DCIT 8(2), MUMBAI V. OMEGA SHIPPING AGENCY P. LTD, MUMBAI

ITA 7039/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83675 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 22-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 23-11-2012
• Court: TRIBUNAL
• Department Lawyers: AND CROSS OBJECTION
• Assessee Lawyers: ARE DIRECTED A GAINST
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JH JH JH UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.7039/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2009-10 DY. COMMISSIONER OF INCOME TAX-8(2), ROOM NO. 209/216A, 02 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS.` M/S OMEGA SHIPPING AGENCY PVT. LTD. 7 TH FLOOR, NEW EXCELSIOR BUILDING, A.K. NAIL MARG, FORT, MUMBAI 400 001. PAN:- AAACO3745R APPELLANT RESPONDENT IZR;K{KSI LA[;K / CO NO.19/MUM/2014. ARISING OUT OF ITA NO.7039/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2009-10 M/S OMEGA SHIPPING AGENCY PVT. LTD. 7 TH FLOOR, NEW EXCELSIOR BUILDING, A.K. NAIL MARG, FORT, MUMBAI 400 001. VS.` DY. COMMISSIONER OF INCOME TAX-8(2), ROOM NO. 209/216A, 02 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. PAN:- AAACO3745R APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 17.09.2012 OF CIT(A) FOR AS SESSMENT YEAR 2009-10. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL: - REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI SAMBIT MISHRA ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI AJAY R. SINGH DATE OF HEARING 01.09.2014 DATE OF PRONOUNCEMENT 05.09.2014 M/S OMEGA SHIPPING AGENCY PVT. LTD. 2 | P A G E 1. ' ON THE FACTS AND I N T H E CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED I N DELETING THE ADDITION OF RS.2 , 36 , 41,433/- U/S 2(22)(E) OF THE ACT. ' 2 . ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW , THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2 , 36 , 41,433/- U/S 2(22)(E) OF THE ACT HOLDING THAT THE DEEMED DIVIDEND IS TAXABLE ONLY IN THE HANDS OF SHAREHOLDERS BY PLACING RELIANCE UPON THE DECISION OF MUMBA I TRIBUNAL IN THE CASE OF ACIT VS BHAUMIK COLOURS (20 09) SOT (MUM SB) IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE RATIO LAID DOWN IN THE SAID CASE. ' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,36 , 41 , 433/- U/S 2(22)(E) OF THE ACT HOLDING THAT THE DEEMED DIVIDEND IS TAXABLE ONLY IN THE HANDS OF SHAREHOLDERS BY PLACING RELIANCE UPON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF ACIT VS BHAUMIK COLOURS (2009) SOT (MUM SB) IGNORING THE INTENT OF THE LEGISLATURE AS ALSO ELABORATED IN CBDT CIRCULAR NO. 495 DATED 22.09.1987 . ' 2. THE ONLY ISSUE RAISED BY THE REVENUE IS REGARDIN G THE ADDITION U/S 2(22)(E) OF THE INCOME TAX ACT MADE BY THE ASSESSING OFFICER AS DEE MED DIVIDEND. 3. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD . THE CIT(A) HAS DELETED THE ADDITION MA DE BY ASSESSING OFFICER U/S 2(22)(E) ON THE GROUND THAT THE ASSESSEE IS NOT A SHARE HOLD ER OF ITS TWO SISTER CONCERNS NAMELY M/S POSEIDON SHIPPING AGENCY PVT. LTD AND M/S. FAIR WIND SHIPPING AGENCY PVT. LTD., THOUGH THEY HAVE COMMON SHARE HOLDERS. THE CIT(A) F OLLOWED THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. M/S. BHAUMIK COLOURS PVT. LTD (2009) (313 ITR 146) AS WELL AS DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD (2010) 324 ITR 263 (BOM) . THE REVENUE HAS CHALLENGED THE ORDER OF CIT(A) ON THE GROUND THAT T HE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. BHAUMIK COLOU RS PVT. LTD (SUPRA) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 4. THE LD AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS POINTED OUT THAT THE DECISION IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD (SUPRA) HAS BEEN REITERATED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. IMPACT CONTAINERS PVT. LTD & OTHERS IN A GROUP OF APPEALS INVOLVING COMMON ISSUES VIDE DECISION DATED 4 TH JULY 2014. 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT THERE IS NO DENIAL OF THE FACT THAT TH E ASSESSEE IS NOT A SHARE HOLDER OF ITS M/S OMEGA SHIPPING AGENCY PVT. LTD. 3 | P A G E TWO SISTER CONCERNS NAMELY M/S POSEIDON SHIPPING AG ENCY PVT. LTD AND M/S. FAIRWIND SHIPPING AGENCY PVT. LTD., THOUGH THEY HAVE COMMON SHARE HOLDERS, THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER U/S 2(22)(E) AS DEEMED DIVIDEND ON THE GROUND THAT THE ASSESSEE AND ITS SISTER CONCERNS ARE HAVIN G COMMON SHARE HOLDERS IS NOT SUSTAINABLE IN VIEW OF THE DECISION OF SPECIAL BENC H OF THIS TRIBUNAL IN THE CASE OF ACIT VS. M/S. BHAUMIK COLOURS PVT. LTD (SUPRA). THE CIT( A) HAS DELETED THE ADDITION BY FOLLOWING THE DECISION OF SPECIAL BENCH OF THIS TRI BUNAL AS WELL AS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN PARA 5.2 AND 5 .3 AS UNDER:- 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND THE ORDER OF THE ASSESSING OFFICER. THERE ISNO DOUBT THAT THE APPELLANT COMPANY AND ITS TWO S ISTER CONCERNS NAMELY M/S. POSEIDON SHIPPING AGENCY PVT. LTD. AND M/S. FAIRWIND SHIPPING AGENCY PVT. HAVE COMMON SHARE HOLDERS. SHRI S. MURA LIDHARAN HOLDS 57% IN THE APPELLANT COMPANY AND 50% IN THE REMAINING TWO WHIL E MR. GEORGE ABRO HOLD 43% IN THE APPELLANT COMPANY AND 50% IN THE OTHER TWO. IT IS PERTINENT TO KNOW THAT THE APPELLANT COMPANY IS NOT THE SHARE HOLDER OF THE TW O COMPANIES. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD. (2U10) 324 ITR 26 (BORN) HAS HELD THAT DEEMED DIVIDEND HAS TO BE TAXE D ALL Y IN THE HANDS OF THE SHARE HOLDER. THE HON'BLE ITAT, MUMBAI SPECIAL BENC H IN THE CASE OF ACIT VS. M/S BHAUMIK COLOURS PVT LTD (2009) 313 ITR 146 HAS HELD THAT THE DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF A PERSON WHO IS A S HARE HOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHARE HOLDER. FURTHER, IT WAS HELD THAT THE SHARE HOLDER REFERRED TO IN SECTION 2(22)(E) RE FERS TO BOTH REGISTERED AND BENEFICIAL SHARE HOLDER. IF A PERSON IS A REGISTERE D SHARE HOLDER BUT NOT BENEFICIAL SHARE HOLDER OR VISE-A-VERSA, THEN THE PROVISIONS O F SECTION 2(22)(E) WILL NOT APPLY. 5.3 FOLLOWING THE ABOVE DECISION IN THE INSTANT CAS E, IT CAN BE SEEN THAT THE APPELLANT COMPANY IS NOT THE SHARE HOLDER OF EITHER MI S. POSEIDON SHIPPING AGENCY PVT. LTD. OR M/S . FAIRWIND SHIPPING AGENCY PVT. AND IN VIEW OF THE SAME DEEMED DIVIDEND CANNOT BE TAXED IN THE HANDS OF THE APPELL ANT COMPANY. HENCE THE GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 6. WE FURTHER NOTE THAT IN THE LATEST DECISION OF H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. IMPACT CONTAINERS PVT. LTD & O THERS IN A GROUP OF APPEALS, THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD IN PARA 27 TO 30 AS UNDER:- 27 WE HAVE PERUSED THE PROVISION CAREFULLY AND EQU ALLY ALL JUDGMENT IN THE CASE OF UNIVERSAL MEDICARE AND THE VIEW FOLLOWING THE SAME RENDERED BY SEVERAL HIGH COURTS. WE ARE O F THE OPINION M/S OMEGA SHIPPING AGENCY PVT. LTD. 4 | P A G E THAT THERE IS NO MERIT IN THE CONTENT IONS OF THE REVENUE THAT UNIVERSAL MEDICARE WAS EITHER ERRONEOUSLY DECIDED O R THAT THE VIEW TAKEN IN UNIVERSAL MEDICARE REQUIRES RECO NSIDERATION. IN THAT REGARD, WE MUST NOT BRUSH ASIDE THE BIN DING PRECEDENT OF THE JUDGMENT OF A COORDINATE BENCH SIMPLY BECAUSE SOME OF THE ARGUMENTS CANVASSED BEFORE US WERE EITHER NOT CANVA SSED OR IF CANVASSED WERE NOT CONSIDERED. THE BINDING PRECEDE NT CAN BEIGNORED ONLY IF IT IS PER I N C U R I A M . S U C H I S N O T T H E S T A N D B E F O R E U S . ALL THAT IS URGED IS SEVERAL FACETS AND WHICH EMERG E FROM A READING OF SECTION NAMELY SECTION 2(22) TOGETHER WITH ITS S UBCLAUSES HAVE NOT BEEN NOTICED BY THE DIVISION BENCH WHILE DECID ING UNIVERSAL'S CASE. 28 WE ARE UNABLE TO AGREE WITH THE REVENUE IN THIS BEHALF. WHAT WE HAVE NOTED IS THAT THE LEGISLATURE HAS INCORPOR ATED AND INSERTED THE DEFINITION OF THE TERM DIVIDEND. IT IS MADE INCLUSIVE OF DISTRIBUTION OF PROFITS, ANY DISTRIBUTION TO THE SH AREHOLDERS BY A COMPANY OF DEBENTURES, DEBENTURESTOCK, OR DEPOSIT CERTIFICATE IN ANY FORM, OR DISTRIBUTION MADE TO THE SHAREHOLDERS UPON LIQUIDATION OF A COMPANY. EQUALLY, AMOUNT DISTRIBUTED ON REDUC TION OF CAPITAL IS TERMED AS DIVIDEND. WHAT IS ALSO THEN INCLUDED IS A PAYMENT MADE BY A COMPANY TO ITS SHAREHOLDER. THAT IS BY W AY OF ADVANCE OR LOAN TO HIM. THIS IS INCLUDED SO AS TO VISIT TH E SHAREHOLDER WITH LIABILITY TO PAY TAX. IT IS EVENTUALLY, THE SHARE HOLDER WHO WILL PAY TAX ON THE SAME. THE SHAREHOLDER CANNOT ESCAPE THAT LIABILITY MERELY BECAUSE THE LOAN OR ADVANCE HAS BEEN MADE OV ER TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. EARLIER, LEGISL ATURE NOTED THAT THE SHAREHOLDER WOULD RECEIVE THE SUM FROM A COMPANY AN D WHICH IS NOT STRICTLY FALLING WITHIN THE CONCEPT OF DIVIDEND. FIRSTLY, BECAUSE THAT WAS RECEIVED BY WAY OF ADVANCE OR LOAN , SECONDLY, AN ATTEMPT WAS MADE TO SHOW THAT THE ADVANCE OR LOAN IS NOT TO THE SHAREHOLDER WHO IS REGISTERED AS SUCH BUT TO A CONC ERN IN WHICH HE IS A MEMBER OR A PARTNER AND IN WHICH HE MAY HAVE A SUBSTANTIAL INTEREST BUT THAT CANNOT BE TERMED AS ADVANCE OR LOAN TO THE SHAREHOLDER. WITH A VIEW TO TAKE CARE OF SUCH STAND OF THE SHAREHOLDERS AND NOT ALLOW THEM TO ESCAPE THE LIAB ILITY TO PAY TAX THAT THE DEFINITION CAME TO BE BROADLY WORDED BY INDICATING THEREIN THE REFERENCE TO ANY CONCERN. EQUALLY, ANY PAYMENT MADE BY SUCH COMPANY ON BEHALF OF THE SHAREHOLDER OR FOR INDIVIDUAL BENEFIT OF ANY SHAREHOLDER TO THE EXTENT TO WHICH T HE COMPANY IN OTHER CASE POSSESSES ACCUMULATED PROFITS HAS ALSO B EEN BROUGHT IN. THUS, IN ADDITION TO DISTRIBUTION OF ACCUMULATED PR OFIT, DEBENTURE STOCK OR DEPOSIT CERTIFICATE ETC, A PAYMENT OF THE AFORESAID NATURE HAS BEEN TERMED AS DIVIDEND AND INCLUDED IN THE D EFINITION. AT THE SAME TIME, THE LEGISLATURE HAS TAKEN CARE NOT T O INCLUDE ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID C ONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS M/S OMEGA SHIPPING AGENCY PVT. LTD. 5 | P A G E SUBSTANTIAL INTEREST IN THE ORDINARY COURSE OF THE BUSINESS OF THE COMPANY AND WHERE LENDING OF MONEY IS SUBSTANTIAL P ART OF THE BUSINESS OF THE COMPANY. EQUALLY, ANY DIVIDEND PAID BY THE COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST TH E WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED A S A DIVIDEND WITHIN THE MEANING OF SUBCLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF, IS ALSO EXCLUDED ADVISEDLY. 29 WE ARE ALSO OF THE OPINION THAT ANY REFERENCE TO EXPLANATION 3 AND PARTICULARLY THE DEFINITION OF TERM CONCERN W ILL NOT ADVANCE OR CARRY THE REVENUE'S CASE ANY FURTHER . EVENTUALLY, IT IS THE SHAREHOLDER WHO IS REGISTERED AS SUCH WHO IS ENTITL ED TO RECEIVE THE DIVIDEND. MERELY BECAUSE THE PAYMENT IS MADE TO HI M BY WAY OF ADVANCE OR LOAN WAS NOT TERMED AS SUCH EARLIER THAT THE LEGISLATURE HAS INSERTED SUCH A PAYMENT IN THE DE FINITION OF THE TERM DIVIDEND AND MADE THE DEFINITION WIDE AND BROAD SO ALSO INCLUSIVE. 30 WE DO NOT SEE HOW WITH THIS LEGAL POSITION AND T HE STATUS OF THE SHAREHOLDER RECOGNIZED IN LAW CAN B E IGNORED WHILE INTERPRETING SECTION 2 (22) (E) OF THE I. T. ACT. PRECISELY, THIS IS WHAT HAS BEEN DONE BY THIS COURT IN THE JUDGMENT RE NDERED IN THE CASE OF UNIVERSAL MEDICARE. IT IS NOT NECESSARY F OR US TO MAKE A DETAILED REFERENCE TO THE ORDER OF THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR PVT LTD. SUFFICE IT TO HOLD THAT THE VIEW TAKEN BY THIS COURT IN THE CASE OF M/S. UNIVER SAL MEDICARE DOES NOT REQUIRE ANY RECONSIDERATION. WE ARE NOT IN AGREEMENT WITH SHRI GUPTA THAT THE DEFINITION DOES NOT CONTEM PLATE OR DOES NOT STIPULATE ANY REQUIREMENT OF ASSESSEE BEING A S HAREHOLDER OF THE ASSESSEE LIKE THE ONE IN THE PRESENT CASE. THE VI EW TAKEN IN THE PRESENT CASE THAT THE RECIPIENT/ASSESSEE WAS NOT A SHAREHOLDER, THUS IS IN CONSONANCE WITH THE LEGAL POSITION NOTED BY U S HEREINABOVE. 7. FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF CIT(A) QUA THIS ISSUE. CONSEQUEN TLY, THE APPEAL OF THE REVENUE FAILS. CROSS OBJECTION NO. 19/MUM/2014. 8. IN VIEW OF OUR FINDING ON THE ISSUE RAISED BY TH E REVENUE, THE CO FILED BY THE ASSESSEE BECOMES INFRUCTUOUS. THIS POSITION HAS BEE N ACCEPTED BY THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, ACCORDINGLY THE CRO SS OBJECTION IS DISMISSED BEING INFRUCTUOUS. M/S OMEGA SHIPPING AGENCY PVT. LTD. 6 | P A G E 9. IN THE RESULT APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTIN OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 5-9 -2014 SD- SD/- ( N.K. BILLAIYA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 5-9 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI