Income Tax Appellate Tribunal - Mumbai
Bombay Marine Engg. Works P.Ltd, Mumbai vs Department Of Income Tax on 26 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH 'B' BENCH
BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND
SHRI SANJAY ARORA (ACCOUNTANT MEMBER)
ITA No.6290/Mum/2011
Assessment Year: 2005-06
DCIT, Circle 3(1), Bombay Marine Engg.Works P. Ltd.,
Aayakar Bhavan, M.K. Road, Plot No.1/1m Unit No.13, Lakri Bandar,
Mumbai. Darukhana, Mumbai
Vs. PA No.AAACB 0451 F
(Appellant) (Respondent)
Appellant by : Shri A.B.Koli
Respondent by: Shri Nitish Joshi
Date of hearing: 26.12.2012
Date of pronouncement: 9. 1. 2013
ORDER
Per B.R.Mittal, JM:
The department has filed this appeal for assessment year 2005-06 against order dated19.5.2011 of ld CIT(A)-7, Mumbai on following grounds;
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition, of Rs. 85,00,000/- made u/s 2(22)(e) of the IT Act, 1961 holding that the assessee company was not having any shareholding in the lender company as such the loans taken from the lender companies cannot be taxed in the hands of the assessee company as deemed dividend."
"2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 85,00,000/- made u/s 2(22)(e) of the IT Act, 1961 without realizing the fact that shareholders cannot be taxed u/ 2(22)(e) in view of CBDT's circular No. 495 dated 22.9.1987 and applicable for A. Yr. 1988-89 and subsequent year wherein it is stated that deemed dividend would be taxed in the hands of a concern where the following conditions are satisfied:
"i) Where the company makes the payment by way of loans or advances to a concern;
ii) where a member or a partner of the concern holds 10 per cent of the voting power in the company; and 2 ITA No.6290/Mum/2011 Assessment Year: 2005-06
iii) where the member or partner of the concern is also beneficially entitled to 20 per cent of the income of such concern."
2. The relevant material facts giving rise to this appeal are that the assessee is in the business of ship building, ship repair, overseas recruitments, travel agency, exports and trading in stocks and derivatives. During the course of assessment proceedings, the Assessing Officer noticed that assessee company has received loans of Rs.10,00,000 and Rs.75,00,000/- from sister concerns viz; Mis. Gurgaon Trading Co. Pvt Ltd., and M/s. Kalkaji Trading Co. Pvt Ltd., respectively. AO also noticed that one of the director is holding 91% shares of the assessee company and also holding 92.9% shares in M/s. Kalkaji Trading Co. Pvt. Ltd., and 57.9% shares in M/s. Gurgaon Trading Vo. Pvt. Ltd. Further, M/s. Kalkaji Trading Co. Pvt.Ltd., is having accumulated profits to the tune of Rs.1,25,31,895/- as on 1.4.2004 and Rs.80,66,891/- as on 31.3.2005. Similarly, Gurgaon Trading Co. Pvt. Ltd., is having accumulated profits of Rs.1,53,96,995 as on 1.4.2004 and Rs.80,66,891 as on 31.3.2005. AO stated that both the companies are having accumulated profits in excess of the amount advanced by them to the assessee company during the relevant previous year. The AO was of the view that since in both the companies, public are not interested, the provisions of section 2(22)(e) are clearly attracted in the case of assessee company. In view of this, the AO asked the assessee to explain as to why an amount of Rs.85,00,000 should not be treated as deemed dividend taxable in the hands of the assessee company. In reply, assessee submitted that the amounts received from both the companies are inter-corporate deposits advanced to assessee company in ordinary course of business. It was submitted that assessee company is not a share holder in M/s. Kalkaji Trading Co. Pvt. Ltd., and M/s. Gurgaon Trading Co. Pvt. Ltd., and, therefore, provisions of section 2(22)(e) are not attracted. The AO did not accept this contention of assessee and considered the sum of Rs.85,00,000/- as deemed income in the hands of assessee under section 2(22)(e) of the Act. Being aggrieved, assessee filed appeal before the first appellate authority.
3. Before Id CIT(A), on behalf of assessee, it was contended that provisions of section 2(22)(e) of the Act does not apply to the assessee for the following reasons:
i) The assessee is not a shareholder in the lending companies.3 ITA No.6290/Mum/2011
Assessment Year: 2005-06
ii) Deemed dividend cannot be brought to tax in the hands of a non-shareholder.
iii) The lending companies had advanced loans to the assessee in the routine course of its business.
4. On behalf of assessee, reliance was placed on the decision of ITAT (SB) in the case of ACIT vs. Bhaumik Colours P. Ltd., 313 ITR 146(Mum)(SB), wherein, it has been held that deemed dividend can be assessed only in the hands of a person who is shareholder of the lender company and not in the hands of a person other than a shareholder. The expression shareholder referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. A person is a registered shareholder but not the beneficial shareholder then the provision of section 2(22)(e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. It was contended that since the assessee company is not a shareholder of the lending companies and the lending companies have advanced loans to the assessee company in the routine course of its business, dividend income cannot be taxed in the hands of person other than shareholder and, accordingly, urged to delete the addition made under section 2(22)(e) of the Act.
5. Ld CIT(A) considering the submission of assessee has held that assessee company is nowhere a shareholder in the lending companies i.e. M/s. Kalkaji Trading Co. Pvt. Ltd., and M/s. Gurgaon Trading Co. P. Ltd. On perusal of shareholding pattern as on 31.3.2005 in both the companies, Id CIT(A) noticed that the assessee company does not hold a single share in the lending companies. Ld CIT(A) also noticed that Shri Vedsharan Chhabra is holding 71 shares in Kalkaji Trading Co. P. Ltd., & 421 shares in Gurgaon Trading Co. Pvt. Ltd., and Ms Geeta Chhabra are holding 929 and 579 shares, respectively in above lending companies. Therefore, following the decision of ITAT (SB) in the case of Bhaumik Colours Pvt Ltd (supra), Id CIT(A) deleted the addition of Rs.85,00,000 made by the AC u/s.2(22)(e)of the Act.
6. Hence, this appeal by department.
4 ITA No.6290/Mum/2011Assessment Year: 2005-06
7. At the time of hearing, Id D.R. dutifully supported the order of AO and whereas Id A.R. supported the order of Id CIT(A) and also relied on the decision of Hon'ble Bombay High Court in the case of Universal Medicare Pvt Ltd., 324 ITR 263(Bom).
8. We have heard Id representatives of parties and also perused the orders of authorities below.
9. We observe that in both the lending companies i.e. M/s. Kalkaji Trading Co. Pvt. Ltd., and M/s. M/s. Gurgaon Trading Co. P. Ltd., assessee company is not shareholder. We also observe that the Director is having 91% shares in assessee company and also she is also holding 92.9% shares in M/s. Kalkaji Trading Co. Pvt. Ltd., and 57.9% shares in M/s. Gurgaon Trading Co. Pvt . The ITAT (SB) in the case of Bhaumik Colours Pvt Ltd (supra) held that if the person is a registered shareholder but not the beneficiary share holder, then provisions of section 2(22)(e) will not apply. Similarly, if a person is a beneficiary share holder but not a registered shareholder, then also the first limb of provisions of section 2(22)(e) will not apply. Similar issue has been considered by the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Pvt Ltd., 324 ITR 263(Bom). We also observe that the Hon'ble Rajasthan High Court in the case of Hotel Hill Top, 313 ITR 116(Raj) has held that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a non shareholder. In view of above and since the assessee company does not have any shareholding in the lending companies, we hold that there is no infirmity in the order of Id CIT(A) to hold that provisions of section 2(22)(e) will not apply in the case of assessee. Accordingly, we uphold the order of Id CIT(A) and reject the grounds of appeal taken by department.
10. In the result, appeal filed by department is dismissed.
Pronounced in the open court on 9th January , 2013
Sd/- Sd/-
(SANJAY ARORA) (B.R. MITTAL)
Accountant Member Judicial Member
5 ITA No.6290/Mum/2011
Assessment Year: 2005-06
Mumbai, Dated 9th January, 2013
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),7, Mumbai
4. Commissioner of Income Tax, 3 , Mumbai
5. Departmental Representative, Bench 'B' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI