Appeal Details
Counselvise Citation
[2024] 101 COUNSELVISE.COM (IT) 4071 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
7 year(s) 3 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-07-2024
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
DB-B
Next Hearing Date
11-06-2024
Assessment Year
2010-2011
Appeal Filed On
09-04-2017
Judgement Text
आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER & SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं / ITA No. नििाारण वर्ा / A.Y. अपीलार्थी / Appellant प्रत् यर्थी / Respondent 681/Hyd/2017 2010-11 M/s. Red Earth Agro Farms LLP (previously Red Earth Agro Farms Pvt. Ltd.,) Secunderabad [PAN No. AADCR7126A] Income Tax Officer, Ward-3(2), Hyderabad 653/Hyd/2017 2010-11 Income Tax Officer, Ward-3(2), Hyderabad M/s. Sienna Constructions Private Limited, Secunderabad [PAN No. AALCS6666C] नििााररती द्वारा/Assessee by: Shri K.A. Sai Prasad & Shri K.C. Devdas, ARs राजस् व द्वारा/Revenue by: Ms. Sheetal Sarin, DR स ु िवाई की तारीख/Date of hearing: 12-06-2024 घोर्णा की तारीख/Pronouncement on: 22-07-2024 आदेश / ORDER PER LALIET KUMAR, J.M: Both the appeals are arising out of the common order passed by the Learned Commissioner of Income Tax (Appeals)- ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 2 of 47 3, Hyderabad, (“Ld. CIT(A)”), dated 12-01-2017 for the AY. 2010-11. 2. The factual matrix of both the cases are as under: 2.1. Vide MOU dated 09-09-2009, M/s Matrix Security and Surveillance Private Limited, Hyderabad (hereinafter called as “MATRIX ENPOWER ”) agreed to sell certain shares to M/s Navayuga Infra Projects Private Limited, and also acknowledged the receipt of the consideration. Subsequently, an agreement dated 14-10-2009 was entered into transferring the shares from M/s Matrix Security and Surveillance Private Limited to M/s Navyuga Infra Projects Private Limited. On 09- 09-2010, i.e. the date of the MOU, advances were made to 4 shareholder companies. The Ld.AO, in both the cases, Sienna Constructions Private Limited and Red Earth Agro Farms LLP (formerly known as Red Earth Agro Farms Pvt. Ltd.), made an addition of deemed dividend, limited to the shareholders’ claim on the accumulated profits. Aggrieved by the order of the Ld.AO, the assessee preferred an appeal before the Ld.CIT(A). 3. The Ld. CIT(A) while confirming the addition in hands of M/s Red Earth Agro Farms LLP (formerly known as Red Earth Agro Farms Pvt. Ltd.), Hyderabad, deleted the same in hands of M/s Sienna Constructions Private Limited, holding that by the time advances were made to M/s Sienna, the accumulated profits of M/s Matrix Security and Surveillance Private Limited were exhausted. Aggrieved by the order of the Ld. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 3 of 47 CIT(A) in each of the matters, the Revenue as well as the assessee preferred appeals before the Tribunal. 4. In the appeal of the assessee, the assessee has raised the following grounds: “1) The order dt.12.01.2017 passed by the learned C1T(A)-3 is not justified and incorrect both on facts and in law. 2) The CIT(A)-3 is not justified in treating Rs 1,72,15,595 as deemed dividend u/s 2(22)(e) in the hands of the Appellant when the payer-company did not possess accumulated profits as defined in Explanation 2, as on the date of advancement of the loan i.e 09.09.2009. 3) The CIT(A)-3 is incorrect in holding that the date of transfer of shares by the payer-company as 09-09-2009 being the date of MOU instead of 14-10-2009 being the date of the Share Purchase Agreement. 4) The C1T(A)-3 ought to have appreciated the Appellant's contention that source of funds is not relevant in determining whether a loan can be taxed as deemed dividend u/s 2(22)(e) of the IT Act. 5) The CIT(A)-3 ought to have accepted the Appellant's contention that in a case where multiple loans were advanced to multiple shareholders on the same day, accumulated profits have to be exhausted on First Come First Serve basis to determine deemed dividend in the hands of debtors and not on proportion basis, that too of only shareholders holding shares in excess of 10%, a method adopted by him. 6) The appellant craves leave to add, supplement, modify, and delete any of the above ground during the course of appeal.” 5. In the appeal of the Revenue, the Revenue has raised the following grounds: “1. The Learned CIT(A) erred both in law and on facts of the case. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 4 of 47 2. The Learned CIT(A) erred in deleting the addition of Rs. 1,98,73,380/- made by invoking the provisions of Sec. 2(22)(e). 3. The Learned CIT(A) failed to appreciate the facts brought on record while giving relief. 4. Any other grounds(s) that may be urged at the time of hearing.” 6. Feeling aggrieved by the order passed by the Ld.AO, assessee preferred appeals before the Ld. CIT(A). The CIT(A) has allowed the appeal in the case of M/s. Sienna Constructions Pvt. Ltd., which is the subject matter of ITA No. 681/Hyd/2017, whereas in the case of M/s. Red Earth Agro Farms Pvt. Ltd., Ld. CIT(A) has confirmed the addition made by the Ld.AO. Now, both the parties are before us for the grounds stated above. 7. First, we will take up the appeal of the assessee. In the appeal of the assessee, the assessee has made the following arguments: i. That the transfer if any has taken place at the time of entering into MOU i.e., on 09.09.2009 and not on 14.10.2009. It was submitted by the Ld.AR that as on 14-10-2009, no surplus was available with the company, M/s. Matrix Enport Holding Pvt. Ltd., (MEPL) for taxing the same as deemed dividend out of the provisions of section 2(22)(e) of the Act. ii. The second argument raised by the assessee before us is that no funds were available with the MEPL, after giving the amounts to M/s. Honey Dew Agro Farms Pvt. Ltd., out of the capital gains arose to the ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 5 of 47 assessee for a sum of Rs. 8,68,15,300/-. It was submitted that on 09-09-2009, the company, namely, MEPL had given a loan amount of Rs. 10,31,40,000/- to the said company i.e., M/s. Honey Dew Agro Farms Pvt. Ltd. and the total profit earned by the company, namely, MEPL holding to the extent of Rs. 8,68,15,300/-. As such, there was no surplus fund available with the MEPL out of the profit earned by the said MEPL on account of sale of shares. 7.1. Ld.AR further submitted that the assessee cannot be treated separately as no additions were made in the hands of the co-shareholder, namely, M/s. Zinnia Agro Farms Pvt. Ltd. Despite the fact that the loan amount of Rs. 12,07,18,000/- was given to the said company. For the above said purposes, Ld.AR had drawn our attention to the assessment order passed in the case of M/s. Zinnia Agro Farms Pvt. Ltd., which is placed at Page Nos. 1 to 4 of the paper book. 7.2. It was submitted by the Ld.AR that the Ld.AO after considering the receipt of amount of Rs. 12,07,18,000/-, had decided not to tax the amount in the hands of the Zinnia. Our attention drawn to para 2.2(i) to 2.2(iii), which is to the following effect: ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 6 of 47 “2. (i) It is seen from the balance sheet of the company that it has shown an amount of Rs. 32,21,86,000/- as unsecured loan for the year ending 31.03.2010 which is increased by Rs.12,07,18,000/-compared to year ending 31.03.2009. During the course of scrutiny assessment proceedings, the company was asked to furnish the details of loans taken by the company from M/s Matrix Enport Holding Pvt. Ltd during the F.Y. 2009-10, and why the loan taken amount cannot be considered for invoking the provisions of Section 2(22)(e) of the IT Act for consideration of computing deemed dividend, as it is having shareholding of 14.50% in M/s Matrix Enport Holdings Pvt. Ltd. 2(ii) (a) The company in its letter dated 17-12-2014, 29-12-2014 & 9/3/2015 has submitted that ""the company has received an advance of Rs. 11,97,18,000/- from M/s Matrix Enport Holding Pvt. Ltd on 9-9-2009. It holds. 14.5% in M/s Matrix Enport Holdings Pvt Ltd, Hyderabad w.e.f 15.06.2009. This advance was paid by M/s Matrix Enport Holdings Pvt Ltd froth the advances received by it for proposed sale of its holdings in M/s Vanpic Ports Pvt Ltd and M/s Genexx Enpower Corpn Pvt Ltd to M/s Navayuga Engineering Company Ltd M/s Matrix Enport Holdings Pvt Ltd has received advances from M/s Navayuga Engineering Company Ltd during the months of August and September 2009. The share purchase agreement was executed by the parties on 14.10.2009. The following are the details of the shares sold and gains earned by M/s Matrix Enport Holdings Pvt. Ltd. Sl.No. Name of Investment sold Consideration Cost of acquisition expenses in relation to transfer Net short term capital gains (before tax) 1 Vanpic Ports Pvt. Ltd 98,42,00,000 89,46,84,000 8,94,68,400 2 Genexx Enpower Corpn Pvt. Ltd 23,50,71,144 20,05,65,288 3,45,05,856 2(ii) (b) .... The company submitted on the issue of the payment being made from out of the accumulated profits of M/s MEPL subsisting as on 09-09-2009 being the date of the payment to qualify, for the second quality, it is submitted that MEPL does not possess profits as on the date of payment and since the second of the cumulative quality is not fulfilled the receipt in the hands of the assessee an advance is not taxable as deemed dividend The fact of M/s MEPL not possessing accumulated profits as on 09-09-2009 is demonstrated in above submissions.. As regards the accrual of ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 7 of 47 capital gains on sale of shares to NEC by MEPL, the share sale transaction of M/s MEPL with NEC concluded on 14-10¬2009 and that is the date on which the capital gains, surplus on sale of shares, accrue to M/s MEPL. It is only on that day that the terms and condition of the sale got crystallized, fastening the contractual obligation to both the seller and buyer, creating a legally enforceable agreement. Till such period, M/s MEPL received only an advance and in cases the share sale agreement did not materialize, M/s MEP was legally bound to refund the advance and no gains would accrue to MEADL. It was only on the date of sale that MEPL hand over signed blank transfer forms of the sale shares to NEC, the buyer and I hence the date of agreement is the date of sale, making MEPL the illegal and rightful owner of the advance monies received as consideration. The Board Resolution for sale of shares by Matrix Enport Holdings Pvt Ltd at the time of executing the agreements of sale of shares of M/s Vanpic Ports Pvt Ltd and Gennex Enpower Corpn Pvt Ltd were passed in October 2009. Hence the capital gains accrue only in the month of October 2009. Since there were no accumulated profits in the books of the M/s Matrix Enport Holding Pvt. Ltd in September 2009, ie. at the time when loans were advanced, such loans advanced by the said company to the assessee cannot be treated as deemed dividends. 2(ii)(c) In conclusion it is submitted that the loan/advance to the assessee company was paid by MEPL out of advance sale consideration and there were .no accumulated profits in the hands of MEPL as on the date and hence provision of Se 2(22)(e) are not attracted to the said loan/advance. ,Hence, it requested that the proceedings undertaken may be dropped. It is brought to the notice that M/s MEPL advanced loans to the company as mentioned below: Dt. Of loan Loan amount Cheque No. % holdings Zinna Agro Farms Ltd 09.09.2009 12,07,18,000 300686 14.50 The assessee's case is that as on the dates of transfer of funds as stated above, Ms Matrix Enport Holdings Pvt Ltd is not in possession of accumulated profits. The capital gains of sale of shares accrued only on 14.10.2009, i.e. the date of agreement for sale of shares. ... .." 2(ii)(d) It has relied on few decisions of the Courts and stated - that since there was no accumulated profits in the books of the M/s Matrix Enport Holdings Pvt Ltd in September 2009,. At the time when loans are advanced ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 8 of 47 and requested that such loans advanced by the said company to the assessee cannot be treated as deemed dividends. The submissions made by the company have been considered and income of the company has been computed as per the Para 3.” 7.3. Ld.AR had further relied upon the decisions in the following cases: i. Jaswant Rai vs. CWT [1977] 107 ITR 477 (Punjab & Haryana); ii. CIT vs. S. Muthukarupan [2007] 163 Taxman 45 (Madras); 7.4. Ld.AR had also filed written submissions in support of the case of the assessee, which are to the following effect: “1. The company Matrix Enport Holdings Private Limited (MEPL) as per MOU dated 09-09-2009 agreed to sell its shares in Vanpic Ports Limited and Gennex Enpower Corporation Private Limited to Navayuga Engineering Co.(NEC) for a consideration of 128,80,00,000/- and received 125,00,00,000/- on various dates as under: 2. S.No Cheque Date Cheque No Amount (Rs) Name of the Bank 1 05.08.2009 000037 10,00,00,000 Yes Bank 2 05.08.2009 150497 15,00,00,000 ICICI Bank 3 12.08.2009 150088 10,00,00,000 ICICI Bank 4 12.08.2009 000038 15,00,00,000 Yes Bank 5 24.08.2009 854004 25,00,00,000 OBC 6 27.08.2009 861766 25,00,00,000 Punjab & Sind Bank 7 09.09.2009 441753 25,00,00,000 SBI Total 125,00,00,000 ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 9 of 47 3. Out of the said amount the Company, MEPL has advanced loans to 3 companies on the same day by issue of account payee cheques which are serially numbered. The first loan cheque is numbered as 300683 while the second cheque was numbered 300684. The third loan was paid through cheque no 300686 as can be seen from the below table: Sl. No Name of Shareholder Date of loan Loan Amount Cheque No % Holding 1 Honey Dew Agro Farms Pvt Ltd 09.09.2009 10,31,40,000 300683 14.50 2 Red Earth Agro Farms Pvt Ltd 09.09.2009 7,14,60,000 300684 10.04 3 Zinnia Agro Farms Pvt Ltd 09.09.2009 05.11.2009 11,97,18,000 10,00,000 12,07,18,000 300686 300699 14.50 4 Sienna Constructions Pvt Ltd 23.09.2009 24.09.2009 4,00,00,000 4,00,00,000 8,00,00,000 300689 300694 11.59 4. The Assessing Officer and Commissioner of Income Tax computed divisible profit of Rs.8,68,15,300/- as under (Page 5 of CIT Order) 5. Gross Profit of MEPL as on date of giving loan 12,40,21,856 Less: IT @30% 3,72,06,556 Net Profit 8,68,15,300 6. The AO distributed the divisible profits in the ratio of percentage of shares held by each company and determined the deemed dividend U/s 2(22)(e) in the hands of the assessee companies as under 7. Red Earth Agro Farms (P) Ltd 1,72,15,595 Sienna Constructions (P) Ltd 1,98,73,380 8. The CIT (A) held that: a) since the loans to Honey Dew Agro Farms Pvt Ltd, Red Earth Agro Farms Pvt Ltd and Zinnia Agro Farms Pvt Ltd are given on the same date i.e 09-09-2009 the determination of deemed dividend Rs. 1,72,15,595/- in a case of Red Earth Agro Farms Pvt Ltd was proper. b) Since the loan to Sienna Constructions (P) Ltd was given on 23-09-2009 there was no accumulated profit as on the date and hence the addition was deleted. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 10 of 47 9. Submission before ITAT a) Ground nos 2 & 3 submissions in detail are furnished separately (Annexure-I) b) Ground 5: In case of multiple loans given through A/c payee cheques on a single day, FIFO method and not proportion method be followed: If is assumed that MEPL is in possession of accumulated profits as on 09.09.2009, they would be to the tune of Rs 8,68,15,300 (gains-capital gains tax). These accumulated profits would be deemed to have been paid to M/s Honey Dew Agro Farms Pvt Ltd which received the amount first for Rs 10,31,40,000 vide cheque no 300683 as can be clearly seen from the above. The amounts advanced as loan to Honey Dew far exceeds the accumulate profit balances available in the books., i.e exhausting all of the “accumulated profits” possessed by the payer. The loan entries in the book would be posted one after the other in seriatim and not in proportion. The cheques are issued one after the other and not at once. Therefore, those shareholders who received loans after Honey Dew was paid (numbered 2 to 4) through succeeding cheques numbered 300684, 300686 etc would not be hit by provisions of Sec 2(22)(e) as MEPL has no further accumulated profits left out to be tagged to the loans advanced. Hence the assessee i.e Red Earth Agro Farms can be said to have not received any “deemed dividends” as per provisions of Sec 2(22)(e) of the I T Act. 10. The same is illustrated as follows: A. Total short term capital gains from sale of Eq Shares Rs.12,40,21,856 B. Less: Tax thereon @ 30% and surcharge and Ed Cess Rs. 3,72,06,556 C. Accumulated Profits/Profits available for distributions (A-B) Rs. 8,68,15,300 D. Loan advance to Honey Dew Agro Farms Pvt Ltd Rs.10,31,40,000 (First loan out of the multiple loans) E. Accumulated profits left out after the first loan (D-E) Nil F. Demand dividend taxable in the hands of Red Earth Nil 11. In the case of Sienna Constructions (P) Ltd, the revenue appeal also, there in no divisible profit. Hence the provisions of Section 2(22)(e) are not applicable. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 11 of 47 Annexure-I Grounds 2 & 3: The CIT(A) held the date of receipt of consideration as date of transfer instead of the date of SPA: A: Full receipt of consideration: 1. The CIT(A) held that the date of receipt of full consideration i.e 09.09.2009 and the date of entering MOA as the date of transfer, instead of 14.10.2009 being the date of entering into an Share Purchase Agreement (SPA). 2. It is submitted that as regards the accrual of capital gains on sale of shares to NEC by MEPL, the share sale transaction of M/s MEPL with NEC concluded only on 14.10.2009 and that is the date on which the capital gains, surplus on sale of shares, accrue to M/s MEPL. It is only on that day that the terms and conditions of the sale got crystallized, fastening the contractual obligations to both the seller and buyer, creating a legally enforceable agreement. Till such period, M/s MEPL received only an advance and in case the Share sale agreement did not materialize, M/s MEPL was legally bound to refund the advance and no gains would accrue to M/s MEPL. 3. All the applicable board resolutions in MEPL were passed on 14.10.2009. It was only after the date of the SPA that MEPL handed over signed blank transfer forms of the sale shares to NEC, the buyer and hence the date of agreement is the date of sale, making MEPL the legal and rightful owner of the advance monies received as consideration. 4. In the MOA dt 09.09.2009 at clause 2 it was agreed that NEC shall pay balance of share consideration within 1 month and MEPL shall transfer shares within further 2 months from date of MOA and it was further stated that “The selling shareholders will execute transfer forms annexing the share certificates on receipt of the sale consideration”. Thus, the learned CIT(A) was incorrect in holding that the consideration was received in full by 09.09.2009, the date of MOA. Factually the consideration was received in full by 14.10.2009, the date of execution of the Share Purchase Agreement. 5. Clause 12 of the MOA says that the MOA is valid for a period of 90 days or till definitive agreements are signed. Therefore, it is not the final document executed by the parties. The Share Purchase agreement executed on 14.10.2009, being the definitive agreement is the final ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 12 of 47 document entered into by the parties and hence the date of execution of the same has to be reckoned as the date of transfer. 6. In SPAs dt 14.10.2009 clause 4.4.4 of Gennex (pg 44) and 4.4.2 of Ports (pg 120) the sellers are obligated to deliver to the buyer executed share transfer forms along with share certificates in relation to sale shares. Hence delivery of shares along with transfer forms has not occurred till 14.10.2009, and hence the date of transfer cannot be prior to 14.10.2009. 7. Even as per Section 20 of the Sale of Goods Act, which covers the transaction involving sale of shares, transfer is deemed to conclude on the date of executing agreement for sale of ascertained goods even though either of or both payment of consideration and delivery of goods are postponed. The same happened on 14.10.2009 when the correct number of sale shares were determined and defined. Hence surplus on capital gains accrues on the date of Share Purchase Agreement i.e 14.10.2009 and not on the date of Memorandum of agreement i.e 09.09.2009. The MOA also defines the selling shares as MEPL RAK Infra and RAK Vision as selling shareholders, while the SPA was executed by each of the selling shareholder individually and separately. 8. Thus, the date of execution of the SPAs i.e 14.10.2009 constitute the date of transfer and not the date of execution of MOA i.e 09.09.2009 as held by the CIT(A). 9. The Appellant’s stand draws judicial support from ITA Nos.177 & 178/Vizag/2015 in appeals by Y.V. Ramana & A.V.V. Vara Prasad, wherein the ITAT Vizag deciding on the date of transfer of eq shares has categorically held that the date of receipt of advance consideration cannot be treated as the date of transfer. The ITAT ordered as follows: 11....... The assessee contends that transfer had taken place on 24-11-2009, when valid instruments of share transfer in form no. 7B is duly stamped and signed by the both the parties and presented to the Company along with original share certificates. According to the CIT, the effective transfer took place on 10-09-2009 when sale consideration is passed on to the seller. 12.......In the case of shares of unlisted companies, transfer would take place, only when valid share transfer form in form no. 7B is delivered to the company and endorsed by the Company. Therefore, for effective transfer of shares a mere agreement for transfer of shares is not sufficient, unless it is physically transfer shares by ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 13 of 47 delivery of share certificate along with duly signed and stamped share transfer form. The agreement to transfer share can give enforceable right to the parties, but it cannot be a valid transfer unless it is followed up by actual delivery of shares. In so far as the Ld. D.R. argument that transfer would take place when parties intended to transfer, we find that when a specific provision in section 108 of the Companies Act, 1956 is provided for dealing with transfer of shares, referring to the provisions of section 19 of the Sale of Goods Act, 1930 to define share transfer is unwarranted and uncalled for. Even, the Board, by way of a circular no. 704, dated 28-04-1995 has dealt the issue and clarified that in the case of transactions took place directly between the parties and not through recognized stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer form. Therefore, we are of the humble view that there is no merit in the arguments of the Ld. D.R. that effective transfer would take place when consideration is passed between the transferor and transferee. 13..........we are of the view that actual transfer as defined u/s 2(47) has been taken place on 24-11-2009 when valid share transfer form in form no. 7B duly stamped and signed by both transferor and transferee and presented to the Company, but not on the date of receipt of money from the buyer to the seller, i.e. on 10- 09-2009. 10. Applying the same ruling in the Appellant’s case, the conclusion of the CIT(A) that the date of receipt of consideration is the date of transfer is not in accordance with the law. B: The date of contract of sale as declared by the parties: 1. The action of the CIT(A) in treating 09.09.2009 as date of transfer goes against the CBDT directives and hence are invalid. 2. The CBDT Circular: No. 704, dated 28-4-1995 issued in relation to “Instructions regarding determination of the ‘date of transfer’ and holding period for purposes of capital gains qua transactions in securities” specified in unequivocal terms that In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 14 of 47 3. Though the same seems to have been given in context of listed shares, the spirit thereof is equally applicable to transfer of unquoted shares. 4. In the Appellant’s case, based on the SPA, the Appellant declared 14.10.2009as the date of transfer and the same was considered by the AO in computing the capital gains and the interest u/s 234C. The CBDT circular binds the CIT(A) also. 5. Hence, 09.09.2009 cannot be treated as the date of transfer of shares and hence MEPL had no accumulated profits on that date and hence provisions of deemed dividend will not apply on the loan received by the Appellant.” 8. Ld.DR had vehemently submitted that the contention of the assessee that the transfer took place on 14-10-2009 is brief of any substance as the circular issued by the Board on 28-04-1995 clearly mentioned that the date of transfer would be the date of contract entered between the parties and our attention was drawn to the circular No.704, dt. 28-04-1995 and paragraph No. 2, which is to the following effect: “2. When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities and thereafter, follow it up with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of broker s note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker s note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds.” ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 15 of 47 8.1. Based on the above circular, it is submitted that the date of MOU between the parties was 09-09-2009 and, therefore, the transfer of the shares took place as per the share purchase MOU on 09-09-2009 and our attention was also drawn to the MOU at page No. 154 of the paper book wherein the parties, namely, M/s. Vanpic Ports Ltd., and other have agreed to transfer the shares to M/s. Navayuga Engg. Ltd., and on account of that transfer, the assessee along with others i.e., MEPL received a sum of Rs. 125 crores on 05-08-2009, 12- 08-2009, 24-08-2009, 27-08-2009 and 09-09-2009. 8.2. Based on the above said table, it was submitted that the entire sale consideration for transfer of shares of Rs. 125 crores was received by the said MEPL on or before 09-09-2009 and, therefore, the shares were deemed to transferred prior to the date of share purchase agreement. It was submitted that the actual agreement and contract agreement were entered between the parties was on 09-09-2009 and not on the date of share purchase agreement, which was subsequent to MOU and receipt of the entire sale consideration of Rs. 125 crores. On the basis of the above, it was submitted that the ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 16 of 47 contention of the assessee is covered and secondly it was submitted that in the present case, the Ld.AO had apportioned the profit earned by MEPL on account of capital gain in all the four shareholders on the basis of the percentage on holding of these companies, including the two assessees before us. It was submitted that the Ld.AO has calculated the percentage of holding in MEPL by Honey Dew Agro Farms Pvt. Ltd., Red Earth Agro Farms Pvt. Ltd., Zinnia Agro Farms Pvt. Ltd., and M/s. Sienna Constructions Pvt. Ltd., and thereafter had apportioned percentage of profit as deemed dividend in the hands of these four companies. It was submitted that the finding of the Ld. CIT(A) that no funds were available in the hands of the assessee for the purpose of M/s. Sienna Constructions Pvt. Ltd., is engaged as if the profit is distributed in the ratio of the holding of these companies, then, the sum of Rs. 1,98,73,380/- was available for attributing to the profit as deemed dividend in the hands of M/s. Sienna Constructions Pvt. Ltd., and similarly, it was submitted that the deemed dividend based on the percentage of holding in the hands of the assessee, Red Earth Agro Farms Pvt. Ltd., was rightly computed at Rs. 1,72,15,595/-. 8.3. Ld.DR, on the other hand, relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. G. Narasimhan [1999] 102 Taxman 66 (SC), wherein the Hon'ble Apex Court held as under: “6. It was contended by the department that section 2(22)(e) only notionally treats such loan to a shareholder by a company ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 17 of 47 as a deemed dividend to the extent that the company possesses accumulated profits. Therefore, the payment so made should not be deducted from the accumulated profits of the company for the purpose of determining the extent of such accumulated profits. We fail to appreciate this contention. A dividend under section 205 of the Companies Act can be paid only out of the profits of a company whether for that year or out of the profits of the company for any previous financial years as set out in that section and in the manner set out in that section. Therefore, under section 2(22), when any payment by a company is treated as a deemed dividend, the section has provided that it should be treated as payment out of the accumulated profits of the company, whether capitalised or not. In fact, under section 194 of the Act, an obligation is cast upon the principal officer of the company to deduct from the payment so made under section 2(22)(e) income-tax at the rates in force. Section 194 clearly treats such payment as dividend. Therefore, when a loan by a company to a share holder in the manner set out in section 2(22)(e) is treated as a deemed dividend, it is to be treated as payment out of the accumulated profits of the company. Any legal fiction will, therefore, have to be carried to its logical conclusion. If the payment under section 2(22)(e) is treated as a deemed dividend and is required to be so treated to the extent that the company possesses accumulated profits, the logical conclusion is that this payment must be considered as adjusted against the company's accumulated profits to the extent that it is treated as deemed dividend while calculating accumulated profits of the company. Whenever accumulated profits of the company are required to be determined, such an adjustment will have to be made. 7. The High Court was, therefore, right in corning to the conclusion that when section 2(22)(e) is read with the language of section 194 which provides for deduction of tax on such 'dividend', as also the statutory restriction under the companies Act on payment of dividend out of any capital assets, it would be reasonable to come to the conclusion that the sum of Rs. 64,517 must be taken to have come out of the accumulated profits. It must, therefore, be treated as dividend for all purposes, and would go to reduce the accumulated profits of the company, whether capitalised or not, whenever such accumulated profits are required to be determined. Question No.1 is, therefore, answered in the affirmative and in favour of the assessee.” ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 18 of 47 9. We have heard both the parties and perused the material available on record. In this case, the MOU was entered between MATRIX ENPOWER and Navayuga Infrastructure Pvt. Limited on 09.09.2009 (Page 154) and thereafter, a share purchase agreement dt.14.10.2009 was entered between MATRIX ENPOWER and Navayuga Infrastructure Pvt. Limited (Page 97). On the basis of the MOU, MATRIX ENPOWER had given advances to four shareholders, the date, amount and name are as under : Sl. No Name of Shareholder Date of loan Loan Amount 1 Honey Dew Agro Farms Pvt Ltd 09.09.2009 10,31,40,000 2 Red Earth Agro Farms Pvt Ltd 09.09.2009 7,14,60,000 3 Zinnia Agro Farms Pvt Ltd 09.09.2009 05.11.2009 11,97,18,000 10,00,000 12,07,18,000 4 Sienna Constructions Pvt Ltd 23.09.2009 24.09.2009 4,00,00,000 4,00,00,000 8,00,00,000 10. In this regard, the ld.AR for the assessee submitted that the date transfer of shares would be the date on which the transfer of shares actually took place and not the agreement / share purchase agreement. In this regard, as mentioned hereinabove, the ld.AR has drawn our attention to the share transfer register wherein the actual date of transfer of shares in the demat account was mentioned as 05.06.2010, 12.06.2010, 22.06.2010, 25.06.2010. It was the contention of the ld.AR that as the transfer took place in the assessment ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 19 of 47 year 2011-12, no addition can be made in the year under consideration. 11. Per contra, ld.DR had relied upon the Circular issued by the Board, wherein the date of transfer has been taken as the date on which the contract of sale as declared by the parties was entered. 12. We have given our thoughtful consideration to the rival contentions. In the present case, the parties had entered into MOU on 09.09.2009 in para 1 at page 157 of PB it was mentioned as under : “1. SALE AND PURCHASE OF SALE OF SHARES AND CONSIDERATION Subject to the terms and conditions hereof NEC hereby agrees to purchase and selling shareholders hereby agree to sell the sale shares, with clear and marketable title and free from encumbrances, at a price detailed below (“Sale Consideration”). Sl.No. Selling Shareholder Company No. of Shares Consideration Rs.Cr 1 Enport Port 19219138 105.70 2 Enport Genexx 2119688 23.10 3 Rak Infra Port 9499114 52,25 4 Rak Vision Genexx 2680999 29.22 Total 210.27 The parties clearly understand that the consideration, in case of Port, is based on lease, from government of Andhra Pradesh or any of its departments, 1000 acres of land as detailed in schedule 3 in case of Genexx, is based on acquisition of 3000 acres of land as detailed in schedule 4 The Companies and selling shareholders confirm that there shall be no undisclosed third party liabilities accrued as on 23rd September, 2009 other than those stated in the schedules 5 and 6. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 20 of 47 2. PAYMENT OF SALE CONSIDERATION NEC has paid as upto date Rs.125 crores to Enport as detailed below SI.No. Ch. Date Ch.No. Amount.") Name of the Bank 1 05.08.2009 000037 10,000 00,0001 I, YES Bank 2 05.08.2009 150497 15,000,000 ICICI Bank Ltd. 3 12.08.2009 150088 10,00,00,000 ICICI Bank Ltd. 4 12.08.2009 000038 15,00,00,00011 YES Bank 5 24.08.2009 854004 . 25,00,00,000 OBC 6 27.08.2009 861766 , 25,00,00,000 Punjab & Sind Bank 7 09.09.2009 441753 25,00,00,000 SBI Total 125,00,00,000 NEC shall pay the Balance of Sale Consideration to selling shareholders within 1 (One) month from the date of this MOA and selling shareholders shall transfer the Sale Shares in favour of NEC within a further period of 2 (two) months. The selling shareholders will execute transfer forms annexing the share certificates on receipt of the sale consideration. 10. DEFINITIVE AGREEMENTS The parties agree to enter into definitive agreements within 90 days from the date of signing of this MOA. Matters relating to Pre-emptive rights, Anti-Dilution, Tag-Along, Right of First Refusal, Information Rights, Minority Protection Rights, Representations and Warranties etc. shall be included in the definitive agreements. 11. EFFECTIVE DATE : This MOA shall become effective upon the execution thereof by the parties hereto. The agreed date for the transfer of management responsibility, excepting for the matters relating to the acquisition of land, shall be 24 th September 2009. On and from this date, NEC shall be vested with the substantial powers of management of the Companies. Accordingly, all the present directors of the Companies excepting the two directors as mentioned in clause 9 above shall resign by this date and the nominee directors of the NEC constituting the majority of the Board shall be inducted forthwith. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 21 of 47 12. TERM This MOA shall be valid for a period of 90 days or till definitive agreements are signed. 12.1. In the share purchase agreement dt.14.10.2009, it was provided as under :- SHARE PURCHASE, SHARE SUBSCRIPTION AND SHAREHOLDERS AGREEMENT This Share Purchase, Share Subscription and Shareholders Agreement ("Agreement") Is entered into on this 14th day of October 2009; BY AND AMONG: MATRIX ENPORT HOLDINGS PRIVATE LIMITED, a company incorporated-under the Act and having Its registered office at plot 96, Meenakshi Bapjara Ville, Road No 2, BaplaraHills, Hyderabad SOO 034. (hereinafter referred to as "Enport", which expression shall, unless repugnant to the context or meaning thereof, mean and include its successors and permitted assigns) of the FIRST PART. .................................................................. ........................................................... AND NAVAYUGA ENGINEERING COMPANY LIMITED, a company incorporated under the Act and having its registered office at 48-9- 17, Dwarakanagar, Visakhapatnam, Hyderabad 500033, (hereinafter referred to as "NEC", which expression shall, unless repugnant to the context or meaning thereof, mean and include its successors and permitted assigns) of the FIFTH PART. Enport, RAK Vision, NP, Company and NEC are collectively referred to as "Parties" and individually as "Party". Enport, RAK Vision and NP are hereinafter collectively referred to as "Existing Shareholders .................... ................. ................ ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 22 of 47 2. SALE AND SUBSCRIPTION 2.1 Subject to the terms and conditions hereof and relying upon the Warranties, NEC agrees to purchase the Sale Shares and in consideration of payment of the Enport Sale Consideration and RAK Vision Sale Consideration to Enport and RAK Vision respectively, Enport and RAK Vision hereby agree to sell the Enport Sale Shares and RAK Vision Sale Shares respectively on Completion. 2.2 Enport hereby acknowledges the receipt of the Enport Sale Consideration from NEC on or before the date of this Agreement towards the sale of Enport Sale Shares. Enpert hereby further acknowledges the receipt of an excess amount of Rs 6,87,00,000 (Rupees Six crores eighty seven lakhs) over and above the Enpert Sale Consideration and agrees to refund the same promptly to NEC.) 2.3 In consideration of payment of the Subscription Consideration, the Company agrees to Issue and allot the Redeemable Preference Shares free from all Encumbrances to NEC at Completion. The Subscription Consideration shall, simultaneously with its receipt by the Company, be advanced by the Company to Project Company as an advance for the purchase of the Project Land. 2.4 The Company hereby acknowledges the receipt of a sum of Rs 89,73,00,000 (Rupees Eighty nine crores seventy three lakhs from NEC on or before the date of this Agreement towards the subscription of Redeemable Preference Shares and the Subscription Consideration payable to Company on Completion shall be reduced accordingly . The sum of Rs. 89,73,00,000 (Rupees Eighty nine crores seventy three lakhs received towards the Subscription Consideration has been advanced to the Project Company as contemplated under Clause 2.3. 3. CONDITIONS PRECEDENT 3.1 The obligations of NEC at Completion are conditional upon the following Conditions Precedent having been fulfilled or waived in accordance with this Agreement: 3.1.1 The Warranties shall be true and correct in all material respects and certificates to that effect having been delivered by Enport, RAK Vision and the Company to NEC. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 23 of 47 3.1.2 Each Party shall have obtained all the requisite Board, shareholder, creditor, third party and other approvals and consents to be obtained in connection with the transactions contemplated by the Agreement. 3.1.3 No event shall have occurred which constitutes, or may, with the passage of time, giving of notice or otherwise, constitutes a Material Adverse Effect. 3.1.4 There shall have been no breach of any of the terms, conditions, obligations, and covenants contained in this Agreement. 3.1.5 The authorised capital of the Company shall have been Increased to permit the Issuance of the Redeemable Preference Shares. 3.16 NEC shall have received a legal opinion from the Company's and the Existing Shareholders' Advocates to the satisfaction of NEC, stating that the Company and Existing Shareholders have the authority to execute the Agreement, the Agreement has been validly executed and the Agreement is enforceable against the Company and the existing shareholders. 3.1.7 The Company and the Existing Shareholders shall ensure that balance sheet and cash flow statement of the Company as at the 30 September 2009 and the profit and loss account of the Company as on 30 September 2009 are audited to enable determination of the Subscription Consideration. 3.1.8 The Company shall commence the process of dematerialisation Company's shares pursuant to the Depositories Act, 1996 and shall provide documentary evidence of such commencement to NEC. 3.2 Each of the Company and the Existing Shareholders shall use their best endeavours to promptly and expeditiously and not later than 15 (fifteen) days from the date of this Agreement fulfil the Conditions Precedent listed In Clause 3.1 and shall promptly inform NEC of all actions and steps taken in this behalf, on an ongoing basis. The Company and the Existing Shareholders shall promptly inform NEC in writing of the fulfilment of all the Conditions Precedent ("CP Satisfaction Notice"). 4. COMPLETION 4.1 Upon receipt of the CP Satisfaction Notice from the Company and the Existing Shareholders as contemplated under Clause 3.2, and subject to the fulfilment of the Conditions Precedent, the Parties shall proceed for Completion on the date that is within ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 24 of 47 15 (fifteen) days following the date of this Agreement ("Completion Date"). 4.2 Completion will not occur unless all of the obligations set out in Clause 4.4 are compiled with and are fully effective. Further, all transactions contemplated by this Agreement to be consummated at the Completion shall be deemed to occur simultaneously and no such transaction shall be deemed _to be consummated unless all such transactions are consummated. 4.3 Completion shall occur at the office of Enport in Hyderabad or such other place as may be agreed between the Parties. 4.4 On Completion, the following events shall take place. 4.4.1 NEC shall pay the Additional Subscription Consideration, If any, to the Company by remittance to the Company's Bank Account. 4.42 NEC shall pay the RAK Vision Sate Consideration to RAK Vision by remittance to the RAK Vision Bank Account 4.43 The Company shall use, the Subscription Consideration and Additional Subscription Consideration for the purchase of Project Land by advancing the same to Vanpic Projects Private Limited. 4.4.4 Enport and RAK Vision shall deliver to NEC executed share transfer forms along with share certificates in relation to the Enport Sale Shares and RAK Vision Sale Shares respectively along with an irrevocable and unconditional power of attorney inter alia authorising NEC to dematerialise the Equity Shares and exercise all the rights in relation to the Sale Shares including the right to receive dividend and exercise voting rights thereon. 4.4.5 In relation to the transfer of RAK Vision Sale Shares, RAK Vision shall deliver to NEC, the following documents required to be given for the filing of Form FC-TRS with the authorised dealer: (I) the consent letter (ii) the shareholding pattern of the Company before and on Completion and the chartered accountant/ auditor certificate and merchant banker certificate in order to enable NEC to file Form FC-TRS and (iii) No objection/Tax clearance certificate from the income tax authority. / chartered accountant ; ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 25 of 47 4.4.6 Upon the delivery of the documents referred to in Clause 4.4.5, NEC shall file Form FC-TRS with its authorised dealer and provide an acknowledged copy of Form FC-TRS on receipt of the same from the authorised dealer to the Company and RAK Vision. NEC and RAK Vision shall sign and execute all the documents that may be necessary in this regard. 4.4.7 The Company shall and the Existing Shareholders shall cause the Company to hold a board meeting and the Company and the Existing Shareholders shall deliver the following resolutions to NEC: (i) The-Company agrees to transfer of the Sale Shares in favour of NEC as and when NEC applies for the same with duly stamped and executed share transfer forms along with share certificates or when such transfer is effected through the depositories pursuant to the Depositories Act, 1996; (ii) The allotment of the Redeemable Preference Shares be approved; (iii) The resignations of Mr A.J. lagannathan, Mr N. Prakash arid Mr Satish Babusana as directors of the Company in the agreed form from their respective offices and employment in the Company containing a written acknowledgement from each of them that he has no claim against the Company on any grounds whatsoever shall be approved; (iv) The appointment of Mr C Visweswara Rao and Mr C Sridhar, Mr C Sasidhar Mr V. Ramesh Kumar and such other person as may be nominated by NEC as NEC nominee directors of the Company; (v) Appointment of Mr C Visweswara Rao and Mr C Sridhar, C Sasidhar as the authorised signatories in place of Mr N Prakash, Sathish Babu Sana, N C Rangacharyulu, Mohan Kallepally, Gowrisankar Rajagopalan, for the following bank accounts. 4.4.8 RAK Vision shall return the following cheques to NEC. (1) cheque dated 19 September 2009 Issued by NEC on Oriental Bank of Commerce for a sum of Rs 10,00,00,000 (Rupees Ten crores) (ii) cheque dated 22 September 2009 issued by NEC on State Bank of India for a sum of Rs 9,22,00,000 (Rupees Nine crores twenty two lakhs) ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 26 of 47 (iii) cheque dated 23 September 2009 issued by NEC on State Bank of India bank for a sum of Rs 5,00,00,000 (Rupees Five crores) and (iv) cheque dated 24 September 2009 issued by NEC on Oriental Bank of Commerce for a sum of Rs 5,00,00,000 (Rupees Five crams); 4.4.9 The Company shall deliver to NEC duty stamped share certificates In relation to the Redeemable Preference Shares to NEC. The name of NEC and/or its nominees shall be entered in the register of members of the Company as the holders of the Redeemable Preference Shares; 4.4.10 The Company shall adopt at a meeting of the shareholders and shall deliver to NEC the Articles of Association amended to reflect the provisions of this Agreement in a mutually agreed form ("Amended Articles"). 4.4.11 The amounts which are currently outstanding from Project Company to the Company as on 30 September 2009 shall stand converted into such number of equity shares of the Project Company representing such percent of the share capital of the Project Company as may be agreed between the Parties at Completion, but so that in any event, such percentage, together with the shares held by Vanpic Ports Private Limited in the Project Company, do not exceed 3% of the share capital of the Project Company. The amount so outstanding shall be determined by the Parties by Completion. The Company shall deal with such shares in accordance with the terms of the agreement to be entered Into between the Company and the Project Company. 4.5 The stamp duty, If applicable for the transfer of the RAK Vision Sale Shares and Enport Sale.” 13. In the present case, MOU dt.09.09.2009 was entered between Vanpic Port Limited and others for sale and purchase of shares held by Enport, Rak Infra, Rak Vision etc. as mentioned hereinabove for a total consideration of Rs.210.27 crore. The said MOU was only a prelude to the definite agreement, as MOU itself provide for entering a definite agreement, which was required to be entered between the ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 27 of 47 parties as per clause (10) of the MOU within 90 days from the date of MOU. Furthermore, this MOU was valid only for 90 days. In our considered opinion, if the agreement is dependent upon entering into a subsequent agreement and fulfilment of other conditions to be mentioned in the subsequent agreement, then MOU can be said to be an offer document and does not take the place of a binding contract between the parties. Since this MOU had only provided for entering into definite agreement, then the question arises whether this agreement can be said to be a contract for transfer of shares or not. In the case of Dresser Rand S.A. Vs. Bindal Agro Chem Ltd. And Anr., (2006) 1 SCC 751, the hon’ble Supreme Court had held as under :- “32. Parties agreeing upon the terms subject to which a contract will be governed, when made, is not the same as entering into the contract itself. Similarly, agreeing upon the terms which will govern a purchase when a purchase order is placed, is not the same as placing a purchase order. A prelude to a contract should not be confused with the contract itself. The purpose of Revision 4 dated 10-6- 1991 was that if and when a purchase order was placed by BINDAL, that would be governed by the “General Conditions of Purchase” of BINDAL, as modified by Revision 4. But when no purchase order was placed, neither the “General Conditions of Purchase” nor the arbitration clause in the “General Conditions of Purchase” became effective or enforceable. Therefore, initialling of “Revision 4” by DR and BINDAL on 10-6-1991 containing the modifications to the General Conditions of Purchase, did not bring into existence any arbitration agreement to settle disputes between the parties.” 13.1. The contract for sale of shares should be definite and should provide the details such as 1) the date of handing over the share 2) the date of signing of the transfer deeds 3) ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 28 of 47 fulfilment of condition precedent like board resolution, due diligence, non-encumbrance certificate etc. 13.2. If we look into MOU, the MOU on its own does not provide the details of any of these above said information which are sine qua non for taking the MOU as a binding contract. In fact, once the term of MOU is 90 days and it is to be followed by the definite contract, then it cannot be said to be concluding contract for the purpose of transfer of shares. 13.4 Per contra, if we look into the share purchase agreement dated 14.10.2009, it clearly shows the definite intention of the parties to transfer the shares, which is the subject matter of the present dispute. It provides the details of sale and subscription (clause 2 supra), condition precedent (clause 3 supra) and completion (clause 4 supra). As per clause (4), on receipt of condition precedent satisfaction notice from the company and the shareholders, the parties, were required to proceed for completion of the share purchase agreement within 15 days thereof. In our view, the completion of formalities, will relate back to the date of this share purchase agreement. The above said stipulation clearly shows that the share purchase agreement dt.14.10.2009 is the definite contract for transfer of shares as it fulfils all the requirements of a valid contract and it is also followed by the actual delivery of shares and the transfer deeds. Without any Board, shareholder, creditor, third party approvals and ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 29 of 47 consents, no transfer of shares can take place. Further, it also provided for seeking the legal opinion satisfying the transferee that the transferor and the shareholder have been the valid authority to execute the agreement. In view of the above, in our considered opinion, the date of contract for the purposes of transfer should be taken as 14.10.2009 and not as 09.09.2009. The above said view is also supported by the decision of co-ordinate Bench of the Tribunal in the case of Citicorp International Finance Corporation[2024] 159 taxmann.com 574 (Mumbai - Trib.) wherein it was held as under : “12. The assessee's contention was that the sale was affected only on 30- 6-2006 which is when the shares were transferred by the assessee to Infosys Technologies Ltd. It is pertinent to point out that the date of purchase agreement of the shares was on 20-4-2006. The departments arguments was that the transaction would amount to a STCG wherein the assessee had not held the shares in Progeon ltd. for a period beyond 12 months as per the provisions of section 2(42A) of the Act when considering the date of transfer to be the same date when the share purchase agreement was executed on 20-4-2006. The case of the assessee is that the date of transfer was on 30-6-2006 when the shares were actually transferred by the assessee. The Revenue relied on the CBDT Circular No. 704 dated 28-4-1995 which is cited hereunder for ease of reference: Circular: No. 704, dated 28-4-1995. 22. Instructions regarding determination of the 'date of transfer' and holding period for purposes of capital gains qua transactions in securities 1. Under the provisions of clause (42A) of section 2 of the Income-tax Act, 1961, the shares held in a company or any other security listed in a recognised stock exchange in India or units of the Unit Trust of India or units of a mutual fund specified under section 10(23D) shall be regarded as short-term capital assets if they are held by an assessee for not more than 12 months immediately preceding the date of its transfer. Clarifications have been sought as to which date should be regarded as the date of transfer and also about the date from which the holding period ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 30 of 47 of the securities should be reckoned. Clarifications have also been sought as to how the holding periods will be computed for the purposes of capital gains when the securities, purchased in several lots at different points of time and which are taken delivery of in one lot, are subsequently sold in parts and no correlation of the dates of purchase and sale is available. 2. When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities and thereafter, follow it up with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of broker's note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker's note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. 3. As regards the second issue, where securities are acquired in several lots at different points of time, the First-in-first-out (FIFO) method shall be adopted to reckon the period of the holding of the security, in cases where the dates of purchase and sale could not be correlated through specific numbers of the scrips. In other words, the assets acquired last will be taken to be remaining with the assessee while assets acquired first will be treated as sold. Indexation, wherever applicable, for long-term assets will be regulated on the basis of the holding period determined in this manner. 13. The above Circular specifies that when the transaction takes place directly between the parties and not through stock exchanges, the date of contract of sale as declared by the parties shall be treated as the date of transfer, provided the same is followed by the actual delivery of shares and the transfer deeds. 14. On the factual matrix of the case, the moot question here would be what would be the effective date of transfer of shares whether the date of agreement or the date when the transfer was effected. The answer to the same would determine whether the assessee would be liable to long term capital gain or short term capital gain on the impugned transaction. 15. On perusal of the share purchase agreement, it is observed that there exists a clause for condition precedent to the sale which has to be fulfilled by both the vendor and the purchaser as specified in clause (4) of the said agreement. It is also evident that clause 4.3.7 of the said agreement either ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 31 of 47 the purchaser or the vendor can rescind the said agreement within 120 days from the date of the agreement where either of the parties have failed to fulfill the conditions precedent to the satisfaction of either of the parties. It is also evident that sub clause 1 specified in clause 5 for delivery of shares to the purchaser is also fixed by the parties to be after the satisfaction of all the condition precedent but in any event has to be after 3-7-2006 and not later within 120 days from the date of execution of the said agreement. These clauses have categorically specified the date of contract of sale as declared by the parties which has been mandated by the board in Circular No. 704 which has been heavily relied upon by the lower authorities. 16. The above position has justified the fact that the date of the agreement by no stretch of imagination could be the date of sale of the shares by the assessee to the purchaser. As per the decision of Bharti Gupta Ramola (supra) the date of transfer is 30-6-2006 for computing the holding period of assets from both the date, i.e., of acquisition and sale are not to be excluded. We would also like to draw our support from the decisions relied upon by the ld. AR where in case of Mrs. Hami Aspi Balsara (supra), the co-ordinate bench on identical facts have decided that the date of contract of sale would be the date of fulfillment of the conditions specified in the share purchase agreement and only upon the fulfillment of the said conditions, the date of contract of sale is said to have crystallized. The relevant extract of the said decision is reproduced hereunder for ease of reference: 9. We have considered the rival submissions and perused the record of the case. The facts as noted earlier in detail in the arguments of ld. counsel for the assessee are not disputed. Admittedly, it is a case of sale of shares. In this regard, share purchase agreement was entered into on 27-1-2005 and final delivery of shares took place on 1/15-4-2005. In the share purchase agreement, detailed provisions were made restricting the vendors from exercising various rights in relation to shares. Revenues' main contention is that on account of substantial extinguishment of rights in pursuance to share purchase agreement, the transfer took place on 27- 1-2005. Per contra, the assessee's claim is that when the delivery of shares was over and all the covenants contemplated in the share purchase agreement became irrevocable on 1-4-2005 then only transfer was complete and, accordingly, the investment made by the assessee in the specified securities within six months reckoned from 1-4-2005 entitled the assessee for exemption under section 54EC. In the first place, we are in agreement with the contention of ld. counsel for the assessee that sale as contemplated under section 2(47)(i) and extinguishment of rights as contemplated under section 2(47)(ii) are not mutually interchangeable. If a particular transaction is the transaction of sale then unless the sale is complete, no transfer can be said to have taken place because, as rightly pointed out by ld. counsel for the assessee, there will always be ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 32 of 47 extinguishment of rights in case of sale and if a single right out of the entire bundle of property in capital asset is extinguished, then, the transfer would be taken as complete. This will lead to absurd situation. Had it been the intention of Legislature to treat the transfer on the basis of extinguishment of any right in capital asset then there was no necessity of including sale and exchange in the definition of transfer under section 2(47). It is well- settled principle of interpretation that no word in a statute is superfluous and each word has to be assigned specific meaning in the context in which it is used. We further find lot of substance in the argument of ld. counsel in this regard with reference to inclusion of clause (v) in the definition of transfer under section 2(47) only with reference to immovable property and not with reference to movable property. In the present case when final delivery of shares took place on 1/15-4-2005 and, therefore, in view of the decision in the case of M. Ramaswamy (supra) and Rajgiri Rubber & Produce Co. (supra), in our opinion, transfer of shares took place on 1/15-4-2005. This view is fully supported by the decision of the Hon'ble Supreme Court in the case of V.R. Shelat (supra) wherein, it was held that procedure required by law was to be complied with and, accordingly, delivery of share certificate along with transfer deed had to be handed over to purchaser in order to complete the transfer. 10. Now coming to the revenue's plea regarding extinguishment of rights. We have already held that a case of sale and that of extinguishment of right are mutually exclusive. However, in any view of the matter, we are of the opinion that it could not be said that there was extinguishment of rights on 27-1-2005 because extinguishment of rights implies that the right cannot be revived. However, till the time the right is revocable, it could not be said that there was extinguishment or rights. At best it can be said to be a case of suspension of rights till all the requirements for completing the sale were over. It was only on execution of second amendment to share purchase agreement on 1-4-2005 that the Escrow agreement and the power of attorney became incapable of being revoked, modified or altered unilaterally by the sellers. Therefore, prior to this date, the sellers had the right to revoke the share purchase agreement. Further section 372A clause (c) of the Companies Act mandates that a company cannot acquire by way of subscription, purchase or otherwise the securities of any other body corporate unless previously authorized by the special resolution passed in a general meeting. Admittedly, this special resolution was passed by the Dabur India Ltd. on 28-3-2005. Therefore, in any case, prior to this date, it cannot be said that shares of assessee were acquired by Dabur India Limited. The share is a movable property and is governed by Sale of Goods Act. Section 4 of the Sales of Goods Act reads as under:— ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 33 of 47 "Sale and agreement to sell.—1. A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one pat-owner and another. 2. A contract of sale may be absolute or conditional. 3. Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. 4. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred." From the above definition, it is evident that agreement to sell becomes complete when the conditions contemplated in the agreement are fulfilled. The definition of sale as per Sale of Goods Act assumes significance because the term 'sale' has not been defined in the Income-tax Act. 11. The Assessing Officer has pointed out that assessee had received substantial part of sale consideration at time of share purchase agreement which was not refundable. In this regard, ld counsel has referred to section 65 of Indian Contract and Specific Relief Act, which reads as under: "Section 65. Obligation of person who has received advantage under void agreement or contract that becomes void.—When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it." This section makes it very clear that if, for any reason, the terms of contract cannot be fulfilled then assessee is bound to restore the benefits she had received including consideration to the purchaser. 12. Now coming to the decision of the Amritsar ITAT in the case of Maxtelcom Ventures (supra). We are of the opinion that the said decision was rendered with reference to K.N. Narayanan's case (supra) without considering the subsequent decision of the same High Court in the case of Rajgiri Rubber & Produce Co. (supra). Moreover, said decision has not taken into consideration the ratio laid down by the Hon'ble Supreme Court in the case of V.R. Shelat (supra). In this case the Supreme Court has clearly laid down that where, as between the transferor and the transferee, all formalities have been gone through, such as the execution of ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 34 of 47 document of transfer and a physical handing over of the shares by the transferors to the transferee, the shares should be taken to have been transferred to the transferee, though until the transfer of share is registered in accordance with the Companies Law, the transfer could not enable the transferee to exercise rights of the shareholder vis-a-vis the company. Thus, in sum and substance, the transfer of share is complete when the share certificate along with duly executed transfer deed is handed over to the transferee. Therefore, we, respectfully, do not agree with the proposition laid down in the said decision. 13. Now coming to the Circular No. 704 dated 28-4-1995. This circular deals with two situations. Firstly, shares listed on stock exchange and transfer taking place through brokers. Secondly, transactions taking place directly between the parties and not through stock exchange. We are concerned with the second situation. In this regard, it is mentioned in the circular as under : "In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by the actual delivery of shares and the transfer deeds." This clearly shows that the date of contract of sale will be the date which the parties have agreed to. No other date can substitute the date as declared by the parties. In the present case, the date of contract of sale as understood by the parties is 1-4-2005 and the same cannot be substituted by the date of share purchase agreement because completion date was specified in Article 6 of the share purchase agreement, which was not later than 4-4-2005 or such other later date that was mutually agreed in writing. As per article 6, on the completion date the attorney was to receive letters of discharge from the lenders recording the unconditional and irrevocable discharge of the guarantees and cancelled the original guarantees. This occurred on 1-4-2005. Therefore, the date of contract of sale as declared by the parties in the share purchase agreement was 1-4-2005. The directors resigned on the date as per the said Article. Therefore, the contract was completed on fulfilment of conditions contemplated in Article 6 which took place on 1-4-2005. Thus, from the very beginning, the parties had declared the date of contract of sale subject to fulfilment of conditions and, therefore, on the date of fulfilment of above conditions, the date of contract of sale crystallized. We are, therefore, of the opinion that this circular in no way prejudice the assessee's claim. It is pertinent to note that Dabur India Limited, ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 35 of 47 the purchaser has also recognized the purchase of shares in financial year 2005-06 and not financial year 2004-05. The ld. CIT(A) has observed that the entire sale consideration was Rs. 10,65,06,753 but the fact is that it was not the entire sale consideration as the assessee had received Rs. 5 lakhs on completion of sale. In view of the above discussion, we are of the opinion that as the transfer of shares of target companies was completed on 1/15-4-2005, the capital gains were to be taxed in assessment year 2006-07 and there is no merit in including the income from capital gain on sale of shares of target companies in the assessment year 2005-06. Ground Nos. 1, 2 and 3 stand allowed.” From the above observation, it is evident that the co-ordinate bench in the above case has dealt with the identical issue after duly considering the decision of the Max Telecom Ventures Ltd. (supra) relied upon by the ld. DR and had decided the said issue in favour of the assessee.” 14. In view of the above, we are of the considered opinion that the transfer took place only on account of entering into contract which happened on 14.10.2009. 15. Now after deciding the issue with respect to the date of transfer of shares in favour of the assessee, the question remains whether the company namely, MATRIX ENPORT was having surplus accumulated profits which can be taxed as deemed dividend in the hands of the assessee before us or not. 16. In this regard, the ld.DR for the Revenue had submitted that the surplus profit is required to be applied on the basis of the percentage of holding held by the each shareholders. The ld.DR had filed the following table in this regard. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 36 of 47 Sl. No Name of Shareholzder Date of loan Loan Amount Cheque No % Holding Deemed Dividend Accumulated Profits Remaining 1 Honey Dew Agro Farms Pvt Ltd 09.09.2009 10,31,40,000 300683 14.50 2,48,63,161 6,19,52,139 2 Red Earth Agro Farms Pvt Ltd 09.09.2009 7,14,60,000 300684 10.04 1,72,15,596 4,47,36,543 3 Zinnia Agro Farms Pvt Ltd 09.09.2009 05.11.2009 11,97,18,000 10,00,000 12,07,18,000 300686 300699 14.50 2,48,63,161 1,98,73,382 4 Sienna Constructions Pvt Ltd 23.09.2009 24.09.2009 4,00,00,000 4,00,00,000 8,00,00,000 300689 300694 11.59 1,98,73,382 0 Total Holdings of 4 37,52,58,000 50.63 17. It was submitted by the ld.DR that the Assessing Officer has distributed the surplus profit among the four companies based on their shareholding patterns. This approach of the Assessing Officer was in accordance with the settled principle and also in the light of the judgment in the case of CIT Vs. G.Narasimhan (1999) 102 Taxman 66 (SC). 18. Per contra, ld.AR submitted that the company MATRIX ENPORT advanced loan to three companies on the same day through the cheque no.300683, 300684 and 300686 for a sum of Rs.10,31,40,000/-, Rs.7,14,60,000/- and 11,97,18,000/-. The total surplus profit available with MATRIX ENPOWER was only Rs.8,68,15,300/-. It is the contention that after the loan of Rs.10,31,40,000/- given to Honey Dew Agro, no surplus profit, out of the amount of Rs.8,68,15,300/- was available for the distribution to the assessee company before us. It is the contention that the date and cheque number of the amount of loan given to Honey ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 37 of 47 Dew clearly shows that no amount was available to be taxed as deemed dividend in the hands of the assessee u/s 2(22)(e) of the Act. 19. We have heard the rival contentions of the parties and perused the material available on record. Section 2(22)(e) of the Act provides as under : Section 2(22) (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) 92 [made after the 31st day of May, 1987, by way of advance or loan to a shareholder 93 , being a person who is the 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 per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits 94 ; but "dividend" does not include— (i) a distribution made in accordance with sub-clause (c) or sub- clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ; 95 [(ia) a distribution made in accordance with sub-clause (c) or sub- clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, 96 [and before the 1st day of April, 1965] ;] (ii) any advance or loan made to a shareholder 97 [or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off; 98 [(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A 99 of the Companies Act, 1956 (1 of 1956); ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 38 of 47 (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).] Explanation 1.—The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.—The expression "accumulated profits" in sub- clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, 1 [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. 20. In the present case, to attract the provisions of section 2(22)(e), it is essential (1) that the advance or loan is given to a shareholder (2) the shareholder is holding not less than 10% of voting power. (3) the payment shall be restricted to the extent to which the company in either case possesses the accumulated profit. In the present case, undoubtedly, the assessee company was holding more than 10% in MATRIX ENPORT as on the date of loan. As per the Balance-Sheet of the company of MATRIX ENPORT there was an amount of Rs.128.80 crore shown as advances from M/s. Navayuga Engineering on the left-hand side. The reading of the above said provision to 2(22)(e), make it abundantly clear that the loan / advances given to the sister concerns should be out of the accumulated profits for treating as deemed dividend. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 39 of 47 21. In our view, Firstly, the profit on account of sale of shares, will only crystalize after transaction for the sale of shares was completed. Admittedly, though there was a share purchase agreement but in the said share purchase agreement there was stipulations in clause 4.4.2 and 4.4.4 which oblige the MATRIX ENPOWER to deliver and execute the share transfer forms relating to the sale of shares. Accumulated profit would be available to the company MATRIX ENPORT only on completion of sale, which in our view was done on transfer of shares in the demat account in June 2010 or at best only on 14 th October ,2009. Before completion of sale, the amount received would be merely an advance and no short term capital gain tax was payable. 22. In the present case, transfer of share as discussed herein above took place only on 14 th October, 2009 and said date would be relevant date for the purposes of finding whether some accumulated profits were available with MATRIX ENPORT or not. In our view, on such successful transfer of shares in the accounts, the advances received by MATRIX ENPORT would be considered as a sale consideration and the profit would be calculated thereafter, after reducing the cost of acquisition and also reducing the income tax liabilities on the profit. Admittedly, the transfer took place on 14/10/2009 and the income tax was also payable in the relevant assessment year only. ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 40 of 47 23. Assuming for a moment, if we accept the contention of the Revenue, then we must see whether the profit was available for giving the loan to the assessee or not. Firstly, as mentioned hereinabove, the transfer took place on 14 th October, 2009 and on that day, no surplus funds available with the company, which can be considered as deemed dividend in the hands of the assessee. Even otherwise, if we assume that the transfer took place on 9.9.2009, then also do not find any surplus funds are available in the hands of the company which can be said to be a deemed dividend for the assessee before us. In this regard, the details of the shares sold and gained earned by Matrix Enpower Corporation Pvt. Ltd., as mentioned in the assessment order is as under : Sl.No. Name of Investment sold Consideration Cost of acquisition & expenses in relation to transfer Net short term capital gains before tax 1 Vanpic Ports Ltd 98,42,00,000 89,46,84,000 8,94,68,400 2 Genexx Enpower Corpn Pvt. Ltd 23,50,71,144 20,05,65,288 3,45,05,856 Total 121,72,71,144 Total 12,44,74,256 23.1. From the above said table, it is crystal clear that the total capital gain arose on account of sale of investment was only Rs.12,44,74,256/-. As against this profit Matrix Enpower Corporation Pvt. Ltd. was having the accumulated loss as on 09.09.2009 was (Rs.10,65,466/-) resulting in the net available profit at Rs.12,34,08,790/-. Against this profit of Rs.12,34,08,790/- the Assessing Officer had further reduced the income tax liability of ₹ 3,72,06,556/- on account ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 41 of 47 of short term capital and thereafter, had arrived at the net available accumulated profit at Rs.8,68,15,300/-. 23.2. The ld.DR had submitted that this profit of Rs. Rs.8,68,15,300/- was required to be taxed on pro rata tax basis as deemed dividend on the basis of the share holding proportion. 24. We have gone through the record and the submissions made by both the parties. It will be relevant to mention here that the assessee, had pointed out that the assessment proceedings of the other two companies namely, Zinnia Agro Farms Pvt. Ltd and Honey Dew Agro, were completed u/s 143(3) on 31.03.2015 and 09.03.2015 and no additions were made in their hands on account of deemed dividend despite the fact that these two companies were having the percentage of holding at 14.50 respectively. Further, the Assessing Officer in the case of Zinnia Agro Farms Pvt. Ltd., in order dt.31.03.2015 had noted down the aspect of treating the loan as deemed dividend, however, after analysis, no addition was made in the case of Zinnia Agro Farms Pvt. Ltd. Similar order was passed in the case of Honey Dew as well. 24.1. In our considered opinion, once there is no change in facts and law, the Revenue is bound to take consistent stand and assess in the same manner, as it has been done in other two cases, namely, Zinnia Agro Farms Pvt. Ltd and Honey Dew Agro. The Revenue has not brought to our notice ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 42 of 47 any proceedings which shows that the assessment order passed in the case of Zinnia Agro Farms Pvt. Ltd and Honey Dew Agro have not been accepted by the Revenue. As per record, no correction proceedings were initiated by the Revenue against the said two companies under section 263 of the Act. The ld.AR during the course of argument had relied upon the decision in the case of Jaswant Rai (supra) and also in the case of M.S.Virmathi H. Dalal (supra), which are the decisions on the principle that the similarly situated co- sharers should be subjected to the same treatment and tax liability. We do not find any fault in the said proposition. Law commands that the citizens, who are similarly situated and placed are required to be taxed in the same manner with a view to maintain the uniformity and consistency in tax adjudication. 25. Now we have to consider whether the Assessing Officer of the assessee, can distribute the profit on pro rata basis on its own to the extent of ₹ 1,98,73,380 for Sienna constructions and Rs.1,72,15,595/- for Red Earth. In this regard, as mentioned hereinabove, the first beneficiary share holder was Honeydew, which received first loan amount of Rs.10,31,40,000/- on 9/9/2009, in whose hands no additions were made by the assessing officer and the revenue also accepted the same. In accordance with section 2 (22) (e) of the Act, such a loan by the company to its share holder namely, Honeydew, in the manner set out in said provision, ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 43 of 47 was required to be treated as deemed dividend. Hence, this loan of Rs.10,31,40,000/- was required to treated as deemed dividend and further to be as adjusted against the companies accumulated profit of Rs.8,68,15,300/- at the first instance. 25.1. Needless to say this loan (deemed dividend) was required to be taxed in the hands of the said shareholder company namely, M/s.Honey Dew subject to the maximum limit of accumulated profits as per law. However, for the reason best known to the assessing officer of the Honey Dew, no additions were made in the hands of this company in assessment order dated 09.03.2015. Further, no proceedings were undertaken by the revenue authority against the said assessment order passed in favour of the company, including the proceedings under section 263 of the Act. 25.2. In our view, once the loan was required to be treated as deemed dividend and was required to be adjusted against the accumulated profit, then after the amount of Rs.10,31,40,000/- paid out to M/s. Honey Dew, no accumulated profits were available for treating as deemed dividend in the hands of assessee. Hence, no addition in the hands of the assessee for the deemed dividend were warranted. 25.3. The ld.DR relied upon on the decision of the hon’ble Supreme Court in the case of G. Narasimhan (supra) for pressing that only that part of the distributed amount ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 44 of 47 attributable to accumulated profit alone can be taxed as dividend, in support of its case. In our considered opinion, the said decision is not applicable to the facts of the present case. Furthermore, the conjoint reading of Paragraphs 5 and 6 of the decision of hon’ble Supreme Court in the case of G. Narasimhan (supra) clearly shows that the decision is against the Revenue in the present case. The Hon’ble Supreme Court in Paragraphs 5 and 6 of the judgment, has held as under : “5. Under section 2(22)(e) of the Act, any payment by a company, in which the public are not substantially interested, of any sum by way of any loan to a shareholder, will, to the extent that the company possesses accumulated profits, be considered as a deemed dividend paid to the shareholder. In the present case, the said four amounts paid to the four shareholders were treated as deemed dividends in the hands of those shareholders and were taxed, accordingly, in the relevant assessment years. We have to consider whether these amounts will go to reduce the accumulated profits of the company for the purposes of calculating the distribution of accumulated profits under section 2(22)(d). 6. It was contended by the department that section 2(22)(e) only notionally treats such loan to a shareholder by a company as a deemed dividend to the extent that the company possesses accumulated profits. Therefore, the payment so made should not be deducted from the accumulated profits of the company for the purpose of determining the extent of such accumulated profits. We fail to appreciate this contention. A dividend under section 205 of the Companies Act can be paid only out of the profits of a company whether for that year or out of the profits of the company for any previous financial years as set out in that section and in the manner set out in that section. Therefore, under section 2(22), when any payment by a company is treated as a deemed dividend, the section has provided that it should be treated as payment out of the accumulated profits of the company, whether capitalised or not. In fact, under section 194 of the Act, an obligation is cast upon the principal officer of the company to deduct from the payment so made under section 2(22)(e) income-tax at the rates in force. Section 194 clearly treats such payment as dividend. Therefore, when a loan by a company to a share holder in the manner set out in section 2(22)(e) is treated as a deemed dividend, it is to be treated as payment out of the accumulated profits of the company. Any legal fiction will, therefore, have to be carried to its logical conclusion. If ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 45 of 47 the payment under section 2(22)(e) is treated as a deemed dividend and is required to be so treated to the extent that the company possesses accumulated profits, the logical conclusion is that this payment must be considered as adjusted against the company's accumulated profits to the extent that it is treated as deemed dividend while calculating accumulated profits of the company. Whenever accumulated profits of the company are required to be determined, such an adjustment will have to be made.” 25.4. From the perusal of the above said paragraph, it is clear that there is no mandate by the Hon’ble Supreme Court to adjust on the basis of the percentage of shareholding. The Hon’ble Court had only held that the payment is required to be adjusted against the company’s accumulated profit. Undoubtedly, if the payment made to M/s.Honey Dew is adjusted against the accumulated profit nothing will be available for taxing as deemed dividend in the hands of the assessee before us. 25.5. Furthermore, we are of the opinion that the best course available with the Revenue is to examine the officials of the company namely, M/s Matrix Security and Surveillance Private Limited and find out whether any accumulated profit were distributed to all the co-shareholders or it was only paid to M/s. Honey Dew. We do not find any merit in the contention of the Revenue that the profit was required to be distributed uniformly based on percentage of shareholding. The deeming provisions of Section 2(22)(e) are required to be applied as available in the statute book and the Revenue cannot sit in the arm chair of MATRIX ENPOWER and decide ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 46 of 47 as to whom the accumulated profit is to be made or how the distribution of the profit is to be done. 26. In view of the above, the appeal filed by the assessee in ITA No.681/Hyd/2017 is allowed. ITA No.653/Hyd/2017 27. As we have decided the grounds raised in assessee’s appeal in ITA No.681/Hyd/2017 in its favour, therefore, respectfully, following our decision in ITA No.681/Hyd/2017 hereinabove, the appeal of Revenue in ITA No.653/Hyd/2017 is dismissed. 27.1 In the result, the appeal of Revenue is dismissed. 28. In the combined result, the appeal of assessee is allowed and the appeal of Revenue is dismissed. Order pronounced in the open court on 22 nd July, 2024. Sd/- Sd/- (MADHUSUDAN SAWDIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 22-07-2024 TNMM ITA Nos. 681/Hyd/2017 653/Hyd/2017 Page 47 of 47 Copy forwarded to: 1. Red Earth Agro Farms LLP (Previously Red Earth Agro Farms Pvt. Ltd.), C/o. Ch. Parthasarathy & Co., 1-1-298/2/B/3, Sowbhagya Avenue, 1 st Floor, Street No. 1, Ashok Nagar, Hyderabad. 2. M/s. Sienna Constructions Private Limited, Ground Floor, 1-1-151/1, Sairam Towers, Secunderabad 3. The Income Tax Officer, Ward-3(2), Hyderabad. 4. Pr.CIT-3, Hyderabad. 5. DR, ITAT, Hyderabad. 6. GUARD FILE // Bye order //
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