Income Tax Appellate Tribunal - Bangalore
Mrs. Shahanaz Mohuddin , Mangalore vs Assessee on 18 September, 2012
IN THE INCOME TAX APPELLATE TRIBNAL
BANGALORE BENCH 'C', BANGALORE
BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER
AND
SHRI JASON P BOAZ, ACCOUNTANT MEMBER
ITA No.541BNG.)/2011
(Assessment year : 2008-09)
Mrs.Shanaz Mohiuddin, The Asst. Commissioner of Income,
No.202, Yeekay Towers, Central Circle-1(1),
Kulur Bangra Road, Kulur, Mangalore
Mangalore-560 013
PAN No.AIFPM7608B Vs
Appellant Respondent
Assessee by : Shri S. Venkatesan, CA
Revenue by : Shri A. Sundararajan, JCIT
Date of hearing : 18-09-2012
Date of pronouncement : -09-2012
ORDER
PER SHRI N.V.VASUDEVAN, JM:
This is an appeal by the assessee against the order dated 14- 03- 2011of CIT(A)-VI, Bangalore relating to assessment year 2008-
09.
2. The only issue that arises for consideration in this appeal is as to whether the CIT(A) was justified in sustaining the addition of a sum of Rs.9,60,983/- as against a sum of Rs.11,66,743/- made by the AO as deemed dividend u/s 2(22)(e) of the IT Act, 1961 ("The Act").
3. The material fact necessary for adjudication of this appeal are as follows;
2 ITA No.541(B)/2011The assessee is an individual. It is not n dispute that the assessee had substantial interest (within the meaning of the said expression u/s.2(22)(e) of the Act) in a company by name M/s HML Agencies Pvt.Ltd., (HML A. P.Ltd.,) Mangalore. It is also not in dispute that the HML A.Pvt. Ltd., is a company in which public are not substantially interested. It is also not in dispute that M/s HML A. Pvt.Ltd., had accumulated profits of Rs.4,01,68,911/- as on 31-03-2007.
4. In the course of assessment proceedings, the AO on perusal of the ledger account of the assessee in the books of M/s HML A.Pvt.Ltd., found that M/s HML A.Pvt.Ltd., had made a payment of Rs.10.00 lakhs on 05-05-2007. The description of the payments reads thus, 05-05-2007 To SBIC Branch Mangalore Payment 2846 10,00,000.00 Cheque No.Tranfer(amount transferred from Shanaz a/c to Mr.Mohiuddin a/c for Making advance payment towards land at Bala) Besides, the aforesaid entry there were entries of debit and credit and ultimately, the amount showed a debit balance of Rs.11,66,743/-which was payable by the assessee to M/s HML A.Pvt.Ltd., According to the AO the aforesaid payment was either in the nature of a loan or advance within the meaning of sec.2(22)(e) of the Act by M/s HML A.Pvt.Ltd., to the asesssee and has to be treated as deemed dividend u/s 2(22)(e) of the Act. When this was confronted with the assessee, the assessee submitted that the aforesaid account of the assessee in the books of accounts of M/s HML A.Pvt.Ltd., was a running account and that he was a Director in the said company, besides an employee of the said company also. The assessee submitted that the remuneration payable for services rendered by the assessee as an employee is credited in the aforesaid account and the monies found debited in the aforesaid account were nothing but the 3 ITA No.541(B)/2011 remuneration drawn by the assessee from time to time. The assessee submitted that the amount outstanding and payable by the assessee to M/s HML A.Pvt.Ltd., is neither a loan or advance within the meaning of sec.2(22)(e) of the Act. The assesee also further submitted that on 05-05-2007, the assessee was paid a sum of Rs.10.00 lakhs by M/s HML A.Pvt.Ltd., and this sum was immediately given to the assessee's husband for the purpose of purchasing a property for the benefit of M/s HML A.P.vt.Ltd., The assessee therefore, submitted that in so far as the sum of Rs.10.00 lakhs is concerned, it was nothing but a payment for purchase of a property on behalf of M/s HMLPvt.Ltd., which cannot be said to be loan or advance within the meaning of sec.2(22)(e) of the Act.
5. The AO however, did not accept the contentions put forth on behalf of the assessee. He was of the view that when monies are paid without sufficient credit balance in an account, the same would be in the nature of a loan or advance. In this regard, the AO relied on the decision of the Hon'ble Supreme Court in the case of P.Sharada Vs CIT in 229 ITR 444(SC). On the same basis, the AO also held that the amounts drawn cannot be linked with the salary as salaries were not due, when the monies were drawn by the assessee or there was no sufficient credit of salary. The AO has also given details of withdrawals without sufficient credit in the account.
6. With regard to the sum of Rs.10.00 lakhs paid on 5.5.07, which was claimed by the assessee to be a payment made to Mrs. Moiuddin, the Assessee's husband for purchase of a property. The AO was of the view that there was no reason why the money was not given directly by M/s HML A.Pvt.Ltd., to the seller of the property. The AO held that there was no substance in the plea put forth by the assessee in this regard. For all the above reasons, the 4 ITA No.541(B)/2011 AO added a sum of Rs.11,66,743/- as deemed dividend, while computing the total income of the assessee.
7. On appeal by he assessee, the CIT(A) held as follows;
"2.33 Having heard the argument of the appellant, it is necessary to go through the provisions of clause (e) of Sub- section(22) of sec.2 of the IT Act, which reads as under;
Dividend includes-
a)................................
b)................................
c).................................
d) ...............................
e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) (made after 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without right to participate in profits) holding not less than ten percent of the voting power, or to any concern in which such share holder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) 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".
There is no dispute about the fact that the appellant is beneficial owner of shares holding more than 10% of the voting power. It is also undisputed fact that M/s HML A.Pvt.Ltd., is a company in which public are not substantially interested and it is undisputed fact that on the date of the payments which have been considered by the AO as deemed dividend, he company was having accumulated profits. The only issue of dispute according to the appellant is as to whether the payments mad to the appellant are in the nature of advance or loan. The AR of the appellant in the entire submission strongly advocated that the payments made to the appellant are not in the nature of loan or advance. However, he ignored the fact that not only loan or advance but also any other payment by the company on behalf f, or for the individual benefit of any share holder, comes under the purview of deemed dividend under section 2(22)(e) of the IT Act. The Hon'ble Supreme Court in the case of Navanit Lal 5 ITA No.541(B)/2011 C Javeri Vs K.K.Sen(56 ITR 198) on page 202 after analysis of the conditions of 2(6A)9e) of the IT Act, 1922 which is akin to sec.2(22)(e) of the IT Act, 1961 held that following three kinds of payment are taxable as dividends to the extent of the accumulated profits held by the company;
1) Payment to the share-holder by way of advance or loan
2) Payments made on his behalf; and
3) Payment made for his individual benefit.
The payments made by M/s HML A.PVt.Ltd., to the appellant which have been analysed on the basis of the notings in the ledger account of M/s HML A.Pvt.Ltd., in para-4.1 of the assessment order. It is clear that he payments of Rs.240/- on 10-04-2007 and Rs.5,029/- on 11-04-2007 and deposit of Rs.10.00 lakhs on 05-05-2007 in the savings bank account of the appellant are in the nature of payment for the individual benefit of share holder (i.e. appellant).
The various decisions on which the reliance has been placed by the appellant are not applicable to the case of the appellant as in those cases, it was proved that the payments were made for the purposes of the business. Further, the argument of the appellant that once the income has been assessed under the head "Salary" he provisions of deemed dividend are not applicable is not acceptable in view of the provisions of sec.2(22)(e) of he IT Act. However, the argument that deemed dividend computed after 05-05-2007 is not correct is found acceptable in view of the fact that once the debit balance as on 10-04-2007, 11-04-2007 and 05-05- 2007 is assessed as deemed dividend under section 2(22)(e) of the IT Act, the debit balance to that extent cannot be considered as debit balance for subsequent payments to the appellant by the company. Considering the above, the deemed dividend assessee by the AO is upheld to the extent of Rs.9,60,983/- (240 + 5269 + 9,55,744) against the addition of Rs.11,66,743/- made by the AO.
8. Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before the Tribunal. The learned counsel for the assesesee while reiterating the stand of the asesessee as put forth before the revenue authorities, filed before us a copy of the decision of the Hon'ble Allahabad High Court in the case of 6 ITA No.541(B)/2011 Shyama Charan Gupta Vs CIT 337 ITR 511(All.). In the aforesaid case, the assessee was a Managing Director of a company and he received advance of salary and commission on profits. The same was treated as deemed dividend and taxed in the hands of the Managing Director. The Hon'ble Allahabad High Court held that the advance towards salary which was due to an assessee and credited to his account every month could not be treated as deemed dividend. Further, reliance was placed on the following decisions for the proposition that the financial transactions in the normal course of business cannot be treated as loans or advance and taxed under sec.2(22)(e) of the Act. The CIT Vs Ambassador Travels Pvt.Ltd., 318 ITR 376, CIT Vs Creative Dyeing and Printing Pvt.Ltd., 318 ITR 476 and Asst. CIT Vs Harshad V Doshi 136 TTJ 351. The learned DR reiterated the stand of the revenue as reflected in the orders of the revenue authorities.
9. We have given careful consideration to the rival submissions. A copy of the ledger account of the assessee as appearing in the books of account as M/s HML A.Pvt.Ltd., is extracted in page-3 of the order of the assessment. Perusal of the same shows that as on 10-04-2007, the company paid Rs.240/- as LIC Premium on behalf of the assessee. Similarly, on 11-04-2007 they paid Rs.5,029/- towards income tax. On 05-05-2007, the company paid Rs.10.00 lakhs to the assessee. The narration in the books of the company says that this amount was transferred from the assessee's account to the assessee's husband Mr. Moiuddin for making advance payment towards land at Bala. As on the date when this payment made by the assessee company to the assessee there was nothing payable by the company HML A. Ltd to the assesse. However, on 30-04-2007, the assessee was to receive salary of Rs.49,555/-. Thereafter, there are several credit entries and debit entries. It is clear from these entries from 30-01-2007 to 31-03-2008 that the 7 ITA No.541(B)/2011 debits in the account of the assessee was less than the credits in the account of the assessee. Therefore, what is to be seen for applying the provisions of sec.2(22)(e) of the Act is only entries from 10-04-2007 to 05-05-2007. For ready reference, a photo copy of the ledger account of the assessee as appeared in the books of M/s HML A.Pvt.Ltd., is enclosed alongwith this order.
10. The plea of the assesseee was that in his capacity as Director of the company, the asssessee was entitled to remuneration and the payments made from 10-04-2007 to 05-05-2007 are nothing but advance receipt of salary. In this regard, the case of the assessee was that more than Rs.18.00 lakhs remuneration was paid to the assessee during the previous year, whereas the amount treated as deemed dividend was only a sum of Rs.9,60,983/-. The main thrust of the argument of the learned counsel for the assessee was on the decision of the Hon'ble Allahabad High Court in the case of Shayma Charan Gupta Vs CIT 337 ITR 511(All.) We have perused the aforesaid decision and we find that in that case, the assessee was Managing Director of a company and received advance of salary and commission and profits. As far as commission and profits were concerned, the addition made on account of deemed dividend was upheld by the Hon'ble High Court. The Hon'ble High Court held that commission on profits will become due only after the account period and any commission received prior to determination of the commission after ascertainment of profits will have to be treated as advance attracting the provisions of sec.2(22)(e) of the Act. As far as the salary is concerned, the factual position was that salary was drawn after credit in the account and it was held that the same could not be treated as deemed dividend. In the present case, there was no credit in the account of the assessee between 10-04-2007 and 05- 05-2007 except a sum of Rs.49,555/-which was remuneration 8 ITA No.541(B)/2011 payable to the asessee. As we have already seen, the payments made to the assesseee on 10-04-2007, 11-04-2007 and 05-05- 2007 was a sum of Rs.5,029/- and Rs.10.00lakhs respectively. Thus, Rs.9,55,744/- had been paid to the assessee without any credit in the assessee's account by the assessee company. In our opinion, such payment cannot be said to be towards salary. As on these dates, the future salaries cannot be said to have accrued or arisen to the asseseee and therefore, a sum of Rs.9,55,744/- cannot be said to be salary drawn by the assessee not attracting the provisions of sec.2(22)(e) of the Act. We are therefore, of the view that the order of the CIT(A) on this issue has to be upheld.
11. Another plea of the learned counsel for the asesssee was that the payment of Rs.10.00 lakhs made by the company to the assessee on 05-05-2007 was meant to be transferred to Mr.Moiuddin account for the purchase of land on behalf of the company. On this plea, we find that the AO in para-4.10 of his order has clearly brought out as to how there was lack of explanation from the assessee as to how the amount was not directly paid to the assessee company In our view, the plea of the assessee in this regard cannot be accepted.
12. The learned counsel for the assessee also relied on certain decisions for the preposition that financial transactions in the normal course of business cannot be treated as loan or advance with in the meaning of sec.2(22)(e) of the Act. As we have already seen in the present case, the assessee has failed to establish that the transactions in question were financial transactions in the normal course of business of the assessee. In these circumstances, we are of the view that the order of the CIT(A) 9 ITA No.541(B)/2011 deserves to be upheld. We uphold the same and dismiss the appeal of the assessee.
13. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on the Sept., 2012.
(JASON P BOAZ) (N.V.VASUDEVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Bangalore:
Dated:
am*
Copy to :
1 Appellant
2 Respondent
3 CIT(A)-IV, Bangalore.
4 CIT
5 DR, ITAT, Bangalore.
6 Guard file (1+1)
By order
Sr. Private Secretary
ITAT, Bangalore