ITO-9(2)(1), MUMBAI V. HAKIM AMLIM HAIR LOUNGE PVT.LTD., MUMBAI

ITA 591/MUM/2013

• Counselvise Citation: 59119914 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 23-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 22-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEERJA PRADHAN
• Keywords: Question of law; Deemed dividend
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMB ER . / ITA NO. 591 /MUM./ 2013 ( / ASSESSMENT YEAR : 20 0 9 10 ) INCOME TAX OFFICER WARD 19( 2 )( 1 ) R.NO.225, 2 ND FLOOR M.K. ROAD, MUMBAI 400 0 20 .. / APPELLANT V/S M/S. HAKIM AALIM HAIR LOUNGE P VT. LTD. KRISHNA HOUSE, GROUND FLOOR 27, GOLD LINK ROAD, UNION PARK BANDRA (W), MUMBAI 400 050 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AABCH6264R / REV ENUE BY : MS. NEERJA PRADHAN / ASSESSEE BY : NONE / DATE OF HEARING 2 3 . 0 7 .2014 / DATE OF ORDE R 31.07.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HA S BEEN PREFERRED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER DATED 1 ST JANUARY 2013 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) X X , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) , OF THE INCOME TAX ACT, 1961 M/S. HAKIM AALIM HAIR LOUNGE PVT. LTD. 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 09 10 , ON THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION U/S 2(22)(E) AMOUNTING TO ` 11,48,613 RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN M/S. BHAUMICK COLOUR PVT. LTD., 118 ITD 1 (MUM.) , DESPITE EXISTENCE OF PROVISIONS OF SECTION 2(32) AND ITS APPLICABILITY TO THE FACTS OF THE CASE . 2 . FACTS IN BRIEF : THE ASSESSEE IS A PRIVATE LIMITED COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF SALOON / B EAUTY PARLOUR. THE ASSESSING OFFICER, ON A PERUSAL OF THE BALANCE SHEET AS ON 31 ST MARCH 2009, NOTED THAT A SUM OF ` 27,50,000, HAS BEEN SHOWN UNDER THE HEAD UNSECURED LOAN . I N RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE HAD FILED CONFIRMATION OF LOA N BY M/S. HA FRANCHISE HAIR LAUNCH PVT. LTD., BEFORE THE ASSESSING OFFICER IN THE FOLLOWING MANNER: DATE PARTICULARS DEBIT AMOUNT DATE PARTI CULARS CREDIT AMOUNT 15.4.08 BANK 2,00,000 10.04.08 BANK ` 2,00,000 10.09.08 BANK ` 10,00,000 23.10.08 BANK ` 12,50,000 20.11.08 BANK ` 5,00,000 ` 29,50,000 2,00,000 CLOSING BALANCE 27,50,000 29,50,000 ` 29,50,000 THE ASSESSING OFFICER HAD FURTHER NOTED THE SHARE HOLDING PATTERN OF BOTH THE COMPANIES IN THE FOLLOWING MANNER: M/S. HAKIM AALIM HAIR LOUNGE PVT. LTD. 3 HAKIM AALIM HAIR LOUNGE PVT. LTD. S.NO. DIRECTORS/ SHAREHOLDERS NUMBER OF SHARES SHARE HOLDING PATTERN (%) REMARKS 1. SUNIEL SHETTY 1125 11.25 MORE THAN 10% 2. MONISHA SHETTY 1125 11.25 MORE THAN 10% 3. SHAILESH CHEDDA 2250 22.50 MORE THAN 20% 4. DIA A. SINHA 1000 10.00 10% 5. AALIM KAIRANVI 1500 15.00 MORE THAN 10% 6. TEHZEEB KAIRANVI 1500 15.00 MORE THAN 10% 7. TABEER 1500 15.00 MORE THAN 10% 10000 100.00 HA FRANCHISE HAIR LOUNGE PVT. LTD. S.NO. DIRECTORS/ SHAREHOLDERS NUMBER OF SHARES SHA RE HOLDING PATTERN (%) REMARKS 1. AALIM KAIRANVI 4500 45.00 MORE THAN 20% 2. MONISHA SHETTY 1375 13.75 MORE THAN 10% 3. SHAILESH CHEDDA 2750 27.50 MORE THAN 20% 4. SUNIEL SHETTY 1375 13.75 MORE THAN 10% 10000 100.00 HE HAD ALSO NOTED THE COMMON DIRECTORS AND THE SHAREHOLDERS IN THE FOLLOWING MANNER: S.NO. DIRECTORS/ SHAREHOLDERS NUMBER OF SHARES SHARE HOLDING PATTERN (%) REMARKS 1. AALIM KAIRANVI 4500 45.00 MORE THAN 20% 2. MONISHA SHETTY 1375 13.75 MORE THAN 10% 3. SHAILESH CHEDDA 2750 27.50 MORE THAN 20% 4. SUNIEL SHETTY 1375 13.75 MORE THAN 10% 10000 100.00 M/S. HAKIM AALIM HAIR LOUNGE PVT. LTD. 4 3 . THE ASSESSEE, IN RESPONSE TO THE SHOW CAUSE NOTICE BY THE ASSESSING OFFICER AS TO WHY THE PROVISIONS OF DEEMED DIVIDEND SHOULD NOT BE APPLIE D , SUBMITTED THAT IT WAS NOT A SHAREHOL DER OF M/S. HA FRANCHISE HAIR LAUNCH PVT. LTD. AND, THEREFORE, IN VIEW OF THE MUMBAI SPECIAL BENCH DECISION OF THE TRIBUNAL IN ACIT V/S BHOUMIK COLOUR PVT. LTD. [2009] 118 ITD 00 1 (MUM . ) (S B ) , PROVISION OF DEEMED DIVIDEND CANNOT BE HELD TO BE APPLICABLE IN ASSESSEES CASE. THE ASSESSING OFFICER , HOWEVER, REJECTED THE ASSESSEES CONTENTION AND CONFIRMED THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND . 4 . THE LEARNED COMMISSIONER (APPEALS), HOWEVER, ACCEPTED THE ASSESSEES CONTENTION AND DELETED THE ADDITION AFTER OBSERVING AND HOLDING AS UNDER: I HAVE CONSIDERED THE FINDING OF THE ASSESSING OFFICER AND RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. THE QUESTION UNDER CONSID E RATION IS WHETHER AN AMOUNT OF ` 29,50,000 RECEIVED BY THE APPELLANT FROM GROUP CONCERN NA MELY M/S. HA FRANCHISE HAIR LOUNGE PVT. LTD., IS TO BE REGARDED AS DEEMED DIVIDEND OR NOT. IT IS SEEN FROM THE DISCUSSION BY THE ASSESSING OFFICER IN PARA 6.3 OF THE ASSESSMENT ORDER THAT APPELLANT IS NOT A SHAREHOLDER OF M/S. HA FRANCHISE HAIR LOUNGE PVT. LTD. ONLY SOME OF THE SHAREHOLDERS ARE COMMON BUT THAT ITSELF IS NOT SUFFICIENT PROVE THAT THERE IS A TRANSFER OF PROFIT IN THE NAME OF LOAN TO THE D IR E C TO RS AR E SHAREHOLDERS. IT IS VERY EVIDENT THAT THIS IS INTE R COR PORATE ADVANCE AND APPELLANT IS NOT TH E SHAREHOLDER OF M / S. HA FRANCHISE HAIR LOUNGE PVT. LTD. LD. ASSESSING OFFICER HAS NOT APPRECIATED THE FACT OF THE CASE PROPERLY, FURTHERMORE, HE HAS WRON GLY DISTINGUISHED THE PROPOSITION OF M / S. BHAUMIC COLOUR PVT. LTD. REPORTED IN 118 ITD 1 (MUMBAI ) (SP L. BENCH) THE PROVISION OF S.2(22)(E) VERY CLEAR. THE DEEMED DIVIDEND IS REQUIRED TO BE ASSESSED IN 1 HANDS OF SHAREHOLDERS ONLY WHERE HE DIRECTLY I INDIRECTLY RECEIVES THE BENEFIT OUT OF ACCUMULATED PROFITS IN CASH OR IN KIND OR SOME OT HER PERSON RECEIVES THE SAME ON HIS BEHALF OR FOR HIS BENEFIT. THE HON' BLE SPL. BENCH MUMBAI HAS HELD THAT SUCH DEEMED DIVIDEND IS REQUIRED TO ASSESSED IN THE HANDS OF SHAREHOLDERS, IF SHAREHOLDERS RECEIVE LOANS ADVANCES. IT IS WORTHWHILE TO MENTION THAT IN THE CASE OF ITO 1 0(1) VS. M / S. PAGE 3 FASHIONS M/S. HAKIM AALIM HAIR LOUNGE PVT. LTD. 5 PVT. LTD. IN ITA NO.4909/M/2011 DA TED 16.05.2012, RECENTLY HON'BLE ITAT C BENCH MUMBAI HAS ANALYSED SUCH ISSUE IN THE BACK GROUND OF DECISION OF SPL BENCH AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PVT. LTD. 324 I TR 263 (BOMBAY) AND HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S HILTOP 217 CTR 527(RAJ.) AND HAS REACH TO THE CONCLUSION THAT IF THE ASSESSEE IS NOT A SHAREHOLDER IN THE LENDER COMPANY, NO SUCH DEE MED DIVIDEND CAN BE PRESUMED. RESPECTFUL LY FOLLOWING THE ABOVE REFE RRED TWO DECISIONS, THE ADDITION OF ` 11,48,613/ - MADE BY THE ASSESSING OFFICER IS DELETED. 5 . NONE APPEARED ON BEHALF OF THE ASSESSEE. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, BEFORE US, ADMITTED THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE S AS RELIED UPON BY THE LEARNED COMMISSIONER (APPEALS) . 7 . AFTER CONSIDERING THE RELEVANT FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS), WE FIND THAT THAT INSOFAR AS THE FACT THAT THE ASSESSEE IS NOT A SHAREHOLDER IN M/S. HA FRANCHISE HAIR LAUNCH PVT. LTD. THE SAME IS NOT IN DISPUTE AND ONCE IT HAS BEEN FOUND SO , THEN THE PROVISIONS OF SECTION 2(22)(E), CANNOT BE HELD TO BE APPLICABLE. THIS POINT I N ISSUE IS SQUARE LY COVERED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S UNIVERSAL MEDICARE PVT. LTD. [2010] 324 ITR 263 (BOM.) , WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER: IN ORDER THAT THE FIRST PART OF CL . (E) OF S. 2(22) I S ATTRACTED, THE PAYMENT BY A COMPANY HAS TO ' - BY WAY OF AN ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE, AS THE CASE MAY BE, E I THER TO A SHAREHOLDER , BEING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN TO WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANT I AL INTEREST. THE TRIBUNAL IN THE PRESENT CASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE, SINCE M/S. HAKIM AALIM HAIR LOUNGE PVT. LTD. 6 THE AMOUNT IN QUESTION HAD ACTUALLY B EEN DEFALCATED AND WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATION SEEMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BUSINESS L OSS DURING THE COURSE OF ASST. YR. 2006 - 07 . CONSEQUENTLY, ACCORDING TO THE TRIBUNAL THE F I RST REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FULFILLED . THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT G I VE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBUNAL, THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF S. 2(22)(E) IS CORRECT . SEC . 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION ' D I VIDEND'. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF THE D I VIDEND NAMELY THE SHAREHOLDER . THE EFFECT OF S . 2(22) IS TO PROVIDE AN I NCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WH I CH CAN BE CLASS I FIED AS A DIV I DEND. CLAUSE (E) OF S. 2(22) I NCLUDES A PAYMENT MAD E BY THE COMPANY IN WHICH THE PUB L IC IS NOT SUBSTANTIALLY INTERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILLMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVIS I ON. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREATED BY CL . (E) TO BE I NCLUDED I N THE EXPRESSION 'DIVIDEND'. C ONSEQUENT L Y, THE EFFECT OF C L . (E) OF S. 2(22) IS TO BROADEN THE AMB I T OF THE EXPRESSION 'DIVIDEND' BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE INDIV I DUAL BENEFIT OF A SHAREHOLDER . THE DEF I NITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND H AS TO BE TAXED IN THE HANDS OF THE S HAREHOLDER. CONSEQUENTLY, IN THE PRESENT CASE THE PAYMENT , EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE T O BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT I N THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS , IN THE CIRCU MSTANCES, JUSTIFIED IN COMING TO THE CONCLUSION THAT , I N ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE . 8 . IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED C OMMISSIONER (APPEALS) DELETING THE ADDITION OF ` 11,48,618 UNDER SECTION 2(22)(E) AND THE SAME IS AFFIRMED. M/S. HAKIM AALIM HAIR LOUNGE PVT. LTD. 7 9 . 9 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 31 ST JULY 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 31 ST JULY 2014 SD/ - SANJAY ARORA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 31 ST JULY 2014 / COPY O F THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI M/S. HAKIM AALIM HAIR LOUNGE PVT. LTD. 8 DATE INITIAL ORIGINAL DICTATION PAID IS ENCLOSED AT THE END OF FILE 1. DRAFT DICTATED ON 29 .7.2014 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 30 31.7.2014 SR.PS 3. DRAFT PROPO SED & PLACED BEFORE THE SECOND MEMBER 31.7.2014 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 31.7.2014 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 31.7.2014 SR.PS 6. DATE OF PRONOUNCEMENT 31.7.2014 SR.PS 7. FILE SENT TO THE BENCH CLERK 31.7.2014 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER , / / 19997 98 2000 01 / / / / / / / / / /