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Income Tax Appellate Tribunal - Mumbai

Binal Sevantilal Koradia (Huf), Mumbai vs Department Of Income Tax on 3 October, 2012

                             IN THE INCOME TAX APPELLATE TRIBUNAL,
                                     MUMBAI BENCH 'B' BENCH

                        BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND
                            SHRI B.R.JAIN (ACCOUNTANT MEMBER)

                                      ITA No.2900/Mum/2011
                                     Assessment Year: 2007-08

          ITO Ward 21(1)(1),                         Binal Seventilal Koradia(HUF),
          6th floor, Pratyakshkar Bhavan,            C-402, Dokul Divine, Irla S.V.Road,
          Bandra Kurla Complex, Bandra (E),          Vile Parle(W), Mumbai.
          Mumbai.                                Vs. PA No.AAFHK 5117 B

          (Appellant)                                  (Respondent)


                                       Appellant by : Shri Mohit Jain
                                       Respondent by: None

          Date of hearing:                3 .10.2012
          Date of pronouncement:           10 .10.2012

                                               ORDER

Per B.R.Mittal, JM:

The department has filed this appeal for assessment year 2007-08 against order dated 31.1.2011 of ld CIT(A) on the following ground:

"On the facts and in the circumstances of the case and in law, ld CIT(A) erred in allowing the claim of the assessee that capital of Rs.60,64,205 received by the assessee from M/s. Karodia Construction Pvt Ltd., where in the karta of the assessee is a share holder, is not covered u/s.2(22)(e) as deemed dividend."

2. None appeared on behalf of assessee in spite of notice. Hence, we decided to dispose off the appeal by hearing ld D.R. and considering the material available on record.

3. We have carefully considered the orders of authorities below and submission of ld D.R. 2 ITA No.2900/Mum/2011 Assessment Year: 2007-08

4. We observe that the AO considered a sum of Rs.60,64,205 received from M/s. Karodia Constructions P. Ltd., by the assessee as deemed dividend under section 2(22)(e) of the Act. However, ld CIT(A) has held that assessee is not at all the shareholder of M/s. Karodai Constructions P. Ltd. Shri Binal S Karodia is a share holder in his individual capacity only and, therefore, assessee HUF cannot be said to be a shareholder or a beneficial share holder. Ld CIT(A) by considering the decision of ITAT Special Bench in the case of ACIT vs. Bhaumik Colour Pvt Ltd. 118 ITD 1/(313 ITR 146(AT), held that loans received by the assessee from M/s. karodia Constructions PLtd., cannot be treated as deemed dividend u/s.2(22)(e) of the Act as recipient of money should be a registered share holder as well as beneficial share holder whereas in the case of the assessee none of the above conditions are satisfied.

5. Ld D.R. has not disputed above facts and as mentioned above, but dutifully relied on order of Assessing Officer.

6. The ITAT, Special Bench in the case of Bhaumik Colour Pvt Ltd (supra) held that provisions of section 2(22)(e) of the Act create a fiction bringing any amount paid otherwise than as dividend into net of dividend. Therefore, this clause must be given strict interpretation. It was held therein that if the person is a registered holder 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 share holder, then also the first limb of provisions of section 2(22)(e) will not apply. The Hon'ble Rajasthan High Court in the case of Hotel Hill Top (2009) 313 ITR 116(Raj) has held that in order to attract the provisions of section 2(22)(e) of the Act, following four conditions are the sine quo non i.e.

(i) the assessee should be a shareholder of the company ;

(ii) the company should be a closely held company in which the public are not substantially interested ;

(iii) there must be payment by way of advance or loan to a shareholder or any payment by the company on behalf of or for the individual benefit of the shareholder ; and

(iv) there must be sufficient accumulated profits in the hands of the company up to the date of such payment.

Assessment Year: 2007-08 It is evident from the above that the recipient of the loan from a closely held company in which the public are not substantially interested should be a registered shareholder as well as beneficial share holder in the lender company. However, in the case before us, assessee is neither a shareholder nor a beneficial shareholder as observed by ld CIT(A) and not disputed by ld D.R. at the time of hearing of the appeal. Therefore, the view taken by ld CIT(A) is directly covered by the decision of ITAT Special Bench in the case of Bhaumik Colour P. Ltd. as well as decision of Hon'ble Rajasthan High Court in the case of Hotel Hill Top (supra). It is relevant to state that same view has been taken by Hon'ble Bombay High Court in the case of Commissioner of Income-tax v. Universal Medicare Private Limited, 324 ITR 263(Bom) as well as by Authority of Advance Ruling in the case of Madura Coats P. Ltd., In re, 274 ITR 609.

7. In view of above, we do not find any infirmity in the order of ld CIT(A). Hence, we uphold his order by rejecting ground of appeal taken by department.

8. In the result, appeal filed by department is dismissed.

Pronounced in the open court on 10th October, 2012 Sd/- Sd/-

                       (B.R.JAIN)                                   (B.R. MITTAL)
                   Accountant Member                               Judicial Member

       Mumbai, Dated     10th   October, 2012
       Parida

       Copy to:
       1. The appellant
       2. The respondent

3. Commissioner of Income Tax (Appeals),32, Mumbai

4. Commissioner of Income Tax,City-21 , Mumbai

5. Departmental Representative, Bench 'B' Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI