The ACIT, 3(1), Bhopal V. M/s. Vankatesh Beverages Ltd, Raisen

ITA 6/IND/2011

• Counselvise Citation: 622714 RSA 2011
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: S S MUNDRA
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAACV4897M I.T.A.NO.06/IND/2011 A.Y. : 2006-07 ACIT, M/S.VENKATESH BEVERAGES LIMITED, 3(1), VS 44-46, NEW INDUSTRIAL AREA, BHOPAL MANDIDEEP APPELLANT RESPONDENT APPELLANT BY : SHRI ARUN DEWAN, SR. DR RESPONDENT BY : SHRI S.S. MUNDRA, C. A. DATE OF HEARING : 20.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 21.10.2010 FOR THE ASSESSMENT YEAR 2006-07, IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFI CER U/S 143(3) DATED 30 TH DECEMBER, 2008. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- -: 2: - 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE CIT(A) HAS ERRED IN 1. DELETING THE ADDITION OF RS. 37,83,775/- MADE BY THE ASSESSING OFFICER U/S 2(22)(E) HOLDING THAT THE ASSESSEE COMPANY DOES NOT FALL WITHIN THE MISCHIEF OF SECTION 2(22)(E) OF INCOME-TAX ACT, 1961. 2. DIRECTING THE AO TO ALLOW SET OFF OF CARRY FORWARD LOSSES, WITHOUT CONSIDERING THE AOS COMMENTS ON THE ADDITIONAL GROUND THAT THE RETURN IS FILED BY T HE ASSESSEE ON 8.12.2006 WHEREAS DUE DATE WAS 30.10.2006 EXTENDED TILL 30.11.2006 AND ALSO SECTION 139(3) OF INCOME-TAX ACT, 1961. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FIRST GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER U/S 2(22) (E) AMOUNTING TO RS. 37,83,775/-. 4. THE FACTS, IN BRIEF, ARE THAT ON PERUSAL OF THE DET AILS FILED BY THE ASSESSEE, THE AO NOTICED THAT THE ASSE SSEE HAS RAISED A LOAN OF RS. 76,00,936/- FROM M/S. KANTI BE VERAGES PVT.LTD. IT WAS ALSO NOTICED THAT MR. KANTI P. PARA SRAMPURIA IS -: 3: - 3 A COMMON SHAREHOLDER IN BOTH THE ASSESSEE COMPANY A ND ALSO M/S. KANTI BEVERAGES PVT. LTD. HAVING EQUITY SHARES BEYOND THE PRESCRIBED LIMIT AS STIPULATED U/S 2(22)(E). TH E ASSESSEE COMPANY IS ALSO NOT A PUBLIC LIMITED COMPANY. IN VI EW OF THE ABOVE, THE AO PROCEEDED TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) AND THE ACCUMULATED PROFITS OF M/S. KANTI BEVERAGES PVT.LTD. TO THE EXTENT OF RS. 37,83,775/- WAS TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. 5. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION AFTER RELYING ON THE DECISION OF I.T.A.T. SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR LAB, 150 TTJ 865. FOL LOWING WAS THE PRECISE OBSERVATION OF THE CIT(A) :- I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMISSION OFFERED BY THE LD. AUTHORIZED REPRESENTATIVE AND THE CASE LAWS CITED BY HIM IN SUPPORT OF APPELLANT COMPANY. THE AO HAS MADE THE IMPUGNED ADDITION OF RS. 37,83,775/- U/S 2(22)(E) I N THE CASE OF THE APPELLANT COMPANY BECAUSE MR. K.P. PARASRAMPURIA WAS HOLDING EQUITY SHARES BEYOND THE PERMISSIBLE LIMIT U/S 2(22)(E) IN BOTH THE LEND ER -: 4: - 4 COMPANY AND THE APPELLANT COMPANY WHICH HAS RECEIVED LOAN DURING THE YEAR. THE LD. AUTHORIZED REPRESENTATIVE HAS CONTESTED THE DECISION OF THE AO ON THE GROUND THAT THE APPELLANT COMPANY IS NOT A SHAREHOLDER OF THE LENDER COMPANY M/S. KANTI BEVERAGES PVT.LTD. AND TAXING OF THE DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT COMPANY IS CONTRARY TO THE PRINCIPLES OF LAW. THE LEARNED COUN SEL OF THE APPELLANT HAS PLACED RELIANCE IN THE CASE OF ACIT VS. BHAUMIK COLOUR LAB PVT.LTD. REPORTED IN 120 TTJ (MUM) (S.B.)865. I FIND FORCE IN THE ARGUMENT GIVEN BY THE LD. AUTHORIZED REPRESENTATIVE. IT HAS BEEN STRONGLY PLEADED THAT DEEMED DIVIDEND U/S 2(22)(E) CAN BE TAXED IN THE HANDS OF THE SHAREHOLDER AND THE APPELLANT COMPANY IS NOT A SHAREHOLDER OF THE LENDE R COMPANY. THE SPECIAL BENCH OF HON'BLE MUMBAI I.T.A.T. WHICH ADJUDICATING THIS ISSUE IN THE CASE OF BHAUMIK COLOUR LAB HAS FOLLOWED THE RATIO LAID DOWN IN THE CASE OF CIT VS. HOTEL HILLTOP, (2006) 217 CT R -: 5: - 5 (RAJ) 527. IT HAS BEEN HELD THAT DEEMED DIVIDEND CA N BE TAXED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT A PERSON OTHER THAN A SHAREHOLDER. IN THE CASE OF BHAUMIK COLOUR LAB, IT HAS BEEN ALSO CLARIFIED THAT A DEEME D DIVIDEND IS APPLICABLE ONLY WHEN LOAN OR ADVANCE HAS BEEN GIVEN TO A PERSON WHO IS NOT ONLY A REGISTERED SHAREHOLDER BUT ALSO A BENEFICIAL SHAREHOLDER. HENCE, BOTH THE CONDITIONS ARE TO BE CUMULATIVELY SATISFIED FOR TAXING THE LOAN OR ADVAN CE AS DEEMED DIVIDEND U/S 2(22)(E). FURTHER, IN THE CA SE OF ANKITECH PVT.LTD. VS. JCIT, I.T.A.NO. 388(DEL)07 , IT IS HELD THAT DEEMED DIVIDEND CANNOT BE ASSESSED IN THE HANDS OF THE NON-SHAREHOLDER AS PRIMARY REQUIREMENT FOR DIVIDEND TO BE RECEIVED RESTS WITH A SHAREHOLDER AND NONE ELSE. IN VIEW OF THE ABOVE FAC TS AND CIRCUMSTANCES, THE CASE OF THE APPELLANT COMPANY DOES NOT FALL WITHIN THE MISCHIEF OF SECTIO N 2(22)(E) OF THE INCOME-TAX ACT, 1961, AND , THEREFO RE, I PROCEED TO DELETE THE ADDITION MADE BY THE ASSESSIN G -: 6: - 6 OFFICER AMOUNTING TO RS. 37,83,775/-. THIS GROUND I S ADJUDICATED IN FAVOUR OF THE APPELLANT. 6. AGAINST THE ABOVE ORDER OF THE CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. IT WAS CONTENDED BY LD . SR. DR THAT MR. K.PARASRAMPURIA WAS HOLDING EQUITY SHARES BEYOND THE PERMISSIBLE LIMIT U/S 2(22)(E) OF THE ACT IN BO TH THE COMPANIES. THEREFORE, THE ADDITION IS REQUIRED TO B E MADE IN THE HANDS OF THE ASSESSEE COMPANY, WHICH HAS RECEIV ED THE LOAN, WHEREIN MR. K. P. PARASRAMPURIA WAS HAVING S UBSTANTIAL INTEREST AS A DIRECTOR AND SHAREHOLDER. HE FURTHER CONTENDED THAT IF NO ADDITION IS MADE IN THE HANDS OF THE ASS ESSEE COMPANY, THEN PROPER DIRECTION MAY BE ISSUED FOR MA KING ADDITION IN THE HANDS OF SHRI K.P.PARASRAMPURIA, WH O WAS SHAREHOLDER OF THE LENDER COMPANY. 7. THE LD. AUTHORIZED REPRESENTATIVE, ON THE OTHER HA ND, THE LD. SENIOR D.R. REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES AND CONTENDED THAT THE ISSUE IS S QUARELY COVERED BY THE DECISION OF THE I.T.A.T. SPECIAL BEN CH IN THE CASE OF BHAUMIK COLOUR LAB (SUPRA), WHICH HAS BEEN DULY APPROVED BY HON'BLE BOMBAY HIGH COURT. -: 7: - 7 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER A LENDER COMPANY FROM WHOM LOAN HAS BEE N RECEIVED. ONE OF THE DIRECTORS/SHAREHOLDERS OF THE ASSESSEE COMPANY MR. K.P.PARASRAMPURIA WAS HOLDING EQUITY SH ARES BEYOND THE PERMISSIBLE LIMIT U/S 2(22)(E) IN BOTH T HE LENDER COMPANY AND ASSESSEE COMPANY, WHICH HAS RECEIVED TH E LOAN DURING THE YEAR. I.T.A.T. SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR LAB (SUPRA) HAS HELD THAT FOR BRINGING AN AS SESSEE WITHIN THE PURVIEW OF SECTION 2(22)(E), BOTH THE CO NDITIONS REGARDING ASSESSEE BEING REGISTERED AS WELL AS BENE FICIAL SHAREHOLDER OF THE LENDER COMPANY IS REQUIRED TO BE ESTABLISHED. IN CASE ANY ONE OF THE CONDITIONS ARE NOT SATISFIED, THEN DEEMING PROVISIONS CONTAINED U/S 2(22)(E) CANN OT BE ATTRACTED. APPLYING THE PROPOSITION OF LAW LAID DOW N BY I.T.A.T. SPECIAL BENCH, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR NOT APPLYING THE PROVISIONS OF SECTION 2 (22)(E) IN RESPECT OF LOAN RECEIVED BY THE ASSESSEE COMPANY. 9. FURTHERMORE, IN THE CASE OF CIT VS. INDIAN TECHNOCR AFT LTD, ITA NO. 352 OF 2011 ORDER DATED 11 TH MAY, 2011 THE -: 8: - 8 HONBLE DELHI HIGH COURT BY CONSIDERING THE DECISIO N 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 EXPRESSION SHAREHOLDER HAS BEEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGISTERED SHAREHOLDER. THIS -: 9: - 9 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 SHAREHOLDER AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERED SHAREHOLDER. THESE PROVISIONS ALSO DO -: 10: - 10 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 THAN TEN PERCENT OF THE VOTING POWER. IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE -: 11: - 11 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 . 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 DECISION S:- -: 12: - 12 (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 T HE 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 AFOREM ENTIONED DECISION OF THE SUPREME COURT IN THE CASE OF RAME SHWARLAL SANWARMAL (SUPRA) IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. 10. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) FOR DELETING THE ADDITION O F RS. 37,83,775/- MADE U/S 2(22)(E) OF THE ACT. 11. IN GROUND NO.2, THE REVENUE IS AGGRIEVED FOR DIRECT ING THE AO TO ALLOW THE SET OFF OF CARRY FORWARD LOSSES . 12. IN THIS REGARD, THE CONTENTION OF THE ASSESSEE BEFO RE THE AO WAS THAT IN THE RETURN OF INCOME, THE ASSESS EE HAS CLAIMED THAT FOLLOWING ARE THE UNABSORBED BUSINESS LOSSES ARE AVAILABLE FOR SET OFF AGAINST THE INCOME FOR ASSESS MENT YEAR -: 13: - 13 2006-07. HOWEVER, WHILE MAKING ASSESSMENT OF INCOME , THE SET OFF OF SUCH UNABSORBED BROUGHT FORWARD BUSINESS LOSSES NOT ALLOWED AND WITHOUT SUCH SET OFF, THE INCOME HA S BEEN ASSESSED. THE PARTICULARS OF CARRIED OVER UNABSORBE D BUSINESS LOSSES ARE AS UNDER :- ASSESSMENT YEAR AMOUNT ( RS.) 2004-05 17,33,337 2005-06 91,26,846 TOTAL 1,08,60,183 THE ADDITIONAL GROUND REGARDING SET OFF OF LOSSES W AS FORWARDED BY THE LD. CIT(A) TO THE AO FOR HIS FURTH ER REPORT. THE AO REPLIED AS UNDER :- IN THIS CASE, YOU HAVE DIRECTED ME TO COMMENT ON THE ADDITIONAL GROUND IN THIS CASE THE RETURN IS FI LED BY THE ASSESSEE ON 08.12.2006 WHEREAS DUE DATE WAS 30.10.2006 EXTENDED TILL 30.11.2006. AS RETURN FILED BY THE ASSESSEE IS AFTER THE DUE DATE FOR FIL ING OF RETURN, THUS THE BENEFIT OF CARRY FORWARD LOSSES IS NOT TO BE GIVEN TO THE ASSESSEE AND ADDITIONAL GROUND -: 14: - 14 SHOULD NOT BE ACCEPTED. COPY OF RETURN FILED BY THE ASSESSEE IS ALSO ENCLOSED WITH THIS LETTER. 13. THE LD. CIT(A) CONFRONTED AOS REPORT WITH THE ASSE SSEE AND THEREAFTER DIRECTED THE AO TO GO THROUGH THE RE LEVANT CASE RECORD AND ALLOW SET-OFF OF THE CARRY FORWARD LOSSE S TO THE ASSESSEE COMPANY AFTER VERIFICATION OF THE CLAIM MA DE IN THIS REGARD. WE DO NOT FIND ANYTHING WRONG IN THE DIRECT ION ISSUED BY THE LD. CIT(A), WHICH IS WELL WITHIN HIS POWER A ND WAS ALSO IN THE INTEREST OF JUSTICE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 31ST OCTOBER, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31 ST OCTOBER, 2011. CPU* 2431