DCIT CEN CIR 23, MUMBAI V. SIDDHIVINAYAK REALTIES P. LTD, MUMBAI

ITA 4311/MUM/2011

• Counselvise Citation: 431119914 RSA 2011
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 27-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR; PARTHASARTHI NAIK
• Assessee Lawyers: R MURLIDHAR
• Keywords: Question of law; Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER. I.T.A. NO. 4312 & 4311/MUM/2011. ASSESS MENT YEAR : 2006-07 & 2007-08. DY. COMMISSIONER OF INCOME-TAX, SIDDHIVINAYAK REALITIES P. LTD., CENTRAL CIRCLE-23, VS. COMMERZ, 3 RD FLOOR, MUMBAI. INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF. W.E. HIGHWAY,GOREG AON(E) MUMBAI 400 063. PAN AAGCS5578Q. APPELLANT. RESPONDENT. APPELLANT BY : SHR I B.JAYA KUMAR AND SHRI PARTHASARTHI NAIK. RESPONDENT BY : SHRI R. MURLIDHAR. DATE OF HEARI NG : 29-03-2012. DATE OF PRONOUNC EMENT : 11-04-2012, O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS PREFERRED BY THE REVENUE AGAINST A COMMON ORDER DATED 23-03-2011 PASSED BY THE LEARNED CIT(APPEALS)-40, M UMBAI FOR ASSESSMENT YEARS 2006-07 AND 2007-08 INVOLVE A COMMON ISSUE AND THE SAME, THEREFORE, HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SI NGLE CONSOLIDATED ORDER. 2. IN THE SOLIDITY IDENTICAL GROUND RAISED IN THESE APPEALS, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) I N DELETING THE ADDITION MADE BY 2 ITA NOS.4311&4312/MUM/2011 THE AO TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOU NT OF DEEMED DIVIDEND U/S 2(22)(E). 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF REAL ES TATE. IN THE ASSESSMENTS COMPLETED U/S 143(3) READ WITH SECTION 153C FOR BOT H THE YEARS UNDER CONSIDERATION I.E. ASSESSMENT YEARS 2006-07 AND 200 7-08, ADDITIONS OF RS.10,35,34,940 AND RS.13,22,50,000/- RESPECTIVELY WERE MADE BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE TREATING THE SHARE APP LICATION MONEY RECEIVED BY THE ASSESSEE FROM M/S OBEROI CONSTRUCTIONS P. LTD. AS I N THE NATURE OF LOAN OR ADVANCE WHICH WAS LIABLE TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS DEEMED DIVIDEND U/S 2(22)(E). FOR THIS CONCLUSION, THE AO RELIED ON THE FACT THAT MR. VIKAS OBEROI WAS A COMMON SHAREHOLDER WHO HAS 50% SHARES IN THE ASSESSEE COMPANY AND 37.5% SHARES IN M/S OBEROI CONSTRUCTIONS P. LTD . HE HELD THAT MR. VIKAS OBEROI WAS THE ULTIMATE BENEFICIARY BY VIRTUE OF TH IS COMMON EQUITY HOLDING AND THE PROVISIONS OF SECTION 2(22)(E) WERE ATTRACTED. 4. THE ADDITIONS MADE BY THE AO ON ACCOUNT OF DEEME D DIVIDEND U/S 2(22)(E) IN BOTH THE YEARS UNDER CONSIDERATION WERE CHALLENG ED BY THE ASSESSEE IN THE APPEALS FILED BEFORE THE LEARNED CIT(APPEALS) WHO V IDE HIS COMMON ORDER DATED 23-03-2011 PASSED FOR BOTH THE YEARS UNDER CONSIDER ATION, DELETED THE SAID ADDITIONS FOR THE FOLLOWING REASONS GIVEN IN PARAGR APH NO. 5.2 AND 5.2.1 : 5.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE WRITTEN SUBMISSION MADE BY THE APPELLANT. IT IS SEEN THAT THE AO HAS M ADE SUBSTANTIVE ADDITION IN THE HANDS OF THE APPELLANT AND HAS MADE PROTECTI VE ADDITION IN THE HANDS OF THE SHAREHOLDER, NAMELY SHRI VIKAS OBEROI, HAVIN G MORE THAN 0% SHARES IN OCPL AND MORE THAN 20% SHARES IN THIS APPELLATE COMPANY. SEPARATE APPEAL OF SHRI VIKAS OBEROI IS ALSO FILED BEFORE ME . AS PER THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF UNIVER SAL MEDICARE PVT. LTD. 3 ITA NOS.4311&4312/MUM/2011 (2010) 324 ITR 264 (BOM), THE ADDITION IS TO BE MAD E IN THE HANDS OF THE SHAREHOLDERS. THE APPELLATE COMPANY IS NOT HOLDING ANY SHARES IN OCPL. PARA 9 OF THE ORDER READS AS UNDER : 9.IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF SE CTION 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 QUESTI ON HAD ACTUALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN THE BOOKS OF AC COUNT 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 CO URSE OF THE ASSESSMENT YEAR 2006-07. CONSEQUENTLY, ACCORDING TO THE TRIBUN AL THE FIRST REQUIREMENT OF THERE BEING 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. HOWEV ER, EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBUNAL, WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISION S 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 RECIPIENT 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 CLASSIF IED AS A DIVIDEND. CLAUSE (E) OF SECTION 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED B Y WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN OF WHICH SU CH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MA DE 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 ' DIVID END' . CONSEQUENTLY, THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION ' DIVIDEND' BY INCLUDING CERTAIN PAYMEN TS WHICH THE COMPANY 4 ITA NOS.4311&4312/MUM/2011 HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MA DE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DE FINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHARE- HOLDER. CONSEQUENTLY IN THE PRESENT CASE THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE HANDS O F THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS, IN THE CIRCUM- STANCES, 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 CONCL UDING NOTE THAT THE BASIS ON WHICH THE ASSESSEE IS SOUGHT TO BE TAXED IN TH E PRESENT CASE IN RESPECT OF THE AMOUNT OF RS. 32,00,000 IS THAT THERE WAS A D IVIDEND UNDER SECTION 2(22)(E) AND NO OTHER BASIS HAS BEEN SUGGESTED IN THE ORDER OF THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE SOLITAR Y ISSUE INVOLVED IN THESE APPEALS OF THE REVENUE IS SQUARELY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PVT. LTD. (SUPRA) W HEREIN IT WAS HELD THAT ADDITION U/S 2(22)(E) ON ACCOUNT OF DEEMED DIVIDEND COULD BE MADE ONLY IN THE HANDS OF THE ASSESSEE WHO IS A SHAREHOLDER. IN THE PRESENT CASE, THE ASSESSEE COMPANY WAS NOT HOLDING ANY SHARES IN M/S OBEROI CONSTRUCTIONS P. L TD. IN THE YEARS UNDER CONSIDERATION AND THIS BEING THE UNDISPUTED POSITIO N, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DELETING THE ADDITIONS MADE BY THE AO IN BOTH THE YEARS UNDER CONSIDERATION ON ACCOUNT OF AMOUNTS RECEIVED FROM M/S OBEROI CONSTRUCTIONS P. LTD. AS SHARE APPLICATI ON MONEY TREATING THE SAME AS DEEMED DIVIDEND, FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE P. LTD. (SUPRA). THE SAM E IS, THEREFORE, UPHELD ON THIS ISSUE AND THESE APPEALS OF THE REVENUE ARE DISMISSE D. 5 ITA NOS.4311&4312/MUM/2011 6. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED ON THIS 11 TH DAY OF APRIL, 2012. SD/- SD/- (VIVEK VARMA) ( P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 11 TH APRIL, 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI. WAKODE