SAB TECHNICAL SERVICES INDIA P. LTD, MUMBAI V. ACIT 7(2), MUMBAI

ITA 5372/MUM/2010

• Counselvise Citation: 537219914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V V SHASTRI
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, H BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI R.S.PADVEKAR, JUDICIAL MEMBER I.T.A NO.5372/ MUM/2010 ASSESSMENT YEAR: 2007-08 SAB TECHNICAL SERVICES INDIA P. LTD. .. APPELLA NT 248/1, BOSCO MANSION, WADALA (W), STATION ROAD, MUMBAI. PA NO.AAACS 5187 VS ACIT 7(2) .. RESPONDENT MUMBAI. APPEARANCES: NATWAR G. THAKRAR, FOR THE APPELLANT V.V.SHASTRI, , FOR THE RESPONDENT DATE OF HEARING : 25.8.2011 DATE OF PRONOUNCEMENT : 25 -08-2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED I NTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 9 TH FEBRUARY, 2010, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR TH E ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN CONFIRMING ACTION OF THE AO IN TAXING A SU M OF RS.2,51,634 BEING A PART OF THE LOAN RECEIVED FROM M/S. SHAILOM TRADING PRIVATE LIMITED AS DEEMED DIVIDEND U/S.2(22)(E) DESPITE THE FACT THAT THE ASSESSEE COMPANY IS NEITHER A REGISTERED NOR A B ENEFICIAL 2 SHAREHOLDER OF THE LENDER COMPANY, A PRECONDITION F OR TREATING THE SAME AS DEEMED DIVIDEND U/S.2(22)(E) LAID DOWN BY ITAT B OMBAY SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR, 118 I TD 1. 2. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE L IKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE COMPANY HAD OBTAINED LOAN AMOUNTING TO RS. 31,80,225 FROM M/S. SHALOM TRADING P.LTD., WHEREIN, THE DIRECTORS OF TH E COMPANY SHRI ANAND CASTELINO & VIANNEY CASTELINO HOLDING MORE THAN 10% OF THE SHARE HOLDING I.E. 50% & 24%. IT WAS IN THIS BACKDROP AND TAKIN G NOTE OF THE DEFINITION OF THE DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE I .T.ACT, 1961, THAT THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAU SE AS TO WHY THE LOAN RECEIVED FROM M/S. SHALOM TRADING P.LTD SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT AND BE BROUGHT TO TAX ACCORDINGLY. THE CONTENTION ADVANCED BY THE ASSESSEE AGAINST NON-APP LICABILITY OF SECTION 2(22)(E) WAS REJECTED AND THE AO PROCEEDED TO TAX T HE ACCUMULATED PROFITS OF RS.9,55,674 AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) TAKING NOTE OF THE DECISION OF ITAT AHME DABAD IN THE CASE OF M.B. STOCK HOLDING LTD, 84 ITD 542 AND ALSO THE DECISION HONBLE SUPREME COURT IN THE CASE OF CIT VS. V.DATA CHINAMURTHY & ORS, 121 I TR 572(SC), RESTRICTED THE DISALLOWANCE TO RS.2,51,634. AGGRIEVED, ASSESSEE I S IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF A PPLICABLE LEGAL POSITION. 4. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE IS SUE IN APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE, BY A SPECIAL BENCH DECIS ION OF THIS TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P)LTD, 27 SOT 270( SB), WHEREIN, IN AN IDENTICAL ISSUE, THE SPECIAL BENCH HAS HELD AS UNDE R: 5. THE INTENTION BEHIND ENACTING PROVISIONS OF SEC TION 2(22)(E) ARE THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED_, WHICH ARE CONTRO LLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUM ULATED PROFITS WOULD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEN D BECAUSE IF SO 3 DISTRIBUTED THE DIVIDEND INCOME WOULD BECAME TAXABL E IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATE PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS L OAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUC H SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHA REHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS SUCH PAYM ENT BY THE COMPANIES TREATED AS DIVIDEND. THE INTENTION BEHIN D THE PROVISIONS OF SECTION 2(22)(E) IS TO TAX DIVIDEND I N THE HANDS OF SHAREHOLDER. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHIC H ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON T HE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMAT ELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCES. THE INTENTION OF THE LEGISLATURE IS THER EFORE TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND N OT IN THE HANDS OF THE CONCERN. 5. ADMITTEDLY, THE ASSESSEE COMPANY IS NOT HAVING ANY SHAREHOLDING IN M/S. SHALOM TRADING PVT LTD. MERELY BECAUSE SHRI AN AND CASTELINO & VIANNEY CASTELINO, DIRECTORS OF THE ASSESSEE COMPANY ARE T HE SHAREHOLDER M/S. SHALOM TRADING PVT LTD, THE ASSESSING OFFICER TREA TED THE LOAN GIVEN BY M/S. SHALOM TRADING PVT LTD TO THE ASSESSEE COMPANY AS D EEMED DIVIDEND. 6. THE VIEW TAKEN BY ITAT (SB) IN THE CASE OF BHAUM IK COLOUR PVT :LTD (SUPRA) IS APPROVED BY HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. UNIVERSAL MEDICARE PR IVATE LIMITED, 324 ITR 263(BOM). RESPECTFULLY FOLLOWING THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PRIVATE LTD. (SUP RA), WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO ALLOW T HE CLAIM MADE BY THE ASSESSEE. 7. IN THE RESULT, APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25 TH AUGUST, 2011 SD/- (R.S.PADVEKAR) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 25 TH AUGUST, 2011 4 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-13, MUMBAI 4. COMMISSIONER OF INCOME TAX, , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE,7 BENCH H MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI