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Gujarat High Court

Principal Commissioner Of Income Tax-4 vs Gladder Ceramics Ltd on 12 March, 2021

Author: J.B.Pardiwala

Bench: J.B.Pardiwala, A.S. Supehia

      C/TAXAP/1032/2017                                       IA ORDER



        IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
     MISC. CIVIL APPLICATION (OJ) (FOR RECALL) NO. 1 of 2018
                  In R/TAX APPEAL NO. 1032 of 2017
================================================================

PRINCIPAL COMMISSIONER OF INCOME TAX-4 Versus GLADDER CERAMICS LTD ================================================================ Appearance:

MR MANISH R. BHATT, SENIOR COUNSEL, with MRS MAUNA M BHATT for the PETITIONER(s) No. NOTICE SERVED for the RESPONDENT(s) No. ================================================================ CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE A.S. SUPEHIA Date : 12/03/2021 IA ORDER (PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)

1. The present application has been filed seeking the following prayer:

"(A) This Hon'ble Court may be pleased to recall the order dated 16.01.2018 passed in Tax Appeal No.1032 of 2017 and be further pleased to decide the issue of addition made u/s 2(22)(e) of the Act on merits;"

2. Learned Senior Counsel Mr.Bhatt has submitted that the present application has been filed only with regard to Question­B pertaining to addition under section 2(22)(e) of the Income Tax Act, 1961 ('the Act' for short). It is submitted that in the present case the opponent - assessee - Gladder Ceramics Limited had received loans and advances from Akik Tiles Limited and Marbolite Granito India Limited and the Assessing Officer treated the said loans and advances as deemed dividend under section 2(22)(e) of the Act, however, the CIT (Appeals) as Page 1 of 6 Downloaded on : Sat Sep 04 21:29:20 IST 2021 C/TAXAP/1032/2017 IA ORDER well as the Income Tax Appellate Tribunal deleted the addition made under section 2(22)(e) of the Act.

2.1 Learned Senior Counsel Mr.Bhatt has further submitted that this Court has dismissed the Question­B pertaining to addition under section 2(22)(e) of the Act solely on the ground that section 2(22)(e) of the Act is not applicable to the opponent assessee as it was the recipient of the loans and advances but the same is applicable to the companies, who had made payment. It was further submitted that it is a settled position of law that deemed dividend is taxable in the hands of the recipient.

2.2 Learned Senior Counsel Mr.Bhatt has also placed reliance on the order dated 19.02.2018 passed in Tax Appeal No.133 of 2018 in support of his submissions. Thus, he has submitted that in view of the above, there being an error on the face of record and, therefore, the present application for recall of the order dated 16.01.2018 may be allowed.

3. Though served none appears on behalf of the opponent ­ assessee.

4. We have heard learned Senior Counsel Mr.Bhatt on the issue raised in the present application seeking review and recall of the order dated 16.01.2018.

C/TAXAP/1032/2017 IA ORDER

5. In the order dated 16.01.2018 passed in the captioned Tax Appeal in Paragraph No.6, the Court has held thus:

"As regards proposed question "B", section 2(22)(e) of the Act says that "dividend"

includes any payment by a company by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares holding not less than ten percent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. In the present case, the assessee has not made any payment by way of advance or loan to a shareholder, but on the contrary, has received a loan from Akik Tiles Pvt. Ltd. and Marbolite Granito India Ltd. Therefore, if at all the provisions of section 2(22)(e) of the Act were applicable, it would be applicable to the companies who have made such payments, provided the assessee had the requisite share holding. In the present case, the assessee is a recipient of such amounts and hence, the Tribunal was wholly justified in holding that there was no question of invoking section 2(22)(e) of the Act."

The Court has dismissed Question­B, which pertains to addition under section 2(22)(e) of the Act solely on the ground that the provisions of the said section is not applicable to the opponent assessee as it was the recipient of the loans and advances but is applicable to the companies who had made payment.

       C/TAXAP/1032/2017                                                 IA ORDER




6.   It    is      an      undisputed            fact     that        Akik         Tiles
Limited      is     having            23.38%          shareholding            in       the

opponent ­ Gladder Ceramics Limited and also having 15.34% shareholding in Marbolite Granito India Limited. Furthermore, Shri Girish Patel, who is the management personnel in Marbolite Granito India Limited, is having 20% shareholding in the opponent

- assessee. Thus, it appears that the assessee is having substantial interest in the said company. The assessee company is engaged in the business of manufacturing and trading of tiles. It is also noticed that the assessee has also received the loans/advances of Rs.26,70,709/­ from Marbolite Granito India Ltd. The CIT (Appeals) deleted the addition under section 2(22)(e) of the Act of Rs.97,56,376/­ on account of loans and advances received from Akik Tiles Limited and Marbolite Granito India Limited. The provisions of section 2(22)(e) of the Act stipulate of treating such loans/advances as deemed dividend. The present review application is only confined to Question­B raised by the applicant in the captioned Tax Appeal. The same reads as thus:

"Whether the Appellate Tribunal erred in law on facts in deleting the addition of Rs.97,56,376/­ ?"

7. It appears that the observations made in Paragraph No.6 of the order dated 16.01.2018 to the effect that the assessee having not made any payment by way of advance or loan to a shareholder, but on the contrary, has received a loan from Akik Page 4 of 6 Downloaded on : Sat Sep 04 21:29:20 IST 2021 C/TAXAP/1032/2017 IA ORDER Tiles Limited and Marbolite Granito India Limited and hence, the provision of section 2(22)(e) of the Act will not apply since the assessee is recipient of such amount appears to be erroneous.

8. The order dated 19.02.2018 passed by the Coordinate Bench of this court (Coram: Akil Kureshi and B.N.Karia, JJ) in Tax Appeal No.133 of 2018 suggests that the substantial question of law "whether in case of a company who satisfies the provisions of section 2(22)(e) of the Act, the principles of deemed dividend can be invoked though the company may not be the shareholder of the principal company", is pending before the Larger Bench of the Supreme Court in the case of National Travel Services vs. Commissioner of Income Tax, Delhi VIII, (2018) 89 taxmann.com 332 (S.C.). The Coordinate Bench has admitted the appeal with regard to the issue of deemed dividend in the hands of the assessee company under section 2(22)(e) of the Act.

9. Under the circumstances and in view of the aforesaid undisputed facts, the application is allowed. The order dated 16.01.2018 passed in Tax Appeal No.1032 of 2017 is hereby recalled to the extent of substantial question of law stated in Paragraph No.2(B) of the captioned Tax Appeal. The Tax Appeal No.1032 of 2017 is ordered to be restored to its original final. It is further clarified that we have not examined the matter on Page 5 of 6 Downloaded on : Sat Sep 04 21:29:20 IST 2021 C/TAXAP/1032/2017 IA ORDER merits, and the foregoing observations may not be treated as adverse to the assessee and it will be open for the assessee to take all available contentions in the Tax Appeal.

Sd/­ (J.B.PARDIWALA, J) Sd/­ (A.S.SUPEHIA, J) NVMEWADA Page 6 of 6 Downloaded on : Sat Sep 04 21:29:20 IST 2021