ALFA SAI MINERALS P. LTD, MUMBAI V. ITO 2(1)(1), MUMBAI

ITA 8588/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3555 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-06-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 09-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . .. . . . . . , ,, , !'# !'# !'# !'# $ $ $ $ %$$ $& %$$ $& %$$ $& %$$ $&, ,, , ' !'# ' !'# ' !'# ' !'# !( !( !( !( BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA , JM !./ I.T.A. NO. 8587/MUM/2010 ( '* & $+& '* & $+& '* & $+& '* & $+& / / / / ASSESSMENT YEAR : 2002-03) !./ I.T.A. NO. 8588/MUM/2010 ( '* & $+& '* & $+& '* & $+& '* & $+& / / / / ASSESSMENT YEAR : 2003-04) !./ I.T.A. NO. 8589/MUM/2010 ( '* & $+& '* & $+& '* & $+& '* & $+& / / / / ASSESSMENT YEAR : 2004-05) M/S ALFA SA I MINERALS PVT. LTD. 5, GROUND FLOOR, VAMA CHAMBERS, HOMJI STREET, FORT, MUMBAI-400001 * * * * / VS. INCOME - TAX OFFICER WARD-2(1)(1), MUMBAI.-400020 #, ! ./ PAN : AACCA7176L ( ,- / // / APPELLANT ) .. ( ./,- / RESPONDENT ) ,- 0 1 ! / APPELLANT BY : SRI AJAY SINGH ./,- 0 1 ! / RESPONDENT BY : SHRI MANOJ KUMAR ! *$ 0 / // / DATE OF HEARING : 06-06-2013 23+ 0 / DATE OF PRONOUNCEMENT : 21.06.2013 '4 / O R D E R PER P.M. JAGTAP, A.M . .. , !'# : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THREE SEPARATE ORDERS OF LD. CIT(A) 4/MUMBAI ALL DATED 19 /10/2010 FOR THE ASSESSMENT YEARS 2002-03, 2003-04, 2004-05 AND SINC E THE ISSUES INVOLVED 2 THEREIN ARE COMMON, THE SAME HAVE BEEN HEARD TOGETH ER AND ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE MAIN COMMON ISSUE INVOLVED IN THESE APPEALS RELATES TO THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CI T(A) ON ACCOUNT OF THE AMOUNT RECEIVED BY THE ASSESSEE FROM M/S ALFA D ISTILLERIES PVT. LTD. AND/OR M/S. VULCAN DISTILLERIES PVT. LTD. TREATING THE SAME AS DEEMED DIVIDEND U/S-2(22)(E) OF THE ACT. 3. THE ASSESSEE IN THE PRESENT CASE IN THE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF PROCESSING OF IRON ORE. DURING THE YEARS UNDER CONSIDERATION, IT HAD RECEIVED CERTAIN AMOUNTS AS L OANS/DEPOSITS FROM MS. ALFA DISTILLERIES PVT. LTD. AND/OR MS. VULCAN DISTI LLERIES PVT. LTD. AGGREGATING TO RS. 50,000/-, RS.9,25,000/- AND 19, 58,000/- IN A.Y. 2002- 03, 2003-04, 2004-05 RESPECTIVELY. SINCE ONE OF TH E DIRECTORS OF THE ASSESSEE-COMPANY NAMELY CAPT. PRAMOD SALVI WAS HAVI NG SUBSTANTIAL INTEREST IN THE SAID TWO COMPANIES AND THERE WERE A DEQUATE PROFITS AVAILABLE OF THE SAID COMPANIES AT THE RELEVANT TIME, THE AO INVOKED THE PROVISION OF SECTION 2(22)(E) AND ADDED THE AMOUNT OF LOANS OR D EPOSITS TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEARS UNDER CONSIDER ATION TREATING THE SAME AS DEEMED DIVIDEND. THE LD. CIT(A) CONFIRMED THE S AID ADDITION MADE BY THE AO DISMISSING THE APPEALS OF THE ASSESSEE VIDE HIS IMPUGNED ORDERS PASSED EX-PARTE. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSE RVED THAT A SIMILAR ISSUE WAS INVOLVED IN THE CASE OF THE ASSES SEE FOR A.Y. 2006-07 AND THE ADDITION MADE ON ACCOUNT OF THE LOA NS/DEPOSITS RECEIVED FROM M/S ALFA DISTILLERIES PVT. LTD. AND/OR M/S. VULCAN DISTILLERIES PVT. LTD. TREATING THE SAME AS DEEMED DIVIDEND U/S-2(22)(E) WAS DELETED BY THE TRIBUNAL FOR THE FOLLOWING REASONS G IVEN IN PARAGRAPH NO. 4 TO 6 OF ITS ORDER DATED. 8 TH APRIL 2010 PASSED IN ITA NO. 2974/MUM/2010,. 3 4. WE HAVE HEARD THE LD. D.R. NONE WAS PRESENT FOR THE ASSESSEE. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN OUR OPINION, THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) HAS TO BE DELETED AS PRESENT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND ALSO BY THE DECISION OF THE HONBLE SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF BHAUMIK COLOURS P. LT D. 313 ITR (AT) 46 (MUM) (SB). IN THE CASE OF BHAUMIK COLOURS P. LTD. (SUPRA) IT IS HELD AS UNDER:- 44. THE DEFINITION OF DIVIDEND UNDER SECTION 2(22)(E) O F THE ACT IS AN INCLUSIVE DEFINITION. SUCH INCLUSIVE DEFINITION ENLARGES THE MEANING OF THE TERM DIVIDEND ACCORDING TO ITS ORDINARY ARID NATURAL MEANING. THE ORDINARY AND NATURAL MEANING OF THE TERM DIVIDEND W OULD BE A SHARE IN PROFITS TO AN INVESTOR IN THE SHARE CAPITAL OF LIMI TED COMPANY. TO THE EXTENT THE MEANING OF THE WORD DIVIDEND IS EXTENDED TO LOANS AND ADV ANCES TO A SHAREHOLDER OR TO A CONCERN IN WHICH A SHAREHOLDER IS SUBSTANTIALLY INTERESTED DEEMING THEM AS DIVIDEND IN THE HANDS OF A SHAREHOL DER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVIDEND IS ALTERED. TO THIS EXTENT THE DEFINITION OF THE TERM DIVIDEND CAN BE SAID TO OPERATE. IF THE DEFI NITION OF DIVIDEND IS EXTENDED TO A LOAN OR ADVANCE TO A NON- SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVIDEND IS TAKEN AWAY. IN THE LIGHT OF THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22)(E) TO EXTEND THE LE GAL FICTION TO A CASE OF LOAN OR ADVANCE TO A NON-SHAREHOLDER ALSO, WE ARE OF THE VI EW THAT LOAN OR ADVANCE TO A NON-SHAREHOLDER CANNOT BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE A NON- SHAREHOLDER. 45. THE BASIC CHARACTERISTIC OF DIVIDEND AS HELD BY THE APEX COURT IN THE CASE OF KANTILAL MANUAL V. CIT 11961] 41 ITR 275 IS A SHARE OF PROFITS OF THE COMP ANY GIVEN TO ITS PAYMENT OF DIVIDEND TO ANY PERSON OTHE R THAN THE REGISTERED SHAREHOLDER. IF ONE WERE TO BREAKUP THE NATURAL MEA NING THE FOLLOWING COMPONENTS EMERGE (A) DIVIDEND IS A SHARE OF PROFIT S OF THE COMPANY (B) PAID TO ITS SHAREHOLDERS. SECTION 2(22) OF THE ACT ARTFICIA LLY EXTENDS THE SCOPE OF DIVIDEND FROM BEING MORE THAN ONLY A DISTRIBUTION OF PROFITS TO COVER CERTAIN OTHER TYPES DISBURSEMENTS SUCH AS LOANS PAID, ETC. (THE FIRST I NGREDIENT MENTIONED ABOVE). FT DOES NOT HOWEVER ALTER THE SECOND COMPONENT OF ITS NATURAL MEANING, VIZ., PAID TO ITS SHAREHOLDER. IN OTHER WORDS ALL THAT SECTION 2( 22) SEEKS TO DO IS TO EXPAND THE VARIOUS TYPES PAYMENTS THAT MAY BE REGARDED AS DIVI DEND. THE APEX COURT WHILE CONSIDERING WHAT CAN COME WITHIN THE ARTIFICIAL DEF INITION OF DIVIDEND UNDER SECTION 2(22) IN THE CASE OF CIT V. NALIN BEHARI LA LL SINGHA [1969) 74 ITR 849 (SC) DESCRIBED THE SCOPE OF THE DEFINITION OF DIVID END THUS (PAGE 851 OF 74 ITR): THE DEFINITION IS, IT IS TRUE, AN INCLUSIVE DEFINI TION AND A RECEIPT BY A SHAREHOLDER WHICH DOES NOT FALL WITHIN THE DEFINITI ON MAY POSSIBLY BE REGARDED AS DIVIDEND WITHIN THE MEANING OF THE ACT UNLESS THE C ONTEXT NEGATIVES THAT VIEW. 5. THE DECISION OF HONBLE SPECIAL BENCH IN THE CASE O F BHAUMIK COLOURS P. LTD. (SUPRA) HAS BEEN AFFIRMED BY THE HO NBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P ) LTD. 324 ITR 263 AND THE OPERATIVE PART OF THE SAID DECISION IS AS U NDER: 4 9 HOWEVER, EVEN ON THE SECOND ASPECT WHICH HAS WEIGHE D WITH THE TRIBUNAL, WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEE N PLACED ON THE PROVISIONS OF SEC. 2(22) (E) IS CORRECT. SEC. 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION DIVIDEND. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECEIPT OF THE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF S.2(22) IS TO PROVIDE AN INCLUSIVE DEFINITION OF EXPRESSION DIVIDEND. CLA USE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLA USE (E) OF S. 2(22) INCLUDES A P MADE BY THE COMPANY IN WHICH THE PUBLIC IS NOT SU BSTANTIALLY INTERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CO NCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILLMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREATED BY CI. (E) TO BE INCLUDED IN THE EXPRESSION DIVIDENDBY INCLU DING CERTAIN PAYMENTS WHICH THE COMPANY HAS MA BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEH ALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT A LTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREH OLDER. CONSEQUENTLY, IN THE PRESENT CASE, THE PAYMENT, EVEN ASSUMING THAT IT WA S A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS, IN THE CIRCUMSTANCES , JUSTIFIED IN COMING TO THE CONCLUSION THAT, IN ANY EVENT, THE PAYMENT C OULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE TH AT THE BASIS ON WHICH THE ASSESSEE IS SOUGHT TO BE TAXED IN THE PRESENT C ASE IN RESPECT OF THE AMOUNT OF RS 32,00,000 IS THAT THERE WAS A DIVIDEND UNDER S. 2(22)(E) AND NO OTHER BASIS HAS BEEN SUGGESTED IN THE ORDER OF T HE AO. 6. IN THE PRESENT CASE, NOWHERE IT IS A CASE OF THE A. O. THAT THE ASSESSEE-COMPANY IS A SHAREHOLDER OF M/S. ALFA DISTILLERIES P. LTD. OR M/S. VULCAN DISTILLERIES P. LTD. AND AS THE ASSESSEE IS NOT THE SHAREHOLDER OF THOSE COMPANIES, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE TREATING T HE ADVANCES / LOANS BORROWED BY THE ASSESSEE COMPANY FROM THOSE TWO COMPANIES. THE LD. CIT (A) TRIED TO DISTINGUISH THE CASE OF THE ASSESSEE WITH THAT OF B HAUMIK COLOURS P. LTD. (SUPRA). WE MAY NOTE HERE THAT JUDICIAL DISCIPLINE REQUIRE T HAT ALL AUTHORITIES BELOW SHOULD FOLLOW THE RATIO AND PRINCIPLES LAID DOWN BY THE HI GHER COURTS AND TRIBUNAL IN JUDICIAL SPIRIT. WE, THEREFORE, DELETE THE ADDITION MADE BY THE A.O. IN ENTIRETY AND ALLOW GROUNDS TAKEN BY THE ASSESSEE. 5. IT IS ALSO NOTED THAT THE ORDER OF THE TRIBUNAL FOR A.Y. 2006-07 (SUPRA) HAS BEEN FOLLOWED BY THE LD. CIT(A) TO DECIDE A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE IN A.Y. 2005-06 AND THE SAME HAS BEEN UPH ELD BY THE TRIBUNAL VIDE ITS ORDER DATED 3 RD MAY 2013 PASSED IN ITA NO.7697/MUM/2011. SINCE TH E ISSUE INVOLVED IN THE YEARS UNDER CONSIDERATION AS WELL A S ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF A.Y. 2005-06 AND 200 6-07, WE RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUN AL FOR A.Y. 2005-06 AND 2006- 5 07 AND DELETE THE ADDITION MADE BY THE ASSESSING OF FICER U/S-2(22)(E) AND CONFIRMED BY THE LD. CIT(A) IN THE YEARS UNDER CONS IDERATION. 6. AS A RESULT OF OUR DECISION RENDERED ABOVE DELET ING THE ADDITIONS MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DEEM ED DIVIDEND U/S-2(22)(E) IN ALL THE THREE YEARS CONSIDERATION THE OTHER ISSUES RAIS ED BY THE ASSESSEE IN THESE APPEALS CHALLENGING THE VALIDITY OF THE RE-ASSESSME NT MADE BY THE ASSESSING OFFICER AS WELL AS THE EX-PARTE ORDERS PASSED BY TH E LD. CIT(A) HAVE BECOME ONLY ACADEMIC AND WE DO NOT CONSIDER IT NECESSARY OR EX PEDIENT TO DECIDE THE SAME. 7. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE A LLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 2 1 ST JUNE.2013 '4 0 23+ 5'*6 21 ST JUNE.2013 3 0 SD/- SD/- ( VIVEK VARMA ) (P.M. JAGTA P ) ' !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 5'* DATED 21.06.2013 '*.!./ S.S.K , PS '4 0 .'7% 8 '4 0 .'7% 8 '4 0 .'7% 8 '4 0 .'7% 8%+ %+%+ %+/ COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 9 ( ) / THE CIT (A) - , MUMBAI 4. 9 /CIT MUMBAI 5. %$< .''* , , / DR, ITAT, MUMBAI BENCH 6. =& > / GUARD FILE. '4* ! '4* ! '4* ! '4* ! / BY ORDER, !/% .' //TRUE COPY// ? ?? ?/ // /!@ !@ !@ !@ ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI