ITO, New Delhi V. Vipul Auto Mobiles Pvt. Ltd., New Delhi

ITA 89/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3665 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 14-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: RAJESH ARORA
• Keywords: Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 89(DEL)2011 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER, M/S. VIPUL AUT OMOBILES PVT. LTD., WARD 17(3), NEW DELHI. V. B-412-414 ANSAL CHA MBERS, BHIKAJI CAMA PALACE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: MS. MONA MOHANTY, DR RESPONDENT BY: SHRI RAJESH ARORA, CA ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2007-08, FILED AGAINST THE ORDER DATED 7.10.2010 PASSED BY THE LD. CIT(A), DELETING THE DISALLOWANCE OF ` 86,50,085/-, IMPOSED U/S 2(22)(E) OF THE I.T. ACT. 2. THE FACTS ARE THAT THE ASSESSEE COMPANY WAS INCO RPORATED DURING THE FINANCIAL YEAR 2005-06. IT IS RELATED TO M/S. VIPU L MOTORS (P)LTD. IT WAS OFFERED DEALERSHIP AND DISTRIBUTORSHIP OF TWO WHEEL ERS OF SUZUKI MOTOR CYCLES PRIVATE LIMITED. IT RECEIVED ` 86,50,085/- FROM M/S. VIPUL MOTORS ITA 89(DEL)2011 2 (P)LTD. DURING THE FINANCIAL YEAR 2006-07, RELEVANT TO ASSESSMENT YEAR 2007- 08, I.E., THE YEAR UNDER CONSIDERATION. IN THE ASS ESSMENT PROCEEDINGS, THE AO OBSERVED THAT SHRI VINIT BERIWALA WAS A SUBSTANTIAL SHAREHOLDER OF THE ASSESSEE COMPANY AS WELL AS THAT OF M/S. VIPUL MOTO RS (P)LTD., WHICH HAD LENT THE MONEY TO THE ASSESSEE. THE AO OBSERVED T HAT THE MONEY RECEIVED BY THE ASSESSEE COMPANY WAS LIABLE TO BE TAXED AS D EEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. FOLLOWING THE ASSESSMEN T ORDER FOR ASSESSMENT YEAR 2006-07, THE AO MADE THE ADDITION. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION. 4. THIS BRINGS THE DEPARTMENT IN APPEAL BEFORE US. 5. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS C ONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 86,50,085/- MADE U/S 2(22)(E) OF THE ACT; THAT WHILE DOING SO, THE LD. CIT(A) HAS ERRED IN OBSERVING THAT THE PROVISIONS OF SECTION 2(22)(E) WERE NOT ATTRACT ED, SINCE THE ASSESSEE COMPANY WAS NOT A SHAREHOLDER IN THE LENDER COMPANY , I.E. M/S. VIPUL MOTORS (P)LTD.; AND THAT WHILE DOING SO, THE LD. CI T(A) HAS FAILED TO CONSIDER THAT SHRI VINIT BERIWALA HAD 50% SHAREHOL DING IN THE ASSESSEE COMPANY, AS ALSO A 38.07% SHAREHOLDING IN M/S. VIP UL MOTORS (P)LTD.. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE HAS STRONGLY SUPPORTED THE IMPUGNED ORDER. IT HAS BEEN CONTENDE D THAT THE ISSUE STANDS ITA 89(DEL)2011 3 DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL D ECISION DATED 20.8.2010, IN ITA NO. 3360(DEL)09, IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, ON SIMILAR FACTS; THAT THE SAID TRIBUNAL O RDER HAS SINCE BEEN UPHELD BY THE HONBLE HIGH COURT; THAT THE LD. CIT(A) HAS CORRECTLY FOLLOWED THE AFORESAID TRIBUNAL DECISION IN THE ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2006-07. 7. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. WHILE HOLDING IN FAVOUR OF THE ASSESSEE, IN THE ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, THE TRIBUNAL, VIDE ITS ORD ER DATED 20.8.2010 (SUPRA), FOLLOWED THE SPECIAL BENCH MUMBAI DECISION OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR PVT. LTD., 120 TTJ (MUMBAI )(SB) 865, WHEREIN IT HAS BEEN HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER IN THE LENDER COMPANY A ND NOT IN THE HANDS OF THE BORROWING CONCERN, IN WHICH, SUCH A SHAREHOLDER IS A MEMBER OR PARTNER, HAVING SUBSTANTIAL INTEREST; AND THAT THE EXPRESSIO N SHAREHOLDER IN SECTION 2(22)(E) OF THE I.T. ACT HAS REFERENCE TO A REGISTE RED SHAREHOLDER AND A BENEFICIAL SHAREHOLDER. 8. THE AFORESAID TRIBUNAL DECISION IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2006-07 HAS SINCE BEEN UPHELD BY TH E HONBLE DELHI HIGH ITA 89(DEL)2011 4 COURT VIDE ITS ORDER DATED 12.5.11 IN ITA NO. 714/2 011 (COPY PLACED ON RECORD), DISMISSING THE DEPARTMENTS APPEAL. 9. MOREOVER, IN DCIT V. LAKRA BROTHERS, 106 TTJ 2 50(CHANDI), WHERE THE ASSESSEE FIRM INCURRED CERTAIN EXPENSES ON BEHA LF OF M/S. ARIEL EXPORTS (P)LTD. AND IT WAS HELD THAT THE DEBT/ADVANCE WAS I N THE REGULAR COURSE OF BUSINESS; THAT SECTION 2(22)(E) OF THE ACT SPEAKS O F LOANS AND ADVANCES FOR THE INDIVIDUAL BENEFIT OF SHAREHOLDERS; AND THAT AD VANCES DURING THE COURSE OF BUSINESS FOR BUSINESS EXPERIENCES DO NOT CONSTITUTE LOAN FOR THE PURPOSES OF SECTION 2(22)(E) AND CANNOT BE TAXED AS DEEMED DIVI DEND. 10. FURTHER, IN CIT V. UNIVERSAL MEDICARE PVT. LTD ., 324 ITR 263 (BOM), IT WAS HELD THAT THE EFFECT OF SECTION 2(22) (E) OF THE ACT IS TO BROADEN THE AMBIT OF THE EXPRESSION DIVIDEND, BY INCLUDIN G CERTAIN PAYMENTS WHICH THE COMPANY HAD MADE BY WAY OF LOAN OR ADVANCE OR P AYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF THE SHAR EHOLDER; AND THAT THE DEFINITION DOES NOT ALTER THE LEGAL POSITION THAT T HE DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. 11. IN SSKI INVESTOR SERVICES PVT. LTD. V. DCIT, 34 SOT 412(MUMBAI), IT WAS HELD THAT THE DEEMED DIVIDEND C AN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE L ENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. ITA 89(DEL)2011 5 12. IN CIT V. HOTEL HILLTOP, 313 ITR 616(RAJ), IT WAS HELD THAT DEEMED DIVIDEND CANNOT BE TAXED IN THE HANDS OF THE FIRM, WHICH IS NOT A SHAREHOLDER IN THE LENDER COMPANY; AND THAT THE SUBSTANCE OF DE EMED DIVIDEND U/S 2(22)(E) OF THE ACT IS THAT PAYMENT SHOULD BE MADE ON BEHALF OF, OR FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER. 13. IN CIT V. RAJ KUMAR, 23 DTR (DEL)304, IT WAS HELD THAT THE WORD ADVANCE APPEARING IN THE COMPANY OF THE LOAN IN S ECTION 2(22)(E) OF THE I.T. ACT COULD ONLY MEAN SUCH ADVANCE WHICH CARRIES AN OBLIGATION OF REPAYMENT; AND THAT TRADE ADVANCE WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTI ON DOES NOT FALL WITHIN THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT. 14. IN CIT V. M/S. CREATIVE DYEING & PRINTING PVT. LTD., 229 CTR (DEL)250, THE ASSESSEE WAS AN ANCILLARY UNIT FOR A SISTER CONCERN. BOTH THE COMPANIES HAD COMMON SHAREHOLDERS. A DECISION WAS TAKEN TO MODERNIZE AND EXPAND THE PLANT AND MACHINERY OF THE ASSESSEE COMPANY. ITS SISTER CONCERN GAVE ADVANCES TO THE ASSESSEE COMPANY FOR T HE SAID PURPOSE. IT WAS HELD THAT THE ADVANCE GIVEN FOR COMMERCIAL PURPOSE OF EXPANSION OF BUSINESS CANNOT BE TREATED AS LOAN OR DEEMED DIVIDE ND IN THE HANDS OF THE SHAREHOLDERS OF THE ASSESSEE COMPANY. ITA 89(DEL)2011 6 15. IN CIT V. ANKITECH PVT. LTD., ITA NO. 462 OF 2009 [RELIED ON BY THE HONBLE DELHI HIGH COURT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 (SUPRA)] , IT WAS HELD THAT LOAN OR ADVANCE GIVEN TO A CONCERN WHICH IS NOT A SHAREHOLDER/MEMBER OF THE PAYER COMPANY CA NNOT BE TAXED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT IN THE HAND S OF THE RECIPIENT CONCERN. 16. IN THE PRESENT CASE, FOR ASSESSMENT YEAR 2006-0 7, IT WAS FOUND BY THE TRIBUNAL THAT THOUGH THE ASSESSEE COMPANY WAS IN RE CEIPT OF A LOAN FROM ITS SISTER CONCERN, M/S. VIPUL MOTORS (P)LTD., IT HAD N OT BEEN HOLDING ANY SHARE OF M/S. VIPUL MOTORS (P)LTD.; THAT IT WAS ONLY SHRI VINIT BERIWALA, WHO WAS A SHAREHOLDER OF BOTH THE ASSESSEE COMPANY, AS WELL AS THE LENDER COMPANY; AND THAT SINCE THE ASSESSEE COMPANY WAS NOT A SHARE HOLDER OF THE LENDER COMPANY, THE AMOUNT OF LOAN RECEIVED COULD NOT BE B ROUGHT TO TAX U/S 2(22)(E) OF THE I.T. ACT. 17. THE FACTS AS IN ASSESSMENT YEAR 2006-07 REMAIN UNDISPUTED MUCH THE SAME FOR THE YEAR UNDER CONSIDERATION ALSO. THERE FORE, THE AFORESAID CASE LAWS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSES SEE ARE SQUARELY APPLICABLE. THUS, FOLLOWING THE AFORESAID TRIBUNA L DECISION IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, TH E LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION. ITA 89(DEL)2011 7 18. THEREFORE, FINDING NO MERIT IN THE GRIEVANCE SO UGHT TO BE RAISED BY THE DEPARTMENT, THE SAME IS HEREBY REJECTED. 19. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.06.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22.06.2011. *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR