The Dy. CIT 4(1), Indore V. M/s. Ryder Trans International (P) Ltd., Indore

ITA 720/Ind/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4759 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-04-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 20-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: N D PATWA A RS; ASISH GOYAL
• Keywords: Deemed dividend; Set aside; Liquidation; Capital Gains
• Section: 143(3); 2(22)(e); 139(1); 13; 119; 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HONBLE MANISH BORAD, ACCOUNTANT MEMBER AND HONBLE MADHUMITA ROY, JUDICIAL MEMBER ITA NO. 720/IND/2019 ASSESSMENT YEAR 2012-13 DCIT-4(1), : REVENUE INDORE V/S M/S RYDER TRANS INTERNATIONAL PVT. LTD, 402, SHEKHAR CENTRAL, PALASIA SQAURE, INDORE : RESPONDENT PAN: AADCR5570J REVENUE BY SHRI HARSHIT BARI, SR.DR ASSESSEE BY S/ SHRI ASISH GOYAL & N.D. PATWA, ARS DATE OF HEARING 0 7 .04 .2021 DATE OF PRONOUNCEMENT 30 . 0 4 . 202 1 O R D E R PER MANISH BORAD, A.M THE ABOVE CAPTIONED APPEAL FILED AT THE INSTANCE O F THE REVENUE FOR ASSESSMENT YEAR 2012-13 IS DIRECTED AG AINST THE ORDER M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 2 OF LD. COMMISSIONER OF INCOME TAX(APPEALS)-II (IN S HORT LD. CIT], INDORE DATED 29.03.2019 WHICH IS ARISING OUT OF T HE ORDER U/S 147/143(3) OF THE INCOME TAX ACT 1961(IN SHORT THE ACT) DATED 19.12.2017 FRAMED BY ACIT-4(1), INDORE. 2. REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER THE LD. CIT(A) ERRED IN INTERPRETING THE PROVISION OF SECTION 2(22)(E) OF THE IT ACT, 1961, AND ALLOWING THE APPE AL OF THE ASSESSEE, THEREBY DELETING THE ADDITION OF RS.2,20,87,842/- M ADE U/S 2(22)(E. 2. THE APPELLANT, CARVES LEAVE TO ADD OR TO DEDUCT FROM OR OTHERWISE AMEND THE ABOVE GROUNDS OF APPEAL. 3. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED I N MANUFACTURING OF CONVEYER BELTS AND OTHER RUBBER PR ODUCTS. RETURN OF INCOME U/S 139(1) OF THE ACT FOR ASSESSMENT YEAR 201-12 WAS FILED ON 30.09.2012 DECLARING TOTAL INCOME AT RS.NI L. THE CASE WAS REOPENED U/S 147 BY ISSUANCE OF NOTICE U/S 148 OF T HE ACT ON 30.03.2017 FOR ESCAPEMENT OF DEEMED DIVIDEND U/S 2( 22)(E) OF THE ACT IN ITS HANDS. DURING THE ASSESSMENT PROCEEDINGS LD. A.O OBSERVED THAT ASSESSEE COMPANY RECEIVED LOAN OF RS. 1 CRORE FROM M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 3 VIMAL SNEH PVT. LTD HAVING ACCUMULATED PROFIT OF RS .93,55,409/- LOAN OF RS.33,92,842/- FROM M/S JAIN TRANSMISSION ( I) PVT. LTD HAVING ACCUMULATED PROFIT OF RS.39,24,025/- AND REC EIVED LOAN OF RS.86,95,000/- (OF WHICH RS.30,75,000/- WAS PAID DU RING THE YEAR) FROM M/S RAJKAMAL BUILDERS P LTD HAVING ACCUMULATED PROFIT AT RS.6,06,91,862/- AND ALL THESE THREE COMPANIES HAVE COMMON SHARE HOLDER NAMELY MR. PUNYAPAL SURAMA HOLDING 26. 32%, 39.87% AND 36.90% RESPECTIVELY OF THE TOTAL SHARE HOLDING OF THE THREE COMPANIES. MR. PUNYAPAL SURANA IS ALSO A SUBSTANTI AL SHAREHOLDER HOLDING 25.35% OF TOTAL SHAREHOLDING OF ASSESSEE CO MPANY. BASED ON THIS UNDISPUTED FACTS LD. A.O INVOKED PROVISION OF SECTION 2(22)(E) OF THE ACT AND AFTER CONSIDERING THE SUBMI SSIONS MADE BY THE ASSESSEE MADE THE ADDITION FOR DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AT RS.2,20,87,842/- AND ASSESSED THE INCOME U/S 147/R.W.S 143(3) OF THE ACT AT RS.1,11,99,593/- (AFTER GIVING SET OFF OF AMOUNT ACCUMULATED LOSS OF PREVIOUS YEARS). 4. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE LD. C IT(A) AND SUCCEEDED. HE ALLOWED THE APPEAL ON THE BASIS OF SE TTLED JUDICIAL PRECEDENTS AND DELETED THE ADDITION OBSERVING THAT SINCE THE M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 4 ASSESSEE COMPANY IS NEITHER A REGISTERED NOR A BENE FICIAL OWNER OF SHARES OF THE LENDER COMPANIES. THE PROVISIONS OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT ARE NOT ATTRACTED. 5. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . 6. LD. DEPARTMENTAL REPRESENTATIVE APART FROM RELYI NG ON THE DETAILED FINDING OF LD. A.O ALSO SUBMITTED THAT THE ISSUE RAISED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE RE VENUE BY THE JUDGMENT OF HON'BLE SUPREME COURT OF INDIA IN THE C ASE OF NATIONAL TRAVEL SERVICES V/S CIT, DELHI (2018) 89 TAXMANN.CO M 332 (SC) ORDER DATED 18.1.2018. LD. SR. DR HAS ALSO SUBMITTED THAT THE HON'BLE APEX COURT HAS ALSO CONSIDERED THE JUDGMENT OF HON 'BLE HIGH COURT OF DELHI IN THE CASE OF ANKITECHS (P) LTD IT A 462/2009. 7. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO ADDITION IN THE HANDS OF ASSESSEE COMPANY I S CALLED FOR SINCE IT IS NOT THE SHARE HOLDER OF LENDER COMPANIE S. HEALSO MADE FOLLOWING WRITTEN SUBMISSIONS:- REGARDING DEEMED DIVIDEND U/S 2(22)(E) 1. LD. A.O ADDED DEEMED DIVIDEND FROM THREE COMPANIES: - SR. NO NAME OF COMPANY COMMON SHAREHOLDING LOAN GIVEN DURING THE YEAR (RS.) ACCUMULATED PROFIT OF LENDER COMPANY AMOUNT ADDED M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 5 1 RAJKAMAL BUILDERS P LTD. (RBPL) OUR SHARE HOLDERS HOLD 100%IN RBPL 86,95,000 ON WHICH REPAID RS.30,75,000 6,06,91,862 86,95,000 2 VIMAL SNEH PVT LD (VSPL) OUR SHARE HOLDERS HOLD 36.85% IN VSPL 1,00,00,000 93,55,409 1,00,00,000 3 JAIN TRANSMISSION (I) PVT LTD (JTIPL) OUR SHARE HOLDERS HOLD 76.4% IN JTIPL 33,92,842 39,24,025 33,92,842 2,20,87,842 2. IT IS UNCONTROVERTED FACT THAT ASSESSEE COMPANY IS NOT SHAREHOLDER OF THE LENDER COMPANIES. 3. IT IS THEREFORE SUBMITTED DIVIDEND CAN BE TAXED IN THE HANDS OF THE SHAREHOLDER ONLY. LOAN U/S. 2(22)(E) IS DEEMED TO BE A DIVIDEND, BUT NOWHERE IT IS STATED THAT SUCH DIVIDEND WOULD BE TA XED IN THE HANDS OF BORROWER; EVEN IF IT IS NOT A SHAREHOLDER. THE DEEM ING FICTION OF SECTION 2(22)(E) CANNOT BE STRETCHED BEYOND THE SCOPE IT IS GIVEN. DIVIDEND CANNOT THEREFORE BE TAXED IN THE HANDS OF ASSESSEE COMPANY. STRONG RELIANCE IS PLACED ON THE ORDER OF ID CIT(A) WHO HA S GIVEN SIMILAR FINDINGS AT 11 TO 21 OF HIS ORDER IN PARA 4.0 TO PARA 4.10. GIST OF THE LANDMARK JUDGMENTS IN THIS REGARD ARE Q UOTED AS BELOW: - SR. NO. PB REF. CITATION GIST OF THE CASE 1 PB 144 - 145 CIT VS VENKATESH BREVERAGES (ITA 24 OF 2012) (M.P. HIGH COURT) KEEPING IN VIEW THE REASONS AS INDICATED HEREIN ABOVE, WE ARE ALSO SATISFIED THAT FOR ATTRACTING THE DEEMING PROVISIONS AS CONTAINED U/S 2(22)(E), BOTH THE SITUATIONS CONTEMPLATED THEREIN SHOULD BE FULFILLED. IF ONE OF THE CONDITION IS NOT FULFILLED. THE PROVISIONS CANNOT BE ATTRACTED. IN THIS CASE, ONE OF THE CONDITION IS NOT FULFILLED, IN AS MUCH AS THE ASSESSEE/COMPANY IS NOT A SHAREHOLDER IN THE LENDING COMPANY, FROM WHICH THE LOAN WAS RECEIVED. 2 PB - 112 - 118 ACIT VS GULMOHAR TRADERS 29 ITJ ..FOR BRINGING AN ASSESSEE WITHIN THE PURVIEW OF SECTION 2(22)(E), BOTH THE M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 6 302 (TRIB. INDORE) CONDITIONS REGARDING ASSESSEE BEING REGISTERED AS WELL AS BENEFINCIAL SHAREHOLDER OF THE LENDER COMPANY ARE REQUIRED TO BE ESTABLISHED IN THE PRESENT CASE, THE ASSESSEE IS NEITHER A REGISTERED NOR A BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY. RELIANCE WAS PLACED ON THE JUDGMENTS AS UNDER: (A)ACIT VS BHOUMIK COLOUR PVT. LTD 118 ITD 1 (MUM.)(SB) (B)CIT VS C.P. SARATHY MUDALIAR 83 ITR 170 (SC) (C) RAMESHWARLAL SANWARMAL 122 ITR 162 (SC) (D) JCIT VS KUNAL ORGANICS P LTD 164 TAXMAN 169 (AHD.) 3 PB 119 - 139 CIT VS ANKITECH P LTD 11 TAXMANN 100 (DEL.) WHETHER LEGAL FICTION CREATED U/S 2(22)(E) ENLARGES DEFINITION OF DIVIDEND ONLY, LEGAL FICTION IS NOT TO BE EXTENDED FURTHER FOR BROADENING CONCEPT OF SHAREHOLDERS HELD, YES. WHETHER ANY COMPANY IS SUPPOSED TO DISTRIBUTE PROFITS IN FORM OF DIVIDEND TO ITS SHAREHOLDERS/ MEMBERS AND SUCH DIVIDEND CANNOT BE GIVEN TO NON-MEMBERS- HELD, YES. 4 PB 140 - 143 CIT VS HOTEL HILLTOP 18 TAXMANN.COM 308 (RAJ.) WHERE ASSESSEE FIRM HAD RECEIVED AN ADVANCE FROM A COMPANY AND IT WAS ASSESSEES PARTNERS WHO WERE SHARE HOLDERS IN SAID COMPANY AND NOT ASSESSEE-FIRM, SUCH AN ADVANCE COULD NOT BE TAXED AS DEEMED DIVIDEND IN HANDS OF ASSESSEE-FIRM. 5 CIT VS DAISY PACKERS P LTD 220 TAXMAN 331 (GUJ.) WHERE ASSESSEE - COMPANY HAD RECEIVED A DEPOSIT FROM A COMPANY BUT DID NOT OWN ANY SHARE OF THAT COMPANY IT COULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E). 6 CIT VS SURAM HOLDING P LTD 220 TAXMAN 327 (RAJ.) WHERE ASSESSEE COMPANY RECEIVED SHARE APPLICATION MONEY FROM ANOTHER COMPANY, THE AMOUNT IN QUESTION COULD NOT BE TAXED AS DEEMED DIVIDEND IN ITS HANDS AS THE M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 7 ASSESSEE WAS NOT A REGISTERED SHARE HOLDER OF SAID COMPANY. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE JUD GMENTS REFERRED AND RELIED BY THE LD. COUNSEL FOR THE ASSESSEE AS W ELL AS LD. CIT(A). KEEPING THE FACTS STRAIGHT WE FIND THAT MR. PUNYAPA L SURANA IS A SUBSTANTIAL SHAREHOLDER HAVING FOLLOWING SHARE HOLD ING IN THE CONCERNS CONNECTED TO THE INSTANT APPEALS:- S.NO. NAME OF COMPANY SHARE HOLDING IN PERCENTAGE 1 RYDER TRANS INTERNATIONAL PVT. LTD (ASSESSEE) 25.35% 2 VIMAL SN E H PVT. LTD 26.32% 3 JAIN TRANSMISSION (I) PVT. LTD 39.87% 4 RAJKAMAL BUILDERS 36.90% 9. THE ASSESSEE COMPANY RECEIVED LOANS FROM FOLLOWI NG 3 COMPANIES (DETAILS ALSO INCLUDED ACCUMULATED PROFIT S OF LENDER COMPANIES); S.NO. NAME OF COMPANY LOAN RECEIVED ACCUMULATED PROFIT AMOUNT ADDED U/S 2(22)(E) 1 VIMAL SNEH PVT. LTD 1,00,00,000 9 3 ,55,409 1,00,00,000 M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 8 2 JAIN TRANSMISSION (I) PVT. LTD 33,92,842 39,24,025 33,92,842 3 RAJKAMAL BUILDERS 86,95,000 6,06,91,862 86,95,000 2,20,87,842 10. THE ABOVE DETAILS SHOWS THAT THERE IS A SHARE H OLDER NAMELY SHRI PUNYAPAL SURANA WHO HAS SUBSTANTIAL SHARE HOLD ING AS PROVIDED U/S 2(22)(E) OF THE ACT IN ALL THE FOUR CO NCERNS ENUMERATED ABOVE. THE ASSESSEES COMPANY HAS RECEIVED LOANS FR OM OTHER THREE CONCERNS. IT IS NOT THE CASE OF THE ASSESSEE THAT FALLS IN ANY EXCLUSION PROVIDED IN SECTION 2(22)(E) OF THE ACT A ND THAT THE ALLEGED TRANSACTIONS BETWEEN THESE COMPANIES ARE IN THE ORD INARY COURSE OF BUSINESS WHERE LENDING OF MONEY IS A SUBSTANTIAL P ART OF THE BUSINESS OF THE COMPANY. 11. THE ISSUE BEFORE US IS THAT WHETHER THE LD. A.O WAS JUSTIFIED IN MAKING THE ADDITION IN THE HANDS OF THE ASSESSEE COMPANY WHICH IN ITS INDIVIDUAL CAPACITY IS NOT THE SHARE HOLDER IN THE ABOVE STATED THREE LENDER COMPANIES BUT THERE IS A COMMON SHAREH OLDER HAVING SUBSTANTIAL SHARE HOLDING IN ALL THE FOUR COMPANIES . PROVISIONS OF SECTION 2(22)(E) OF THE ACT READS AS FOLLOWS :- M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 9 (E)ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER A S REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, B EING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES EN TITLED 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, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFE RRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHA LF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S ; BUT 'DIVIDEND' DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAU SE (C) OR SUB-CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSID ERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUID ATION TO PARTICIPATE IN THE SURPLUS ASSETS ; (IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLA USE (C) OR SUB-CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO T HE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO ITS E QUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, AND BEFORE THE 1 ST DAY OF APRIL, 1965 ; (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR T HE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY ; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF; (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF I TS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COM PANY). EXPLANATION 1.THE EXPRESSION 'ACCUMULATED PROFITS' , WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPITAL GAINS ARI SING BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31ST DAY OF MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL, 1956. EXPLANATION 2.THE EXPRESSION 'ACCUMULATED PROFITS' IN SUB-CLAUSES (A), (B), (D) AND (E), SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB-CL AUSES, AND IN SUB-CLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, BUT M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 10 SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON T HE COMPULSORY ACQUISITION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE S UCCESSIVE PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SU CH ACQUISITION TOOK PLACE. EXPLANATION 2A.IN THE CASE OF AN AMALGAMATED COMPA NY, THE ACCUMULATED PROFITS, WHETHER CAPITALISED OR NOT, OR LOSS, AS THE CASE MAY BE, SHALL BE INCREASED BY THE ACCUMULATED PROFITS, WHETHER CAPITALISED OR NOT, OF THE AMALGAMATING COMPANY ON THE DATE OF AMA LGAMATION. EXPLANATION 3.FOR THE PURPOSES OF THIS CLAUSE, (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) 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 ENTITLED TO NOT LESS THAN TWENTY PER C ENT OF THE INCOME OF SUCH CONCERN ; 12. FROM GOING THROUGH THE SECTION 2(22)(E) OF THE ACT AND EXCLUSIONS PROVIDED THEREIN, WE OBSERVE THAT THERE ARE THREE LIMBS IN THE OPERATING PART OF SECTION 2(22)(E) OF THE AC T AND IF THE CASE OF THE ASSESSEE FALLS IN ANY ONE OF THE LIMB THIS PROV ISION IS INVOKED. ASSESSEE HAS IMMUNITY IF THE CASE FALSE UNDER ANY O F THE EXCLUSIONS PROVIDED IN (I) TO (IV) OF SECTION 2(22)(E). 13. IN THE INSTANT CASE ASSESSEE HAS NOT CONTENDED THAT IT FALLS UNDER ANY OF THE EXCLUSIONS. SO FOR ADJUDICATING T HE ISSUE IN HAND WE NEED TO CONFINE OUR ADJUDICATION TO EXAMINE THAT WHETHER THE CASE OF THE ASSESSEE FALLS UNDER ANY OF THE 3 LIMBS PROVIDED U/S 2(22)(E) OF THE ACT. M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 11 14. THE APPLICABILITY OF SECTION 2(22)(E) OF THE A CT IS SATISFIED IF ONE OF THE THREE CONDITIONS IS SATISFIED. FIRST LIMB - (A) TO A SHAREHOLDER BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS ) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER. SECOND LIMB (B) OR TO ANY CONCERN IN WHICH SUCH SHA REHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST HEREAFTER IN THIS CASE REFERRE D TO AS THE SAID CONCERN) THIRD LIMB (C ) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOL DER, TO THE EXTENT TO WHICH THE COMPANY IS EITHER CASE POSSESSES ACCUMULATED PROFITS. 15. EXAMINING THE FACTS OF THE INSTANT CASE WE FIND THAT THE FIRST LIMB IS NOT APPLICABLE SINCE IT IS APPLICABLE TO TH E AMOUNT RECEIVED BY THE SHARE HOLDER WHICH IS NOT THE CASE BEFORE US . THIRD LIMB IS ALSO NOT APPLICABLE SINCE REVENUE HAS NOT MADE A CA SE THAT THE ALLEGED PAYMENTS HAVE BEEN MADE FOR THE INDIVIDUAL BENEFIT OF THE M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 12 SHARE HOLDER NAMELY PUNYAPAL SURANA. NOW REMAININS SECOND LIMB WHICH DEALS WITH THE SITUATION WHERE THE PAYMENT IS MADE BY THE COMPANY TO ANY CONCERN IN WHICH SAID SHARE HOLDER I S A MEMBER OR A PARTNER HAVING SUBSTANTIAL INTEREST. IN THE INST ANT CASE MR. PUNYAPAL SURANA IS A SUBSTANTIAL SHARE HOLDER IN AL L THE FOUR COMPANIES WHICH INCLUDES THE ASSESSEE COMPANY AND T HREE LENDER COMPANIES. WHETHER UNDER THESE GIVEN FACTS THE ACT ION OF THE LD. A.O OF MAKING ADDITION U/S 2(22)(E) OF THE ACT IS J USTIFIED OR NOT NEEDS TO BE TESTED IN THE LIGHT OF SETTLED JUDICIAL PRECEDENTS. 16. THOUGH THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS LD. CIT(A) HAS REFERRED TO VARIOUS JUDGMENTS BUT IN OUR CONSID ERED VIEW THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF NATIONAL TRAVEL SERVICES V/S CIT (SUPRA) IS VERY RELEVANT ON THE FACTS OF THE CASE. THE FACTS BEFORE THE HON'BLE APEX COURT WERE WITH REGARD TO THE ASSESSEE FIRM TO SUBSCRIBE TO THE EQUITY CAPITAL IN A COMPANY IN THE NAME OF ITS TWO PARTNERS WHO HELD SHARES FOR AND ON BEHALF OF THE FIRM WHICH HAPPEN TO BE FOR THE BENEFIT OF THE SHAR EHOLDER. HOWEVER THE RATIO LAID DOWN BY THE HON'BLE COURT HAS BEARIN G ON THE ISSUE RAISED IN THE INSTANT APPEAL BEFORE US. M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 13 THE RELEVANT PORTION OF THE JUDGMENT OF HON'BLE APE X COURT IN THE CASE OF NATIONAL TRAVEL SERVICES V/S CIT IS EXTRACTED BELOW:- 9) A CURSORY LOOK AT THE AFORESAID DEFINITION WOULD GO TO SHOW THAT THE SHAREHOLDER REFERRED TO IN THE AFORESAID PROVISION WOULD CONTINUE TO BE A SHAREHOLDER WHO IS ON THE REGISTER OF MEMBERS OF TH E COMPANY WITH ONE ADDITIONAL FEATURE, NAMELY, THAT SUCH SHAREHOLDER S HOULD BE A PERSON WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY. ADMITTED LY, THE AFORESAID ADDITIONAL FEATURE WOULD MAKE NO DIFFERENCE TO THE POSITION OF LAW LAID DOWN IN THE AFORESAID TWO DECISIONS. 10) IN 1988, HOWEVER, THIS DEFINITION WAS AMENDED T O READ AS FOLLOWS:- SECTION 2. DEFINITION IN THIS ACT, UNLESS THE CO NTEXT OTHERWISE REQUIRES,- (22) DIVIDEND INCLUDES- (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER A S REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFT ER THE 31ST DAY OF MAY 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, B EING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES EN TITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER, OR T O ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFE RRED TO AS THE SAID CONCERN), OR ANY PAYMENT BY ANY SUCH COMPANY ON BEH ALF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S' EXPLANATION 2. - THE EXPRESSION ACCUMULATED PROFITS, IN SUB-CLAUSE S (A), (B), (D) AND (E), M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 14 SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB-CLAUSES, AND IN SU B-CLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE O F LIQUIDATION, {BUT SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON THE COM PULSORY ACQUISITION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE SUCCESSIVE PR EVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SU CH ACQUISITION TOOK PLACE; EXPLANATION 3. - FOR THE PURPOSES OF THIS CLAUSE,- (A) CONCERN MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY; (B) 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 ENTITLED TO NOT LESS THAN TWENTY PER C ENT OF THE INCOME OF SUCH CONCERN; 11) THE EXPLANATORY MEMORANDUM TO THE AMENDMENT THU S MADE READS AS FOLLOWS:- WITH THE DELETION OF SECTION 104 TO 109 THERE WAS A LIKELIHOOD OF CLOSELY HELD COMPANIES NOT DISTRIBUTING THEIR PROFITS TO SH AREHOLDERS BY WAY OF DIVIDENDS BUT BY WAY OF LOANS OR ADVANCES SO THAT T HESE ARE NOT TAXED IN THE HANDS OF THE SHAREHOLDERS. TO FORESTALL THIS MA NIPULATION, SUB-CLAUSE (E) OF CLAUSE (22) OF SECTION 2 HAS BEEN SUITABLY A MENDED. UNDER THE EXISTING PROVISIONS, PAYMENTS BY WAY OF LOANS OR AD VANCE TO SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN A COMPANY TO THE EXT ENT TO WHICH THE COMPANY POSSESSES ACCUMULATED PROFITS IS TREATED AS DIVIDEND. THE M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 15 SHAREHOLDERS HAVING SUBSTANTIAL INTEREST ARE THOSE WHO HAVE A SHAREHOLDING CARRYING NOT LESS THAN 20 PER CENT VOT ING POWER AS PER THE PROVISIONS OF CLAUSE (32) OF SECTION 2. THE AMENDME NT OF THE DEFINITION EXTENDS ITS APPLICATION TO PAYMENTS MADE (I) TO A S HAREHOLDER HOLDING NOT LESS THAN 10 PER CENT OF THE VOTING POWER, OR (II) TO A CONCERN IN WHICH THE SHAREHOLDER HAS SUBSTANTIAL INTEREST. CONCERN AS PER THE NEWLY INSERTED EXPLANATION 3 (A) TO SECTION 2 (22) MEANS A HUF OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY. A SHAREHOLDER HAVING A SUBSTANTIAL INTEREST IN A CONCERN AS PER PART (B) O F EXPLANATION 3 IS DEEMED TO BE ONE WHO IS BENEFICIALLY ENTITLED TO NOT LESS THAN 20 PER CENT OF THE INCOME OF SUCH CONCERN. 10.3 THE NEW PROVISIONS WOULD, THEREFORE, BE APPLIC ABLE IN A CASE WHERE A SHAREHOLDER HAS 10 PER CENT OR MORE OF THE EQUITY C APITAL. FURTHER, DEEMED DIVIDEND WOULD BE TAXED IN THE HANDS OF A CONCERN W HERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED:- (I) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF L OANS OR ADVANCES TO A CONCERN.; (II) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOL DS 10 PER CENT OF THE VOTING POWER IN THE COMPANY; AND (III) WHERE THE MEMBER OR PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO 20 PER CENT 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 MA DE APPLICABLE ONLY IN CASES WHERE LOANS OR ADVANCES ARE GIVEN AFTER 31ST MAY, 1987. THESE AMENDMENTS WILL APPLY IN RELATION TO ASSESSMENT YEA R 1988-89 AND SUBSEQUENT YEARS. M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 16 12) A READING OF THE AMENDED DEFINITION WOULD INDIC ATE THAT, AFTER 31.05.1987, A SHAREHOLDER IS NOW A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN 10% OF THE VOTING P OWER OF THE COMPANY. ALSO, A NEW CATEGORY HAS BEEN ADDED TO THE DEFINITI ON BY INTRODUCING CONCERNS IN WHICH SUCH SHAREHOLDER IS A MEMBER OR P ARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. EXPLANATION (3) OF T HE AMENDED PROVISION STATES THAT CONCERN MEANS HINDU UNDIVIDED FAMILY, FIRM, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, OR A COMPANY AND FURT HER GOES ON TO STATE 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 T HE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN 20% OF THE I NCOME OF SUCH CONCERN. 17. THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V/S ANKITECH PVT. LTD RELIED BY LD. CIT(A) HAVE ALS O BEEN CONSIDERED BY THE HON'BLE APEX COURT IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA). AS REGARDS THE REMAINING JUDGMENTS/DECISI ONS RELIED BY THE LD. COUNSEL FOR THE ASSESSEE THE SAME ARE NOT A PPLICABLE ON THE INSTANT CASE AS THE FACTS ARE NOT SIMILAR AND ARE T HUS DISTINGUISHABLE. 18. IN THE INSTANT CASE WE FIND THAT ONE PERSON NAM ELY SHRI PUNYAPAL SURANA IS A SUBSTANTIAL SHAREHOLDER IN ALL THE FOUR COMPANIES WHICH INCLUDES THREE LENDER COMPANIES AND ONE RECEIVER M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 17 COMPANY. THE SECOND LIMB OF SECTION 2(22)(E) OF TH E ACT IS VERY MUCH CLEAR THAT DEEMED DIVIDEND INCLUDES ANY PAYMEN T MADE BY THE COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, MADE AFTER 31.8.1987, BY WAY OF ADVANCE OR LOAN TO ANY CONCERN IN WHICH SUCH SHARE HOLDER I S A MEMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. FURTHER EXPLANATION (3)(A) TO SECTION 2(22)(E) PROVIDES THA T CONCERNS MEANS A HUF OR A FIRM OR AN ASSOCIATION OF PERSONS OR A B ODY OF INDIVIDUALS OR A COMPANY AND THE PERSON SHALL BE DE EMED TO HAVE SUBSTANTIALLY INTEREST IN THE CONCERN OTHER THAN C OMPANY IF HE IS, AT ANY TIME DURING THE PREVIOUS YEAR IS BENEFICIALL Y ENTITLED TO NOT LESS THAN 20% OF THE INCOME OF SUCH CONCERN. IN CA SE THE CONCERN IS A COMPANY THE PERSON IS DEEMED TO HAVE SUBSTANTI AL INTEREST IF HOLDING NOT LESS THAN 10% OF THE VOTING POWER IN TH E COMPANY. THE FACTS OF THE INSTANT CASE CLEARLY SPELLS OUT THAT T HE ASSESSEE CASE FALLS UNDER THE SECOND LIMB OF SECTION 2(22)(E) OF THE ACT AS THERE IS A COMMON SHAREHOLDERS AMONGST ALL THE FOUR COMPANIE S HAVING SUBSTANTIAL INTEREST AND VOTING POWER OF MORE THAN 10%. IN THE THREE LENDER COMPANIES SHRI PUNYAPAL SURANA IS HAVI NG SHARE M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 18 HOLDING AT 23.36%, 39.87% AND 36.90% AS MENTIONED IN PARA 7 OF THIS ORDER. THE CONCERN REFERRED IN SECOND LIMB OF SECTION 2(22)(E) OF THE ACT, IN THIS CASE IS THE ASSESSEE COMPANY WH ERE SHRI PUNYAPAL SURANA IS HAVING SHARE HOLDING OF 23.36% . SINCE ALL THE CONDITIONS NECESSARY FOR TREATING THE DEEMED DIVIDE ND OF THE AMOUNT RECEIVED IN THE HANDS OF CONCERN (WHICH IN T HIS CASE IS THE ASSESSEE) FROM OTHER COMPANIES (THREE LENDER COMPAN IES) STANDS FULFILLED, IN OUR CONSIDERED VIEW LD. A.O HAS RIGHT LY INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND MADE ADDITION FOR DEEMED DIVIDEND. HOWEVER THE ADDITION FOR DEEMED D IVIDEND SHOULD HAVE BEEN MADE AT RS.2,19,74,818/- AS AGAINST THE A DDITION OF RS.2,20, 87,842/- MADE BY THE LD. A.O AS THE ADDITI ON FOR DEEMED DIVIDEND CANNOT EXCEED THE ACCUMULATED PROFITS OF T HE LENDER COMPANY AS APPEARING IN THE BOOKS BEFORE GIVING SUC H LOAN AND ADVANCE. WE THUS SET ASIDE THE FINDING OF LD. CIT( A), CONFIRM THE ADDITION U/S 2(22)(E) OF THE ACT AT RS.2,19,74,818/ - AND PARTLY ALLOW REVENUES APPEAL GROUND NO.1. M/S RYDER TRANS INTERNATIONAL PVT.LTD ITA NO.720/IND/2019 19 19. GROUND NO.2 IS GENERAL IN NATURE WHICH NEEDS NO ADJUDICATION. 20. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY A LLOWED. THE ORDER PRONOUNCED AS PER RULE 34 OF ITAT RULES, 1963 ON 30.04.2021. SD/- SD/- (MADHUMITA ROY) (MA NISH BORAD) JUDICIAL MEMBER ACCOUNTAN T MEMBER / DATED : 30 TH APRIL, 2021 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT.REGISTRAR, I.T.A.T., INDORE