M/s Olympus Personnel Allied Services (P) Ltd., Chandigarh V. DCIT, Chandigarh

ITA 57/CHANDI/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2550 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 09-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Question of law; Deemed dividend
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 57/CHD/2015 ASSESSMENT YEAR: 2011-12 M/S OLYMPUS PERSONNEL ALLIED SERVICES (P) LTD. VS. THE DCIT, CHANDIGARH CIRCLE 4(1), CHANDIGARH PAN NO. AAAC05744N (APPELLANT) (RESPONDENT) APPELLANT BY : SH TEJ MOHAN SINGH RESPONDENT BY : MS. CHANDER KANTA DATE OF HEARING : 09.12.2015 DATE OF PRONOUNCEMENT : 18.01.2016 . ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A) CHANDIGARH DATED 20.10.2014 RELATING TO ASSESSMENT YEAR 2011-12. 2. THE ONLY DISPUTE IN THIS APPEAL RELATES TO ADDIT ION OF RS. 68,35,028/- MADE ON ACCOUNT OF DEEMED DIVIDEND TO THE EXTENT OF RESE RVES AND SURPLUSES U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') WHICH IS STATED TO BE RECEIVED A LOAN FROM ANOTHER COMPANY. THE RELEVANT FACTS OF THE CASE ARE THAT ASSESSEE HAD RECEIVED ADVANCE OF RS. 2,29,52,487/- FROM M/S COMPETENT PERSONNEL AND ALLIED SERVICES (P) LTD. DURING THE P ERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. AS PER THE ASSESSING OFF ICER, THE TWO DIRECTORS OF THE 2 ASSESSEE COMPANY NAMELY SHRI JAROWAR SINGH AND SHRI RUPINDER SINGH HOLDING 50% SHARE EACH OF THE ASSESSEE COMPANY WERE ALSO HO LDING SHARES OF M/S COMPETENT PERSONNEL AND ALLIED SERVICES (P) LTD. TO THE EXTENT OF 48% SHARES EACH AND HENCE THE ASSESSING OFFICER TOOK THE VIEW THAT PROVISIONS OF SECTION 2(22)(E) WERE ATTRACTED. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS. 68,35,028/- AS DEEMED DIVIDEND U/S 2 (22) (E) OF THE ACT. 3. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION AND , HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AT LENGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD . SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN MANPOWER SUPPLY. THE COMPANY SUPPLIED SK ILLED AND UNSKILLED WORKERS. SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE AMOUNT OF RS. 68,35,028/- BEING THE AMOUNT OF RESERVES AND SURPLU SES SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT, ON ACCOUN T OF LOANS HAVING BEEN RECEIVED FROM ANOTHER COMPANY NAMELY M/S COMPETENT PERSONNEL AND ALLIED SERVICES (P) LTD. IN WHICH THE SAME DIRECTORS WERE THERE. THE MAXIMUM ADVANCE DURING THE YEAR WAS TO THE TUNE OF RS. 2,29,52,487/ - SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT TH E PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE TO THE FACTS OF THE PRE SENT CASE. ACCORDING TO HIM, THE COMPANY FROM WHOM THE LOANS HAVE BEEN RECEIVED IS NOT A REGISTERED SHARE HOLDERS OF THE ASSESSEE COMPANY. THE PROVISIONS OF SECTION 2(22)(E) ARE ONLY APPLICABLE WHERE LOAN IS TAKEN BY THE SHARES HOLDER S AND NOT BY THE COMPANY. IN SUPPORT OF THE ABOVE CONTENTION, SHRI TEJ MOHAN SIN GH, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS:- 3 1. CIT V SHARMAN WOOLEN MILLS LTD [2012] 204 TAXMAN 82 (P&H) 2. CIT V NAVYUG PROMOTERS (P) LTD 203 ITR 618 (DELHI.) 3. ACIT V M/S COLOR CRAFTS PVT LTD, LUDHIANA IN ITA N O. 1248/CHD/2011 OF ITAT CHANDIGARH 4. ACIT V M/S INDIA CASTING COMPANY IN ITA NO. 55/AGR/ 2012 OF ITAT, AGRA 5. IN OUR CONSIDERED VIEW, THE DECISIONS RELIED ON BY SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE ARE SQUARELY APPLICAB LE TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF CIT V SHARMAN WOOLEN MILLS LTD (SUPRA), THE JURISDICTIONAL HIGH COURT HELD THAT IN TERMS OF SECTION 2(22)(E) OF THE ACT THE DIVIDEND INCOME IS ASSESSABLE ONLY IN THE HANDS OF SHARE HOL DER OF THE LENDING COMPANY. THE HON'BLE HIGH COURT ALSO OBSERVED THAT M/S SHARM AN WOODS LTD. WAS NOT A SHARE HOLDER OF M/S ANKUR AGRO PVT LTD WHO HAS ADV ANCED UNSECURED LOANS TO M/S SHARMAN WOOLEN MILLS LTD, A SEPARATE REGISTERED COMPANY UNDER THE COMPANIES ACT, 1956. THE ASSESSING OFFICER MADE AN ADDITION OF RS. 99,10,000/- IN THE INCOME OF SHARMAN WOOLEN MILLS L TD AS A DIVIDEND U/S 2(22)(E) OF THE ACT. THE JURISDICTIONAL HIGH COURT HAS CATEGORICALLY HELD THAT IN TERMS OF SECTION 2(22)(E) OF THE ACT, THE DIVIDE ND INCOME IS ASSESSABLE IN THE HAND OF SHARE HOLDERS OF THE LENDING COMPANY. SINCE M/S SHARMAN WOOLEN MILLS LTD WAS NOT SHARE HOLDER OF M/S ANKUR AGRO PVT LTD AND THEREFORE, THE SAID AMOUNT WAS NOT ASSESSABLE IN THE HANDS OF THE SHARM AN WOOLEN MILLS LTD IN TERMS OF SECTION 2(22)(E) OF THE ACT. IN THE INSTAN T CASE ALSO, M/S OLYMPUS PERSONNEL ALLIED SERVICES (P) LTD (ASSESSEE) HAD RE CEIVED LOANS / ADVANCES FROM M/S COMPETENT PERSONNEL AND ALLIED SERVICES (P) LTD AND THE ASSESSEE IS NOT A SHARE HOLDER OF THE SAID COMPANY. THE PROVISIONS OF SECTION 2(22)(E) ARE ONLY APPLICABLE WHERE THE LOANS ARE TAKEN BY THE SHARE H OLDER AND NOT BY THE COMPANY, WHO IS NOT A SHARE HOLDER. 4 6. IN THE CASE OF NAVYUG PROMOTERS (P) LD. (SUPRA) THE HON'BLE DELHI HIGH COURT HAS CATEGORICALLY HELD THAT AN ASSESSEE WHO IS NOT A SHARE HOLDER OF THE COMPANY, FROM WHICH HE RECEIVED A LOAN OR AN ADVANC E, CANNOT BE TREATED AS BEING COVERED BY DEFINITION OF WORD DIVIDEND AS P ROVIDED IN SECTION 2(22(E) OF THE ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE H IGH COURT ARE AS UNDER;- 4. THE REVENUE IS IN APPEAL RAISING THE QUESTIONS EXTRACTED ABOVE. THE CONTROVERSY IS NOW CONCLUDED BY THE JUDG MENT OF A DIVISION BENCH OF THIS COURT IN THE CASE OF CIT V A NKITECH PVT LTD (ITA NO.462/2009) AND CONNECTED APPEALS ON 11TH MAY , 2011. A COPY OF THE JUDGMENT HAS BEEN FILED BEFORE US. WE H AVE CAREFULLY GONE THROUGH THE SAME. AFTER AN ELABORATE DISCUSSIO N OF THE ISSUE, AND THE CASE-LAW ON THE SUBJECT, THE DIVISION BENCH HAS HELD THAT AN ASSESSEE WHO IS NOT A SHAREHOLDER OF THE COMPANY , FROM WHICH HE RECEIVED A LOAN OR AN ADVANCE CANNOT BE TREATED AS BEING COVERED BY THE DEFINITION OF THE WORD DIVIDEND AS PROVIDE D IN SEC.2(22)(E) OF THE ACT. IT HAS BEEN HELD:- 24. THE INTENTION BEHIND ENACTING PROVISIONS OF S ECTION 2(22)(E) IS THAT CLOSELY HELD COMPANIES (I.E. COMPA NIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHI CH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE C OMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTRIBUTE SUCH P ROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INC OME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. IN STEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPA NIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON ITA 497/2011 PAGE 4 OF 5 BEH ALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYMENT BY T HE COMPANY IS TREATED AS DIVIDEND. THE INTENTION BEHIN D THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDERS. THE DEEMING PROVISIONS A S IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPA NY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL IN TEREST, IS BASED ON THE PRESUMPTION THAT THE LOANS OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. 25. FURTHER, IT IS AN ADMITTED CASE THAT UNDER NORM AL CIRCUMSTANCES, SUCH A LOAN OR ADVANCE GIVEN TO THE 5 SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREATED UNDER SECTION 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT T HIS LEGAL PROVISION RELATES TO DIVIDEND. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH I S ENLARGED. LEGAL FICTION DOES NOT EXTEND TO SHAREHOLDER. WHE N WE KEEP IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOU S, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIE D UNDER SECTION 2(22)(E) OF THE ACT WOULD ALSO BE TREATED A S DIVIDEND. THE FICTION HAS TO STOP HERE AND IS NOT TO BE EXTEN DED FURTHER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY WAY O F LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPANY IS SU PPOSED TO DISTRIBUTE THE PROFITS IN THE FORM OF DIVIDEND TO I TS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GI VEN TO NON-MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SE CTION 2(22)(E) OF THE ACT, VIZ., A CONCERN (LIKE THE ASSE SSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANCE IS ADMITTEDLY NO T A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER /MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISLA TURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF DEEMING SHAREHOLDER, THEN THE LEGISLATURE WOULD H AVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDE R AS WELL, ITA 497/2011 PAGE 5 OF 5 THAT HAS NOT HAPPENED. MOS T OF THE ARGUMENTS OF THE LEARNED COUNSELS FOR THE REVENUE W OULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FROM T HIS PERSPECTIVE. 5. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE- COMPANY IS NOT A SHAREHOLDER HOLDING THE REQUIRED P ERCENTAGE OF SHARES IN ANY OF THE TWO COMPANIES. THEREFORE, THE JUDGMENT OF THIS COURT IN ANKITECH PVT LTD (SUPRA) FULLY APPLIES TO THE PRESENT CASE. WE ACCORDINGLY HOLD, FOLLOWING THE SAID JUDGMENT TH AT NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER O F THE TRIBUNAL. 7. IN THE CASE OF CIT VS. UNIVAERSAL MEDICARE PRIVA TE LTD 324 ITR 263 (BOM.), THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT DEEMED DIVIDEND IS ASSESSABLE IN THE HANDS OF THE SHARE HOLDERS. ADMIT TEDLY, IN THIS CASE THE ASSESSEE COMPANY IS NOT A SHARE HOLDER OF M/S COMPE TENT PERSONNEL AND ALLIED SERVICES (P) LTD AND THE AMOUNT IN QUESTION CANNOT BE ADDED IN THE HANDS OF THE ASSESSEE COMPANY. 6 8. KEEPING IN VIEW THE DECISIONS OF THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE OF SHARMAN WOOLEN MILLS LTD (SUPRA) AND ALSO THOSE OF HON'BLE DELHI HIGH COURT AND BOMBAY HIGH COURT, REFERRED TO ABOV E, WE HOLD THAT THERE WAS NO JUSTIFICATION IN MAKING THE ADDITION UNDER THE P ROVISIONS OF SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, WE DELETE THE ADDITION OF RS. 68,35,028/- MADE ON ACCOUNT OF DEEMED DIVIDEND. GROUND NOS. 1 TO 5 OF THE APPEAL ARE ALLOWED. 9. GROUND NO.6 OF THE APPEAL RELATES TO CHARGING O F INTEREST U/S 234B AND 234D OF THE ACT. AS REGARDS THE CHARGING OF INTERE ST U/S 234B OF THE ACT, SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THIS GROUND OF APPEAL IS CONSEQUENTIAL IN NATURE AND WE DIRECT TH E ASSESSING OFFICER TO DECIDE THE SAME ACCORDINGLY. AS REGARDS CHARGING OF INTER EST U/S 234D, WE MAY OBSERVE HERE THAT NO ARGUMENTS WERE ADVANCED BEFORE US IN RESPECT OF THIS GROUND OF APPEAL. ACCORDINGLY, WE DISMISS THE GROU ND OF APPEAL TO THIS EXTENT. 10. NO OTHER POINT WAS RAISED OR ARGUED BEFORE US. 11. IN THE ABOVE TERMS, THE APPEAL IS ALLOWED PARTY . ORDER PRONOUNCED IN THE OPEN COURT ON 18.01.2016 SD/- SD/- (ANNAPURNA MEHROTRA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED 18 TH JANUARY, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR