ITO 10(1)-4, MUMBAI V. SIRIUS RISK MANAGEMENT SERVICES P. LTD, MUMBAI

ITA 6265/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55765 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 14-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: MUKESH B MEHTA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI T.R. SOOD (ACCOUNTANT MEMBER) ITA NO. 6265/MUM/2010 ASSESSMENT YEAR-2007-08 THE ITO 10(1)-4, AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. SIRUS RISK MANAGEMENT SERVICES PVT. LTD., 7/52 OLD ANAND NAGAR, OFF NEHRU ROAD, SANTACRUZ (E), MUMBAI-400 055 PAN-AAKCS 6092D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI G.P. TRIVEDI RESPONDENT BY: SHRI MUKESH B. MEHTA DATE OF HEARING :14.11.2011 DATE OF PRONOUNCEMENT:14.11.2011 O R D E R PER B.R. MITTAL, JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2007-08 AGAINST ORDER OF LD. CIT(A) DT.7.6.2010 ON FOLLOWIN G GROUND: ON FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 25,00, 000/- ASSESSED IN THE HANDS OF THE ASSESSEE AS DIVIDEND U/S. 2(22)(E) OF THE I.T. ACT 1961 ON THE GROUND THAT ASSESSEE IS NOT SHARE HOLDER OF THE LENDING COMPANY M/S. SHAILEE CAPITAL SERVICES PVT. LTD., IGNORING T HE STATUTORY PROVISIONS TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEM BER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST ENACTED IN THE SECOND LIMB OF S. 2(22)(E) OF THE I.T. ACT, 1961 BY FINANCE ACT, 1987 AND THE LEGISLATIVE INTEND EXPLAINED IN THE MEMORANDUM TO T AX SUCH INCOME IN THE HANDS OF ASSESSEE CONCERN, ESPECIALLY WHEN TH E ASSESSEE FULFILLED ALL THE CONDITIONS OF CLAUSE (A) TO EXPLANATION 3 T O S. 2(22) FOR BEING A CONCERN LIABLE TO CHARGE OF TAX ON DIVIDEND INCOM E U/S. 2(22)(E) OF THE I.T. ACT, 1961. ITA NO. 6265/M/10 2 2. THE RELEVANT FACTS ARE THAT ASSESSEE IS A CLOSEL Y HELD PRIVATE LIMITED COMPANY. THE SHARES OF ASSESSEE ARE HELD BY TWO PE RSONS MR. KISHORE SHETH AND MRS. PRAGNA SHETH @ 50% EACH AND BOTH ARE DIREC TORS IN ASSESSEE COMPANY. THEREFORE EACH OF THE DIRECTOR HOLDS MORE THAN 20% BENEFICIAL INTEREST. MR. KISHORE SHETH AND MRS. PRAGNA SHETH, INDIVIDUALLY ARE MEMBERS OF ASSESSEE COMPANY HOLDING 22.54% AND 29.58% SHARE S IN M/S. SHAILEE CAPITAL SERVICES PVT. LTD (HEREINAFTER REFERRED TO SCSPL) I.E. HOLDING MORE THAN 10% BENEFICIAL INTEREST. THE ASSESSEE COMPANY RECEIVED RS. 25 LAKHS FROM SCSPL AND ACCOUNTED IT AS SHARE APPLICATION MO NEY IN THE BALANCESHEET DURING THE YEAR ENDING ON 31.3.2007. THE ASSESSING OFFICER OBSERVED THAT IT WAS NOT A SHARE APPLICATION MONEY BUT ONLY IS AN AD VANCE AND TREATED SAID RECEIPTS AS LOANS AND ADVANCES IN ASSESSEES HANDS. THE AO CONSIDERED SAID ADVANCE AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT IN THE HANDS OF ASSESSEE COMPANY. BEING AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE LD. CIT(A). 3. THE LD. CIT(A) FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS BHAUMIK COLOR PVT. LTD. 118 ITD 01(SB) HELD THAT AMOUNT OF RS. 25,00,000/- RECEUIVED BY ASSESSEE COMPANY FROM SCSP L CANNOT BE ASSESSED IN THE HANDS OF ASSESSEE AT DEEMED DIVIDEND AS DEEM ED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHA RE HOLDER OF LENDER COMPANY AND NOT IN THE HANDS OF BORROWING CONCERN I N WHICH SUCH SHARE HOLDER IS MEMBER OR PARTNER HAVING SUBSTANTIAL INTE REST. HENCE, DEPARTMENT IS IN APPEAL BEFORE TRIBUNAL. 4. DURING THE COURSE OF HEARING, LD. DEPARTMENTAL R EPRESENTATIVE SUPPORTED THE ORDER OF AO AND WHEREAS LD. AR SUBMIT TED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY DECISION OF SPECIAL BENCH (SUPRA). 5. WE HAVE CONSIDERED THE ORDERS OF AUTHORITIES BEL OW AND SUBMISSION OF LD. REPRESENTATIVES OF THE PARTIES. THE FACTS BEFO RE US AS STATED HEREIN ABOVE ARE NOT IN DISPUTE. CONSIDERING THE FACTS, W E AGREE WITH LD. CIT(A), THAT ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF SPECIAL BENCH IN ITA NO. 6265/M/10 3 THE CASE OF ACIT VS BHAUMIK COLOR PVT. LTD. 118 ITD 01(SB) WHEREIN IT HAS BEEN HELD THAT PROVISIONS OF SEC. 2(22)(E) OF I.T. A CT CREATE A FICTION BRINGING ANY AMOUNT PAID OTHERWISE THAN AS DIVIDEND INTO NET OF DIVIDEND. THEREFORE THIS CLAUSE MUST BE GIVEN A STRICT INTERPRETATION. IT WAS HELD THAT IF A PERSON IS A REGISTERED SHARE HOLDER BUT NOT THE BENEFICIAR Y SHARE HOLDER, THEN PROVISIONS OF SEC. 2(22)(E) WILL NOT APPLY. SIMILA RLY, IF A PERSON IS A BENEFICIARY SHARE HOLDER BUT NOT A REGISTERED SHARE HOLDER, THEN ALSO THE FIRST LIMB OF PROVISIONS OF SEC. 2(22)(E) WILL NOT APPLY. IT WAS FURTHER HELD THAT PROVISIONS OF SEC. 2(22)(E) AS AMENDED BY FINANCE A CT, 1987 W.E.F. 1.4.1988 DO NOT SAY IN WHOSE HANDS DIVIDEND HAS TO BE BROUGH T TO TAX, WHETHER IN THE HANDS OF CONCERN OR SHARE HOLDER. 6. THE SIMILAR ISSUE HAS ALSO BEEN CONSIDERED BY HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS UNIVERSAL MEDICARE PVT. LTD. 324 ITR 263 AND WE CONSIDER IT PRUDENT TO STATE THE HEAD NOTE WHICH IS AS UNDER: IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF SECT ION 2(22) OF THE INCOME-TAX ACT, 1961, IS ATTRACTED, THE PAYMENT BY A COMPANY HAS TO BE BY WAY OF AN ADVANCE OR LOAN. THE ADVANCE OR LOA N HAS TO BE MADE, AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PER CENT. OF THE VO TING POWER OR TO ANY CONCERN IN WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. SECTION 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION 'DIVIDEND'. ALL PAYMENT S BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIP IENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. CONSEQUENTLY, THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION 'DIVIDEND' BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE O N BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DE FINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TA XED IN THE HANDS OF THE SHAREHOLDER. 7. IN VIEW OF ABOVE DECISION (SUPRA) WE HOLD THAT TH ERE IS NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AS ASSESSEE COMPANY IS NOT THE BENEFICIAL SHARE HOLDER IN THE LENDER COMPANY VIZ M /S. SCSPL. HENCE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY AO. THEREFORE, WE UPHOLD HIS ORDER AND REJECT GROUND OF APPEAL TAKEN BY DEPA RTMENT. ITA NO. 6265/M/10 4 8. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING I.E. ON 14 TH NOVEMBER, 2011 SD/- SD/- ( T.R. SOOD) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 14 TH NOVEMBER, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI