DCIT, V. Sri. Tobby Simon,

ITA 916/BANG/2013

• Counselvise Citation: 91621114 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR J SHRI S PARTHASARA
• Keywords: Capital asset; Business expenditure; Deemed dividend
• Section: 143(3)

Judgement Text

ITA NO.916/BANG/2013 (ASSESSMENT YEAR: 2009 - 10) DEPUTY COMMISSIONER O F INCOME - TAX, CIRCLE 12(3), BANGALORE. VS. APPELLANT SHRI TOBBY SIMON, 1 ST FLOOR, EMBASSY DIMANTE, 34, VITTAL MALLYA ROAD, BANGALORE - 560001. RESPONDENT PAN:AAOPS8164P APPELLANT BY: SHRI P.DHIVAHAR, JCIT(DR). RESPO NDENT BY: SHRI S.PARTHASARATHI, ADVOCATE. DATE OF HEARING : 15/04/2015 DATE OF PRONOUNCEMENT: 17 /04/2015 O R D E R PER SMT. P.MADHAVI DEVI, JM: THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) III, BANGALORE, DATED 20/03/20 13 DELETING THE ADDITION MADE BY THE ASSESSING OFFICER (AO) U/S 2(22)(E) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] FOR THE ASSESSMENT YEAR 209 - 10. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, FILED HIS RETURN OF INCOME ON 29/9/2009 WHICH WAS IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO S . 916/BANG/2013 SHRI TOBBY SIMON. PAGE 2 OF 8 SUBSEQUENTLY REVISED ON 9/12/2009 DECLARING AN INCOME OF RS.61,18,311/ - . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS DRAWN A LOAN/ADVANCE OF RS.1,53,42,534/ - FR OM M/S.SYNERGIA CONSULTANT PVT. LTD., WHEREIN HE IS A DIRECTOR HOLDING 50% SHARES. HE ALSO OBSERVED THAT THE ASSESSEE - COMPANY HAS ACCUMULATED PROFIT OF RS.22,66,96,403/ - DURING THE YEAR. THEREFORE, HE OBSERVED THAT THE PROVISIONS OF SEC.2(22)(E) OF THE A CT ARE ATTRACTED AND THE ADVANCES RECEIVED FROM THE COMPANY HAVE TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. IN VIEW OF THE SAME, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO WHICH THE ASSESSEE, VIDE LETTER DATED 27/9/2011 STATED T HAT THE AMOUNTS WERE ADVANCED BY THE ASSESSEE TO THE COMPANY M/S.SYNERGIA CONSULTANT PVT. LTD., DURING THE YEAR FOR VARIOUS BUSINESS PURPOSES LIKE PAYMENT OF SALARY, STATUTORY PAYMENTS ETC., AND IN TURN , M/S.SYNERGIA CONSULTANT PVT. LTD., HAD DEBITED HIS A CCOUNT FOR HIS EXPENSES ON THE CREDIT CARD WHICH WAS UTILIZED FOR BOTH THE COMPANY AND THE PROPRIETORSHIP CONCERN. IT WAS STATED THAT THE PAYMENTS WERE APPORTIONED TO THE RESPECTIVE ACCOUNTS . IT WAS SUBMITTED THAT DURING THE RELEVANT FINANCIAL YEAR, THE T RANSFER OF FUNDS HAS BEEN DONE FROM AND TO BOTH THE ENTITIES FOR SHORT TERM BUSINESS REQUIREMENT S AND THEREFORE THE TRANSACTIONS DO NOT CO M E UNDER THE PURVIEW OF SEC.2(22)(E) OF THE ACT. THE AO WAS, HOWEVER, NOT CONVINCED BY THE ASSESSEE S CONTENTION AND HELD THAT IN THE ACCOUNT OF THE ASSESSEE IN THE BOO KS OF THE COMPANY ITA NO S . 916/BANG/2013 SHRI TOBBY SIMON. PAGE 3 OF 8 ALWAYS SHOWED DEBIT BALANCE WHICH WOULD AMOUNT TO LOAN OR ADVANCE BY THE COMPANY TO THE ASSESSEE. THEREFORE, HE BROUGHT IT TO TAX U/S 2(22)(E) OF THE ACT. 3. AGGRIEVED, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A) , WHO DELETED THE ADDITION BY HOLDING THAT THE ACCOUNT OF THE COMPANY BEGAN WITH A DEBIT BALANCE AND ENDED WITH A CREDIT BALANCE ON NUMEROUS TRANSACTIONS IN BETWEEN, INDICATING CLEARLY THAT IT IS IN THE NATURE OF A RUNNI NG ACCOUNT FOR BUSINESS PURPOSES AND THEREFORE THE PROVISIONS OF SEC.2(22)(E) ARE NOT APPLICABLE TO THE ASSESSEE S CASE. AGAINST THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE, WHILE SUPPORTI NG THE ORDER OF THE AO SUBMITTED THAT THE ACCOUONT OF THE ASSESSEE IN THE BOOKS OF ACCOUNT ALSO SHOWED THAT THE LOANS OR ADVANCES WERE TOWARDS PERSONAL EXPENSES OF THE ASSESSEE. THEREFORE, ACCORDING TO HIM, THE CIT(A) HAS FAILED TO APPRECIATE THAT ALL THE PAYMENTS MADE BY THE ASSESSEE THROUGH HIS CREDIT CARD WERE NOT TOWARDS THE BUSINESS EXPENSES OF THE COMPANY. THUS, ACCORDING TO HIM, THE CIT(A) HAS ERRED IN GRANTING RELIEF TO THE ASSESSEE THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUPPO RTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE LEDGER ACCOUNT OF THE ASSESSEE IN THE COMPANY WAS A RUNNING ACCOUNT AND THE CIT(A) HAS RIGHTLY APPRECIATED THAT THE ASSESSEE WAS MAKING PAYMENTS ON BEHALF OF THE COMPANY WHICH WAS BEING REIMBURSED TO HIM AND THEREFORE THE EXPENDITURE WAS CLEARLY IN ITA NO S . 916/BANG/2013 SHRI TOBBY SIMON. PAGE 4 OF 8 THE NATURE OF BUSINESS EXPENDITURE FOR THE PURPOSE OF BUSINESS OF THE COMPANY AND THE ASSESSEE HAS NOT GAINED ANY PERSONAL BENEFIT OUT OF THE SAME. FURTHER HE PLACED RELIANCE UPON THE JUDGMENT OF THE HON BLE KA RNATAKA HIGH COURT IN THE CASE OF M/S.BAGMANE CONSTRUCTIONS PVT. LTD. VS. CIT & OTHERS (ITA NO.473/2013 ETC. DATED 16/09/2014) FOR TH E PROPOSITION THAT THE PROVISIONS OF SEC.2(22)(E) WOULD APPLY ONLY TO GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOS E CLA S SES OF SHAREHOLDERS BUT NOT TO CASES WHERE THE LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY . COPY OF THE SAID ORDER IS FILED BEFORE US. 5. HAVING REGARD TO TH E RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS A DIRECTOR AND ALSO A 50% SHAREHOLDER OF THE COMPANY M/ S.SYNERGIA CONSULTANT PVT. LTD. IT IS ALSO NOT IN DISPUTE THAT THERE W ERE DEBIT AND CREDIT EN TRIES IN THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF ACCOUNT OF THE COMPANY. THE ASSESSEE S CONTENTION THAT THE ASSESSEE HAS MADE PAYMENTS ON BEHALF OF THE COMPANY USING HIS CREDIT CARD WHICH HAVE BEEN REIMBURSED BY THE COMPANY BY CREDIT ENTRIES IN HIS LEDGER ACCOUNT HAS NOT BEEN REBUTTED BY THE REVENUE. WE FIND THAT THE CIT(A) HAS PROPERLY APPRECIATED THE FACTS TO HOLD THAT THE PAYMENTS MADE BY THE ASSESSEE WERE FOR THE BUSINESS PURPOSE S OF THE COMPANY WHICH HAS BEEN REIMBURSED TO THE ASSESSEE AND THEREFORE SUCH ITA NO S . 916/BANG/2013 SHRI TOBBY SIMON. PAGE 5 OF 8 PAYMENTS CANNOT BE CONSIDERED AS LOANS OR ADVANCES U/S 2(22)(E) OF THE ACT. THIS IS SO HELD IN THE JUDGMENT OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF M/S.BAGMANE CONSTRUCTIONS PVT. LTD. (CITED SUPRA) . THE RELEVANT PARA GRAPHS A RE R EPRODUCED HEREUNDER FOR READY REFERENCE: 27. IN THIS BACKGROUND WHEN WE LOOK AT THE AFORESAID PROVISION, IT IS CLEAR THAT ANY PAYMENT MADE BY A COMPANY BY WAY OF ADVANCE OR LOAN HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE OBJECT WITH WHICH THE SAID PROVIS ION IS INTRODUCED. THOUGH THE LEGISLATURE HAS INTRODUCED ADVANCE AS WELL AS LOAN WHICH AE TWO DIFFERENT