Nirmala Realtors Pvt. Ltd., Agra V. Dy. C.I.T., Circle 4(1), Agra

ITA 70/AGR/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7001 (ITAT-AGRA)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SRIVASTAVA
• Assessee Lawyers: VINOD NAGPAL
• Keywords: Deemed dividend
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 69, 70 & 71/AGRA/2011 ASSTT. YEAR : 2003-04, 2004-05 & 2006-07 NIRMALA REALTORS PVT. LTD., VS. D.C.I.T., CIRCL E 4(1), 64, SURYA NAGAR, AGRA. AGRA. (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI VINOD NAGPAL, C.A. FOR RESPONDENT : SHRI M.K. SRIVASTAVA, SR. D.R. ORDER PER P.K. BANSAL, A.M. : FOR THE SAKE OF CONVENIENCE ALL THESE THREE APPEAL S ARE DISPOSED OF BY THIS COMMON ORDER, AS THE ISSUE INVOLVED IN ALL THESE APPEALS ARE COMM ON. THE ASSESSEE HAS TAKEN FOLLOWING EFFECTIVE GROUNDS : ITA NO. 69/AGRA/2011 : 1. THAT THE ORDER IS AGAINST FACTS AND LAW. 2. THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE FACTS STATED BY THE ASSESSEE AND COMING TO THE CONCLUSION THAT THERE WA S LOAN AND ADVANCE OF RS.72 LACS FROM THE ALLEGED LENDER. 3. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT SECT ION 2(22)(E) IS APPLICABLE IN THE CASE OF THE ASSESSEE. THERE IS NO PAYMENT RE CEIVED BY THE ASSESSEE AND ASSESSEE IS NEITHER REGISTERED NOR BENEFICIAL O WNER OF ANY SHARES IN THE ALLEGED LENDER. 4. THE CALCULATION OF DEMAND AND TAX IS WRONG. ITA NO. 70/AGRA/2011 : 1. THAT THE ORDER IS AGAINST FACTS AND LAW. 2 2. THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE FACTS STATED BY THE ASSESSEE AND COMING TO THE CONCLUSION THAT THERE WA S LOAN AND ADVANCE OF RS.17 LACS FROM THE ALLEGED LENDER. 3. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT SECT ION 2(22)(E) IS APPLICABLE IN THE CASE OF THE ASSESSEE. THERE IS NO PAYMENT RE CEIVED BY THE ASSESSEE AND ASSESSEE IS NEITHER REGISTERED NOR BENEFICIAL O WNER OF ANY SHARES IN THE ALLEGED LENDER. 4. THE CALCULATION OF DEMAND AND TAX IS WRONG. ITA NO. 71/AGRA/2011 : 1. THAT THE ORDER IS AGAINST FACTS AND LAW. 2. IN RESPECT OF THE ADDITION OF RS.2,85,470/- U/S. 68, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE FACTS STATED BY THE AS SESSEE AND IN NOT FOLLOWING THE DECISION IN EARLIER ASSESSMENT YEARS IN ASSESSEES OWN CASES. 3. THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE FACTS STATED BY THE ASSESSEE AND COMING TO THE CONCLUSION THAT THERE WA S LOAN AND ADVANCE OF RS.57,01,406/- FROM THE ALLEGED LENDER. 4. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT SECT ION 2(22)(E) IS APPLICABLE IN THE CASE OF THE ASSESSEE. THERE IS NO PAYMENT RE CEIVED BY THE ASSESSEE AND ASSESSEE IS NEITHER REGISTERED NOR BENEFICIAL O WNER OF ANY SHARES IN THE ALLEGED LENDER. 5. THE CALCULATION OF DEMAND AND TAX IS WRONG. 2. THE GROUNDS OF APPEAL TAKEN IN ASSESSMENT YEAR 2 003-04 AND 2004-05 ARE COMMON EXCEPT CHANGE OF THE FIGURES. THE ONLY ISSUE INVOLV ED IN ALL THE GROUNDS IN BOTH THE YEARS RELATE TO THE DEEMED DIVIDEND U/S. 2 SUB-SEC. (22)(E) OF THE INCOME-TAX ACT. SIMILAR ISSUE HAS ARISEN IN GROUND NO. 3 & 4 FOR THE ASSESSMENT YEAR 2006-07. F IRST WE ARE ADJUDICATING THE ISSUE RELATING TO THE DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER WHILE FRAMING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2006-07 CAME TO KNOW THAT THE A SSESSEE HAS ENTERED INTO TRANSACTION WITH ITS SISTER CONCERN, M/S. MAHIM PATRAN PVT. LTD. (HEREIN AFTER REFERRED TO AS MPPL) BY PASSING FOLLOWING ENTRIES. DATE PARTICULARS DEBIT CREDIT 15.10.05 SAVITA BHASKAR (BEING AMT. DEBITED TOWARDS AMOUNT PAID BY MPPL ON OUR BEHALF) 8900000 21.10.05 BANK OF INDIA C/A(BEING CH. NO.173901 ISSU ED TO M/S. MPPL IN A/C OF M/S. NIRMITI ASSOCIATES P. LTD. 8900000 THE ASSESSEE WAS ASKED TO EXPLAIN ALL THE TRANSACTI ONS MADE BY THE ASSESSEE WITH M/S. MPPL. THE ASSESSEE VIDE REPLY DATED 15.09.2008 SUBMITTED THAT NET EFFECT OF THE TWO ENTRIES EACH OF RS.89,00,000/- IN THE ACCOUNT OF M/S. MPPL ONE OF THE CREDIT ON 15.10.2005 AND OTHER OF DEBIT ON 21.10.2005 IS NIL. IN FACT, M/S. MPPL HAD ISSUED A CHEQUE OF RS.89,00,000/- TO SAVITA BHASKER, WHICH AS PER ADVICE OF M/S. MPPL WAS CREDI TED TO M/S. MPPL AND DEBITED TO SAVITA BHASKER. SINCE M/S. MPPL CLAIMED THAT PAYMENT ON BE HALF OF OUR COMPANY, THE SAME WAS REIMBURSED TO M/S. MPPL ON 21.10.2005 THROUGH CHEQU E. WHEN SUBSEQUENTLY, IT WAS REALIZED THAT THE PAYMENT TO SAVITA BHASKAR BY M/S. MPPL WAS NOT ON ACCOUNT OF ASSESSEE, BUT ON ACCOUNT OF M/S. NIRMITI ASSOCIATES PVT. LTD. (HEREI NAFTER REFERRED TO AS NAPL), THE ASSESSEE TRANSFERRED DEBIT IN THE ACCOUNT OF SAVITA TO NAPL AND SUBSEQUENTLY ON 20.10.2005, NAPL PAID THE ASSESSEE BY CHEQUE. IT WAS POINTED OUT THAT THE PAYMENT MADE BY M/S. MPPL ON BEHALF OF NIRMALA REALTORS PVT. LTD. FOR THE ASSESSMENT YEAR 2003-04 WAS TO THE EXTENT OF RS.72,00,000/- THE DETAILS OF WHICH ARE GIVEN AT PAGE 2 OF THE ASS ESSMENT ORDER AND SIMILARLY REMAINING RS.17,00,000/- HAS BEEN PAID DURING THE ASSESSMENT YEAR 2004-05 ON BEHALF OF THE ASSESSEE. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT ON 11.03.200 2 WITH SHRI SANJEEV BHASKER. AS PER THE 4 AGREEMENT, THE LAND WAS MADE AVAILABLE BY SHRI SANJ EEV BHASKAR TO THE ASSESSEE AND THE FINANCE FOR THE CONSTRUCTION WAS TO BE ARRANGED BY THE ASSE SSEE. THE ASSESSING OFFICER ACCORDINGLY WAS OF THE OPINION THAT THE PAYMENT MADE TO SANJEEV BHA SKARS WIFE BY M/S. MPPL WAS ON BEHALF OF THE ASSESSEE IN ACCORDANCE WITH THE AGREEMENT. THER EFORE, HE TREATED THE SUM OF RS.72,00,000/- AS DEEMED DIVIDEND U/S. 2(22)(E) FOR THE ASSESSMENT YEAR 2003-04 AND RS.17,00,000/- FOR THE ASSESSMENT YEAR 2004-05, AS THE CASE OF THE ASSESSE E, IN HIS OPINION WAS COVERED UNDER THE SITUATION ENUMERATED U/S. 2(22)(E) WHICH STATES THA T ANY PAYMENT BY THE PRIVATE LIMITED COMPANY OF ANY SUM BY WAY OF LOAN OR ADVANCE TO THE EXTENT OF ACCUMULATED PROFIT TO ANY PERSON ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, SUCH SHAREHOLDER HERE MEANS A SHAREHOLDER WHO IS BENEFICIAL OWNER OF SHARES HOLDI NG NOT LESS THAN 10% VOTING POWER. THE SHAREHOLDERS IN M/S. MPPL HAVING MORE THAN 10% SHAR ES ARE HAVING SUBSTANTIAL INTEREST IN ASSESSEE COMPANY. THE SHARE HOLDING OF THE SHARE HO LDERS OF M/S. MPPL AND THAT OF THE ASSESSEE ARE LAID DOWN AS UNDER : M/S. MPPL ASSESSEE MILAN KAPOOR 10% 29% SUDHA KAPOOR 10% 10% NIRMALA KAPOOR 24% 01% MADHUKAR KAPOOR 24% 40% ARVIND KAPOOR 24% 10% PIYUS KAPOOR NIL 10% AS ON 31.03.2002 AND 31.03.2003, M/S. MPPL WAS HAVI NG ACCUMULATED PROFIT AT RS.1,89,77,272/- AND RS.2,59,07,641/- RESPECTIVELY. 4. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). T HE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER TREATING THE SUM OF RS.72,00,000/ - AS DEEMED DIVIDEND DURING THE ASSESSMENT YEAR 2003-04 AND RS.17,00,000/- FOR THE ASSESSMENT YEAR 2004-05 BY OBSERVING AS UNDER : 5 5. DURING THE APPELLATE PROCEEDINGS, THE ARGUMENTS TAKEN UP BEFORE THE AO WERE REITERATED BEFORE ME. AFTER GOING THROUGH THE RECORDS AND CAREFULLY CONSIDERING THE SUBMISSION OF LD. AR, I AM OF THE OPINION THAT PROV ISIONS OF SEC. 2(22)(E) ARE CLEARLY APPLICABLE IN THE APPELLANT'S CASE. BEFORE I DISCUS S THE FACTS OF THE CASE OF THE APPELLANT,T IT IS CONSIDERED NECESSARY TO REFER TO THE PROVISIO NS OF SEC.2(22)(E). AS PER THESE PROVISIONS ANY LOAN OR ADVANCE TO A SHARE HOLDER OR A CONCERN IS TREATED AS DIVIDEND IN CERTAIN CASES TO THE EXTENT OF ACCUMULATED PROFITS. THE APPLICABILITY OF SECTION 2(22)(E) DEPENDS ON FULFILLMENT OF THE FOLLOWING CONDITIONS- (I) THE COMPANY SHOULD BE ONE IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. (II) THE EQUITY SHAREHOLDER, WHO IS BENEFICIAL OWN ER OF SHARES HOLDING NOT LESS THAN TEN PERCENT OF VOTING POWER, OR (III) ANY CONCERN IN WHICH SHARE HOLDER (HOLDING N OT LESS 10% VOTING POWER) IS A MEMBER OR PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST, OR (IV) ANY PERSON, ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. SUCH SHAREHOLDER HERE MEANS A SHAREHOLDER WHO IS BENEFIC IAL OWNER OF SHARES HOLDING NOT LESS THAN 10% VOTING POWER. THE LOAN AND ADVANCE GIVEN TO SUCH PERSON SHALL BE DEEMED TO BE DIVIDEND ONLY TO THE EXTENT TO WHICH IT IS SHOWN THAT THE COMPANY POSSES SES ACCUMULATED PROFITS ON THE DATE OF LOAN ETC. THERE ARE CERTAIN EXCEPTIONS ALSO PROVIDED IN THE SUBSECTION ONE OF WHICH IS THAT ANY ADVANCE OR LOAN TO A SHARE HOLDER OR SPECIFIED CONC ERN 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 WILL NOT ATTRACT THE PROVISIONS OF S EC. 2(22)(E). THIS EXCEPTION SHALL APPLY ONLY WHEN TWO CUMULATIVE CONDITIONS ARE FULFILLED FIRS T, THE LOAN SHOULD HAVE BEEN MADE BY THE COMPANY IN THE ORDINARY COURSE OF BUSINESS AND SECO NDLY, MONEY LENDING SHOULD BE SUBSTANTIAL PART OF THE COMPANY'S BUSINESS. THUS, THE EFFECT OF SUB-CLAUSE(E) OF SUB SECTION (22) OF SEC. 2 IS TO CREATE A FICTION AND TREAT THE LOANS OR ADVANCES TO A SHAREHOLDER WHO IS THE BENEFICIAL OWNER OF SHARES HOLDING 10% OR MORE OF THE VOTING POWER O F THE COMPANY AS DIVIDEND. IT ALSO INCLUDES PAYMENTS MADE BY THE COMPANY ON BEHALF OR FOR THE I NDIVIDUAL BENEFIT OF SUCH SHARE HOLDER. IT FURTHER INCLUDES ADVANCES OR LOANS MADE TO ANY CONC ERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. 5.1 THE LD. AR HAS ARGUED THAT THE DEEMED DIVIDEND CAN BE CONSIDERED ONLY IN THE HANDS OF THE SHAREHOLDERS AND AS THE APPELLANT IS NOT A S HAREHOLDER IN M/S MAHIN PATRAN (P)LTD., THEREFORE, U/S 2(22)(E) NO DEEMED DIVIDEND CAN BE C ONSIDERED IN THE HANDS OF THE APPELLANT. IF THE ARGUMENT OF THE LD. AR IS ACCEPTED THAT THE ADVANCE OR LOAN SHOULD BE TREATED AS DIVIDEND IN HANDS OF THE SHAREHOLDER CONCERNED AND NOT THE CONCERN, THIS CONSTRUCTION AS ARGUED BY THE LD. AR WILL CREATE DIFFICULTIES IN A CASE WHERE MORE THAN ONE SHAREHOLDER HAS A SUBSTANTIAL INTEREST IN THE CONCERN. IT WOULD, THER EFORE, BE MORE LOGICAL TO TAX THE CONCERN WHICH ENJOYS BENEFIT FROM THE ADVANCE OR LOAN THOUGH IT H AS DIRECTLY NOTHING TO DO WITH THE CLOSELY HELD COMPANY. IT IS ALSO CONCEIVABLE THAT PAYMENTS MADE TO A CONCERN IN WHICH THE SHAREHOLDER HAS NO INTEREST OR EVEN LESS THAN SUBSTANTIAL INTER EST IF THEY CAN BE SHOWN TO HAVE BEEN MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHA REHOLDER SO AS TO ATTRACT THE SECOND PART OF THE SUB-CLAUSE (E) OF SEC.2(22). FOR THIS PROPOSITION O F LAW A USEFUL REFERENCE CAN BE MADE TO CIRCULAR NO. 495 DATED 22.9.87 ISSUED BY THE CBDT A ND THE SAME IS REPRODUCED BELOW- 6 DEFINITION OF DIVIDEND SEC. 2(22)(E) SEC. 104 TO 109 RELATES TO LEVY OF ADDITIONAL TAX O N CERTAIN CLOSELY-HELD COMPANIES (OTHER THAN THOSE IN WHICH THE PUBLIC ARE SUBSTANTIALLY IN TERESTED) IF THEY FAIL TO DISTRIBUTE A SPECIFIED PERCENTAGE OF THEIR DISTRIBUTABLE PROFITS AS DIVIDE NDS. THESE PROVISIONS HAD LOST MUCH OF THEIR RELEVANCE WITH THE REDUCTION OF THE MAXIMUM MARGINA L RATE OF PERSONAL TAX TO 50% WHICH IS LOWER THAN THE RATE FOR CORPORATION TAX ON CLOSELY-HELD C OMPANIES. SEC. 104 TO 109 HAVE, THEREFORE, BEEN OMITTED BY THE FINANCE ACT, 1987. WITH THE DELETION OF SEC. 104 TO 109 THERE WAS A LI KELIHOOD OF CLOSELY-HELD COMPANIES NOT DISTRIBUTING THEIR PROFITS TO SHAREHOLDERS BY WAY O F DIVIDENDS BUT BY WAY OF LOANS OR ADVANCES SO THAT THESE ARE NOT TAXED IN THE HANDS OF THE SHAREH OLDERS. TO FORESTALL THIS MANIPULATION, SUB- CLAUSE (E) OF CLAUSE (22) OF SEC. 2 HAS BEEN SUITAB LY AMENDED. UNDER THE EXISTING PROVISIONS, PAYMENTS BY WAY OF LOANS OR ADVANCES TO SHAREHOLDER S HAVING SUBSTANTIAL INTEREST IN A COMPANY TO THE EXTENT TO WHICH THE COMPANY POSSESSES ACCUMU LATED PROFITS IS TREATED AS DIVIDEND. THE SHAREHOLDERS HAVING SUBSTANTIAL INTEREST ARE THOSE WHO HAVE A SHAREHOLDING CARRYING NOT LESS THAN 20% VOTING POWER AS PER THE PROVISIONS OF SUB- CLAUSE (32) OF SEC. 2. THE AMENDMENT OF THE DEFINITION EXTENDS ITS APPLICATION TO PAYMENTS MADE (I) TO A SHAREHOLDER HOLDING NOT LESS THAN 10% OF THE VOTING POWER, OR (II) TO A CONCERN IN WH ICH THE SHAREHOLDER HAS SUBSTANTIAL INTEREST. 'CONCERN' AS PER THE NEWLY INSERTED EXPLANATION 3(A ) TO SEC. 2(22) MEANS AN HUF OR A FIRM OR AN AOP OR A BOI OR A COMPANY. A SHAREHOLDER HAVING A S UBSTANTIAL INTEREST IN A CONCERN AS PER PART (B) OF THE EXPLANATION 3 IS DEEMED TO BE ONE WHO IS BENEFICIALLY ENTITLED TO NOT LESS THAN 20% OF THE INCOME OF SUCH CONCERN. THE NEW PROVISION WOULD, THEREFORE, BE APPLICABLE I N A CASE WHERE A SHAREHOLDER HAS 10% OR MORE OF THE EQUITY CAPITAL. FURTHER, DEEMED DIVIDEN D WOULD BE TAXED IN THE HANDS OF A CONCERN WHERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED. (I) WHERE THE COMPANY MAKES THE PAYMENTS BY WAY OF LOAN S OR ADVANCES TO A CONCERN (II) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOLDS 10 % OF THE VOTING POWER IN THE COMPANY (III) WHERE THE MEMBER OR A PARTNER OF THE CONCERN IS ALS O BENEFICIALLY ENTITLED TO 20% OF THE INCOME OF SUCH CONCERN WITH A VIEW TO AVOID THE HARDSHIP IN CASES WHERE AD VANCES OR LOANS HAVE ALREADY BEEN GIVEN, THE NEW PROVISIONS HAVE BEEN MADE ONLY IN CA SES WHERE LOANS OR ADVANCES ARE GIVEN AFTER 31.5.1987. THESE AMENDMENTS WILL APPLY IN RELATION TO AY 1988- 89 AND SUBSEQUENT YEARS. THUS, THE CIRCULAR AS REPRODUCED ABOVE UNEQUIVOCALL Y STATES THAT ON FULFILLMENT OF THE CONDITIONS AS MENTIONED ABOVE THE DEEMED DIVIDE ND WOULD BE TAXED IN THE HANDS OF THE CONCERN, IN WHICH A SHAREHOLDER HAS SUBSTANTIAL INTEREST WHERE SUCH CONCERN HAS RECEIVED LOAN OR ADVANCE FROM A CLOSELY HELD COMPAN Y. THE AOS ACTION IN MAKING THE ADDITION IS IN CONFORMITY WITH THE CIRCULAR OF CBDT . THE FACT THAT THE CIRCULARS ISSUED BY THE CBDT ARE BINDING ON THE REVENUE AUTHORITIES AND CANNOT DEVIATE THEREFROM NOR CAN THEY TAKE A VIEW CONTRARY THERETO IS WELL ESTABLISH ED BY A CATENA OF DECISIONS FROM THE SUPREME COURT AS WELL AS THE HIGH COURTS AND THE TR IBUNALS. THE LD. AR HAS RELIED ON THE CASE OF CIT VS. BHAUMIK COLOR (P) LTD. (120 TTJ ) (MUMBAI) (SB) 865 FOR THE PROPOSITION THAT DEEMED DIVIDEND IS TAXABLE ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF SUCH CONCERNS, WHICH ARE NOT SHAREH OLDER OF THE COMPANY. HOWEVER, AS POINTED OUT THE CBDT IS OF THE VIEW THAT THE DEEMED DIVIDEND IS TAXABLE IN THE HANDS OF 7 THE CONCERN IN WHICH THE SHAREHOLDER HAS SUBSTANTIA L INTEREST. IN THE CASE OF BHAUMIK COLOR (P) LTD. (BCPL) THE ASSESSEE COMPANY HAD TAKE N INTEREST FREE LOAN OF RS. 9 LAKH FROM UPPL. THE AO OBSERVED THAT THOUGH BCPL WAS NOT SHAREHOLDER OF UPPL YET BOTH THE COMPANIES HAD ONE COMMON SHAREHOLDER I.E. A TRU ST NNT. THE SAID TRUST WAS HOLDING 20% SHARES OF BCPL AND 10% SHARES IN UPPL. THE AO, THEREFORE, TOOK THE VIEW THAT THE SAID TRANSACTION WAS COVERED BY THE SECOND LIMB OF SEC. 2(22) (E), HOWEVER, THE HONBLE ITAT FOUND NNT TRUST CONSISTING OF 3 TRUSTEES WHO HELD S HARES IN UPPL AND BPCL ON BEHALF OF 5 BENEFICIARIES. ON THESE FACTS THE TRIBUNAL HELD THA T THE EXPRESSION SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN FIRST LIMB OF SEC. 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER, IF A PERSON IS REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER, THEN THE PROVISIONS OF SEC. 2(22)(E) WILL NOT APPLY. THE ISSUE OF DEEMED DIVIDEND CAME FOR CONSIDERATION SUBSEQUENTLY BEFORE HONBLE ITAT MUMBAI F BENCH, MUMBAI IN THE CASE OF M/S UNISOL INFRASERVICES (P) LTD. VS. I TO WARD 8(3)(4) MUMBAI AND THIS CASE HAS BEEN DECIDED IN ITA NO. 2088/MUM/2008 VIDE ORDER DA TED 11.8.09. THE FACTS OF THE CASE WERE THAT SHRI RAJIV SHETE AND SMT. HEMAL SHETE WERE COMMON S HAREHOLDERS OF THE ASSESSEE COMPANY AND M/S ELEMENT INVESTMENT (P) LTD. WITH 34.65% AND 25. 86% SHAREHOLDING IN ASSESSEE COMPANY AND 50.1% AND 19.9% IN M/S ELEMENT (P) LTD. THE ASSESSE E COMPANY TOOK LOAN OF RS. 12 LAKHS FROM M/S ELEMENT INVESTMENT (P) LTD. THE AO INVOKED THE PROVISIONS OF SEC. 2(22)(E) AND BROUGHT TO TAX THE DEEMED DIVIDEND IN THE HANDS OF THE ASSESSE E. THE CIT(A) CONFIRMED THE ORDER OF THE AO. ON FURTHER APPEAL THE HONBLE ITAT HELD AS UNDER : THE LD. AR FOR THE ASSESSEE RELYING ON THE DECISI ON OF THE SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN ACIT VS. BHAUMIK COLOUR ( P) LTD. (2009) 27 SOT 270 (MUM.) (SB). FURTHER, THE LD. AR POINTED OUT THAT T HE AMOUNT OF RS. 12,00,000 CANNOT BE ASSESSED IN THE HANDS OF THE ASSESSEE AS THE ASSESSEES CASE COVERED BY THE SUB-CLAUSE (II) TO SEC. 2(22)(E) OF THE ACT. TH E LD. DR RELIED ON THE ORDER OF THE AUTHORITIES BELOW. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE THE SPECIAL BE NCH ARE ENTIRELY DIFFERENT TO THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US. IN THE CASE BEFORE THE SPECIAL BENCH THE TRUSTEES OF NARMADABEN NANDLAL TRUST (NN T) HELD THE SHARES ON BEHALF OF THE TRUST ONLY AS LEGAL OWNERS AND WERE N OT THE BENEFICIAL OWNERS OF THE SHARES. WHEREAS, IN THE CASE BEFORE US, SHRI RAJU SHETE AND SMT. HEMAL SHETE ARE THE COMMON SHAREHO LDERS IN BOTH THE COMPANIES I.E. IN THE ASSESSEE COMPANY AS WELL AS IN THE LEND ING COMPANY I.E. M/S ELEMENT INVESTMENT (P) LTD. THE EXPRESSION SHAREHOLDER RE FERRED TO IN SEC. 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHA REHOLDER. IN THE CASE BEFORE US, SHRU RAJU SHETE AND SMT. HEMAL SHETE ARE THE REGIST ERED SHAREHOLDERS AS WELL AS THE BENEFICIAL SHAREHOLDERS. HENCE, THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT ARE APPLICABLE IN THIS CASE. THUS, THIS GROUND OF APPEA L RAISED BY THE ASSESSEE IS DISMISSED. THUS, IT WILL SEEN THAT THE HONBLE TRIBUNAL DISTIN GUISHED THE CASE OF BHAUMIK COLOUR (P) LTD. (CITED SUPRA) AND HELD THAT AS THAT AS THE SHARE HOLDERS WERE COMMON IN BOTH THE COMPANIES AND THEY WERE REGISTERED AS WELL AS BENEFICIAL SHAREHOLDERS, THEREFORE, THE PROVISIONS OF SEC. 2(22)(E) WERE APPLICABLE. AS REGARDS THE CASE OF CIT VS. HILLTOP (CITED SUPRA) IT IS NOT A CASE OF JURISDICTIONAL HI GH COURT. IN THE CASE OF ASWANI ENTERPRISES VS. ACIT (120 ITD 38) ASSESSEE FIRM RECEIVED ADVANCES FROM A COMPANY IN WHICH ITS TWO PARTNERS W ERE SHAREHOLDERS HAVING SUBSTANTIAL 8 INTEREST WHICH WERE UTILISED BY THE ASSESSEE IN ITS OWN BUSINESS AND COULD NOT BE SAID TO BE NORMAL BUSINESS TRANSACTION, ON THESE FACTS THE HON BLE TRIBUNAL HELD THAT AMOUNT RECEIVED DURING THE YEAR HAD TO BE CONSIDERED AS DEEMED DIVI DEND U/S 2(22)(E) IN THE CASE OF THE ASSESSEE FIRM. 5.2 NOW COMING TO THE FACTS OF THE APPELLANTS CASE THE FACT OF THE MATTER IS THAT DURING THE YEAR UNDER CONSIDERATION AS SUM OF RS. 72 LACS WAS PAID BY MPPL ON BEHALF OF THE APPELLANT TO SMT. SAVITA BHASKAR VIDE ASSESSEES OW N ADMISSION CHEQUE OF RS. 89 LACS WAS ISSUED TO SMT. SAVITA BHASKAR ON BEHALF OF THE APPE LLANT CO., THEREFORE MPPL WAS CREDITED TO THE EXTENT AND SMT. SAVITA BHASKAR WAS DEBITED IN THE ASSESSEES BOOKS OF ACCOUNT. THIS PAYMENT OF RS. 89 LACS WAS ALSO MADE BY THE ASSESSE E COMPANY TO MPPL ON 21.10.05 BUT AS PER THE ASSESSEE THE PAYMENT WAS PAID BY MPPL NO T ON BEHALF OF THE APPELLANT BUT ON ACCOUNT OF NIRMALA ASSOCIATES (P) LTD. THEREFORE, I T IS CLEAR THAT THE SUM OF RS. 72 LACS WAS PAID BY THE MPPL ON BEHALF OF THE APPELLANT CO. TO SMT. SAVITA BHASKAR. ALSO, IT IS PERTINENT TO MENTION HERE THAT JUGGLERY OF ACCOUNTING ENTRIES CANNOT TAKE AWAY THE SUBSTANCE AND THE NATURE OF PAYMENTS MADE TO SMT. SAVITA BHASKAR. THE PAYMENT MADE BY MPPL TO SMT. SAVITA BHASKAR ON BEHALF OF THE APPELLANT CO. IS NOT FOR A NY BUSINESS CONSIDERATION AND IT IS ALSO NOT COVERED BY ANY OF THE EXCEPTIONS AS GIVEN IN SEC. 2 (22)(E) OF THE ACT. THEREFORE, I AM IN AGREEMENT WITH THE AO THAT PROVISIONS OF SEC. 2(22) (E) ARE CLEARLY APPLICABLE IN THE APPELLANTS CASE. THE GROUNDS OF APPEAL ARE DISMISSED. 5. THE LEARNED AR BEFORE US CONTENDED THAT THE ASSE SSING OFFICER HAS ARRIVED AT THE CONCLUSION THAT THE PAYMENT MADE BY M/S. MPPL TO SM T. SAVITA BHASKER WERE ON BEHALF OF THE ASSESSEE ON THE BASIS OF THE AGREEMENT DATED 11.03. 2002 BETWEEN SANJEEV BHASKER AND THE ASSESSEE. THE AGREEMENT WAS ENTERED INTO BETWEEN TH E ASSESSEE AND SHRI SANJEEV BHASKER. SMT. SAVITA BHASKER WAS NOT A PARTY TO THIS AGREEMENT. T HE AGREEMENT WAS MERELY A DRAFT AGREEMENT AND PARA 7 OF THE AGREEMENT CLEARLY STATES THAT A F ORMAL CORROBORATION /PURCHASE AGREEMENT WILL BE ARRIVED AT AS SOON AS IT IS FEASIBLE BUT NOT LAT ER THAN 30.04.2002. THE AGREEMENT DATED 11.03.2002 CEASED TO OPERATE, AS NO CORROBORATION A GREEMENT WAS ENTERED INTO BY 30.04.2002. SHRI SANJEEV BHASKR EVEN DID NOT RETURN RS.5,00,000 /- GIVEN AS AN ADVANCE AT THE TIME OF AGREEMENT DATED 11.03.2002. THE PAYMENT MADE BY M/S . MPPL TO SMT. SAVITA BHASKER HAS NOTHING TO DO WITH THE AGREEMENT AS WELL AS THE ASS ESSEE COMPANY. THE AMOUNT PAID TO SMT. SAVITA BHASKER HAS DULY BEEN SHOWN AS REALIZABLE IN THE BOOKS OF M/S. MPPL. IN THE ACCOUNT OF ASSESSEE, THERE IS NO LIABILITY IN RESPECT OF RS.72 ,00,000/- PAID BY M/S. MPPL TO SMT. SAVITA 9 BHASKER. REFERRING TO THE FINAL ACCOUNT OF M/S. MPP L, IT WAS POINTED OUT THAT M/S. MPPL IS SHOWING THESE AMOUNTS RECOVERABLE FROM SMT. SAVITA BHASKER AND NOT FROM THE ASSESSEE. THE ASSESSEE-COMPANY IS NOT SHARE HOLDER IN M/S. MPPL. THE ADDITION FOR THE DEEMED DIVIDEND CAN BE MADE ONLY IN THE NAME OF THE REGISTERED SHARE HO LDER. REFERRING TO SECTION 2(22)(E), IT WAS CONTENDED THAT THAT SECTION DEEMS FOLLOWING CATEGOR IES OF LOANS & ADVANCES BY CLOSELY HELD COMPANIES AS DEEMED DIVIDEND SUBJECT TO THE FACT TH AT TO THAT EXTENT, IT HAS ACCUMULATED PROFITS : A. TO A SHAREHOLDER HAVING SUBSTANTIAL INTEREST IN COMPANY WHO ALSO IS BENEFICIAL OWNER OF SHARES. B. TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS MEM BER OR A PARTNER HAVING SUBSTANTIAL INTEREST. C. ANY PAYMENT ON BEHALF OF OR INDIVIDUAL BENEFIT O F SUCH SHAREHOLDER IT WAS SUBMITTED THAT THE AMOUNT OF RS. 72,00,000/- + RS.17,00,000/- ADDED AS DEEMED DIVIDEND DOES NOT FALL UNDER ANY OF THESE CATEGORIE S THUS THE ADDITION IS AGAINST FACTS. THIS ISSUE IS BEING DEALT WITH SUBSEQUENTLY WHERE ADDITIONS AR E BEING OBJECTED TO ON ACCOUNT OF FACTS. 6. NARRATING THE LEGAL SITUATION ON THE POINT, IT W AS ARGUED THAT ASSUMING FOR SAKE OF AGREEMENTS ACCEPTING THAT THE AMOUNT ADDED I.E. RS. 72,00,000/- + RS.17,00,000/- IS A LOANS & ADVANCE OF THE CATEGORIES (B) MENTIONED HERE IN AB OVE. IN OTHER WORDS IF IT IS A DEEMED DIVIDEND THEN QUESTION ARISES IN WHOSE HAND IT WILL BE TAXED . 7. IN THE CASE OF CIT V. C. P. SARATHY MUDALIAR [19 72] 83 ITR 170 (SC), THE PROVISIONS OF SECTION 2(6A)(E) OF THE ACT, 1922, WHICH WAS SYNONY MOUS TO SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 CAME UP FOR CONSIDERATION. IN THE SAID CA SE, MEMBERS OF A HINDU UNDIVIDED FAMILY ACQUIRED SHARES IN A COMPANY WITH THE FUND OF THE F AMILY. LOANS WERE GRANTED TO THE HINDU 10 UNDIVIDED FAMILY AND THE QUESTION WAS WHETHER THE L OANS COULD BE TREATED AS DIVIDEND INCOME OF THE FAMILY FALLING WITHIN SECTION 2(6A)(E) OF THE A CT,1922. THE APEX COURT HELD THAT ONLY LOANS ADVANCED TO SHAREHOLDERS COULD BE DEEMED TO BE DIVI DENDS UNDER SECTION 2(6A)(E) OF THE ACT, THE HINDU UNDIVIDED FAMILY COULD NOT BE CONSIDERED TO B E A ' SHAREHOLDER' UNDER SECTION 2(6A)(E) OF THE ACT AND HENCE, LOANS GIVEN TO THE HINDU UNDIVID ED FAMILY WILL NOT BE CONSIDERED AS LOANS ADVANCED TO ' SHAREHOLDER' OF THE COMPANY AND COUL D NOT, THEREFORE, BE DEEMED TO BE ITS INCOME. THE APEX COURT FURTHER HELD THAT WHEN THE ACT SPEAK S OF SHAREHOLDER IT REFERS TO THE REGISTERED SHAREHOLDER . 8. THE AFORESAID DECISION OF THE APEX COURT IN THE CASE OF C. P. SARATHY MUDALIAR [1972] 83 ITR 170 HAS BEEN FOLLOWED BY THE APEX COURT IN THE CASE OF RAMESHWARLAL SANWARMAL V. CIT [1980] 122 ITR 1. IN THIS CASE, THE COMPANY ADVANCE D THE LOANS TO THE ASSESSEE-HINDU UNDIVIDED FAMILY WHO WAS THE BENEFICIAL OWNERS OF THE SHARES IN THE COMPANY, BUT THE SHARES WERE REGISTERED IN THE NAME OF THE INDIVIDUAL KARTA, WHO HELD THE SHARES FOR AND ON BEHALF OF THE HINDU UNDIVIDED FAMILY. ON THE ABOVE FACTS, THE QUESTION BEFORE THE SUPREME COURT WAS WHETHER THE LOANS ADVANCED TO THE HINDU UNDIVIDED FAMILY-THE BE NEFICIAL OWNER OF THE SHARES-WOULD BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE HINDU UNDIVI DED FAMILY. THE SUPREME COURT HELD THAT THE HINDU UNDIVIDED FAMILY BEING ONLY THE BENEFICIA L SHAREHOLDER AND NOT A REGISTERED SHAREHOLDER WOULD NOT FALL WITHIN THE PURVIEW OF SE CTION 2(6A)(E) OF THE 1922 ACT. THE APEX COURT OBSERVED AS FOLLOWS :: 'WHAT SECTION 2(6A)(E) IS DESIGNED TO STRIKE AT IS ADVANCE OR LOAN TO A ` SHAREHOLDER` AND THE WORD ` SHAREHOLDER` CAN MEAN ONLY A REGISTERED SHAREHOLDER. IT IS DIFFICULT TO SEE HOW A BENEFICIAL OWNER OF SHARES WHOSE NAME DOES NOT AP PEAR IN THE REGISTER OF SHAREHOLDERS OF THE COMPANY CAN BE SAID TO BE A ` SHAREHOLDER. HE MAY BE BENEFICIALLY ENTITLED TO THE SHARE BUT HE IS CERTAINLY NOT A ` SHAREHOLDER`. IT IS ONLY THE PERSON WHOSE NAME IS ENTERED 11 IN THE REGISTER OF THE SHAREHOLDERS OF THE COMPANY AS THE HOLDER OF THE SHARES WHO CAN BE SAID TO BE A SHAREHOLDER QUA THE COMPANY AND NOT TH E PERSON BENEFICIALLY ENTITLED TO THE SHARES. IT IS THE FORMER WHO IS A ` SHAREHOLDER` WI THIN THE MATRIX AND SCHEME OF THE COMPANY LAW AND NOT THE LATTER. WE ARE, THEREFORE, OF THE VIEW THAT IT IS ONLY WHERE A LOAN IS ADVANCED BY THE COMPANY TO A REGISTERED SHAREHOL DER AND THE OTHER CONDITIONS SET OUT IN SECTION 2(6A)(E) ARE SATISFIED THAT THE AMOUNT O F THE LOAN WOULD BE LIABLE TO BE REGARDED AS ` DEEMED DIVIDEND` WITHIN THE MEANING OF SECTION 2(6A)(E).' IT WAS CONTENDED THAT IT IS CLEAR FROM THE OBSERVAT ION OF HONORABLE APEX COURT IN THESE DECISIONS THAT DIVIDEND CAN BE TAXED ONLY IN THE HAND OF REGI STERED SHAREHOLDER. THESE TWO DECISIONS WERE GIVEN BY THE APEX COURT U/S 2(6A) OF INCOME TAX ACT 1922. THE EXPRESSION ' SHAREHOLDER' HAS BEEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGIS TERED SHAREHOLDER. THIS EXPRESSION ' SHAREHOLDER' FOUND IN THE 1961 ACT HAS TO BE, THERE FORE, CONSTRUED AS APPLYING ONLY TO REGISTERED SHAREHOLDER. IT IS A PRINCIPLE OF INTERPRETATION OF STATUTES THAT WHERE ONCE CERTAIN WORDS IN AN ACT HAVE RECEIVED A JUDICIAL CONSTRUCTION IN ONE OF THE SUPERIOR COURTS, AND THE LEGISLATURE HAS REPEATED THEM IN A SUB- SEQUENT STATUTE, THE LEGISL ATURE MUST BE TAKEN TO HAVE USED THEM ACCORDING TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION HAS GIVEN THEM. 9. THE ASSESSEE IS NOT SHAREHOLDER OF MAHIM PATRAN (P) LTD. NEITHER REGISTERED NOR BENEFICIAL. FOR THIS REASON ALONE THE ADDITION MUST FAIL. THE PROVISIONS OF SEC 2(22)(E) CAME FOR CONSIDERATION BEFORE HONORABLE RAJSTHAN HIGH COURT IN THE MATTER OF CIT VS HOTEL HILTOP [2009] 313 ITR 116. IN THIS CASE THE ASSESSING OFFICER ADD ED RS. 10 LAKHS IN HANDS OF M/S HOTEL HILTOP (A PARTNERSHIP FIRM) TAKING THE AMOUNT RECEIVED BY THIS FIRM FROM HILTOP PALACE HOTELS (P) LTD. AS DEEMED DIVIDENDS AS THE PAYMENT TO A CONCERN W HICH SATISFIED THE REQUIREMENT OF LEVEL OF SHAREHOLDING/INTEREST AS ENVISAGED U/S SEC 2(22)(E) . THE ASSESSEE OBJECTED TO ADDITION IN FIRST APPEAL ON THE GROUND THAT M/S HOTEL HILLTOP IS NOT REGISTERED SHAREHOLDER OF THE HILTOP PALACE HOTELS (P) LTD. AND SUCCEEDED. THE DEPARTMENT WENT TO THE TRIBUNAL BUT ASSESSEES CONTENTION 12 SUCCEEDED. THE HON` BLE RAJASTHAN COURT ON REVENUE S APPEAL HELD AS FOLLOWS (PAGE 119 OF 313 ITR) : ' THE MORE IMPORTANT ASPECT, BEING THE REQUIREMENT OF SECTION 2(22)(E) IS THAT THE PAYMENT MAY BE MADE TO ANY CONCERN, IN WHICH SUCH S HAREHOLDER IS A MEMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST OR ANY PAY MENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLD ER. THUS, THE SUBSTANCE OF THE REQUIREMENT IS THAT THE PAYMENT SHOULD BE MADE ON B EHALF OF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER, OBVIOUSLY, THE PROVISION I S INTENDED TO ATTRACT THE LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF OR FOR WHOSE INDIVID UAL BENEFIT THE AMOUNT IS PAID BY THE COMPANY WHETHER TO THE SHAREHOLDER OR TO THE CONCER NED FIRM. IN WHICH EVENT, IT WOULD FALL WITHIN THE EXPRESSION ` DEEMED DIVIDEND`. OBVI OUSLY, INCOME FROM DIVIDEND IS TAXABLE AS INCOME FROM THE OTHER SOURCES UNDER SECTION 56 O F THE ACT, AND IN THE VERY NATURE OF THINGS THE INCOME HAS TO BE OF THE PERSON EARNING T HE INCOME. THE ASSESSEE IN THE PRESENT CASE IS NOT SHOWN TO BE ONE OF THE PERSONS BEING SH AREHOLDER. OF COURSE, THE TWO INDIVIDUALS BEING ROOP KUMAR AND DEVENDRA KUMAR ARE THE COMMON PERSONS, HOLDING MORE THAN REQUISITE AMOUNT OF SHAREHOLDING AND HAVI NG REQUISITE INTEREST IN THE FIRM BUT THEN THEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEME D DIVIDEND IN THE HANDS OF THE FIRM RATHER IT WOULD OBVIOUSLY BE DEEMED DIVIDEND IN THE HANDS OF THE INDIVIDUAL, ON WHOSE BEHALF OR ON WHOSE INDIVIDUAL BENEFIT BEING SUCH SH AREHOLDER THE AMOUNT IS PAID BY THE COMPANY TO THE CONCERN. THUS, THE SIGNIFICANT REQUIREMENT OF SECTION 2(22)( E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX, AS DEEMED DIVIDEND COULD BE ATTRACTED IN THE H ANDS OF THE INDIVIDUALS BEING THE SHAREHOLDERS AND NOT IN THE HANDS OF THE FIRM.' THE AFORESAID DECISION OF THE HON`BLE RAJASTHAN HIG H COURT WHICH IS THE ONLY DECISION OF THE HIGH COURT, SHOULD BE SUFFICIENT TO ANSWER REASON/Q UESTION NO. 1. 10. THE PRINCIPLE SETTLED BY HONOURABLE HIGH COURT IN THE CASE OF HOTEL HILTOP WAS ALSO FOLLOWED BY SPECIAL BENCH (SB) OF ITAT CONSTITUTED TO CONSIDER PROVISIONS OF SEC 2 (22) (E) IN VIEW OF TWO EARLIER CONFLICTING DECISION OF TWO SEP ARATE BENCHES IN 2 SEPARATE CASES. THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT V BHANMIK C OLOUR PVT. LTD. (2009) 313 ITR 0146 ALSO CONCLUDED THAT LOANS & ADVANCES EVEN IF THEY FALL I N THE DEFINITION OF DEEMED DIVIDENDS AS ENVISAGED IN SEC 2 (22) (E) CAN BE TAXED ONLY IF TH E ASSESSEE IS REGISTERED AND BENEFICIAL OWNER OF SHARES. THIS IS VERY DETAILED CASE LAW AND WHILE FO LLOWING DECISION OF HONOURABLE RAJASTHAN HIGH 13 COURT IN THE CASE OF M/S HOTEL HILLTOP SB OBSERVED THAT IF THE SECTION 2(22) (E) ENVISAGED TAXING NON SHAREHOLDERS THEN RELIEF GIVEN IN SEC 2(22) (E) (III) BECOMES REDUNDANT. THIS SECTION 2 (22) (III) PROVIDES FOR SET OFF OF PAYMENT - CONSIDERED AS DIVIDEND UNDER SECTION 2(22) (E) AGAINST THE SUBSEQUENT DIVIDEND PAID BY THE COMPANY. IF THE CON CERNS WITHOUT BEING SHAREHOLDER ARE TAXED FOR DEEMED DIVIDEND THEN THE SET OFF ENVISAGED U/S 2(22) (E) (III) CAN NOT BE GRANTED TO THEM AS THE DIVIDEND WILL NOT BE RECEIVED BY THEM THEY BEIN G NOT REGISTERED SHAREHOLDERS. THIS FURTHER ESTABLISHES THAT SEC 2 (22) (E) NEVER CONTEMPLATED TAXING NON REGISTERED SHAREHOLDERS. THUS IT WAS SUBMITTED THAT THE ADDITION OF RS. 72,00,000/- + RS .17,00,000/- IS LIABLE TO BE DELETED DELETED AS THE ASSESSEE IS NOT A SHAREHOLDER OF MAHIM PATRAN P VT. LTD. 11 . THE LEARNED DR, ON THE OTHER HAND, VEHEMENTLY CONTE NDED THAT THE PAYMENT OF RS.89,00,000/- WAS MADE BY M/S. MPPL TO SMT. SAVITA BHASKER ONLY ON BEHALF OF THE ASSESSEE AND ON ACCOUNT OF THE AGREEMENT BEING ENTERED INTO BETWEEN THE ASSESSEE COMPANY AS WELL AS HER HUSBAND, SRI SANJEEV BHASKER, AS UNDER THE AGREEMEN T, THE FINANCE FOR THE CONSTRUCTION OF THE BUILDING WAS TO BE ARRANGED BY THE ASSESSEE. IT IS A CASE WHERE THE PAYMENT HAS BEEN MADE BY M/S. MPPL FOR THE BENEFIT OF THE ASSESSEE COMPANY. NO DOUBT, THE ASSESSEE COMPANY WAS NOT THE SHARE HOLDER IN M/S. MPPL, BUT ALL THE SHARE HOLDER S OF M/S. MPPL WERE THE SHARE HOLDERS OF NIRMALA REALTORS PVT. LTD. IT IS NOT IN DISPUTE THA T AS ON 31.03.2002 AND 31.03.2003 M/S. MPPL WAS HAVING ACCUMULATED PROFIT TO THE EXTENT THE LOA N WAS GRANTED TO THE ASSESSEE. HE RELIED ON THE ORDER OF CIT(A) AS WELL AS ON THE ORDER OF THE ASSE SSING OFFICER. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. THIS IS UNCONTROVERTED FACT THAT M/S. MPPL HAS PAID A SUM OF RS.89,00,000/-, 14 I.E., RS.72,00,000/- ON VARIOUS DATES DURING THE AS SESSMENT YEAR 2003-04 AND RS.17,00,000/- ON VARIOUS DATES DURING THE ASSESSMENT YEAR 2004-05 TO SMT. SAVITA BHASKER. THE SAID AMOUNT HAS DULY BEEN SHOWN IN THE AUDITED BALANCE SHEET OF M/S . MPPL UNDER THE HEAD ADVANCE TO OTHERS AS RECOVERABLE FROM SMT. SAVITA BHASKER, WHICH IS A PPARENT FROM PAGE 30 OF THE PAPER BOOK. THERE WERE FOLLOWING REGISTERED SHARE HOLDERS IN M/ S. MPPL AS WELL AS IN ASSESSEE-COMPANY. MPPL ASSESSEE MILAN KAPOOR 10% 29% SUDHA KAPOOR 10% 10% NIRMALA KAPOOR 24% 01% MADHUKAR KAPOOR 24% 40% ARVIND KAPOOR 24% 10% PIYUS KAPOOR NIL 10% 13. SHRI SANJEEV BHASKER HAS ENTERED INTO AN AGREEM ENT ON 11.03.2002 TITLED AS INITIAL AGREEMENT WITH THE ASSESSEE FOR THE DEVELOPMENT OF THE PROJECT ON A PLOT MEASURING 960 SQ. METER SITUATED AT VILLAGE VAHAPUR, MATHURA ROAD, NEW DELH I. THE LAND WAS TO BE CONTRIBUTED BY SRI SANJEEV BHASKER AND FINANCE WAS TO BE ARRANGED BY T HE ASSESSEE COMPANY. AS PER CLAUSE 3 OF THE SAID AGREEMENT, THE ASSESSEE COMPANY HAS PAID RS.5, 00,000/- AS REFUNDABLE SECURITIES TO FIRST PARTY, WHICH WAS TO BE REFUNDED ON THE COMPLETION O F THE PROJECT. IN CLAUSE 7 OF THE SAID AGREEMENT IT WAS MENTIONED THAT THE FORMAL CORROBOR ATION/PURCHASE AGREEMENT WILL BE ARRIVED AT AS SOON AS IT IS FEASIBLE, BUT NOT LATER THAN 30.04 .2002. NO FORMAL AGREEMENT WAS EVER ENTERED INTO AS CLAIMED BY THE ASSESSEE AND SHRI SANJEEV BH ASKER EVEN DID NOT RETURN THE AMOUNT OF RS.5,00,000/- TO THE ASSESSEE. THE AGREEMENT CEASED TO EXIST ON 01.05.2002. WE NOTED FROM THE FACTS FOR THE ASSESSMENT YEAR 2003-04 THAT THE FIRS T PAYMENT OF RS.7,00,000/- WAS MADE TO SMT. SAVITA BHASKER BY MPPL ON 17.05.2002, I.E., MUCH AF TER THE DATE OF THE AGREEMENT. NO IOTA OF EVIDENCE WERE BROUGHT ON RECORD OR PLACED BEFORE US BY THE REVENUE, WHICH MAY PROVE THAT THE 15 INITIAL AGREEMENT REMAINS IN EXISTENCE. EVEN THERE IS NO EVIDENCE AVAILABLE ON RECORD, WHICH MAY PROVE THAT THE PAYMENT HAS BEEN MADE ON BEHALF OF T HE ASSESSEE COMPANY TO SMT. SAVITA BHASKER. THERE IS NO ENTRY IN THE BOOKS OF THE ASSE SSEE IN RESPECT OF THE ADVANCE MADE BY M/S. MPPL TO SMT. SAVITA BHASKER IN THE BOOKS RELATING T O THE ASSESSMENT YEAR 2003-04 AND 2004-05. THIS IS THE SETTLED LAW THAT ONUS IS ON THE PERSON, WHO ALLEGES APPARENT IS NOT REAL IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DA ULAT RAM RAWATMULL, 87 ITR 349 (SC). THE ONUS, IN OUR OPINION LIES ON THE REVENUE TO PRO VE THAT THE PAYMENT HAS BEEN MADE BY M/S. MPPL ON BEHALF OF THE ASSESSEE TO SMT. SAVITA BHASK ER FOR EXECUTING THE AGREEMENT ENTERED INTO BETWEEN ASSESSEE AND SHRI SANJEEV BHASKAR. THE REVE NUE IN THIS CASE EXCEPT ALLEGING THAT THE PAYMENT HAS BEEN MADE FOR THE BENEFIT OF THE ASSESS EE, HAS NOT BROUGHT ANY MATERIAL ON RECORD. UNDER THESE FACTS, WE DO NOT AGREE THAT THE PAYMENT HAS BEEN MADE BY M/S. MPPL TO MRS. SAVITA BHASKER FOR AN ON BEHALF OF THE ASSESSEE. SMT. SAVI TA BHASKER, WE NOTED, IS NOT A PARTY EVEN TO THE INITIAL AGREEMENT ENTERED INTO BETWEEN THE ASSE SSEE AND SRI SANJEEV BHASKER. PAYMENT MADE TO SMT. SAVITA BHASKAR CANNOT BE DEEMED TO HAVE BEE N MADE TO SHRI SANJEEV BHASKAR. EVEN THERE IS NO SUCH DEEMING PROVISION UNDER THE INCOME TAX ACT. EACH INDIVIDUAL IS A SEPARATE ASSESSEE. 14. NOW WE COME TO THE QUESTION WHETHER THE PROVISI ON OF SECTION 2(22)(E) IS APPLICABLE IN THE CASE OF THE ASSESSEE OR NOT. BEFORE DECIDING TH IS QUESTION, IT WOULD BE BETTER TO EXAMINE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. SECTION 2(22)(E) AS AMENDED WITH EFFECT FROM 1 ST APRIL, 1988 READS AS UNDER:- '(E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DA Y OF MAY, 1987, BY WAY OF 16 ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F 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 SHARE HOLDER 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 SHAREHOL DER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S.' 15 . THIS SECTION WHICH IS EQUIVALENT TO SECTION 2(6A)( E) OF THE INCOME-TAX ACT, 1922 WAS FOR THE FIRST TIME INTRODUCED AS BY THE FINANCE ACT , 1955 WHICH STATES AS FOLLOWS : (A) 'ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN W HICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED WITHIN THE MEANING OF SECT ION 23A, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, OR ANY PAYMENT BY ANY SUC H COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF A SHAREHOLDER, TO THE EX TENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS.' PRIOR TO 1 ST APRIL 1988, SECTION 2(22) OF THE INCOME-TAX ACT, 1 961 DEFINES DIVIDEND AS FOLLOWS : 'SECTION 2(22) 'DIVIDEND' INCLUDES (A) TO (D) .. (E) ANY PAYMENT MADE BY A COMPANY, NOT BEING A COM PANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER A S REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) BY WAY OF ADVAN CE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO HAS A SUBSTANTIAL INTEREST IN TH E COMPANY, OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL B ENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS.' 16 . UNDER THE INCOME-TAX ACT, 1922, TWO CATEGORIES OF P AYMENT WERE CONSIDERED AS DIVIDEND VIZ. (A) ANY PAYMENT BY WAY OF ADVANCE OR LOAN TO A SHAR EHOLDER , OR (B) ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FO R THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. 17 17. IN THE 1961 ACT, FOR THESE VERY SAME PAYMENTS A N ADDITIONAL CONDITION WAS INTRODUCED THAT THE PAYMENT SHOULD BE TO A SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES AND WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY I .E. A SHAREHOLDING WHICH CARRIES NOT LESS THAN 20% OF THE VOTING POWER. THIS PERCENTAGE OF VOTING POWER WAS REDUCED FROM 20% TO 10% WITH EFFECT FROM 1ST APRIL, 1988 BY THE 1987 AMENDMENT. BY THE VERY SAME AMENDMENT, PAYMENT TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER O R A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST WAS ALSO CONSIDERED AS DIVIDEND. AS PER S ECTION 2(32) THE EXPRESSION 'PERSON WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY', IN RELATION T O A COMPANY, MEANS A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES, NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS, CARRYING NOT LESS THAN 20% OF THE VOTING POWER. 'SUCH SHAREHOLDER' IS THE SHAREHOLDER WHO IS A REGISTERED AND A BENEFICIAL HOLDER OF SHARES HOLDING 10% VOTING POWER. (WHICH IN THIS CASE ARE ONLY MR. MILA N KAPUR AND MR. MADUKAR KAPUR AS EACH OF THEM IS HOLDING MORE THAN 20% SHAREHOLDING IN ASSES SES CAPITAL). 18. THROUGH THIS SUB-CLAUSE, DEEMING FICTION IS CRE ATED WHEREBY THE SCOPE AND AMBIT OF THE WORD DIVIDEND HAS BEEN ENLARGED TO BRING WITHIN ITS COVER LOANS GRANTED BY CLOSELY HELD COMPANIES TO THEIR SHAREHOLDERS. IN ORDER TO HAVE A CHECK ON SIMILAR TRANSACTIONS, THE LEGISLATION WIDENS THE SCOPE OF THE TERM DIVIDEND TO INCLUDE LOANS GRANTED TO SHAREHOLDER BY THE CLOSELY HELD COMPANIES. THE WORD DEEMED HAS NOT BEEN DEFI NED ANYWHERE IN THE ACT. NEITHER HAS THE WORD BEEN USED IN SECTION 2(22)(E). DEEMED DIVIDEND IS THEREFORE A LEGAL FICTION CREATED WHEREIN CERTAIN PAYMENTS BY COMPANIES ARE DEEMED TO BE DIVI DENDS. THIS IS A SETTLED LAW IN VIEW OF THE DECISIONS OF APEX COURT IN THE CASE OF STATE OF BOM BAY VS. PANDURANG VINAYAK CHAPHALKAR (1953) SCR 773 THAT LEGAL FICTIONS ARE CREATED ONLY FOR A DEFINITE PURPOSE AND THEY ARE LIMITED TO THE PURPOSE FOR WHICH THEY ARE CREATED AND CANNOT E XTEND BEYOND THEIR LEGITIMATE FIELD. THE LEGAL 18 FICTION IS OF COURSE TO BE CARRIED TO ITS LOGICAL C ONCLUSION, BUT THAT MUST BE WITHIN THE FRAMEWORK OF THE PURPOSE FOR WHICH IT IS CREATED. THE COURTS MUST ASSUME THAT SUCH A STATE OF AFFAIRS EXISTS AS REAL, AND SHOULD IMAGINE AS REAL THE CONSEQUENCE S AND INCIDENTS WHICH INVARIABLY FLOW THEREFROM, AND GIVE EFFECT TO THEM. FURTHER, A DEEM ING PROVISION MAY BE INTENDED TO ENLARGE THE MEANING OF A PARTICULAR WORD OR TO INCLUDE MATTERS WHICH OTHERWISE MAY OR MAY NOT FALL WITHIN THE MAIN PROVISION [ REFER: G. VISWANATHAN VS. HON BLE SPEAKER, TAMIL NADU LEGISLATIVE ASSEMBLY (1996) 2 SCC 353 (SC)]. THIS PROVISION, TH US, WOULD NECESSARILY BE ACCORDED STRICT INTERPRETATION AND THE AMBIT OF THE FICTION WOULD N OT BE PRESSED BEYOND ITS TRUE LIMITS. IT IS NOW A WELL SETTLED LAW THAT THE FICTION IS TO BE CARRIED TO ITS LOGICAL END HOWEVER, AT THE SAME TIME, IT CA N ALSO NOT BE EXPANDED SO AS TO INCLUDE THE FACTS WHI CH REQUIRE SUBSTANTIAL MODIFICATION AS COMPARED TO THE FACTS TO BE CAPTURED AS PRESCRIBED BY THE LEGISLATURE. 19. FROM THE READING OF SECTION 2(22)(E), IT IS APP ARENT THAT IT HAS THE EFFECT OF BRINGING TO TAX AS DIVIDEND BELOW REFERRED TYPES OF PAYMENTS MADE B Y A COMPANY: ANY PAYMENT OF ANY SUM (WHETHER AS REPRESENTING A P ART OF THE ASSETS OF THE COMPANY OR OTHERWISE) BY WAY OF ADVANCE OR LOAN TO A SHAREHOLD ER (EXTENDED TO PAYMENT TO CONCERNS IN WHICH SHAREHOLDER HOLDS SUBSTANTIAL INTEREST); ANY PAYMENT ON BEHALF OF A SHAREHOLDER; ANY PAYMENT FOR THE INDIVIDUAL BENEFIT OF A SHAREHO LDER. 20. ANY OF THE ABOVE REFERRED PAYMENTS WOULD BE TAX ED UNDER THIS SUB-CLAUSE IF FOLLOWING THREE CONDITIONS ARE FULFILLED: THE COMPANY NOT TO BE THE ONE IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED WITHIN THE MEANING OF SECTION 2(18); IF THE ADVANCE OR LOAN IS MADE AFTER 31 MAY, 1987 TO A SHAREHOLDER WHO BENEFICIALLY OWNS AT LEAST 10 PER CENT OF THE EQUITY CAPITAL, OR TO A CO NCERN IN WHICH HE IS MEMBER / PARTNER AND IS BENEFICIALLY ENTITLED TO NOT LESS THAN 20% OF INCOM E OF THE CONCERN. 19 THE COMPANY SHOULD POSSESS ACCUMULATED PROFITS AT T HE TIME IT MAKES THE PAYMENT, THE PAYMENT BEING DEEMED TO BE DIVIDEND ONLY TO THE EXT ENT OF SUCH PROFITS. 21. A LOAN TO A SHAREHOLDER IS DEEMED AS DIVIDEND, IRRESPECTIVE OF THE PURPOSE OF THE LOAN OR PERIOD OF THE LOAN. UNDER THIS SUB-CLAUSE THE DEEM ED DIVIDEND IS TO THE EXTENT OF THE ENTIRE ACCUMULATED PROFITS AND NOT MERELY A PORTION OF SUC H PROFITS PROPORTIONATE TO THE ASSESSEES SHAREHOLDING IN THE CAPITAL OF THE COMPANY. IF THE ACCUMULATED PROFITS ARE CAPITALIZED, THEY CANNOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF TH IS SUB-CLAUSE. SIMILARLY, WHEN AN AMOUNT LENT HAS ALREADY BEEN CONSIDERED FICTIONALLY TO BE DIVID END, THE SAME AMOUNT WHEN REPAID AND RELENT CANNOT AGAIN ATTRACT THE FICTION AND BE ONCE AGAIN DEEMED TO BE DIVIDEND. THEREFORE, IN CONSIDERING THE TAXABILITY OF SUBSEQUENT TRANSACTIO NS, THE ACCUMULATED PROFITS SHOULD BE NOTIONALLY REDUCED BY THE AMOUNT OF ALL LOANS AND O THER BENEFITS WHICH WERE ONCE DEEMED TO BE DIVIDEND. 22. FURTHER, IN ORDER TO ATTRACT THE APPLICATION OF THIS CLAUSE, THE PERSON SHOULD BE A SHAREHOLDER AND HE SHOULD BENEFICIALLY OWN AT LEAST TEN PER CENT OF THE EQUITY CAPITAL. A SHAREHOLDER MEANS A PERSON IN WHOSE NAME THE SHARES STAND IN THE SHARE REGISTER OF THE COMPANY; THEREFORE, IF A PERSON IS MERELY THE BENEFICIAL OWN ER OF SHARES, WITHOUT BEING THE REGISTERED SHAREHOLDER, THIS CLAUSE WOULD NOT APPLY TO HIM. 23. SECTION ALSO PRESCRIBES AN EXCEPTION TO THE ABO VE RULE. SUCH EXCEPTION APPLIES WHERE TWO CUMULATIVE CONDITIONS ARE SATISFIED FIRSTLY, THE LOAN SHOULD HAVE BEEN MADE BY THE COMP ANY IN THE ORDINARY COURSE OF ITS BUSINESS, AND SECONDLY, MONEY LENDING SHOULD BE A SUBSTANTIAL PAR T OF THE COMPANYS BUSINESS. 20 24. FURTHER, THE SECTION ALSO GIVES RELIEF BY PROVI DING THAT ANY SUBSEQUENT DIVIDEND DECLARED BY THE COMPANY AND SET-OFF AGAINST THE LOAN OR ADVA NCE, WHICH HAS BEEN DEEMED AS DIVIDEND UNDER SUB-CLAUSE (E), THEN TO THE EXTENT OF SUCH SE T-OFF, IT WOULD NOT BE AGAIN TREATED AS DIVIDEND. THAT IS TO SAY, IF THE DIVIDEND IS NOT SO SET OFF B UT IS PAID TO THE SHAREHOLDER WHILE THE LOAN REMAINS OUTSTANDING, THE BENEFIT OF SUB-CL (III) CA NNOT BE OBTAINED. 25. SHAREHOLDER HAS NOT BEEN DEFINED AND IN ABSENCE OF SPECIFIC DEFINITION IT WILL ONLY REFER TO REGISTERED SHAREHOLDER. IN THE CASE OF CIT VS. C.P. SARATHY MUDALIAR 83 ITR 170 (SC) AS RELIED BY LD. AR, THE PROVISIONS OF SECTION 2(6A)(E) OF TH E ACT, 1922, WHICH WAS SYNONYMOUS TO SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961, CAME UP FOR CONSIDERATION. IN THE SAID CASE, MEMBERS OF HUF ACQUIRED SHARES IN A COMPANY WITH TH E FUND OF THE FAMILY. LOANS WERE GRANTED TO HUF AND THE QUESTION WAS WHETHER THE LOANS COULD BE TREATED AS DIVIDEND INCOME OF THE FAMILY FALLING WITHIN SECTION 2(6A)(E) OF THE ACT, 1922. THE APEX COURT HELD THAT ONLY LOANS ADVANCED TO SHAREHOLDERS COULD BE DEEMED TO BE DIVI DENDS UNDER SECTION 2(6A)(E) OF THE ACT; THE HUF COULD NOT BE CONSIDERED TO BE A SHAREHOLDER U NDER SECTION 2(6A)(E) OF THE ACT AND HENCE, LOANS GIVEN TO THE HUF WILL NOT BE CONSIDERED AS LO ANS ADVANCED TO 'SHAREHOLDER' OF THE COMPANY AND COULD NOT, THEREFORE, BE DEEMED TO BE I TS INCOME. THE APEX COURT FURTHER HELD THAT WHEN THE ACT SPEAKS OF SHAREHOLDER IT REFERS TO THE REGISTERED SHAREHOLDER. THE AFORESAID DECISION OF THE APEX COURT IN THE CASE OF C.P. SARATHY MUDAL IAR (SUPRA) HAS BEEN REITERATED BY THE APEX COURT IN THE CASE OF RAMESHWARLAL SANWARMAL VS. CIT 122 ITR 1 (SC). IT IS CLEAR FROM THE AFORESAID PRONOUNCEMENT OF THE SUPREME COURT THAT T O ATTRACT THE PROVISIONS OF SECTION 2(22)(E) 21 THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. IN THE INSTANT CASE THE ASSESSEE COMPANY IS NOT THE REGISTERED SHAREHOLDER OF M/S MPPL. 26. THE CONDITION UNDER THE INCOME TAX ACT, 1961 RE GARDING THE PAYEE BEING A SHAREHOLDER REMAINS THE SAME AS IT WAS UNDER THE INCOME-TAX ACT , 1922 AND THE CONDITION THAT SUCH SHAREHOLDER SHOULD BE BENEFICIAL OWNER OF THE SHARE S AND THE PERCENTAGE OF VOTING POWER THAT SUCH SHAREHOLDER SHOULD HOLD HAS BEEN PRESCRIBED AS AN ADDITIONAL CONDITION UNDER THE PRESENT LAW. IN THE ACT, THE WORD 'SHAREHOLDER' IS FOLLOWED BY THE EXPRESSION 'BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES'. THIS EXPRESSION USED I N SECTION 2(22)(E) BOTH IN THE ACT, AND IN THE AMENDED PROVISIONS WITH EFFECT FROM 1ST APRIL, 1988 ONLY QUALIFIES THE WORD 'SHAREHOLDER' AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHA REHOLDER HAS TO BE A REGISTERED SHAREHOLDER. THEREFORE, DECISIONS OF THE APEX COURT IN THE CASE OF CIT VS. SARATHY MUDALIAR (SUPRA) AND THAT OF RAMESHWARLAL SANWARMAL VS. CIT (SUPRA) INTERPRET ING THE TERM 'SHAREHOLDER' UNDER THE INCOME-TAX ACT, 1922, IN OUR OPINION, IS EQUALLY AP PLICABLE TO SECTION 2(22)(E) AS IS IN EXISTENCE TODAY. THIS ALSO DOES NOT REDUCE THE REQUIREMENT OF BEING A REGISTERED SHAREHOLDER TO A REQUIREMENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE EXPRESSION 'BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES' IS THEREFORE A FURTHER REQUIREMENT BEFORE A SHAREHOLDE R CAN BE SAID TO FALL WITHIN THE PARAMETERS OF SECTION 2(22)(E) OF THE ACT. IN THE ACT, SECTION 2( 22)(E) IMPOSES A FURTHER CONDITION THAT THE SHAREHOLDER HAS ALSO TO BE BENEFICIAL OWNER OF SHAR ES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER. 22 27. THE EXPRESSION 'SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES' REFERRED TO IN SECTION 2(22)(E) REFERS TO BOTH A RE GISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER, THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PER SON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. MUMBAI ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOU R P. LTD., 313 ITR (AT) 147 (MUMBAI) [SB] HAS HELD THAT FOR THE PURPOSE OF DEEMED DIVIDE ND UNDER SECTION 2(22)(E) THE SHAREHOLDER MUST BE BOTH REGISTERED AND BENEFICIAL SHAREHOLDER ON WHICH THE LD. AR HAS HEAVILY RELIED. 28. UNTIL 1987, ONLY PAYMENTS TO SHAREHOLDERS WERE DEEMED AS DIVIDEND UNDER SUB-CLAUSE (E). HOWEVER, WITH EFFECT FROM 1ST APRIL, 1988, PA YMENT TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST WAS ALSO INCLUDED IN DEEMING FICTION OF SECTION 2(22)(E). EXPLANATIO N 3 TO SECTION 2(22) DECLARES THAT A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLE D TO NOT LESS THAN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN. IN RELATION TO A COMPANY, SECTION 2(32) DEFINES THE EXPRESSION 'PERSON WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY', TO MEAN A P ERSON WHO IS THE BENEFICIAL OWNER OF SHARES, NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDE ND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS, CARRYING NOT LESS THAN 20% OF THE VOTIN G POWER. IF THE PAYMENT IS TO A CONCERN, THEN SUCH A PERSON SHOULD ALSO BE A MEMBER OR A PARTNER IN THE SAID CONCERN, HOLDING SUBSTANTIAL INTEREST IN THE CONCERN. IN CASE THE CONCERN IS A C OMPANY, THEN HE MUST BE THE OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVID END WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) CARRYING NOT LESS THAN 20% OF THE VOTIN G POWER. IF THE CONCERN IS NOT A COMPANY, HE MUST AT ANY TIME DURING THE PREVIOUS YEAR, BE BENEF ICIALLY ENTITLED TO NOT LESS THAN 20% OF THE 23 INCOME OF SUCH CONCERN. 'SUCH SHAREHOLDER' IS THE S HAREHOLDER WHO IS A REGISTERED AND A BENEFICIAL HOLDER OF SHARES HOLDING 10% VOTING POWE R. THEREFORE, THE EXPANDED MEANING OF DIVIDEND AS APPLIED TO PAYMENTS TO EVEN NON-SHARE HOLDER WOULD BE APPLICABLE IF ALL OF THE FOLLOWING CONDITIONS ARE FULFILLED (A) THE PERSON IS A REGISTERED SHAREHOLDER OF THE COMPA NY (B) THE PERSON IS BENEFICIALLY ENTITLED TO SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PART ICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER OF THE COMPAN Y; (C) THE PERSON IS A MEMBER OR PARTNER IN OTHER CONCERN (D) THE PERSON HAS SUBSTANTIAL INTEREST IN THE CONCERN REFERRED TO IN CLAUSE (C) ABOVE. 29. IN THE CASE OF DCIT VS. NATIONAL TRAVEL SERVICE S 31 SOT 76 (DEL), THE TRIBUNAL HELD THAT WHERE A FIRM IS ONLY A BENEFICIAL OWNER OF SHARES A ND THE SHARES ARE REGISTERED IN THE NAMES OF THE PARTNERS, THE LOAN OBTAINED BY THE FIRM FROM THE CO MPANY WHOSE SHARES TO THE EXTENT OF 48.18 PER CENT ARE HELD BY THE PARTNERS OF THE FIRM, CANNOT B E DEEMED AS DIVIDEND IN THE HANDS OF THE FIRM. IN CASE THE AMOUNT RECEIVED BY THE ASSESSEE IS TREA TED AS LOAN AND ADVANCES GIVEN BY THE COMPANY, THIS DECISION IS SQUARELY APPLICABLE TO TH E FACTS OF IMPUGNED CASE AND THE ASSESSEE COMPANY CANNOT BE LIABLE FOR DEEMED DIVIDEND. SIMIL ARLY, IN THE CASE OF RAJ KUMAR SINGH & CO. VS. DCIT 52 TTJ 221 (ALL), THE TRIBUNAL HELD THAT S EC. 2(22)(E) CAN BE INVOKED ONLY IN CASE OF REGISTERED SHAREHOLDER AND NOT A BENEFICIAL SHAREHO LDER . SHARES, THOUGH BELONGING TO THE FIRM BUT REGISTERED IN THE NAME OF PARTNERS, THE FIRM CANNOT BE MADE LIABLE UNDER S. 2(22)(E) IN RESPECT OF LOANS OBTAINED FROM THE COMPANY. 30. IN THE CASE OF THE ASSESSEE SINCE THE ASSESSEE IS NOT THE SHAREHOLDER OF THE COMPANY, THE PAYMENT MADE TO SAVITA BHASKAR EVEN IF IT IS ASSUME D ARE MADE ON BEHALF OF THE ASSESSEE CANNOT 24 BE REGARDED TO BE THE DEEMED DIVIDEND WITHIN THE PR OVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. 31. ANOTHER IMPORTANT ISSUE THAT ARISES FOR CONSIDE RATION IS, WHETHER THIS PAYMENT CAN BE ASSESSED IN THE HAND OF THE ASSESSEE AS DEEMED DIVI DEND BEING THE PAYMENT TO A CONCERN WHERE SHAREHOLDER HOLDS SUBSTANTIAL INTEREST, IN WHOSE HA NDS THE INCOME WOULD BE BROUGHT TO TAX, WHETHER IN THE HANDS OF THE CONCERN OR THE SHARE HOLDER? THE ASSESSING OFFICER ADDED IT IN THE HANDS OF THE CONCERN I.E. THE ASSESSEE AND CIT(A) H AS ALSO CONFIRMED THE SAME. EVEN THOUGH CBDT CIRCULAR NO.495, DATED SEPTEMBER 22, 1987, 168 ITR (ST.) 87 STATES THAT THE DEEMED DIVIDEND WOULD BE TAXED IN THE HANDS OF A CONCERN ( NON-SHAREHOLDER) IF THE CONDITIONS MENTIONED IN THE SECTION ARE SATISFIED. HOWEVER, OUR VIEW IS DIFFERENT IN VIEW OF THE DECISIONS TAKEN BY THE VARIOUS COURTS. 32. THE SIMILAR ISSUE CAME UP FOR CONSIDERATION BEF ORE MUMBAI ITAT (SPECIAL BENCH) IN CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. 313 ITR 146 (AT). THE SPECIAL BENCH HELD THAT THE PROVISIONS OF SECTION 2(22)(E) DO NOT SPELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OR THE CONCERN (NON SHAREH OLDER). IT FURTHER OBSERVED THAT SINCE THE PROVISIONS ARE AMBIGUOUS, IT IS THEREFORE NECESSARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. IN FURTH ERANCE IT WAS STATED THAT THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22)(E) IS TO TAX DIVIDEND I N THE HANDS OF SHAREHOLDER. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR AD VANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON T HE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTION OF THE LEGISLATURE IS THEREFORE TO TAX DI VIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND 25 NOT IN THE HANDS OF THE CONCERN AND ACCORDINGLY IT HELD THAT DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT CAN BE ASSESSED ONLY IN THE HAN DS OF A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF ANY OTHER PERSON. 33. WE ALSO NOTED RECENTLY, MUMBAI HIGH COURT, IN I TS DECISION IN CASE OF CIT VS. UNIVERSAL MEDICARE PRIVATE LIMITED (324 ITR 263), APPROVED TH E POSITION TAKEN BY THE SPECIAL BENCH DECISION IN CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. (SUPRA) HOLDING THAT THE DEFINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TA XED IN THE HANDS OF THE SHAREHOLDER. IT FURTHER OBSERVED THAT THE EFFECT OF CLAUSE (E) OF SECTION 2 (22) IS TO BROADEN THE AMBIT OF THE EXPRESSION 'DIVIDEND' BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE IN DIVIDUAL BENEFIT OF A SHAREHOLDER AND THEREBY IT HAS TO BE TAXED IN THE HANDS OF SHAREHOLDER. HON BLE RAJASTHAN HIGH COURT ALSO TAKEN THE SIMILAR VIEW IN THE CASE OF HILLTOP PALACE HOTELS P . LTD 313 ITR 116 (RAJ). NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE. 34. NOW, WE WOULD LIKE TO DEAL WITH THE CONTENTION OF THE LD. A.R. WHETHER THE SAID JUDGMENT OF THE BOMBAY HIGH COURT AND RAJASTHAN HIG H COURT ARE HAVING BINDING FORCE ON US OR NOT. ON THIS ISSUE , WE FIND THAT THE BOMBAY HIGH C OURT IN THE CASE OF THANA ELECTRICITY SUPPLY LTD. 206 ITR 727 HAS LAID DOWN CATEGORICALLY WITH R EGARD TO THE PRECEDENT THAT THE DECISION OF ONE HIGH COURT IS NEITHER BINDING PRECEDENT FOR ANO THER HIGH COURT NOR FOR COURTS OR TRIBUNALS OUTSIDE ITS TERRITORIAL JURISDICTION. IN THE SAID J UDGMENT, HONBLE HIGH COURT AFTER DISCUSSING THE VARIOUS JUDGMENTS OF HONBLE SUPREME COURT HOLD THE FOLLOWING PROPOSITION OF LAW ON THE BINDING FORCE OF A JUDGEMENT AT PAGE 738 OF THE JUD GMENT : '(A) THE LAW DECLARED BY THE SUPREME COURT BEING BI NDING ON ALL COURTS IN INDIA, THE DECISIONS OF THE SUPREME COURT ARE BINDING ON ALL C OURTS, EXCEPT, HOWEVER, THE SUPREME 26 COURT ITSELF WHICH IS FREE TO REVIEW THE SAME AND D EPART FROM ITS EARLIER OPINION IF THE SITUATION SO WARRANTS. WHAT IS BINDING IS, OF COURS E, THE RATIO OF THE DECISION AND NOT EVERY EXPRESSION FOUND THEREIN. (B) THE DECISIONS OF THE HIGH COURT ARE BINDING ON THE SUBORDINATE COURTS AND AUTHORITIES OR TRIBUNALS UNDER ITS SUPERINTENDENCE THROUGHOUT T HE TERRITORIES IN RELATION TO WHICH IT EXERCISES JURISDICTION. IT DOES NOT EXTEND BEYOND I TS TERRITORIAL JURISDICTION. (C) THE POSITION IN REGARD TO THE BINDING NATURE OF THE DECISIONS OF A HIGH COURT ON' DIFFERENT BENCHES OF THE SAME COURT MAY BE SUMMED U P AS FOLLOWS: (I) A SINGLE JUDGE OF A HIGH COURT IS BOUND BY THE DECISION OF ANOTHER SINGLE JUDGE OR A DIVISION BENCH OF THE SAME HIGH C OURT. IT WOULD BE JUDICIAL IMPROPRIETY TO IGNORE THAT DECISION. JUDIC IAL COMITY DEMANDS THAT A BINDING DECISION TO WHICH HIS ATTENTION HAD BEEN DRAWN SHOULD NEITHER BE IGNORED NOR OVERLOOKED. IF HE DOES NOT FIND HIMSELF IN AGREEMENT WITH THE SAME, THE PROPER PROCEDURE IS' TO REFER THE BINDING DECISION AND DIRECT, THE PAPERS TO BE PLACED BEFORE THE CHIEF JUSTICE TO ENA BLE HIM TO CONSTITUTE A LARGER BENCH TO EXAMINE THE QUESTION (SEE FOOD CORP ORATION OF INDIA V. YADAV ENGINEER AND CONTRACTOR, AIR 1982 SC 1302). (II). A DIVISION BENCH OF A HIGH COURT SHOULD FOLL OW THE DECISION OF ANOTHER DIVISION BENCH OF EQUAL STRENGTH OR A FULL BENCH OF THE SAME HIGH COURT. IF ONE DIVISION BENCH DIFFERS FROM ANOT HER DIVISION BENCH OF THE SAME HIGH COURT, IT SHOULD' REFER THE CASE TO A LARGER BENCH. (III). WHERE THERE ARE CONFLICTING DECISIONS OF COU RTS OF CO-ORDINATE JURISDICTION, THE LATER DECISIONS IS TO BE PREFERRE D IF REACHED AFTER FULL CONSIDERATION OF THE EARLIER DECISIONS. (D) THE DECISION OF ONE HIGH COURT IS NEITHER BINDI NG PRECEDENT FOR ANOTHER HIGH COURT NOR FOR COURTS OR TRIBUNALS OUTSIDE ITS OWN' TERRIT ORIAL JURISDICTION. IT IS WELL-SETTLED THAT THE DECISION OF A HIGH', COURT WILL HAVE THE FORCE OF BINDING PRECEDENT ONLY IN THE STATE OR TERRITORIES ON WHICH THE COURT HAS JURISDICTION. IN OTHER STATE OR OUTSIDE THE TERRITORIAL JURISDICTION OF THAT HIGH COURT IT MAY, AT' BEST, H AVE ONLY PERSUASIVE EFFECT. BY NO AMOUNT OF STRETCHING OF THE DOCTRINE OF STARE DECISIS, CAN JUDGMENTS OF ONE HIGH COURT BE GIVEN THE STATUS OF A BINDING PRECEDENT SO FAR AS OTHER HIGH COURTS OR COURTS OR TRIBUNALS WITHIN THEIR TERRITORIAL JURISDICTION ARE CONCERNED. ANY SUCH ATTEMPT WILL GO COUNTER TO THE VERY DOCTRINE OF STARE DECISIS AND A LSO THE VARIOUS DECISIONS OF THE SUPREME COURT WHICH HAVE INTERPRETED THE SCOPE AND AMBIT TH EREOF. THE FACT THAT THERE IS ONLY ONE DECISION OF ANY ONE HIGH COURT ON A PARTICULAR POIN T OR THAT A NUMBER OF DIFFERENT HIGH COURTS HAVE TAKEN IDENTICAL VIEWS IN THAT REGARD IS NOT AT ALL RELEVANT FOR THAT PURPOSE. WHATEVER MAY BE THE CONCLUSION, THE DECISIONS CANNO T HAVE THE FORCE OF BINDING PRECEDENT ON OTHER HIGH COURTS OR ON ANY SUBORDINAT E COURTS OR TRIBUNALS WITHIN THEIR 27 JURISDICTION. THAT STATUS IS RESERVED ONLY FOR THE DECISIONS OF THE SUPREME COURT WHICH ARE BINDING ON ALL COURTS IN THE COUNTRY BY VIRTUE OF A RTICLE 141 OF THE CONSTITUTION.' 35. THUS, THE MUMBAI HIGH COURT IN THE AFORESAID JU DGMENT HAS CLEARLY LAID DOWN THAT THE DECISION OF THE NON-JURISDICTIONAL HIGH COURT IS NO T BINDING. IN ORDER TO UNDERSTAND AND APPRECIATE THE BINDING FORCE OF A DECISION, IT IS A LWAYS NECESSARY TO SEE WHAT WERE THE FACTS OF THE CASE AND WHAT WAS THE POINT WHICH HAD TO BE DECIDED . A PRECEDENT IS A JUDICIAL DECISION WHICH CONTAINS IN ITSELF A PRINCIPLE. THE UNDERLYING PRIN CIPLE WHICH THUS FORMS ITS AUTHORITATIVE ELEMENT IS CALLED RATIO DECENDI. THE CONCRETE DECISION IS B INDING BETWEEN THE PARTIES TO IT, BUT IT IS THE ABSTRACT RATIO DECIDENDI WHICH ALONE HAS THE FORCE OF LAW AS REGARDS THE WORLD AT LARGE. 'THE ONLY USE OF AUTHORITIES OR DECIDED CASES' IS THE ESTABLI SHMENT OF SOME PRINCIPLE, WHICH THE JUDGE CAN FOLLOW OUT IN DECIDING THE CASE BEFORE HIM'. THE ON LY THING IN A JUDGE'S DECISION BINDING AS AN AUTHORITY UPON A SUBSEQUENT JUDGE IS THE PRINCIPLE UPON WHICH THE CASE WAS DECIDED. THE ONLY JUDICIAL PRINCIPLES WHICH ARE AUTHORITATIVE ARE THO SE WHICH ARE THUS RELEVANT IN THEIR SUBJECT MATTER AND LIMITED IN THEIR SCOPE. ALL OTHERS, AT T HE BEST ARE OF MERELY PERSUASIVE EFFICACY. THEY ARE NOT TRUE RATIO DECIDENDI, AND ARE DISTINGUISHED FROM THEM, UNDER THE NAME OF DICTA OR OBITER DICTA I.E. THINGS SAID BY THE WAY. THE PREROGATIVE OF JUDGES IS NOT TO MAKE LAW BY FORMULATING AND DECLARING IT-THIS PERTAINS TO THE LEGISLATURE-BUT T O MAKE LAW BY APPLYING IT. JUDICIAL DECLARATION, UNACCOMPANIED BY JUDICIAL APPLICATION, IS NOT OF BI NDING AUTHORITY. ALL PERSONS WITHIN A STATE ARE BOUND TO FOLLOW THE DECISIONS OF THE HIGH COURT FOR THAT STATE, UNTIL THEY ARE SUBSEQUENTLY OVERRULED EITHER BY A LARGER BENCH OF THAT COURT OR BY A DECISION OF THE SUPREME COURT OR BY AN ENACTMENT PASSED BY THE LEGISLATURE. IT IS, HOWEVER , A STATUTORY RULE THAT A JUDGE IS NOT TO BE ASSUMED TO HAVE INTENDED TO OVERRULE OR DISAPPROVE OF AN AUTHORITY WHICH HAS NOT BEEN CITED TO HIM AND WHICH HE DOES NOT EVEN MENTION. MOREOVER, I T IS NOT OPEN TO THE LEGISLATURE TO OVERRULE 28 OR SET ASIDE A DECISION OF THE COURT. IT IS OPEN TO THE LEGISLATURE, WITHIN CERTAIN LIMITS, TO AMEND T HE PROVISIONS OF AN ACT RETROSPECTIVELY AND TO DECLARE WHAT THE LAW SHALL BE DEEMED TO HAVE BEEN, BUT IT IS NOT OPEN TO THE LEGISLATURE TO SAY THAT A JUDGMENT OF A COURT PROPERLY CONSTITUTED AND RENDERED IN EXERCISE OF ITS POWERS IN A MATTER BROU GHT BEFORE IT SHALL BE DEEMED TO BE INEFFECTIVE AND THE INTERPRETATION OF THE LAW SHALL BE OTHERWIS E THAN AS DECLARED BY THE COURT. THE LEGISLATURE COULD NOT SAY THAT DECLARATION OF LAW WAS ERRONEOUS , INVALID OR INEFFECTIVE EITHER AS A PRECEDENT OR BETWEEN THE PARTIES. IF THERE IS ONLY HIGH COURT DE CISION, IT PREVAILS OVER AN ORDER OF THE TRIBUNAL ON THE BASIS OF THE VIEW THAT THE HIGH COURT IS ABO VE THE TRIBUNAL IN JUDICIAL HIERARCHY. THERE IS NO CONTRARY DECISION OF ANY OTHER HIGH COURT BEING POINTED OUT TO US. THEREFORE, IN OUR VIEW, WE ARE BOUND BY THE DECISIONS OF THE HIGH COURTS. EVE N OTHERWISE, THE DECISION OF THE SPECIAL BENCH IS BINDING ON US. OUR AFORESAID VIEW IS ALSO SUPPOR TED BY THE DECISION OF THE HONBLE PRESIDENT, INCOME TAX APPELLATE TRIBUNAL SHRI R.V. EASWAR AS T HIRD MEMBER IN THE CASE OF KANEL OIL & EXPORT INDS. LTD. VS. JCIT (ASST.), SR-2, AHMEDABAD (2009) 121 ITD 596 (AHD.) (TM), WHEREIN IT HAS BEEN HELD AS UNDER :- IN THE INSTANT CASE, QUESTION THAT CAME UP FOR CO NSIDERATION WAS AS TO WHETHER THE ORDER OF THE SPECIAL BENCH UPHOLDING TH E LEVY OF INTEREST IN THE LIGHT OF SUB-SECTION (4) OF SECTION 115JA SHOULD BE FOLLO WED OR THE JUDGMENT OF THE BOMBAY HIGH COURT IN SNOWCEM INDIA LTD.S CASE (SUP RA), ALSO RENDERED IN THE CONTEXT OF SECTION 115JA, HAD TO BE APPLIED. BOTH T HE DECISIONS WERE UNDER SECTION 115JA. ONE WAS OF A SPECIAL BENCH OF THE TRIBUNAL, AHMEDABAD AND THE OTHER WAS OF A HIGH COURT, THOUGH NOT A JURISDICTIONAL HI GH COURT. A SIMPLE ANSWER WOULD BE THAT THE JUDGMENT OF A HIGH COURT, THOUGH NOT OF A JURISDICTIONAL HIGH COURT, PREVAILS OVER AN ORDER OF THE SPECIAL BENCH EVEN THOUGH IT IS FROM THE JURISDICTIONAL BENCH (OF THE TRIBUNAL) ON THE BASIS OF THE VIEW THAT THE HIGH COURT IS ABOVE THE TRIBUNAL IN THE JUDICIAL HIERARCHY. BU T THIS SIMPLY VIEW IS SUBJECT TO SOME EXCEPTIONS. IT CAN WORK EFFICIENTLY WHEN THERE IS ONLY ONE JUDGMENT OF A HIGH COURT ON THE ISSUE AND NO CONTRARY VIEW HAS BE EN EXPRESSED BY ANY OTHER HIGH COURT. BUT WHEN THERE ARE SEVERAL DECISIONS OF NON-JURISDICTIONAL HIGH COURTS EXPRESSING CONTRARY VIEWS, IT HAS BEEN RECOG NIZED THAT THE TRIBUNAL IS FREE TO CHOOSE TO ADOPT THAT VIEW WHICH APPEALS TO IT. 29 THE OTHER EXCEPTION IS WHERE THE JUDGMENT OF THE N ON-JURISDICTIONAL HIGH COURT, THOUGH THE ONLY JUDGMENT ON THE POINT HAS BE EN RENDERED WITHOUT HAVING BEEN INFORMED ABOUT CERTAIN STATUTORY PROVISIONS TH AT ARE DIRECTLY RELEVANT. A JUDGMENT RENDERED WITHOUT NOTICING A PREVIOUS BINDI NG PRECEDENT OR A RELEVANT STATUTORY RULE IS CONSIDERED TO HAVE BEEN RENDERED PER INCURIAM. IT IS EVEN SAID THAT SUCH A JUDGMENT NEED NOT BE GIVEN EFFECT TO BY A LOWER COURT. IN THE INSTANT CASE, THE ATTENTION OF THE BOMBAY HIGH COURT IN SNO WCEM INDIA LTD.S CASE (SUPRA) WAS NOT DRAWN TO SUB-SECTION (4) OF SECTION 115JA, AS HAD BEEN POINTED OUT BY THE ACCOUNTANT MEMBER IN HIS DISSENT. THE HI GH COURT, THEREFORE, HAD NO OCCASION TO EXAMINE THE QUESTION WHETHER THE DECISI ONS OF THE KARNATAKA HIGH COURT AND THE SUPREME COURT IN KWALITY BISCUITS (SU PRA), RENDERED IN THE CONTEXT OF SECTION 115J WHICH DID NOT HAVE A SUB-SECTION SI MILAR TO SUB-SECTION (4) OF SECTION 115JA, WOULD STILL BE APPLICABLE AS BINDING PRECEDENT IN A CASE WHICH AROSE UNDER SECTION 115JA. IN VIEW OF THE DECISION OF MUMBAI HIGH COURT, RAJAS THAN HIGH COURT AND THAT OF SPECIAL BENCH, WE HOLD THAT THE NO ADDITION ON ACCOUNT OF DEEMED D IVIDEND CAN BE MADE IN THE HANDS OF THE ASSESSEE COMPANY ACCORDINGLY ON THIS BASIS ALSO, T HE ORDER OF THE CIT(A) STAND SET ASIDE AND ADDITIONS MADE AS DEEMED DIVIDEND ARE DELETED. ASSESSMENT YEAR 2006-07 : 36. GROUND NO. 1, 5 & 6 ARE GENERAL AND DO NOT REQU IRE ANY ADJUDICATION. GROUND NO. 2 RELATE TO THE ADDITION OF RS.2,85,470/-. BRIEF FACTS RELAT ING TO THIS GROUND ARE THAT THE ASSESSEE HAS SHOWN PROFIT FROM AGRICULTURAL OPERATION OF RS.1,92 ,149/- WHILE THE TOTAL SALE PROCEEDS FROM AGRICULTURAL PRODUCE OF RS.2,85,470/-. THE ASSESSIN G OFFICER TREATED THE SALE PROCEEDS TO BE THE CASH CREDIT AND MADE THE ADDITION U/S. 68 OF THE AC T. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE CNTENDED TH AT THE ASSESSEE HAS CARRIED OUT AGRICULTURAL OPERATIONS AND ALWAYS HIS SALE PROCEEDS WERE THROUG H EMPLOYEES OF THE SISTER CONCERN AND NEVER THROUGH THE MANDI IN THE PAST YEARS. THE ASSESSEE H AS SHOWN THE AGRICULTURAL INCOME, WHICH WAS 30 ACCEPTED IN THE EARLIER YEARS. THE ASSESSEE IS HAVI NG FIVE ACRES OF LAND. THE CIT(A) DID NOT AGREE WITH THE ASSESSEE AND CONFIRMED THE ORDER OF THE AS SESSING OFFICER. 37. BEFORE US, THE LEARNED AR REFERRED TO PAGE 44 O F THE PAPER BOOKS AND POINTED OUT THAT THE ASSESSEE WAS OWNING FIVE ACRES OF LAND AND IN THE P AST YEARS THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME, WHICH WAS DULY ACCEPTED BY THE ASSESSING OF FICER, THE DETAILS OF WHICH ARE GIVEN AS UNDER :- YEAR GROSS RECEIPTS FROM AGRICULTURE (RS) NET INCOME FROM AGRICULTURE (RS.) ASSESSED U/S A.Y. 2001-02 1,90,328/- 80,698/- 143(3) A.Y. 2002-03 2,02,137/- 90,257/- 143(3) A.Y. 2003-04 2,06,183/- 1,11,318/- 143(3) A.Y. 2004-05 2,12,379/- 1,23,975/- 143(1) A.Y. 2005-06 2,78,472/- 1,84,297/- 143(1) THE REVENUE HAS NOT DISPUTED THE AGRICULTURAL INCOM E SHOWN BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME AT RS.192,14 9/- FROM THE TOTAL SALE PROCEEDS OF RS.2,85,470/- WHICH WERE A LITTLE HIGHER AS COMPARE D TO THE EARLIER YEAR. THUS, IT WAS CONTENDED THAT THE ADDITION MADE MUST BE DELETED. 38. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF THE CIT(A). 39. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE ASSESSEE IS HAVING AGRICULTURAL LAND AND IS REGULARLY SHOWING AGRICULT URAL INCOME WHICH HAS BEEN ACCEPTED BY THE REVENUE IN THE EARLIER YEARS. THE AGRICULTURAL INCO ME IN EARLIER FIVE YEARS SHOWN AND ACCEPTED BY THE DEPARTMENT ARE GIVEN AS UNDER : 31 YEAR GROSS RECEIPTS FROM AGRICULTURE (RS) NET INCOME FROM AGRICULTURE (RS.) ASSESSED U/S A.Y. 2001-02 1,90,328/- 80,698/- 143(3) A.Y. 2002-03 2,02,137/- 90,257/- 143(3) A.Y. 2003-04 2,06,183/- 1,11,318/- 143(3) A.Y. 2004-05 2,12,379/- 1,23,975/- 143(1) A.Y. 2005-06 2,78,472/- 1,84,297/- 143(1) IN VIEW OF THE FACT THAT THE AGRICULTURAL INCOME HA S BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS AND THERE IS NO CHANGE IN THE FACTS AND THAT THE ASSESSEE IS HAVING SAME AGRICULTURAL LAND, IN OUR VIEW, TAKING INTO CONSIDERATION THE RULE OF CON SISTENCY, THE REVENUE CANNOT REJECT THE CLAIM OF THE AGRICULTURAL INCOME MADE BY THE ASSESSEE. WE ACCORDINGLY, DELETE THE ADDITION OF RS.2,85,470/-. THUS, GROUND NO. 2 STANDS ALLOWED. 40. GROUND NO. 3 & 4 RELATE TO THE DEEMED DIVIDEND ADDED U/S. 2(22)(E) OF THE ACT. BRIEF FACTS RELATING TO THIS ADDITION ARE THAT THE ASSESS ING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT CERTAIN TRANSACTIONS HAD TAK EN PLACE BETWEEN THE ASSESSEE COMPANY AND M/S. MAHIM PATRAN PVT. LTD. AS PER ASSESSING OFFICE R, THE MONEY HAS BEEN RECEIVED AND PAID AS PER REQUIREMENT OF BOTH THE COMPANIES WHERE AS THE TRANSACTION ENTERED INTO BETWEEN THE ASSESSEE-COMPANY AND MAHIM PATRAN PVT. LTD. ARE DET AILED AT PAGE NO. 2 TO 4 OF THE ASSESSMENT ORDER. THE ASSESSEE COMPANY OWNED A FARM AT SOHANA AND PAYMENT ON ACCOUNT OF WAGES WERE PAID BY M/S. MAHIM PATRAN PVT. LTD. ON BEHALF OF TH E ASSESSEE. WHEN ASKED FOR, THE ASSESSEE POINTED OUT THAT NET CREDIT BALANCE IN ASSESEES BO OKS OF M/S. MAHIM PATRAN PVT. LTD. HAS BEEN REDUCED FROM 2.24 LACS AS ON 01.04.2005 TO RS. 1.25 LACS AS ON 31.03.2006. DURING THE YEAR MOST OF THE BUSINESS TRANSACTIONS WERE ENTERED INTO FOR A SUM OF RS.5,00,000/- PAID TO DR. SANJAY DUBEY. IT WAS POINTED OUT THAT THIS AMOUNT WAS PAID IN ADVANCE FOR THE PURCHASE OF LAND AT 5/169, 32 HALWAI KI BAGICHI, AGRA AND ON ASSESSEES REQUEST T HIS AMOUNT WAS PAID BY M/S. MAHIM PATRAN PVT. LTD. IN THE NORMAL COURSE AND M/S. MAHIM PATRA N PVT. LTD. HAS DEBITED THE ASSESSES ACCOUNT IN ITS BOOKS OF ACCOUNT. THE LAND WAS SUBSEQUENTLY PURCHASED BY THE ASSESSEE. THE ASSESSING OFFICER NOTED THE SHARE HOLDING PATTERN IN THE CASE OF M/S. MAHIM PATRAN PVT. LTD. AND THE ASSESSEE AS UNDER : NAME OF THE COMPANY NAME OF DIRECTORS SHARE HOLDING ACCUMULATED PROFIT M/S. MPPL 1) NIRMALA KAPUR 24% 4,88,47,179 2) MILAN KAPUR 10% 3) SUDHA KAPUR 10% 4) MADHUKAR KAPUR 24% 5) ARVIND KAPUR 24% M/S. NIRMAL REALTORS 1) MILAN KAPUR 29% 51,82, 704 2) SUDHA KAPUR 10% 3) NIRMALA KAPUR 1% 4) MADHUKAR KAPUR 40% 5) ARVIND KAPUR 10% 6) PEEYUS KAPUR 10% THE ASSESSING OFFICER ULTIMATELY CARVED OUT THE TR ANSACTION RELATING TO THE YEAR UNDER CONSIDERATION AND NOTED THAT A SUM OF RS.57,01,406/ - WAS PAID BY M/S. MPPL ON BEHALF OF THE ASSESSEE. THEREFORE, HE TREATED THE SAID AMOUNT AS DEEMED DIVIDEND. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ORDER O F THE ASSESSING OFFICER. 41. BEFORE US, THE ASSESSEE HAS VEHEMENTLY ARGUED A ND TAKEN THE PLEA THAT THE ASSESSEE COMPANY IS NOT THE SHARE HOLDER OF M/S. MPPL. THERE FORE, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOURS (P) LTD. (2009) 313 ITR (A T) 146 AS WELL AS THAT OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP (2009) 3 13 ITR 116(RAJ.) THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THAT OF THE CIT(A). 33 42. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT IN THIS CASE, THE ASSESSEE COMPANY IS NOT THE SHARE HOLDER IN M/S. MPPL. WE HA VE ALREADY WHILE DISPOSING OF THE SIMILAR GROUND IN THE ASSESSMENT YEAR 2003-04 AND 2004-05 I N THE PRECEDING PARAGRAPHS HAVE CATEGORICALLY HELD, RELYING ON THE DECISION OF MUMB AI HIGH IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PRIVATE LIMITED (324 ITR 263) AND RAJASTHA N HIGH COURT IN THE CASE OF HILLTOP PALACE HOTELS P. LTD 313 ITR 116 (RAJ) AND THAT OF SPECI AL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. (SUPRA), THAT NO ADDITION CAN BE MAD E IN THE HANDS OF THE ASSESSEE COMPANY AS DEEMED DIVIDEND. WE RESPECTFULLY FOLLOWING OUR FIND ING GIVEN HEREINABOVE FROM PARA NOS.12 TO 33 DELETED THIS ADDITION. THUS, GROUND NO. 3 & 4 AR E ALLOWED. 43. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YE AR 2003-04, 2004-05 AND 2006-07 STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.06.11. SD/- SD/- (H.S. SIDHU) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH JUNE, 2011 *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE ASSISTANT REGISTRAR TRUE COPY