ITO, CHENNAI V. Dax Networks Ltd., CHENNAI

ITA 471/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8981 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , ! ', $ %& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NOS.470 & 471/MDS/2015 ( )( / ASSESSMENT YEARS : 2008-09 & 2009-10 THE INCOME TAX OFFICER, CORPORATE WARD 1(4), O/O ADDL. CIT, CORPORATE RANGE-1, CHENNAI. V. M/S DAX NETWORKS LTD., NEW NO.4 (OLD NO.8), DEVELOPED FLATS, INDUSTRIAL ESTATE, PERUNGUDI, CHENNAI - 600 096. PAN : AAACA 3019 N (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT -.+, / 0 / RESPONDENT BY : SH. PHILIP GEORGE, ADVOCATE 1 / 2$ / DATE OF HEARING : 18.05.2016 34) / 2$ / DATE OF PRONOUNCEMENT : 23.06.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI, FOR THE ASSESSMENT YEARS 2008-09 AND 2009- 10. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN THESE APPE ALS, WE HEARD 2 I.T.A. NOS.470 & 471/MDS/15 BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. SHRI A.V. SREEKANTH, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE ASSESSEE-COMPANY RECEIVED LOAN F ROM M/S CENZA TECHNOLOGIES PVT. LTD. REFERRING TO THE ASSE SSMENT ORDER, MORE PARTICULARLY PAGE 2, THE LD. D.R. SUBMITTED TH AT M/S APCOM EXPORTS PVT. LTD. IS HOLDING MAJOR SHARES IN THE AS SESSEE-COMPANY AS WELL AS IN M/S CENZA TECHNOLOGIES PVT. LTD. THE RE ARE OTHER COMMON SHAREHOLDERS IN BOTH THE COMPANIES. ACCORDI NG TO THE LD. D.R., BY VIRTUE OF SHAREHOLDING PATTERN OF THE ASSE SSEE-COMPANY IN WHICH THE SHARHOLDERS OF M/S CENZA TECHNOLOGIES PVT . LTD. HAVE SUBSTANTIAL INTEREST, THE PROVISIONS OF SECTION 2(2 2)(E) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') IS APPLIC ABLE IN RESPECT OF THE LOAN RECEIVED BY THE ASSESSEE-COMPANY FROM M/S CENZA TECHNOLOGIES PVT. LTD. ACCORDING TO THE LD. D.R., M/S CENZA TECHNOLOGIES PVT. LTD. HAD ACCUMULATED RESERVE AS O N 31.03.2007 TO THE EXTENT OF ` 4,65,61,168/- AND AS ON 31.03.2008, THE ACCUMULATED RESERVE WAS ` 5,08,95,731/-. THEREFORE, IT IS OBVIOUS THAT THE LENDING COMPANY HAS ACCUMULATED PROFITS FA R EXCEEDING THE LOAN AMOUNT. THE LD. D.R. FURTHER SUBMITTED THAT S INCE THE 3 I.T.A. NOS.470 & 471/MDS/15 SHAREHOLDERS ARE BENEFICIARIES, THE LOAN RECEIVED B Y THE ASSESSEE HAS TO BE ASSESSED AS DEEMED DIVIDEND INCOME. 3. ON THE CONTRARY, SH. PHILIP GEORGE, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE-COMPANY IS NO T A SHAREHOLDER IN M/S CENZA TECHNOLOGIES PVT. LTD. RE FERRING TO SECTION 2(22)(E) OF THE ACT, THE LD.COUNSEL SUBMITT ED THAT WHEN A LOAN OR ADVANCE RECEIVED BY A SHAREHOLDER OR BY ANY PERSON FOR THE BENEFIT OF SHAREHOLDER, THE SAME HAS TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF SHAREHOLDER. ACCORDING TO THE LD. COUNSEL, THE DEBT CAN BE ASSESSED ONLY IN THE HANDS OF SHARE HOLDER AND NOT ANYBODY ELSE. THEREFORE, EVEN ASSUMING THAT A LOAN RECEIVED BY THE ASSESSEE IS FOR THE BENEFIT OF SHAREHOLDER OF M /S CENZA TECHNOLOGIES PVT. LTD., AT THE BEST, THE SAME CAN B E ASSESSED ONLY IN THE HANDS OF SHAREHOLDERS OF M/S CENZA TECHNOLOG IES PVT. LTD. AND DEFINITELY NOT IN THE HANDS OF THE ASSESSEE. T HEREFORE, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 2( 22)(E) OF THE ACT. 4 I.T.A. NOS.470 & 471/MDS/15 SECTION 2(22)(E) CLEARLY SAYS THAT ANY PAYMENT BY A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED, BY W AY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BE NEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN 10% OF THE VOTING POWE R, OR ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST, OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE PROFIT WAS ACCUMULATED HAS TO BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22 )(E) OF THE ACT. UNDER THE SCHEME OF THE INCOME-TAX ACT, DEEMED DIVI DEND INCOME HAS TO BE ASSESSED ONLY IN THE HANDS OF SHAREHOLDER WHO IS HOLDING THE SHARES. THEREFORE, WHEN THE ADVANCE OR LOAN GI VEN BY THE COMPANY WAS TO BE TREATED AS DIVIDEND, THE SAME HAS TO BE ASSESSED ONLY IN THE HANDS OF THE SHAREHOLDER OF TH AT COMPANY AND NOT ANYBODY ELSE. THEREFORE, FOR ANY REASON, THE L OAN OR ADVANCE IS MADE TO THIRD PARTY FOR THE BENEFIT OF INDIVIDUAL S HAREHOLDER, AS RIGHTLY CONTENDED BY THE LD.COUNSEL FOR THE ASSESSE E, AT THE BEST, THE SAME CAN BE ASSESSED IN THE HANDS OF SHAREHOLDE R FOR WHOSE BENEFIT, THE LOAN OR ADVANCE WAS MADE. 5. IN THE CASE BEFORE US, M/S APCOM EXPORTS PVT. LT D. IS A COMMON SHAREHOLDER IN THE ASSESSEE-COMPANY AS WELL AS IN M/S 5 I.T.A. NOS.470 & 471/MDS/15 CENZA TECHNOLOGIES PVT. LTD. WHICH ADVANCED LOAN TO ASSESSEE- COMPANY. THEREFORE, IT IS OBVIOUS THAT THE LOAN OR ADVANCE WAS MADE FOR THE BENEFIT OF M/S APCOM EXPORTS PVT. LTD. IN SUCH CIRCUMSTANCES, THE DEEMED DIVIDEND INCOME AT THE BE ST CAN BE ASSESSED ONLY IN THE HANDS OF M/S APCOM EXPORTS PVT . LTD. IF THE REVENUE COMES TO A CONCLUSION ON THE BASIS OF MATER IAL AVAILABLE ON RECORD THAT THE LOAN OR ADVANCE MADE BY M/S CENZ A TECHNOLOGIES PVT. LTD. WAS FOR THE BENEFICIAL INTER EST OF ANY OTHER SHAREHOLDER OF M/S CENZA TECHNOLOGIES PVT. LTD., TH E ADDITION UNDER SECTION 2(22)(E) OF THE ACT CAN BE MADE ONLY IN THE HANDS OF SUCH BENEFICIAL SHAREHOLDER AND DEFINITELY NOT IN THE HA NDS OF THE ASSESSEE. IN VIEW OF THE ADMITTED FACT THAT THE AS SESSEE-COMPANY IS NOT A SHAREHOLDER OF M/S CENZA TECHNOLOGIES PVT. LTD., THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT( APPEALS) HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 5. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. 6 I.T.A. NOS.470 & 471/MDS/15 ORDER PRONOUNCED ON 23 RD JUNE, 2016 AT CHENNAI. SD/- SD/- ( ! ' ) ( ... ) (CHANDRA POOJARI) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 6 /DATED, THE 23 RD JUNE, 2016. KRI. / -278 98)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 :2 () /CIT(A)-1, CHENNAI 4. 1 :2 /CIT-1, CHENNAI 5. 8; -2 /DR 6. <( = /GF.