WORDS, THE MEANING OF EACH OF THOSE WORDS HAVE TO BE UNDERSTOOD IN THE CONTEXT IN WHICH THEY ARE USED. EACH WORD TAKES ITS COLOUR FROM THE OTHER. THE MEANING OF THE WORD ADVANCE IS TO BE UNDERSTOOD BY THE MEANING OF THE WORD LOAN WHICH IS USED IMMEDIATELY THEREAFTER. ASSOCIATED WORDS TAKE THEIR MEANING FROM ONE ANOTHER UNDER THE DOCTRINE OF NOSCUNTUR A SOCIIS , THE PHILOSOPHY OF WHICH IS THAT THE MEANING OF A DOUBTFUL WORD MAYH ;BE ASCERTAINED BY REFERENCE TO THE MEANING OF WORDS ASSOCIATED WITH IT. THIS RULE, ACCORDING TO MAXWELL, MEANS THAT, WHEN TWO OR MORE WORDS WHICH ARE SUSCEPTIBLE OF ANALOGUS MEANING ARE COUPLED TOGETHER THEY ARE UNDERSTOOD TO BE USED IN THEIR COGNATE SENSE. THEY TAKE AS IT WERE THEIR COLOUR FROM EACH OTHER, THAT IS, THE MORE GENERAL IS RESTRICTED TO A SENSE ANALOGUS TO A LESS GENERAL. IN THE CASE OF A LOAN, MONEY IS ADVANCED GENERALLY ON PAYMENT OF INTEREST. IN OTHER WOR DS THE LOAN ADVANCED HAS TO BE REPAID WITH INTEREST. IN THE CASE OF AN ADVANCE ALSO, THE ELEMENT OF REPAYMENT OF THERE BUT SUCH A REPAYMENT MAY BE WITH INTEREST OR WITHOUT INTEREST. THEREFORE, WHEN THE SAID TWO WORDS ARE USED IN THE AFORESAID PROVISION W ITH THE PURPOSE OF LEVYING TAX, IF THE INTENTION OF SUCH ADVANCE OR LOAN IS TO AVOID PAYMENT OF DIVIDEND DISTRIBUTION OF TAX UNDER SECTION 115 - O OF THE ACT, SUCH A PAYMENT BY A COMPANY CERTAINLY CONSTITUTES A DEEMED DIVIDEND. BUT IF SUCH A PAYMENT IS MADE FIRSTLY NOT OUT OF ACCUMULATED PROFITS AND SECONDLY EVEN IF IT IS OUT OF ACCUMULATED PROFITS, BUT AS TRADE ADVANCE AS A CONSIDERATION; FOR THE GOODS RECEIVED OR FOR PURCHASE OF A CAPITAL ASSET WHICH INDIRECTLY WOULD BENEFIT THE COMPANY ADVANCING THE LOAN, SUCH ADVANCE CANNOT BE BROUGHT WITHIN THE WORD ADVANCE USED IN THE AFORESAID PROVISION. THE TRADE ADVANCE WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO COMMERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 28. IN THIS CONTEXT, IT IS USEFUL TO REFER TO THE JUDGMENT OF THE APEX COURT IN THE CASE OF LIC OF INDIA VS. RETIRED LIC ITA NO S . 916/BANG/2013 SHRI TOBBY SIMON. PAGE 6 OF 8 OFFICERS ASSOCIATION(2008(3)SCC 321) WHERE IT WAS HELD THAT EACH WORD EMPLOYED IN A STATUTE MUST TAKE COLOUR F ROM THE PURPOSE AND THE OBJECT FOR WHICH IT IS USED. PRINCIPLE OF PURPOSIVE INTERPRETATION SHOULD BE TAKEN RECOURSE TO. IF A LITERAL INTERPRETATION IS GIVEN TO THE SAID WORDS, IT MEANS ALL TRADE ADVANCES ARE TO BE TAXED AS DEEMED DIVIDEND. IF SUCH AN IN TERPRETATION IS PLACED, IT WOULD LEAD TO ABSURDITY. THAT WAS NOT THE INTENTION OF THE LEGISLATURE IN ENACTING THE AFORESAID PROVISION. EVEN IF THE ACCUMULATED PROFIT WHICH OUGHT TO HAVE BEEN PAID TO THE SHAREHOLDERS AS THE DIVIDEND PAID TO A SISTER CONCE RN FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS OR AS A CONSIDERATION FOR THE GOODS RECEIVED WHICH IS REQUIRED FOR CARRYING ON THE BUSINESS, IT WOULD NOT FALL WITHIN THE DEFINITION OF SECTION 2(22)(E) OF THE ACT AS THE OBJECT WAS NOT TO PAY THE SAID AM OUNT TO THE SHAREHOLDERS AFTER AVOIDING PAYMENT OF DIVIDEND DISTRIBUTION TAX UNDER SECTION 115 - O OF THE ACT. IN THAT VIEW OF THE MATTER, IT IS NOT POSSIBLE TO ACCEPT THE INTERPRETATION SOUGHT TO BE PLACED BY THE REVENUE. 29. THE LEARNED COUNSEL FOR TH E REVENUE POINTED OUT CLAUSE (II) OF SECTION 2(22)(E) WHICH EXPRESSLY PROVIDES THAT ANY PAYMENT BY A COMPANY BY WAY OF ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE CONCERN IN THE ORDINARY COURSE OF BUSINESS WHERE THE LENDING OF MONEY IS A SUBSTANTIAL P ART OF THE BUSINESS OF THE COMPANY AND IF THE CASE OF THE ASSESSEE DOES NOT FALL UNDER THE SAID PROVISION, THE SAID ADVANCE CONSTITUTES DIVIDEND. THE QUESTION OF LOOKING INTO THE AFORESAID PROVISION WOULD ARISE ONLY WHEN ALL THE CONDITIONS PRESCRIBED IN C LAUSE (E) OF SUB - SECTION (2) OF SECTION 22 ARE COMPLIED WITH. IF A PAYMENT IS MADE BY WAY OF TRADE OR BUSINESS, ADVANCE OR LOAN, CLAUSE (E) OF SUB - SECTION (2) OF SECTION 22 OF THE ACT IS NOT AT ALL ATTRACTED AND THE QUESTION OF APPLYING THE AFORESAID CLAU SE (II) WOULD NOT ARISE AND THEREFORE, WE DO NOT SEE ANY SUBSTANCE IN THE SAID CONTENTION. 30. IT WAS ALSO CONTENDED ON BEHALF OF THE REVENUE THAT HAVING REGARD TO THE PLAIN WORDS USED IN CLAUSE (E) TO ANY CONCERN , WHEN THE AMOUNT IS PAID OR WHEN ANY P AYMENT IS MADE TO A CONCERN, THE TAX IS LEVIED ON THE CONCERN AND NOT ON THE SHAREHOLDERS. AS FAR AS THIS QUESTION IS CONCERNED, THIS COURT FOLLOWING THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. UNIVERSAL MEDICARE (P ) LIMITED REPORTED IN 324 ITR 263 HAS CATEGORICALLY HELD THAT WHEN ANY PAYMENT IS MADE BY A COMPANY TO ANY CONCERN, WHICH FALLS UNDER CLAUSE (E), THE TAX IS LEVIABLE ON THE SHAREHOLDER ONLY AND NOT ON THE CONCERN. WE RESPECTFULLY AGREE WITH THE AFORESAID JUDGMENT AND WE DO NOT SEE ANY JUSTIFICATION TO TAKE ANOTHER VIEW OF THIS MATTER. THEREFORE, THE FINDING RECORDED BY THE TRIBUNAL THAT, THESE ADVANCES MADE BY THE BDPL TO THE SISTER CONCERN AS WELL AS TO ITS SHAREHOLDERS DO NOT CONSTITUTE DEEMED DIVIDEND UNDER ITA NO S . 916/BANG/2013 SHRI TOBBY SIMON. PAGE 7 OF 8 SECTION 2(22)(E) OF THE ACT, IS LEGAL AND VALID AND DO NOT CALL FOR ANY INTERFERENCE. 6. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT, WE AGREE WITH THE FINDINGS OF THE CIT(A) THAT THE PAYMENTS MADE BY THE ASSESSEE ON BEHALF OF THE COMPANY, FOR ITS BUSINESS PURPOSE S AND THE REIMBURSEMENT THEREOF TO THE ASSESSEE BY THE SAID COMPANY CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. HOWEVER, IT IS SEEN FROM THE PAPER BOOK FILED BY THE ASSESSEE THAT SOME OF THE PAY MENTS USING HIS CREDI T CARD WERE ALSO TOWARDS HIS PERSONAL EXPENDITURE. SUCH PAYMENTS FOR PERSONAL EXPENDITURE , IF REIMBURSED BY THE COMPANY, HAVE TO BE TREATED AS LOANS OR ADVANCES U/S 2(22)(E) OF THE ACT. THEREFORE, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE AO ONLY FOR VERIFICATION OF THE PERSONAL EXPENDITURE REIMBURSED BY THE COMPANY TO THE ASSESSEE AND TREAT ONLY SUCH EXPENDITURE OUT OF THE ACCUMULATED PROFITS OF THE ASSESSEE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 7. IN THE RESULT, THE RE VENUE S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 17 TH APRIL, 2015. S D/ - S D/ - (PRAMOD KUMAR) (SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU ITA NO S . 916/BANG/2013 SHRI TOBBY SIMON. PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE