ITO 8(3)(1), MUMBAI V. SENZO ENGINEERING P. LTD, MUMBAI

ITA 6410/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56118 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO.6410/MUM/2010 (ASSESSMENT YEAR : 2007-08) INCOME TAX OFFICER 8(3)-1, ROOM NO.201, 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. VS. M/S. SENZO ENGINEERING PVT. LTD. A-126, ANSA INDUSTRIAL ESTATE, SAKI VIHAR ROAD, SAKI NAKA, ANDHERI (E), MUMBAI 400 072. PAN: AABCS7783G APPELLANT RESPONDENT. APPELLANT BY :SHRI PARTHASARATHI NAIK, DR. RESPONDENT BY : SHRI NISHANT THAKKER. DATE OF HEARING : 20.12.2011 DATE OF PRONOUNCEMENT : 29 .12.2011 O R D E R. PER B.R. MITTAL, J.M. THE DEPARTMENT HAS FILED THIS APPEAL FOR THE ASSES SMENT YEAR 2007-08 AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-18, DA TED 23 RD JULY, 2010 DISPUTING THE DELETION OF ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DE EMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX ACT AMOUNTING TO RS. 23,81,693/-. 2. THE RELEVANT FACTS GIVING RAISE TO THIS APPEAL A RE THAT ASSESSEE HAD TAKEN A LOAN OF RS. 5,60,12,600/- FROM M/S. SAINO ENGINEERING PVT. LTD., WHICH IS A SISTER CONCERN OF THE ASSESSEE. O NE MR. ZACHARIAS MATHEW IS A COMMON SHAREHOLDER IN BOTH THE COMPANIES HOLDING 48% IN THE ASSESSEE COMPANY AND 50% IN M/S. SAINO ENGINEERING PVT. LTD. THE ASSESSING OFFICER OBSERVED THAT M/S. SAINO 2 ITA NO.6410/M/2010 M/S. SENZO ENGINEERING PVT. LTD. ENGINEERING PVT. LTD. HAD RESERVES SURPLUS TO THE T UNE OF RS. 23,81,693/- AS ON 31.3.2007. THEREFORE, THE ASSESSING OFFICER CONSIDERED THE LOAN AMOUNT RECEIV ED BY ASSESSEE COMPANY TO THE EXTENT OF RS. 23,81,693/- TO TAX AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. BEING AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE LEARNED CIT(A). 3. THE LEARNED CIT(A) CONSIDERING THE DECISION OF S PECIAL BENCH, ITAT MUMBAI IN THE CASE OF CIT VS. BHAUMIK COLOUR (P) LTD. (2009) 118 ITD 1 (SB) AND H ELD THAT ASSESSEE IS NOT A SHAREHOLDER IN M/S. SAIN O ENGINEERING PVT. LTD. AND, THEREFORE, SEC.2(22)(E) CANNOT BE APPLIED. ACCORDINGLY LEARNED CIT(A) DELE TED THE ADDITION MADE BY THE ASSESSING OFFICER AS DEEME D DIVIDEND IN THE HANDS OF THE ASSESSEE. HENCE, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LEARNED AUTHORIZED RE PRESENTATIVE SUPPORTED THE ORDER OF LEARNED CIT (A). HE FURTHER SUBMITTED THAT SIMILAR ISSUE H AS ALSO BEEN CONSIDERED BY THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICAR E (P) LTD. 324 ITR 263 AND FILED THE COPY OF THE SA ID ORDER TO SUBSTANTIATE HIS SUBMISSION. 5. WE HAVE CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISION PLACED BEFORE US AS WELL AS PROVISIONS OF SEC. 2(22)(E) OF THE ACT. WE AGREE WITH THE LEARNED CIT(A) THAT THE ISSUE INVOL VED IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBAI BEN CH IN THE CASE OF BHAUMIK COLOUR (P) LTD. ( SUPRA) WHEREIN IT WAS HELD THAT PROVISION OF SEC. 2(22)(E) OF THE ACT CREATE THE FRICTION BRINGING ANY AMOUNT PAID OTHERWISE THEN AS DIVIDEND INTO THE NET OF DIVIDEND . THEREFORE, THIS CLAUSE MUST BE GIVEN A STRICT INTERPRETATION. IT WAS HELD IN THE ABOVE CASE THAT IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT TH E BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF SEC. 2(22)(E) WILL NOT APPLY. SIMILARLY, IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHO LDER THEN ALSO THE FIRST LIMB OF THE PROVISION OF SEC. 2(22)(E) WILL NOT APPLY. IT WAS ALSO OBSERVED THAT THE ORIGINAL NATURAL MEANING OF THE TERM DIVI DEND 3 ITA NO.6410/M/2010 M/S. SENZO ENGINEERING PVT. LTD. MEANS A SHARE IN PROFITS TO AN INVESTOR IN THE SHAR E CAPITAL OF A LIMITED COMPANY. IF THE DEFINITION OF DIVIDEND IS EXTENDED TO A LOAN OR ADVANCE TO A NON- SHAREHOLDER, THE ORIGINAL AND NATURAL MEANING OF TH E WORD DIVIDEND IS TAKEN AWAY. THE DEEMED DIVIDEND U /S 2(22)(E) OF THE ACT CAN BE ASSESSED ONLY IN THE HANDS OF A SHAREHOLDER OF THE LENDING COMPANY AND N OT IN THE HANDS OF ANY OTHER PERSON. IN THE CASE BEFORE US, IT IS A FACT THAT THE ASSESSEE COMPANY I S NOT A SHAREHOLDER OF THE LENDING COMPANY AND ACCORDINGLY DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT CANNOT BE ASSESSED IN ITS HAND AND IF AT ALL IT CO ULD BE CONSIDERED ONLY IN THE HANDS OF A SHAREHOLDER. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . UNIVERSAL MEDICARE (P) LTD. (SUPRA) ALSO HELD THAT EFFECT CLAUSE (E) OF SECTION 2(22) IS TO BROADEN TH E AMBIT OF THE EXPRESSION 'DIVIDEND' BY INCLUDING CER TAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. HOWEVER, DEFINITION DOES NOT ALTER THE LEGAL POSITI ON THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF TH E SHAREHOLDER. THEREFORE, THE PAYMENT EVEN ASSUMING THAT IT WAS A DIVIDEND COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE COMPANY AS IT WAS NOT A SHARE HOLDER TO THE LENDING COMPANY. 6. IN VIEW OF ABOVE, WE DO NOT FIND ANY REASON TO I NTERFERE WITH THE ORDER OF LEARNED CIT (A). HENCE, WE CONFIRM HIS ORDER AND REJECT THE GROUND O F APPEAL TAKEN BY THE DEPARTMENT. 7. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF DECEMBER, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (B. R. MITTAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI,DATED: 29 TH DECEMBER, 2011. *OKK 4 ITA NO.6410/M/2010 M/S. SENZO ENGINEERING PVT. LTD. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, -BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITA T, MUMBAI DATE INITIALS 1. DRAFT DICTATED ON: 28 . 12 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 28 . 12 .2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: