M/s Sankeshwar Printers Pvt. Ltd., Gadag V. DCIT, Hubli

ITA 672/BANG/2010

• Counselvise Citation: 67221114 RSA 2010
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-10-2010
• Assessment Year: misc
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L V BHASKARA REDDY JT
• Keywords: Opportunity of being heard; Question of law; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.672/BANG/2010 ASSESSMENT YEAR : 2004-05 M/S. SANKESHWAR PRINTERS PVT. LTD., VEER SAVARKAR MARG, GADAG. PAN : AACCS 4682B VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HUBLI. APPELLANT RESPONDENT APPELLANT BY : SHRI S. PARTHASARATHI, ADVOCATE RESPONDENT BY : SHRI L.V. BHASKARA REDDY, JT.CIT(DR) DATE OF HEARING : 19.12.2013 DATE OF PRONOUNCEMENT : 31.12.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 17.03.2010 OF THE CIT(APPEALS), HUBLI RELATING TO ASSESSMENT YEAR 2004-05. 2. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE PRES ENT APPEAL ARISES FOR CONSIDERATION ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY. IT IS ITA NO.672/BANG/2010 PAGE 2 OF 8 ENGAGED IN THE BUSINESS OF PRINTING AND PUBLISHING. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE A.Y. 2004-05, THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE DURING THE PREVIOUS YEAR HAD BOUGHT BACK 1530 SHARES OF RS.1,000 EACH AT A PRICE OF RS.3,365 PER SHARE FROM ITS EXISTING SHAREHOLDERS. THE ASSESSEE HAD, IN THIS REGARD, MA DE A PAYMENT OF RS.51,48,450 FOR PURCHASE OF ITS OWN SHARES. THE A O FURTHER NOTICED THAT THE AFORESAID BUY BACK OF SHARES BY THE ASSESSEE FR OM THE EXISTING SHAREHOLDERS WOULD BE DEEMED DIVIDEND WITHIN THE ME ANING OF SECTION 2(22)(D) OF THE ACT. THE PROVISIONS OF THE AFORESA ID SECTION READ AS FOLLOWS:- 2 ( 22 ) 'DIVIDEND' INCLUDES . ( D ) ANY DISTRIBUTION TO ITS SHAREHOLDERS BY A COMPAN Y ON THE REDUCTION OF ITS CAPITAL, TO THE EXTENT TO WHICH TH E COMPANY POSSESSES ACCUMULATED PROFITS WHICH AROSE AFTER THE END OF THE PREVIOUS YEAR ENDING NEXT BEFORE THE 1ST DAY OF APR IL, 1933, WHETHER SUCH ACCUMULATED PROFITS HAVE BEEN CAPITALI SED OR NOT ; 3. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD ACCUM ULATED PROFITS AS ON 01.04.2003 OF RS.53,64,960 AND THEREFORE THE WHOLE OF THE PAYMENT MADE BY THE ASSESSEE FOR BUYING BACK THE SHARES VIZ., RS .51,48,450 HAD TO BE TREATED AS DEEMED DIVIDEND. UNDER THE PROVISIONS O F SECTION 2(22)(IV) OF THE ACT, THE FOLLOWING PAYMENTS SHALL NOT BE DEEMED AS PAYMENT OF DIVIDEND VIZ., ITA NO.672/BANG/2010 PAGE 3 OF 8 IV ) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OW N SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956); 4. IN THE ORDER OF ASSESSMENT, THE AO HAS OBSERVED AS FOLLOWS:- . IT IS ALSO OBSERVED THAT PAYMENT ON PURCHASE OF ITS OWN SHARES IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956. SRI ARVINDKUMAR KUBSAD, C .A. WHO APPEARED ON 15.11.2006 HAS ACCEPTED THAT THE ABOVE ACTION OF THE ASSESSEE COMPANY HAS RESULTED IN THE PAYMENTS OF DE EMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(D) OF THE I.T. ACT, 1961. 5. AS CAN BE SEEN FROM THE PROVISIONS OF SECTION 2( 22)(D) OF THE ACT, THE PAYMENT WILL BE DEEMED AS PAYMENT OF DIVIDEND I N THE HANDS OF ONLY THE SHAREHOLDER. BUT AS FAR AS THE ASSESSEE IS CON CERNED, UNDER THE PROVISIONS OF SECTION 115O OF THE ACT, IT HAS TO PA Y ADDITIONAL INCOME TAX @ 12.5% AND SURCHARGE @ 2.5% AS WAS APPLICABLE FOR TH E A.Y. 2004-05. SECTION 115 O FALLS WITHIN THE CHAPTER XII-D OF THE ACT WHICH IS SECTION 115 O TO 115 Q. EXPLANATION BELOW S. 115 Q OF THE ACT D EFINES THE EXPRESSION DIVIDEND FOR THE PURPOSE OF CHAPTER XII D AND IT LAYS DOWN THAT FOR THE PURPOSE OF CHAPTER XII D OF THE ACT, DIVIDEND SHALL HAVE THE SAME MEANING AS IS GIVEN TO DIVIDEND IN SECTION 2(22) OF THE ACT , BUT EXCLUDING SECTION 2(22)(E) OF THE ACT. SINCE THE ASSESSEE IS DEEMED TO HAVE DISTRIBUTED DIVIDEND TO ITS SHAREHOLDERS WITHIN THE MEANING OF SECTION 2(22)(D) OF THE ACT, THE AO LEVIED DIVIDEND DISTRIBUTION TAX ON THE ASSESSEE AS FOLLOWS:- ITA NO.672/BANG/2010 PAGE 4 OF 8 6. COMING TO TAX THE DEEMED DIVIDEND, SECTION 115 O PRESCRIBES THE RATE OF TAX AT 12.5% AND SURCHARGE A T 2.5%. THUS THE TAX WORKS OUT TO AS UNDER:- ADDL. TAX AT 12.5% ON RS.51,48,450 = RS.6,43,556/- ADD: SURCHARGE @ 2.5% = RS. 16,089/- TOTAL RS.6,59,645/- 7. THE ASSESSEE COMPANY WAS UNDER THE OBLIGATION TO DEPOSIT THE TAX OF RS.6,43,556/- WITHIN FOURTEEN DAYS FROM THE DATE OF DISTRIBUTION OF DIVIDEND AS PER THE PROVISIONS OF S ECTION 115 O (3) OF THE ACT. THE ASSESSEE COMPANY HAS FAILED TO DO SO. THEREFORE, IT IS LIABLE TO PAY SIMPLE INTEREST AT THE RATE OF 1% FOR EVERY MONTH FROM 22.04.2003 TO THE DATE ON WHICH THE TAX IS ACT UALLY PAID AS PER SECTION 115 P OF THE ACT. THUS THE COMPANY IS LIABLE FOR INTEREST TILL THE PAYMENT. HOWEVER, SUCH INTEREST IS CHARGED UPTO NOVEMBER 2006 AND AFTER PAYMENT FURTHER INTEREST WI LL BE CHARGED ON THE BASIS OF PAYMENT. 6. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(APPEALS). THE PRIMARY PLEA WAS THAT THE ACCUMULATED PROFITS WERE TO BE CONSIDERED ONLY AT RS.36,18,450 AND ONLY TO THAT EXTENT THE ASSESSEE SHOULD BE CONSIDERED AS HAVING DISTRIB UTED DIVIDEND AND TAX DEMAND U/S. 115 O TOWARDS DIVIDEND DISTRIBUTION TAX SHOULD BE CALCULATED ACCORDINGLY. 7. THE CIT(APPEALS) REJECTED THE AFORESAID CLAIM OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE OR DER OF THE CIT(A), THE ASSESSEE PREFERRED THE APPEAL BEFORE THE TRIBUNAL. 8. BEFORE THE TRIBUNAL, THE ASSESSEE TOOK THE PLEA THAT U/S. 2(22)(IV) OF THE ACT, ANY PAYMENT BY A COMPANY ON PURCHASE OF IT S OWN SHARES FROM A ITA NO.672/BANG/2010 PAGE 5 OF 8 SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SE CTION 77A OF THE COMPANIES ACT, 1956 WILL NOT BE DIVIDEND WITHIN THE MEANING OF SECTION 2(22) OF THE ACT. THE ASSESSEE CONSEQUENTLY SUBMI TTED THAT THE PROVISIONS OF SECTION 115 O OF THE ACT AND CONSEQUENT LIABILIT Y OF DIVIDEND DISTRIBUTION TAX OF THE ASSESSEE CANNOT BE LEVIED. THE TRIBUNAL REFUSED TO EXAMINE THIS CONTENTION IN ITS ORDER DATED 07.10.2000. THE FOLL OWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- 6. THIS LEGAL CONTENTION WAS IN FACT EXAMINED BY T HE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT ITSEL F. IT IS NOT THAT THIS VITAL POINT WAS OVERLOOKED BY THE ASSESSING AU THORITY. IN PAGE-2 OF THE ASSESSMENT ORDER IN THE PARAGRAPH DEA LING WITH DEEMED DIVIDEND, THE ASSESSING OFFICER HAS STATED T HAT THE PAYMENT OF PURCHASE OF ITS OWN SHARES WAS NOT IN AC CORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956. FOR THE SAKE OF ARGUMENT, IF THIS OBSERVATION IS TR EATED AS NOT CORRECT, THE ASSESSEE SHOULD HAVE TAKEN THE POINT A S A GROUND BEFORE THE COMMISSIONER OF INCOME-TAX(A). NO SUCH G ROUND WAS PLACED BEFORE HIM. THERE IS NO SUCH SPECIFIC GROUND EVEN IN THE GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL. THEREF ORE, WE CANNOT ACCEPT THE ARGUMENT OF THE LEARNED COUNSEL THAT THE PAYMENT WAS MADE BY THE ASSESSEE COMPANY IN ACCORDANCE WITH SEC TION 77A OF THE COMPANIES ACT, 1956. THE ASSESSING OFFICER H AD ALREADY MADE A FINDING ON THIS LEGAL ISSUE. THE ASSESSEE HA S NOT CHALLENGED THE FACTUAL BASIS OF THE ABOVE FINDING E ITHER BEFORE THE ASSESSING AUTHORITY IN APPROPRIATE JUDICIAL PROCEED INGS OR BEFORE THE COMMISSIONER OF INCOME-TAX(A). THIS GROUND IS R AISED FOR THE FIRST TIME BEFORE THE TRIBUNAL. EVEN THOUGH IT COUL D BE HELD AS A LEGAL GROUND, IT NEEDS VERIFICATION OF FACTS. MOREO VER, THE FACTS HAVE BEEN VERIFIED BY THE ASSESSING AUTHORITY AND F OUND AGAINST THE ASSESSEE. THEREFORE, WE ARE CONSTRAINED TO DISM ISS THE SAID OBJECTION RAISED BY THE LEARNED COUNSEL APPEARING F OR THE ASSESSEE. WE HOLD THAT THE ASSESSING OFFICER WAS JU ST AND PROPER IN LEVYING TAX ON THE PAYMENT MADE ON ACCOUNT OF RE DUCTION IN ITS SHARE CAPITAL. ITA NO.672/BANG/2010 PAGE 6 OF 8 9. AGAINST THE ORDER OF THE TRIBUNAL, THE ASSESSEE PREFERRED APPEAL BEFORE THE HONBLE HIGH COURT OF KARNATAKA IN ITA N O.5001 OF 2011. THE HONBLE HIGH COURT BY ITS ORDER DATED 28.08.2013 HE LD THAT THE LEGAL QUESTION WITH REGARD TO APPLICABILITY OF THE PROVIS IONS OF SECTION 2(22)(D) OF THE ACT IS A LEGAL QUESTION AND CAN BE RAISED AT AN Y STAGE. THE HONBLE HIGH COURT THEREFORE DIRECTED THE TRIBUNAL TO CONSI DER THE QUESTION OF LAW AND REMANDED THE MATTER BACK TO THE TRIBUNAL. 10. CONSEQUENT TO THE ORDER OF THE HONBLE HIGH COU RT OF KARNATAKA, THE PARTIES WERE HEARD ON THE QUESTION WITH REGARD TO A PPLICABILITY OF PROVISIONS OF SECTION 2(22)(IV) OF THE ACT. IN THIS REGARD, WE FIND THAT THE AO IN THE ORDER OF ASSESSMENT HAS NOT EXAMINED THIS ISSUE, BU T HAS MERELY MADE THE OBSERVATION THAT THE PAYMENT FOR BUY BACK OF SHARES MADE BY THE ASSESSEE COMPANY IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956. THE ASSESSEE HAS FILED THE FO LLOWING DOCUMENTS AND THESE DOCUMENTS WERE AVAILABLE ON THE FILE OF T HE AO AS CERTIFIED BY THE LD. COUNSEL FOR THE ASSESSEE:- SL. NO. PARTICULARS PAGE NO. 1 COPY OF THE BALANCE SHEET AND PROFIT & LOSS ACCOU NT AS ON 31.03.2003 AND 31.03.2004 ALONG WITH SCHEDULES 1 - 2 2 COPY OF THE LEDGER ACCOUNT OF PROFIT & LOSS ACCOU NT IN THE BOOK OF THE ASSESSEE AS ON 31.03.2004 3 4 3 COPY OF THE LEDGER ACCOUNT OF RESERVE AND SURPLUS IN THE BOOKS OF THE ASSESSEE AS ON 31.03.2004 5 6 ITA NO.672/BANG/2010 PAGE 7 OF 8 4 DETAILS OF PROFIT & LOSS ACCOUNT FROM 1.4.1988 TO 31.3.2004 7 14 5 MINUTES OF THE BOARD OF DIRECTORS MEETING HELD ON 8 TH OF APRIL, 2003 15 17 6 COMPLIANCE CERTIFICATE FROM COMPANY SECRETARY 18 30 7 MINUTES OF EXTRA ORDINARY GENERAL MEETING OF SANK ESHWAR PRINTERS PRIVATE LTD. ON 24 TH APRIL 2003 31 39 11. IT IS THE PLEA OF THE ASSESSEE THAT THE BUY BAC K OF THE SHARES BY IT FROM ITS SHAREHOLDERS WAS IN COMPLIANCE OF THE PROV ISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956. THE ASSESSEE DID NOT RAIS E THIS PLEA BEFORE THE CIT(APPEALS). THE ORDER OF THE AO IS ALSO NOT A SP EAKING ORDER. NOW THAT THE AFORESAID ISSUE HAS BEEN DIRECTED TO BE CONSIDE RED BY THE HONBLE HIGH COURT OF KARNATAKA, IT WILL BE JUST AND PROPER TO D IRECT THE ASSESSING OFFICER TO CONSIDER AS TO WHETHER THE BUY BACK OF SHARES BY THE ASSESSEE WAS IN COMPLIANCE OF THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956. 12. BEFORE US, THE LD. DR ATTEMPTED TO POINT OUT, O N THE BASIS OF THE PAPERBOOK (PB) FILED BY THE ASSESSEE THAT THERE WER E VIOLATIONS IN COMPLYING WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 BY THE ASSESSEE. IT WAS BROUGHT TO THE LD. DRS NO TICE THAT THESE ASPECTS CAN BE CONSIDERED BY THE BENCH, BUT SINCE THE AO HA S NOT APPLIED HIS MIND TO THE AFORESAID DOCUMENTS, IT WOULD BE MORE APPROP RIATE THAT THE AO SHOULD BE AFFORDED AN OPPORTUNITY. THE ORDER OF TH E CIT(APPEALS) IS ACCORDINGLY SET ASIDE AND THE AFORESAID ISSUE IS RE MANDED TO THE ASSESSING ITA NO.672/BANG/2010 PAGE 8 OF 8 OFFICER FOR FRESH CONSIDERATION. THE AO WILL AFFOR D OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. FOR STATISTICAL PURPOSES, THE APPEAL OF THE ASS ESSEE IS TREATED AS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF DECEMBER, 2013. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 31 ST DECEMBER, 2013. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.