVIDEND: THE SHARES OF THE BOTH THE COMPANY ARE DIRECTLY HE LD BY COMMON PARENT CHECK POINT SYSTEMS INC, USA THROUGH TWO SUBSIDIAIY NAMELY MIS ADS WORLDWIDE LIMITED AND MIS OAT SYSTEM INC. 2.6 IT IS SUBMITTED THAT THE AO HAS MISCONSTRUED TH E PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND ALSO JUST BECAUSE THE ULTIM ATE PARENT COMPANY IS COMMON, IT CANNOT BE HELD THAT: (A) THE ASSESSEE IS A SHAREHOLDER IN OAT SYSTEM IND IA AND (B) THAT THE LOAN WAS ADVANCED TO ASSESSEE ON OR B EHALF OF ITS SHAREHOLDER. 2.7 THE ENTIRE SHARE CAPITAL OF THE ASSESSEE WAS HEL D BY ADS WORLDWIDE LTD, WHICH IN TURN WAS HELD BY A NETHERLAND COMPANY AND AFTER TWO MORE INTERMEDIATE HOLDING COMPANIES, CHECKPOINT SYSTEMS I NC. IS THE ULTIMATE HOLDING COMPANY OF THE APPELLANT. SIMILARLY, OAT SYSTE M SOFTWARE INDIA PRIVATE LIMITED WAS ALSO NOT A DIRECT SUBSIDIARY OF CHECKPOINT SYSTEMS INC AS SHOWN IN THE CHART. 2.8 APPLYING THE ABOVE PRINCIPLES TO THE PRESENT CA SE, NONE OF THE CONDITIONS STIPULATED IN SECTION2(22)(E) OF THE ACT ARE SATISFIE D SINCE: - APPELLANT IS NOT A SHAREHOLDER OF THE LENDER COMPA NY; - APPELLANT IS NOT A CONCERN IN WHICH A SHAREHOLDER (I.E. OAT SYSTEMS INC., USA) OF THE LENDER COMPANY HOLDS SUBSTANTIAL INTERE ST; - THE LOAN HAS NOT BEEN RECEIVED FOR THE BENEFIT OF SHAREHOLDER (I.E. OAT SYSTEMS INC., USA) OF THE LENDER COMPANY. 2.9 RELIANCE IN THIS REGARD CAN BE PLACED ON THE JU DGEMENT OF CARGILL INDIA (P.) LTD. VS ACIT BEARING ITA NO.5733/DEI/2011, WHE REIN THE HONBLE ITAT UNDER SIMILAR FACTS HAS HELD THAT AS THE ASSESSEE IS NOT A DIRECT SHAREHOLDER IN THE LENDER COMPANY, HENCE, THE LOAN RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS DEEMED DIVIDEND. :-6-: ITA NO. 429/CHNY/2018 THE RELEVANT OBSERVATIONS ARE REPRODUCED BELOW 28. AFTER CONSIDERING THE SUBMISSIONS IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILARFACTS WAS A SUBJECT MATTER OF THE ASSE SSEES APPEAL IN ITA NO. 4095/DEL/2010 FOR THE ASSESSMENT YEAR 2006-07 WHERE IN VIDE ORDER DATED 28.11.2013, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF T HE ASSESSEE AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 35 WHICH R EAD AS UNDER35. GROUND NO. 2.2 TO 2.4. DEALS WITH THE ISSUE OF DEEMED DIVI DEND U/S2(22)(E) OF THE ACT. THE ASSESSEE RECEIVED A LOAN OF PS. 21.74 CRORE S FROM M/S CARGILL GLOBAL TRADING INDIA PVT. LTD. (CGTIPL) WHICH IS A GROUP C OMPANY OF THE ASSESSEE COMPANY. IN FACT BOTH THE ASSESSEE COMPANY AS WELL A S LENDER COMPANY ARE SUBSIDIARIES OF CARGILL INC. USA THROUGH ITS SEPARA TE SUBSIDIARY COMPANIES CARGILL ASIA PACIFIC LTD. (CAPL) AND CARGILL INTERNA TIONAL TRADING ME LTD. SINGAPORE AND THE GROUP STRUCTURE OF THE COMPANIES C AN BE EXPLAINED AS UNDER: IT WAS CONTENDED THAT CGTIPL I.E. LENDER COMPANY WA S A SUBSIDIARY OF CARGILLLNT. TRADING PTE LTD. SINGAPORE WITH 99% SHAR EHOLDING AND NONE OF THE SHARES OF LENDER COMPANY WERE HELD BY ASSESSEE COMP ANY AND THEREFORE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE. FOR THE SAKE OF CONVENIENCE, WE ANALYSIS THE PROVISIONS OF SECTION 2(22)(E). SECTION 2(22)(E) APPLIES TO A SHAREHOLDER BEING A PE RSON WHO IS THE BENEFICIAL OWNER OF SHARE HOLDINGS NOT LESS THAN 10% OF THE VOT ING POWER OF THAT COMPANY THUS IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) THE PERSON SHOULD BE A (A) SHAREHOLDER; (B) SHOULD BE A BENEFICIAL OWNER OF SHARES; (C) IT MUST HOLD AT LEAST 10% OF VOTING POWER IN TH E LENDER COMPANY THE AFORESAID REQUIREMENTS OF LAW ARE CUMULATIVE. F URTHER IT IS SETTLED POSITION THAT THE TERM SHAREHOLDER AS USED IN PROVI SION OF SECTION 2(22)(E) REFERS TO SHAREHOLDER WHO IS A REGISTERED SHARE HOLD ER I.E. WHOSE NAME APPEARS IN THE SHARE REGISTER OF THE COMPANY. THE AS SESSING OFFICER HAS HELD THE AMOUNT OF LOAN AS DEEMED DIVIDEND BECAUSE AS PE R HIS OPINION CARGILL INC. USA I.E. ULTIMATE HOLDING COMPANY OF BOTH ASSE SSEE COMPANY AND LENDER COMPANY WAS THE BENEFICIAL OWNER OF SHARES AND THERE FORE HE HELD THAT ASSESSEE WAS INDIRECTLY HOLDER OF SHARES IN THE LEN DER COMPANY. WE FIND THAT THE ASSESSING OFFICER HAS ARRIVED AT THIS CONCLUSION ON THE BASIS OF SURMISES :-7-: ITA NO. 429/CHNY/2018 AND CONJECTURES ONLY AS HE HIMSELF AT PAGE 10 OF HIS ASSESSMENT ORDER RECORDED THE FOLLOWING FINDINGS: THUS THOUGH THE ASSESSEE COMPANY IS NOT HOLDING SHA RES IN CGIPTL DIRECTLY, INDIRECTLYTHE ASSESSEE COMPANY IS HOLDING SUBSTANTI AL INTEREST IN CGIPTL THOUGH THE CARGILL INC. THE HOLDING COMPANY. IN VIEW OF THE ABOVE, WE FIND THAT ASSESSING OFFICER H IMSELF ARRIVED AT THE CONCLUSION THAT ASSESSEE WAS NOT A DIRECT REGISTERE D SHAREHOLDER IN THE LENDER COMPANY, THEREFORE, RELYING UPON VARIOUS JUDGMENTS AS RELIED UPON BY LD AR THE LOAN RECEIVED BY ASSESSEE CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THEREFORE, GROUND NO.2.2. TO 2. 4 ARE ALLOWED. (EMPHASIS SUPPLIED) 2.10 THE ABOVE RATIO HAS ALSO BEEN UPHELD BY THE HO NBLE SUPREME COURT VIDE JUDGMENT DATED OCTOBER 5, 2018 IN THE CASE OF CIT VSMADHUR HOUSING AND DEVELOPMENT COMPANY (2017) (CIVIL APPEAL NO. 39 61 OF 2013), THE HONBLE SUPREME COURT AFFIRMED THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VSANKITECH (P.) LTD. [2012] 340 ITR 14 (DELHI HC) AND OBSERVED THAT THE HIGH COURT HAS LAID DOWN THE CORR ECT CONSTRUCTION OF DEEMED DIVIDEND UNDER THE ACT. 2.11 FURTHER, IT IS PERTINENT TO NOTE THAT THE ORDE R OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS NATIONAL TRAVEL SERVICES [2018] 401 ITR 154 (SC), HAS MERELY REFERRED ONLY ONE ASPECT OF ANKITECH (SUP RA) JUDGEMENT, IE, WHETHER THE SHAREHOLDER IN THE HANDS OF WHOM THE DE EMED DIVIDEND COULD BE TAXED SHOULD BE BOTH REGISTERED AND THE BENEFICIA L SHAREHOLDER, TO A LARGER BENCH, AS WAS AMENDED BY FINANCE ACT, 1987, WEF 1.4 .1988. THE OBSERVATIONS MADE THEREIN ARE REASONS THAT THEIR LO RDSHIPS HAVE STATED FOR MAKING SUCH REFERENCE. THIS DOES NOT IPSO FACTO MEAN THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IN MADHUR HOUSING AND DEVE LOPMENT COMPANY (SUPRA) STANDS REVERSED. THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MADHURHOUSING (SUPRA) UPHOLDING DELHI HIGH COURT IN ANKITECH (P) LTD (SUPRA) IS STILL THE CORRECT LEGAL POSITION. 2.12 EVEN FOR THE SAKE OF ARGUMENT IF IT IS CONSIDE RED THAT THE LEGAL POSITION AS ENUNCIATED BY SUPREME COURT IN MADHUR HOUSING (SU PRA) HAS BEEN DILUTED BY NATIONAL TRAVEL SERVICES (SUPRA), IT IS ONLY ONE OF THE TWO ASPECTS OF TAXABILITY OF DEEMED DIVIDEND HAS BEEN DISCUSSED AN D REFERRED FOR LARGER BENCH. THE POSITION THAT THE DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF SHAREHOLDER, HAS NOT BEEN DILUTED AS HELD BY MADH UR HOUSING (SUPRA) AND :-8-: ITA NO. 429/CHNY/2018 CARGILL INDIA (SUPRA). IT IS REITERATED THAT THE RE FERENCE TO LARGER BENCH ONLY SEEKS TO DILUTE, THE CONTROVERSY REGARDING, WHETHER SHAREHOLDER SHOULD BE BOTH REGISTERED AND BENEFICIAL SHAREHOLDER AND NOT T HE SETTLED POSITION THAT DIVIDEND ULTIMATELY CAN BE TAXED ONLY IN THE HANDS OF SHAREHOLDER, BE IT REGISTERED OR BENEFICIAL NOT OTHERWISE. THUS, TO THA T EXTENT THE JUDGEMENT IN THE CASE OF ANKITECH (SUPRA) STILL HOLDS GROUND. 2.13 IT IS SUBMITTED THAT THE AC HAD ALSO DISALLOWE D THE INTEREST PAID BY THE ASSESSEE TO CAT SYSTEMS FOR THE IMPUGNED LOAN AT 13. 5%. THE CIT(A) HAS HELD THE SAME TO BE AS AN ALLOWABLE EXPENDITURE. TH E DEPARTMENT HAS NOT CHALLENGED SUCH ALLOWANCE OF INTEREST EXPENDITURE. UNDER THE CIRCUMSTANCES WHEN ONE LEG OF THE TRANSACTION HAS BEEN ACCEPTED T O BE LOAN AND INTEREST PAID THEREOF HAS BEEN ALLOWED / ACCEPTED AS A BUSIN ESS EXPENDITURE THEN THE LOAN TAKEN CANNOT BE RE-CHARACTERIZED AS DEEMED DIV IDEND. 2.14 IN VIEW OF THE ABOVE THE ORDER OF THE CIT(A) DES ERVES TO BE UPHELD. 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. THE ASSESSEE SUBMITTED THAT CRUCIAL COND ITION REQUIRED U/S. 2(22)(E) WAS NOT SATISFIED AS THE ASSESSEE WAS NOT A REGISTERED SHAREHOLDER OF THE LENDING COMPANY M/S. OAT SYSTEM SOFTWARE INDIA PRIVATE LIMITED. THE DIAGRAMMATIC REPRESENTATION OF THE SHAREHOLDING PATTERN OF THE ASSESSEE AND M/S. OAT SYSTEM SOFTW ARE INDIA PRIVATE LIMITED, AS EXTRACTED SUPRA, SHOWS THAT THE ASSESSE E IS NOT A SHAREHOLDER OF M/S. OAT SYSTEM SOFTWARE INDIA PRIVATE LIMITED. HENCE, DEEMED DIVIDEND CANNOT BE ASSESSED IN THE HANDS OF THE ASS ESSEE. RESPECTFULLY FOLLOWING THE ORDER IN THE CASE OF CARGILL INDIA (P.) LTD. V S ACIT BEARING ITA NO.5733/DEL/2011, WHEREIN, THE HONBLE ITAT UND ER SIMILAR FACTS HAS HELD THAT AS THE ASSESSEE IS NOT A DIRECT SHARE HOLDER IN THE LENDER COMPANY, HENCE, THE LOAN RECEIVED BY THE ASSESSEE C ANNOT BE TREATED :-9-: ITA NO. 429/CHNY/2018 AS DEEMED DIVIDEND. WE ARE IN AGREEMENT WITH THE FO LLOWING SUBMISSIONS OF THE LD AR THE ABOVE RATIO HAS ALSO BEEN UPHELD BY THE HONB LE SUPREME COURT VIDE JUDGMENT DATED OCTOBER 5, 2018 IN THE CASE OF CIT VS MADHUR HOUSING AND DEVELOPMENT COMPANY (2017) (CIVIL APPEAL NO. 3961 O F 2013), THE HONBLE SUPREME COURT AFFIRMED THE DECISION OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT VSANKITECH (P.) LTD. [2012] 340 ITR 14 ( DELHI HC) AND OBSERVED THAT THE HIGH COURT HAS LAID DOWN THE CORRECT CONST RUCTION OF DEEMED DIVIDEND UNDER THE ACT. 2.11 FURTHER, IT IS PERTINENT TO NOTE THAT THE ORDE R OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS NATIONAL TRAVEL SERVICES [2018] 401 ITR 154 (SC), HAS MERELY REFERRED ONLY ONE ASPECT OF ANKITECH (SUP RA) JUDGEMENT, IE, WHETHER THE SHAREHOLDER IN THE HANDS OF WHOM THE DE EMED DIVIDEND COULD BE TAXED SHOULD BE BOTH REGISTERED AND THE BENEFICIA L SHAREHOLDER, TO A LARGER BENCH, AS WAS AMENDED BY FINANCE ACT, 1987, WEF 1.4 .1988. THE OBSERVATIONS MADE THEREIN ARE REASONS THAT THEIR LO RDSHIPS HAVE STATED FOR MAKING SUCH REFERENCE. THIS DOES NOT IPSO FACTO MEAN THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IN MADHUR HOUSING AND DEVE LOPMENT COMPANY (SUPRA) STANDS REVERSED. THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MADHURHOUSING (SUPRA) UPHOLDING DELHI HIGH COURT IN ANKITECH (P) LTD (SUPRA) IS STILL THE CORRECT LEGAL POSITION. 2.12 EVEN FOR THE SAKE OF ARGUMENT IF IT IS CONSIDE RED THAT THE LEGAL POSITION AS ENUNCIATED BY SUPREME COURT IN MADHUR HOUSING (SU PRA) HAS BEEN DILUTED BY NATIONAL TRAVEL SERVICES (SUPRA), IT IS ONLY ONE OF THE TWO ASPECTS OF TAXABILITY OF DEEMED DIVIDEND HAS BEEN DISCUSSED AN D REFERRED FOR LARGER BENCH. THE POSITION THAT THE DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF SHAREHOLDER, HAS NOT BEEN DILUTED AS HELD BY MADH UR HOUSING (SUPRA) AND CARGILL INDIA (SUPRA). IT IS REITERATED THAT THE RE FERENCE TO LARGER BENCH ONLY SEEKS TO DILUTE, THE CONTROVERSY REGARDING, WHETHER SHAREHOLDER SHOULD BE BOTH REGISTERED AND BENEFICIAL SHAREHOLDER AND NOT T HE SETTLED POSITION THAT DIVIDEND ULTIMATELY CAN BE TAXED ONLY IN THE HANDS OF SHAREHOLDER, BE IT REGISTERED OR BENEFICIAL NOT OTHERWISE. THUS, TO THA T EXTENT THE JUDGEMENT IN THE CASE OF ANKITECH (SUPRA) STILL HOLDS GROUND. 2.13 IT IS SUBMITTED THAT THE AO HAD ALSO DISALLOWE D THE INTEREST PAID BY THE ASSESSEE TO CAT SYSTEMS FOR THE IMPUGNED LOAN AT 13. 5%. THE CIT(A) HAS :-10-: ITA NO. 429/CHNY/2018 HELD THE SAME TO BE AS AN ALLOWABLE EXPENDITURE. TH E DEPARTMENT HAS NOT CHALLENGED SUCH ALLOWANCE OF INTEREST EXPENDITURE. UNDER THE CIRCUMSTANCES , WHEN ONE LEG OF THE TRANSACTION HAS BEEN ACCEPTED T O BE LOAN AND INTEREST PAID THEREOF HAS BEEN ALLOWED / ACCEPTED AS A BUSIN ESS EXPENDITURE THEN THE LOAN TAKEN CANNOT BE RE-CHARACTERIZED AS DEEMED DIV IDEND. 2.14 IN VIEW OF THE ABOVE, THE ORDER OF THE CIT(A) DESERVES TO BE UPHELD AND HENCE , THE REVENUES APPEAL IS DISMISSED . 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISS ED. ORDER PRONOUNCED ON FRIDAY, THE 30 TH DAY OF NOVEMBER, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 30 TH NOVEMBER, 2018 JPV -'3454 /COPY TO: 1. %/ APPELLANT 2. '#% /RESPONDENT 3. 7 ) (/CIT(A) 4. 7 /CIT 5. 4' /DR 6. : /GF