ITO, New Delhi V. M/s Express Infocom Pvt. Ltd., New Delhi

ITA 499/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3520 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: RAVI GUPTA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.499/DEL./2011 (ASSESSMENT YEAR : 2006-07) ITO, WARD 11(2), VS. M/S EXPRESS INFOCOM PVT. LTD. NEW DELHI. 17, GODAWARI APARTMENTS, ALAKNANDA, KALKAJI, NEW DELHI. (PAN/GIR NO.AABCE4794P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI GUPTA, ADV. REVENUE BY : MS. Y. KAKKAR, SR.DR ORDER PER SHAMIM YAHYA, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF THE CIT(A)-XIII, NEW DELHI, DATED 30.11.2010 AND PERTAI NS TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT THE CIT(A) ERRED IN DELETIN G THE ADDITION OF `10,00,000/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2( 22)(E) OF THE I.T. ACT, 1961. 3. IN THIS CASE, DURING THE YEAR ASSESSEE COMPANY RECEIVE D SECURED LOANS OF `10,00,000 FROM M/S DRISHTI OVERSEAS PVT. LTD. ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY HELD 29.96% OF THE SHAR EHOLDING OF M/S DRISHTI OVERSEAS PVT. LTD. THE SAID DIRECTOR ALSO HE LD 50% SHARE OF THE ASSESSEE COMPANY. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, A.O. ADDED THE AMOUNT OF `10,00,000/- AS A DIVIDEND INCOME OF THE ASSESSEE COMPANY INVOKING THE PROVISIONS OF SECTION 2(22)( E) OF THE I.T. ACT, 1961. I.T.A. NO.499/DEL./2011 (A.Y. : 2006-07) 2 4. BEFORE THE CIT(A), IT WAS CONTENDED THAT THE ASSESSIN G OFFICER HAS ERRED IN THIS REGARD AS THE ASSESSEE COMPANY WAS NOT HO LDING ANY SHARE OF M/S DRISHTI OVERSEAS PVT. LTD. THE ASSESSEE FURTHE R PLACED RELIANCE UPON THE DECISION OF SPECIAL BENCH OF MUMBA I, ITAT IN THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD., 27 SOT 270. CONSIDERING THE ABOVE, CIT(A) HELD THAT SINCE THE ASSESSEE IS NOT SHAREHOL DER OF M/S DRISHTI OVERSEAS PVT. LTD., THE ADDITION MADE OF `10,0 0,000 WAS TO BE DELETED. 5. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL PRODUCED AND THE PRECEDENT RELIED UPON. WE FIND TH AT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF ACIT VS. BHA UMIK COLOUR PVT. LTD.(SUPRA). IN THIS CASE IT WAS HELD THAT AS UNDER: THE PROVISIONS OF SECTION 2(22)(E) WHICH BROUGHT IN A NEW CATEGORY OF PAYMENT WHICH WAS TO BE CONSIDERED AS DIVI DEND AS INTRODUCED BY THE FINANCE ACT, 1987 W.E.F. 01.4.88 VIZ., PAYMENT BY A COMPANY TO ANY CONCERN IN WHICH SUCH SHARE HOLDE R IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST DO NOT SAY AS TO IN WHOSE HANDS THE DIVIDEND HAS TO BE B ROUGHT IN TAX, WHETHER IN THE HANDS OF THE CONCERN OR THE SH AREHOLDER THE INTENTION BEHIND ENACTING PROVISIONS OF SECTION 2( 22)(E) ARE THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHICH P UBLIC ARE NOT SUBSTANTIALLY INTERESTED) WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROF ITS WOULD NOT DISTRIBUTE SUCH PROFITS AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTED ACCUM ULATING PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOANS O R ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYME NT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHARE HOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS SUCH PAYMENT B Y THE COMPANY IS TREATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISION OF SECTION 2(22)(E) IS TO TAX DIVIDEND IN TH E HANDS OF I.T.A. NO.499/DEL./2011 (A.Y. : 2006-07) 3 SHAREHOLDER. THE DEEMING PROVISIONS AS IT APPLIES TO TH E CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON THE PRESUMPTION THAT THE LOANS OR ADVANCES WILL ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING T HE LOANS OR ADVANCES. THE INTENTION OF THE LEGISLATURE IS, THEREF ORE, TO TAX DIVIDEND ONLY IN THE HANDS OF SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. WE FURTHER NOTE THAT HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. ANKITECH PVT. LTD. IN I.T.A. NO.462 OF 2009 VIDE ORDER DATED 11.5.2011 UPHELD THE ITAT ORDER, WHEREIN THE CASE OF M/S BHAUMIK COLOUR PVT. LTD. WAS FOLLOWED. RESPECTFULLY FOLLOWIN G THE PRECEDENT AS ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE STA NDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 14.07.2011. SD/- SD/- [A.D.JAIN] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: JULY 14 ,2011 SKB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A)-XIII, NEW DELHI. 5. CIT( ITAT) BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES I.T.A. NO.499/DEL./2011 (A.Y. : 2006-07) 4