The ACIT Circle - 2(1), Hyderabad V. M/s. KSR Infracon P. Ltd (Fromerly M/s. KSR Infrastructure P. Ltd), Hyderabad

ITA 479/HYD/2011

• Counselvise Citation: 47922514 RSA 2011
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 24-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Keywords: Deemed to accrue or arise in india; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE THE HONBLE VICE PRESIDENT, SHRI D.MANMOHAN AND SHRI B.RAMAKOTAIAH, HONBLE ACCOUNTANT MEMBER ITA NO.479/HYD/201 1 : ASST. YEAR 200 7 - 0 8 ASSTT . COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), HYDERABAD V/S. M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. ( PAN - AAC CK 3530 C ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.YADAGIRI DR RESPONDENT BY : NONE DATE OF HEARING 2 4 . 12 .2013 DATE OF PRONOUNCEMENT 2 4 .12.2013 O R D E R PER D.MANMOHAN, VICE PRESIDENT: THIS APPEAL BY THE R E VENU E IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) VIJAYAWADA AND IT PERTAINS TO ASSESSMENT YEAR 2007 - 08. 2. FOLLOWING GROUNDS WE R E URGED BY TH E REVENUE - 1. THE O R DER OF THE CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) ERRED INTERPRETING THE PROVISION S O F SECTION 2(22)(E) AND FAILED IN FOL L O W IN G THE CBDTS CIRCULAR NO.495 DATED 22 ND SEPTEMB E R 1987 WHEREIN IT WAS MENTION E D THAT THE DEEMED DIVID E N D U/S. 2(22)(E)WOULD BE TAXE D IN THE HANDS OF CONCERN RECEIVING THE LOAN/ADVANCE AS DEEMED DIVIDEND WHEN THE CON DI TION S ARE SATI S FIED. 3. THE LEARNED CIT (A) ERRED IN INTERPRETING THE P R OV I SION S O F SECTION 2(22)(E) IN SO FAR AS THE LO A N / ADVANCE RECEIVED BY TH E ASSESSEE COMPA N Y FROM I T S HOLDING COMPANY IN WHI C H TH E DIRECTORS WHO ARE COMMON SHARE HOL D ERS OF BO T H THE COMPANIES AND H A VIN G MORE THAN 10% OF THE VOTING RIGHTS. 3. THOUGH NOTICE WAS SERV E D UPON THE ASSESSEE THROUGH THE ASSESSING OFFICER, NONE APPEARED ON BEHALF OF THE ASSESSEE. WE TH E R E FORE, PROCEED TO DISPOSE OF THIS APPEAL EX - PARTE QUA THE ASSESSEE - ON MERITS. ITA NO. 479 /HYD/201 1 M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. ) 2 4. FA CTS NECE SSARY FOR THE DISPOSAL OF THIS A PPEAL ARE STATED IN BRIEF: THE ASSESSEE COMPANY IS IN THE BU S IN E SS OF PROVIDING SUPPORT SERVICES TO INFRAST R U CT U R E SERVI C E PRO VI DERS. FOR THE Y E AR UNDER CONSIDERATION, THE RETURN FIL E D BY THE ASSESSEE WAS ORIGINALL Y PROCESSED UNDER S.143(1) OF THE ACT, BUT SUBSEQUENTLY, THE SAME WAS TAKEN UP FOR SCRUTINY. DURIN G TH E COU R SE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE COMPANY H A D RECEIVED IN T ER E ST FREE UN S ECU R ED LOANS FROM M/S. STERLING STONEX P.LTD., WHICH IN TURN , IS A CLOSELY HELD COMPANY IN WHICH PUBLIC ARE NOT INTER E STED. AS ON 1.4.2006 ACCUMULATED PROFITS OF THE SAID COMPANY ARE RS.5,08,07,339. DIRECTORS OF M /S. STERLING STONEX P. LTD. HELD SUBSTANTIAL SHARES OF THAT COMPANY AND IN TERMS OF PERCENTAGE, THE SHARES HELD BY THOSE DIRECTORS IN THE SE COMPAN IES ARE SPECIFIED HEREINBELOW - IN ASSESSEE COMPANY NAME OF THE SHAREHOLDER NO. OF SHARES HELD % OF SHARES HELD K.VENKATESHWARA RAO 80,000 26.67% K.SRINIVASA RAO 70,000 23.33% K.TIRUMALA RAO 70,000 23.33% IN M/S. STERLING STONEX P. LTD. NAME OF THE SHAREHOLDER NO. OF SHARES HELD % OF SHARES HELD K.VENKATESHWARA RAO 1,70,000 22.67% K.SRINIVASA RAO 1,50,000 20% K.TIRUMALA RAO 1,50,000 20% 5. THUS, T HE VERY SAME DIRECTORS OF M/S. STERLING STONEX P. LTD. ARE ALSO DIRECTORS OF ASSESSEE COMPANY WI T H SLIGHT DIFFERENCE IN THE SHAREHOLDING PATT E RN . TH E REUPON, THE ASSESSING OFFICER EXTRACTED THE DEFINITION OF THE TE RM DIVIDEND , PROVIDED IN S.22(22) ( E) O F THE I.T. ACT, WHICH S PEAKS OF PAYM E NT MA D E BY A COMP A NY OF ANY SUM BY WAY OF LOAN TO A SHAREHOLDER OR TO ANY CO N C E RN IN WHICH SUCH SHAREHOLDER I S A MEMBER.. . I N THE OPINION OF THE ASSESSING OFFICER THE EXPRESSION TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER COVERS THE SHAREHOLDING PATTERN OF M /S. STERLING STONEX P. L TD. IN THE PRESENT CONTEXT. SIN C E ITA NO. 479 /HYD/201 1 M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. ) 3 THE ASSESSEE COMPANY RECEIVED PAYMENT IN TH E FORM OF LOAN TO THE EXTENT OF R S .34,50,431 FROM M/S. ST ERLING STONEX P. LTD. IN WHI C H SHARE HOL D ERS OF TH E ASSESSEE COMPANY WITH TWENTY PERCENT OF THE VOTING POWER HELD MORE THAN 10 % SHARES FOR ASSESSMENT YEAR 200 7 - 08, A P A RT FROM THE FACT THAT M /S. ST ER L ING STONEX P. LTD. HAS SUFFICIENT ACCUMULATED PROFITS AS ON 1.4.2006 TO COVER THE LOAN AMOUNT, THE ASSESSING OFFICER ASSUMED THAT THE UN S ECURED LOAN ADVANCED BY THE SECOND COMPANY PART AK ES THE CHARA C TER OF DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE . 6. TH E R E FORE, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE AS TO WHY DEEMED DIVIDEND CANNO T B E ASSESSED TO TAX IN ITS HANDS. IN RESPONSE TH E RETO, THE ASSESSEE SUBMITTED THAT DEEMED DIVIDEND IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE COMPANY, AS I T I S NOT A SHAREHOLDER OF M /S. STERLING STONEX P. LTD., WHICH HAS DISBURSED THE LOAN AND IN THIS REGARD , RELIED UPON THE DECISION S O F T HE A P EX COU R T IN T H E CASE OF RAM E SHWARLAL SANWARMAL V/S. CIT(122 ITR 1) AND CIT V/S. SHAKUNTALA (43 ITR 352). THE ASSESSING OFFIC ER DID NO T ACCEPT THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE ABOVE MENTIONED DECISION S OF THE APEX COURT ARE RENDERED PRIOR TO THE AMENDMENT MADE TO S.2(22)( E ) OF THE ACT, WHEREAS THE AMENDED PROVISIONS OF THE SAID SECTION ENLARGE S THE SCOPE TO INCLUDE WITHIN ITSELF, THE KIND OF THE TRANSACTION INVOLVED IN THE PRESENT CA S E. 7. IT MAY BE NOTICED THA T THE ASSESSEE HAS ALSO PLACED STRONG RELIANCE UPON THE SP E CIAL BENCH (MUMBAI) DECISION OF THE T RIBUNAL IN THE CA S E OF ACIT V/S. BAUMIK COLOUR PVT. LTD. (ITA NO.5030/MUM/04) (118 ITD 1)(SB) , WHEREIN THE SP E CIAL B ENCH HA D TAKEN A VIEW THAT AMENDED PROVISIONS OF S.2(22)(E) ENVISAGES TO TAX ONLY R E GISTERED SHAREHOLDERS BUT NOT NON - SHAREHOL D ERS LIKE THE ASSESSEE COMPANY . H O W EVER, THE ASSESSING OFFICER PROCEEDED TO DIFFER WITH THE OBSERVATIONS MADE BY THE SP E CIAL B ENCH O F THE TRIBUNAL ( MUMBAI ) , BY OBSERVING IN PARA 9 OF THE ASSESSMENT ORDER AS UN DE R - .. I BEG TO DIFFER WITH OBSERVATION AS SUCH INTERPRETATION MAY NO T CR E ATE ANY PROBLEMS WH E N THERE I S ONLY ONE SHAREHOLDER WHO IS INTERESTED IN ITA NO. 479 /HYD/201 1 M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. ) 4 BOTH CONCERNS I.E. LENDER COMPA N Y AND THE CONCERN RECEI VING THE LOAN AMOUNT. BUT LIKE IN PRESENT CA S E, WHEN MULTIPLE SHAREHOLDERS WITH SUBSTANTIAL INTEREST ARE MEMBERS OF BOTH COMPAN IES , THEN PROBLEM ARISES ASS T O IN WHICH SHAREHOL D ERS HANDS THE LOAN AMOUNT ADVANCED IS TO B E TAXED. THE ASSESSING OFFICER TH E R E FORE, ARRIVED AT A CONCLUSION THAT UNSECURED LOAN AD VANCED BY M/S. ST ERLING STONEX P . LTD. TO THE ASSESSEE DURING THE Y E AR IS NOTHING BUT DEEMED DIVIDEND WITHIN THE MEANING OF S.2(22)(E) OF THE ACT, AND THEREFORE, TAXABLE UNDER THE HEAD INCOM E FROM OTHER SOURCES. 8. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE EXPRESSION SHARE HOL D ER IN S.2(22) ( E) IS FOLLOWED BY THE WORD BEING A PERSON WH O IS BENEFICIAL OWNER OF THE SHARES AND ON A CONJOINT R E ADING, THE WORD SHARE HOL D ER MEANS NOT ONLY R E GISTERED SHAREHOLDER, BU T ALSO A BENEFICIAL SHARE HOL D ER AND IN THIS BEHALF RELIANCE WAS PL A CED ON THE SP E CIAL BENCH DECISION OF THE TRIBUNAL IN T HE C A S E OF BHAUMIK COLOUR P. L TD. I N THE LIGHT OF THE D E CI S ION OF THE SP E CIAL BE NC H OF TH E T R IBUN A L, THE LEARNED CIT(A) A C CEPTED THE CONTENT I ON O F THE ASSESSEE BY OBSERVING AS UNDER - 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. THE MAIN THRUST OF THE ARGUMENT IS THAT THE PROVISIONS OF SEC.2(22)(E) ARE APPLICABLE ONLY TO SHAREHOLDERS AND NOT TO THE RECIPIENT NON - SHAREHOLDER. ELABORATING FURTHER, IT WA S CONTENDED THAT THE APPELLANT COMPANY WAS NOT A REGISTERED SHAREHOLDER OF M /S STERLING STONEX PVT LTD. THERE IS NO DISPUTE OVER THE FACT THAT THE SHARE HOLDERS OF THE APPELLANT COMPANY HAVE SUBSTANTIAL INTEREST IN THE COMPANY FROM WHICH THE ABOVE AMOUNT O F RS. 34,50,431/ - HAS BEEN RECEIVED BY THE APPELLANT COMPANY DURING THE RELEVANT PERIOD. THE CONTENTION THAT THE APPELLANT COMPANY IS NOT A SHAREHOLDER IN M / S STERLING STONEX PVT LTD. AND THEREFORE THE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE, DESE RVES A CLOSER EXAMINATION. ADMITTEDLY THE SHARE HOLDERS IN THE APPELLANT COMPANY ONLY HAVE A SUBSTANTIAL INTEREST IN THE ABOVE COMPANY IN THEIR INDIVIDUAL CAPACITIES. THE FACTS OF THE CASE ARE SIMILAR TO THE CASE OF CIT VS RAJ KUMAR SINGH 295 ITR 9 (ALL) 2 007 WHEREIN IT HAS BEEN HELD THAT LOAN RECEIVED BY THE F I RM FROM A PRIVATE LIMITED COMPANY WHOSE SHAREHOLDERS ARE PARTNERS OF THE F I RM IS NOT DEEMED INCOME. IN THAT CASE THAT CASE THE APPELLANT FIRM HAD RECEIVED AN INTEREST - FREE LOAN FROM A PRIVATE LIMITE D COMPANY, WHOSE SHAREHOLDERS WERE THE PARTNERS OF THE ASSESSEE FIRM. THE REVENUE AUTHORITIES HAD TREATED THE LOAN RECEIVED BY THE F I RM AS DEEMED DIVIDEND UNDER SECTION 2(22)(E). ON APPEAL, THE HIGH COURT OBSERVED THAT SECTION 2(22)(E) APPLIES ONLY IN CASE S WHERE A SHAREHOLDER HAS RECEIVED ANY LOAN FROM THE PRIVATE LIMITED COMPANY, WHOSE SHARES ARE HELD BY THE SHAREHOLDER. IN THE SAID CASE, THE F I RM WAS NOT THE SHAREHOLDER BUT THE PARTNERS OF THE F I RM WERE THE SHAREHOLDERS. SINCE THE LOAN WAS RECEIVED BY TH E FIRM AND NOT THE PARTNERS OF THE F I RM, THE COURT HELD THAT THE LOAN CANNOT BE ITA NO. 479 /HYD/201 1 M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. ) 5 TREATED AS DEEMED DIVIDEND. A SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI TRIBUNAL IN THE CASE OF CIT VS BHAUN I K COLOUR PVT LTD. IN ITA NO. 5030/MURNL04 DT 19111/2008. IT HAS BEEN HELD THAT THE INTENTION OF THE LEGISLATURE IS TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. THE HON'BLE ITAT, HYDERABAD IN THE CASE OF MARC MANUFACTURERS PVT. LTD. , DIFFERING FROM THE JU DGMENT OF THE ITAT, HYDERABAD IN THE CASE OF HYDERABAD CHEMICAL PRODUCTS LTD RELIED UPON BY THE ASSESSING OFFICER, FOLLOWED THE SPECIAL BENCH DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF CIT VS BHAURNIK COLOUR PVT. LTD. THE APPELLANT HAS RELIED ON SEVERA L SUBSEQUENT DECISIONS WHICH HAVE BEEN BASED ON THE ABOVE SPECIAL BENCH DECIS I ON OF THE MUMBAI TRIBUNAL. FOLLOWING THE ABOVE JUDICIAL PRONOUNCEMENTS, IT IS HELD THAT THE PROVISIONS OF SECTION 2(22(E) ARE NOT APPLICABLE TO THE APPELLANT AS THE APPELLANT COM PANY IS NOT A SHAREHOLDER IN M / S STERLING STONEX PVT LTD. CONSEQUENTLY, THE ADDITION OF RS. 35,40,431/ - U/S 2(22)( E ) MADE IN THE ASSESSMENT ORDER IS NOT SUSTAINABLE IN LAW AND THEREFORE, IS DELETED. AG GR IEVED, REVENUE IS IN APPEAL BEFORE US. 9. THE LEA RNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE EMPHASIS HAS TO BE GIVEN TO THE PLAIN MEANING O F THE STATUTE AND ANY JUDGMENT WHICH I S CONTRARY TO THE LET T ER OF LAW DOES NOT DESERVE TO B E FOLLOWED. HE THEN ADVERTED OUR A TTENTION TO THE E XPRESSION DIVIDEND UNDER S.2(22)( E ) O F THE ACT, TO HIGHLIGHT THAT THE E XPRESSION TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBE R IS INCORPORATED IN THE SECTION ONLY TO ENLARGE THE SCOPE O F THE EXPRESSION DE E MED DIVI D END, AND IN THE INSTANT CA S E, THE LOAN WAS GIVE N BY M/S. STERLING STONEX P. LTD. TO TH E ASSESSEE C OMPANY AND THE DIRECTORS ARE SHA R EHOL D ERS OF BOTH THE COMPANIES AND HENCE THE IN C L U SI V E DEFINITION OF THE WORD DIVIDEND TAKES INTO ITS FOLD SUCH TRANSACTIONS ALSO. 10. W E HAVE CAREFULLY CONSIDERED THE SUB M I S SION S O F THE LEARNED DEPARTMENTAL REPRESENTATIVE AND ALSO PERUSED THE RECORD. IT DESERVES TO BE NO T IC E D THAT THE VERY SAME PLEA TAKEN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US IN THIS CASE , WAS CONSIDERED BY THE SPECIAL BENCH(MUMBAI) OF THE TRIBUNAL IN THE CA S E OF BHAUMIK COLOUR PVT. LTD. (SUPRA) . THE VIEW TAKEN BY THE SPECIAL BENCH IN THAT CASE WAS REFERRED TO, BUT NOT OVERRULED BY THE HONBLE BOMBAY HIGH COURT , IN THE CASE OF CIT V/S UNIVERSAL MEDICARE PRI VATE LIMITED (2010)324 ITR 263 . NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE BY THE REVENUE TO S HOW THAT THE TRANS A CTION OF THE NATURE INVOLVED ITA NO. 479 /HYD/201 1 M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. ) 6 IN THE PRESENT CA S E WOULD FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND PROVIDED IN THE ACT. IT ALSO DESERV ES TO B E NOTICED THAT THE ASSESSING OFFICER HAVING NOTICED THE FACT THAT THE ITAT SPECIAL BENCH (MUMBAI) HAD CONSIDERED THE LANGUAGE USED IN S.2(22)(E) OF THE ACT, THE ASSESSING OFFICER CHOOSE NOT TO FOLLOW THE REASONING GIVEN BY TH E SPECIAL BENCH OF I T AT RATHER THAN DISTINGUISHING THE DECISION. A T THIS JUNCTURE, WE HAVE TO MAKE IT CLEAR THAT THE PRINCIPLE OF STARE DECISIS COMES INTO PLAY ONLY WHEN THE PLEA T AKEN BY T H E REVENUE IN A PARTICULAR CASE WAS NO T CONSIDERED IN THE EARLIER INSTANCE, AS OTHERWISE THE EARLIER DECISION I S BINDING ON ALL THE C OURTS FOR THE SAKE OF CONSISTENCY, MORE SO, WHEN I T EMANATES FROM THE SP E CIAL B ENCH ORDER OF THE T RIBUNAL , WHICH I S BINDING ON ALL THE BENCHES OF THE TRIBUNAL, U NLESS A CONTRARY VIEW OF THE JURISDICTIONAL HIGH COU R T IS BROUGHT TO THE NOTICE OF THE BENCH. ADMITTEDLY, NO CONTRARY VIEW W A S TAKEN ON THIS ASPECT, AND THUS, THE LEARNED CIT(A) WAS JU S TIFIED IN FOLLO W IN G THE DECISION OF TH E SP E CIAL BENCH OF THE TRIBUNAL, AND IN COMING TO THE CONCISION THAT THE ADDITION MADE BY THE ASSESSING OFFICER UNDER S.2(22)(E) IS NO T SUSTAINABLE IN LAW. WE TH E R E F O RE, UPHOLD THE O R DER O F THE CIT(A), AND DISMISS THE APPEAL FIL E D BY THE REVENUE. 11. I N THE RESULT, REVENUES APPEAL D I SMI S SED. ORDER PRONOUNCED IN THE COURT AT THE CONCLUSION OF HEARING ON 2 4 .12.2013 SD/ - SD/ - (B.RAMAKOTAIAH ) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT DT/ - 24 TH DECEMBER 2013 COPY FORWARDED TO: 1. M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. 2 . ASST. COMMISSIONER OF INCOME - TAX CIRCLE 2(1), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) , VIJAYAWADA ITA NO. 479 /HYD/201 1 M/S. KSR INFRACON (P)LTD. (FORMERLY M/S. KSR INFRASTRUCTURE PVT. LTD.), HYDERABAD. ) 7 4. COMMISSIONER OF INCOME - TAX VIJAYAWADA 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S