The ACIT, 2(1), Bhopal V. M/s Makson Nurition Food India Pvt. Ltd., Raisen

ITA 572/IND/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53994 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 03-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: S S DESH
• Keywords: Depreciation; Deemed dividend
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.572/IND/2010 A.Y. 2006-07 ASSTT. COMMR. OF INCOME TAX 2(1), BHOPAL APPELLANT VS MAKSON NUTRITION FOOD INDIA PVT. LTD. RAISEN PAN AACCM-4797K RESPONDENT C.O. NO. 28/IND/2010 ARISING OUT OF ITA NO. 28/IND/2010 MAKSON NUTRITION FOOD INDIA PVT. LTD. RAISEN OBJECTOR VS ASSTT. COMMR. OF INCOME TAX 2(1), BHOPAL RESPONDENT DEPTT. BY : SHRI ARUN DEWAN ASSESSEE BY : SHRI S.S. DESHPANDE 2 DATE OF HEARING 20.10.2011 DATE OF PRONOUNCEMENT 21.11.2011 O R D E R PER R.C. SHARMA, ACCOUNTANT MEMBER THE REVENUE HAS FILED THE PRESENT APPEAL WHEREAS T HE ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE ORDER DATED 4.5.2010 OF THE LEARNED COMMISSIONER OF INCOM ETAX (APPEALS) ON THE ISSUE OF DEEMED DIVIDEND. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MODIFIED SUGAR BOILED CANDY AND MODIFIED TOFFEE. I N ITS RETURN THE ASSESSEE SHOWED LOSS OF RS. 1,92,07,679/ -. THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/ S 143(2) OF THE ACT AND ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 31.12.2008 DETERMINING TOTAL INCOME AT NIL AFTER ALLOWING SET OFF OF BROUGHT FORWARD UNABSORBE D DEPRECIATION OF EARLIER YEARS. THE ASSESSING OFFICE R NOTED THAT THE ASSESSEE COMPANY HAD TAKEN UNSECURED LOANS FROM THE FOLLOWING SISTER CONCERNS :- 3 I. MAKSON HEALTH CARE P. LTD. RS. 66,87,858/- II. MAKSON IND.P. LTD. RS. 41.09,329 III. MAKPAR EXPORTS P.LTD. RS. 17,05,500 RS.1,25,02,687 THE ASSESSING OFFICER TREATED THE ABOVE AMOUNTS AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AND AD DED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE U/S 2( 22)(E) OF THE ACT FOR THE REASONS MENTIONED IN THE ASSESSMEN T ORDER. 3. FELT AGGRIEVED, THE ASSESSEE APPROACHED THE LEAR NED COMMISSIONER OF INCOMETAX (APPEALS). THE THRUST OF THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) IS THAT THE ASSESSING OFFICER W AS NOT JUSTIFIED IN TREATING THE FUNDS BORROWED BY THE ASS ESSEE COMPANY FROM THE ABOVE THREE COMPANIES AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT SINCE THE ASSESSEE WAS NEITHER A REGISTERED OR BENEFICIAL SHAREHOLDER IN A NY OF THE ABOVE COMPANIES. 4. THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) FOR THE REASONS GIVEN IN HIS APPELLATE ORDER HELD THAT IT IS AN ADMITTED FACT THAT THE ASSESSEE COMPANY WAS NOT A S HARE 4 HOLDER IN ANY OF THE OTHER THREE COMPANIES FROM WHO M FUNDS WERE BORROWED BY THE ASSESSEE. HE, THEREFORE, RELYING UPON THE ORDER OF THE MUMBAI ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR PRIVATE LIMITED; 11 8 ITD 1 HELD THAT DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT COULD BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF THE PERSON OTHER THAN THE SHAREHOLDER. 5. BEFORE US, THE LEARNED SR. DR RELIED UPON THE OR DER OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL F OR THE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS). 2. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW. SPECIAL BENCH OF THE TRI IN THE CASE OF BHAUMIK COL OUR LAB (SUPRA) AFTER CONSIDERING THE ISSUE AT LENGTH HELD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CAN BE AT TRACTED ONLY WHEN THE ASSESSEE COMPANY IS REGISTERED AND BENEFICIAL OWNER OF SHARES IN THE LENDER COMPANY. FURTHERMORE, IN THE CASE OF CIT VS. INDIAN TECHNOCR AFT 5 LTD., ITA NO. 352 OF 2011 ORDER DATED 11 TH MAY, 2011 THE HONBLE DELHI HIGH COURT BY CONSIDERING THE DECISIO NS OF C.P.SARATHY MUDALIAR 1972) 83 ITR 170 AND RAMESHWA RLAL SANWARMAL VS. CIT (1980) 122 ITR 1 (SC) HELD AS UND ER:- PAGE 46 PARA 22 IT IS THUS CLEAR FROM THE AFORESAID PRONOUNCEMENT OF THE HONBLE SUPREME COURT THAT TO ATTRACT THE FIRST LIMB OF THE PROVISIONS OF SECTION 2 (22) (E) THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. AS ALREADY MENTIONED THE CONDITION UNDER THE 1922 ACT AND THE 1961 ACT REGARDING THE PAYEE BEING A SHAREHOLDER REMAINS THE SAME AND IT IS THE CONDITION UNDER THAT SUCH SHAREHOLDER SHOULD BE BENEFICIAL OWNER OF THE SHARES AND THE PERCENTAGE OF VOTING POWER THAT SUCH SHAREHOLDER SHOULD HOLD THAT HAS BEEN PRESCRIBED AS AN ADDITIONAL CONDITION UNDER THE 1961 ACT. THE WORD SHAREHOLDER ALONE EXISTED IN THE DEFINITION OF DIVIDEND IN THE 1922 ACT. THE 6 EXPRESSION SHAREHOLDER HAS BEEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGISTERED SHAREHOLDER. THIS EXPRESSION SHAREHOLDER FOUND IN THE 1961 ACT HAS TO BE THEREFORE CONSTRUED AS APPLYING ONLY TO REGISTERED SHAREHOLDER. IT IS A PRINCIPLE OF INTERPRETATION OF STATUTES THAT WHERE ONCE CERTAIN WORDS IN AN ACT HAVE RECEIVED A JUDICIAL CONSTRUCTION IN ONE OF THE SUPERIOR COURTS, AND THE LEGISLATURE HAS REPEATED THEM IN A SUBSEQUENT STATUTE, THE LEGISLATURE MUST BE TAKEN TO HAVE USED THEM ACCORDING TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION HAS GIVEN THEM. PAGE 46 PARA 23 IN THE 1961 ACT, THE WORD SHAREHOLDER IS FOLLOWED BY THE FOLLOWING WORDS BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES. THIS EXPRESSION USED IN SECTION 2 (22)(E) , BOTH IN THE 1961 ACT AND IN THE AMENDED PROVISIONS W.E.F. 1 ST APRIL ,1968 ONLY QUALIFIES THE WORD 7 SHAREHOLDER AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERED SHAREHOLDER. THESE PROVISIONS ALSO DO NOT SUBSTITUTE THE AFORESAID REQUIREMENT TO A REQUIREMENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE EXPRESSION BEING IS A PRESENT PARTICIPLE. A PARTICIPLE IS A WORD WHICH IS PARTLY A VERB AND PARTLY AN ADJECTIVE. IN SECTION 2(22) (E), THE PRESENT PARTICIPLE BEING IS USED TO DESCRIBED THE NOUN SHAREHOLDER LIKE AN ADJECTIVE. THE EXPRESSION BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES IS THEREFORE A FURTHER REQUIREMENT BEFORE A SHAREHOLDER CAN BE SAID TO FALL WITHIN THE PARAMETERS OF SECTION 2 (22) (E) OF THE ACT. IN THE 1961 ACT, SECTION HAS ALSO TO BE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS 8 THAN TEN PERCENT OF THE VOTING POWER. IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT UNDER THE 1961 ACT THERE IS NO REQUIREMENT OF A SHAREHOLDER BEING A REGISTERED HOLDER AND THAT EVEN A BENEFICIAL OWNERSHIP OF SHARES WOULD BE SUFFICIENT. PAGE 47 PARA 24 THE EXPRESSION SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN THE FIRST LIMB OF SECTION 2(22) (E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHARES HOLDER BUT NOT HE BENEFICIAL THEN THE PROVISION OF SECTION 2(22) (E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTION 2 (22) (E) WILL NOT APPLY. 9 PAGE 47 PARA 46 IN VIEW OF THE ABOVE, THIS APPEAL IS ALSO DISMISSED. A XEROX COPY OF THE ORDER IS ENCLOSED HEREWITH. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS:- (I) ACIT VS. BHAUMIK COLOUR P.LTD (2009) 313 ITR (A.T) 146 (MUMBAI) (SB). (II) JCIT VS. KUNAL ORGANICS (P) LTD. 164 TAXMAN 169 (AHD.) THUS EVEN WITH THE CHANGE IN THE DEFINITION UNDER THE CURRENT PROVISIONS OF THE INCOME-TAX ACT, 1961, WHEREIN THE DEFINITION OF DEEMED DIVIDEND IS APPLICABLE TO LOAN OR ADVANCE GIVEN TO A REGISTERED AND A BENEFICIAL SHAREHOLDER, THE AFOREMENTIONED DECISION OF THE SUPREME COURT IN THE CASE OF RAMESHWARLAL SANWARMAL (SUPRA) IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. 7. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, WE HOLD THAT FOR BRINGING AN ASSESSEE WITHIN THE PURVIEW OF SECTION 2(22)(E), BOTH THE CONDITIONS REGARDING ASSESSEE BE ING 10 REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY ARE REQUIRED TO BE ESTABLISHED. IN CASE ANY OF THE CONDITIONS IS NOT SATISFIED THEN DEEMING PROVISIONS CONTAINED U/S 2(22)(E) OF THE ACT CANNOT BE ATTRACT ED. SINCE IN THE PRESENT CASE, THE ASSESSEE IS NEITHER A REGI STERED NOR A BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AND CONFI RM THE SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. SD SD (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21 ST NOVEMBER, 2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-