Indialog Publications Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 990/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4150 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 22-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: K R MANJANI
• Keywords: Deemed to accrue or arise in india; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI C. L. SETHI, JM AND SHRI K. D. RAN JAN, AM I. T. A. NO. 990 (DEL) OF 2011 ASSESSMENT YEAR : 2004-05. INDIALOG PUBLICATIONS PVT. LTD., THE INCOME-TAX OFFICER, O 22, LAJPAT NAGAR II, VS. W A R D : 11 (4), N E W D E L H I 110 024. N E W D E L H I. PAN / GIR NO. AAA CI 7671 J. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI K. R. MANJANI, ADV.; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 04-05 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XI, NEW DELHI. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO SUST AINING THE ADDITION OF RS.8,41,500/- AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE I. T. ACT. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSING OFFICER INITIATED REASSESSMENT P ROCEEDINGS ON THE GROUND THAT THE ASSESSEE COMPANY HAD RECEIVED PAYMENT OF RS.8,48,240/- AS A DVANCE FROM M/S. WEB COMMERCE (INDIA) PVT. LTD. SHRI BASANT PANDEY, DURING THE RELEVANT PREVIOUS YEAR WAS COMMON SHARE HOLDER IN BOTH THE COMPANIES HOLDING 70 PER CENT SHARES IN M/ S. WEB COMMERCE (INDIA) PVT. LTD. AND 69 PER CENT SHARES IN M/S. INDIALOG PUBLICATION PVT. L TD., THE ASSESSEE. M/S. WEB COMMERCE (INDIA) PVT. LTD. HAS ACCUMULATED PROFIT AT RS.3,29,09/223/ -. 3. THE ASSESSING OFFICER NOTED THAT SINCE SHRI BASA NT PANDEY WAS HOLDING MORE THAN 10 PER CENT OF VOTING POWER IN M/S. WEB COMMERCE (INDIA) P VT. LTD. AND MORE THAN 20 PER CENT IN M/S. INDIALOG PUBLICATION PVT. LTD. THE PROVISIONS OF SE CTION 2(22)(E) OF THE ACT WERE CLEARLY ATTRACTED 2 I. T. A. NO. 990 (DEL) OF 2011 IN THE CASE OF M/S. INDIALOG PUBLICATION PVT. LTD. THE AO, THEREFORE, TREATED THE SUM OF RS.8,41,500/- AS DEEMED DIVIDEND UNDER SECTION 2(22 )(E) OF THE ACT. 4. ON APPEAL IT WAS SUBMITTED THAT PROVISIONS OF S ECTION 2(22)(E) WERE NOT ATTRACTED IN THE CASE OF THE ASSESSEE. SHRI BASANT PANDEY WAS COMMO N DIRECTOR. BUT M/S. INDIA PUBLICATIONS PVT. LTD. WAS NOT A SHARE HOLDER OF M/S. WEB COMMER CE (INDIA) PVT. LTD. SINCE THE ASSESSEE WAS NOT SHARE-HOLDER AND THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) WERE NOT ATTRACTED. THE LD. CIT (APPEALS), HOWEVER, DID NOT AGREE WITH THE CONT ENTION OF THE ASSESSEE. HE NOTED THAT THE ASSESSEE HAD OVER-DRAWN FUNDS FROM M/S. WEB COMMERC E (INDIA) PVT. LTD. AND THE COMPANY HAD SUFFICIENT ACCUMULATED PROFITS. HE, THEREFORE, HEL D THAT ALL THE THREE REQUISITES AS SPELT OUT IN SECTION 2(22)(E) HAVE BEEN SATISFIED. THE LD. CIT (A) ACCORDINGLY UPHELD THE ADDITION. 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ASSESSEE COMPANY IS NOT A SHARE- HOLDER AND, THEREFORE, PROVISIONS OF SECTION 2(22)( E) ARE NOT APPLICABLE. HE PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. B HAUMIK COLOUR P. LTD. 118 I.T.D. 1 (MUM.) (SB) AND THE DECISION OF HONBLE RAJASTHAN HIGH COU RT IN THE CASE OF CIT VS. HOTEL HILLTOP 313 ITR 116 (RAJ). ON THE OTHER HAND, THE LD. SR. DR S UPPORTED THE ORDER OF THE LD. CIT (APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. SECTION 2(22)(E) OF THE ACT IS REPRODUCED AS UNDER: (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MA Y, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFIC IAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH O R WITHOUT A RIGHT TO PARTICIPATE 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 REFERRED TO AS THE SAID C ONCERN) OR ANY PAYMENT BY ANY SUCH 3 I. T. A. NO. 990 (DEL) OF 2011 COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, O F ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULA TED PROFITS FROM PLAIN READING OF PROVISIONS OF SECTION 2(22)(E ) OF THE I. T. ACT, IT IS CLEAR THAT IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 2(22) (E) THE FOLLOWING FOUR CONDITIONS ARE REQUIRED TO BE FULFILLED :- (I) THE ASSESSEE SHOULD BE A SHARE-HOLDER OF THE COMPANY; (II) THE COMPANY SHOULD BE A CLOSELY HELD COMPANY IN WHICH T HE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED; (III) THERE MUST BE PAYMENT BY WAY OF A DVANCE OR LOAN TO A SHARE-HOLDER OR ANY PAYMENT BY THE COMPANY ON BEHALF OF OR FOR THE INDI VIDUAL BENEFIT OF THE SHARE-HOLDER AND; (IV) THERE MUST BE SUFFICIENT ACCUMULATED PROF ITS IN THE HANDS OF THE COMPANY UPTO THE DATE OF SUCH PAYMENT. ITAT, SPECIAL BENCH IN T HE CASE OF BHOWMIK COLOUR P. LTD (SUPRA) HAS HELD THAT DEEMED DIVIDEND CAN BE ASSESS ED ONLY IN THE HANDS OF A PERSON WHO IS A SHARE-HOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHARE-HOLDER. THE EXPRESSION SHARE-HOLDER REFERR ED TO IN SECTION 2(22)(E) REFERS TO BOTH A SHARE HOLDER AND BENEFICIAL SHARE HOLDER AND THUS IF A PERSON IS REGISTERED SHARE HOLDER, BUT NOT BENEFICIAL SHARE HOLDER, THEN PROVISIONS OF SECTION 2(22)(E) WOULD NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHARE HOLDER, BUT NOT A REGISTERED SHARE HOLDER, THEN ALSO PROVISIONS OF SECTION 2(22)(E) WOULD NOT APPLY . THE DEEMING PROVISIONS OF SECTION 2(22)(E) APPLIES TO THE CASE OF LOANS OR ADVANCES B Y A COMPANY TO A CONCERN IN WHICH ITS SHARE HOLDER HAS A SUBSTANTIAL INTEREST IS BASED ON PRESUMPTION THAT LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO SHARE HOLDERS OF THE COMPANY GIVING LOANS OR ADVANCE AND, THEREFORE, THE INTENTION OF THE LEGISL ATURE IS TO TAX DIVIDEND ONLY IN THE HANDS OF SHARE HOLDER AND NOT IN THE HANDS OF CONCERN. H ONBLE RAJASTHAN HIGH COURT IN THE CASE OF M/S. HOTEL HILLTOP (SUPRA) HAS HELD THAT TH E ASSESSEE WAS NOT SHOWN TO BE SHARE HOLDER OF THE COMPANY AND THE TWO INDIVIDUALS WHO W ERE PARTNERS OF THE FIRM WERE THE MAJORITY SHARE HOLDER OF THE COMPANY. THEREFORE, T HE SECURITY ADVANCED BY THE COMPANY TO THE ASSESSEE WOULD NOT BE DEEM TO BE DIVIDEND AS THE ASSESSEE WAS NOT SHARE HOLDER IN THE COMPANY. 4 I. T. A. NO. 990 (DEL) OF 2011 6. IN THE CASE BEFORE US THE ASSESSEE IS NOT A SHAR E HOLDER OF WEB COMMERCE (INDIA) PVT. LTD. AND, THEREFORE, THE AMOUNT RECEIVED BY THE ASS ESSEE AS ADVANCE CANNOT BE TREATED AS DEEMED INCOME THOUGH OTHER CONDITIONS STAND SATISFIED IN T HIS CASE. IT WOULD HAVE BEEN A DIFFERENT SITUATION IF THE ADDITION WAS MADE IN THE HANDS OF SHARE HOLDER HAVING SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY. SINCE THE ASSESSEE IS NOT THE SHA RE HOLDER, THE AMOUNT RECEIVED AS ADVANCE CANNOT BE ASSESSED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. WE, THEREFORE, DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THE AO IS DIR ECTED TO DELETE THE ADDITION. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 29 TH APRIL, 2011. SD/- SD/- [ C. L. SETHI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH APRIL, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.