Income Tax Appellate Tribunal - Delhi
Madhur Housing & Development Co. , New ... vs Department Of Income Tax on 14 January, 2010
ITA NO. 1429/DEL/2010 A.Y. 2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "E" NEW DELHI BEFORE SHRI RAJ PAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. No. 1429/Del/2010 A.Y. : 2006-07 INCOME TAX OFFICER, vs. M/S MADHUR HOUSING & WARD 6(1), ROOM NO. 419-A, DEVELOPMENT CO., C.R. BUILDING, NEW DELHI DLF CENTRE, 9TH FLOOR, SANSAD MARG, NEW DELHI (PAN: AAACM2035N) (Appellant ) (Respondent ) Asseessee by : SH. PRADIP DINODIA, CA AND R.K. KAPOOR, CA Department by : SH. N.K. CHAND, D.R. PER SHAMIM YAHYA: AM This appeal by the revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 14.1.2010 pertaining to assessment year 2006-07.
2. The issues raised read as under:-
"On the facts in the circumstances of the case and in law, the learned Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 1,87,85,000/- made by the Assessing Officer u/s 2(22)(e) of the IT Act being deemed dividend."1
ITA NO. 1429/DEL/2010 A.Y. 2006-07 "The Ld. Commissioner of Income Tax (Appeals) ignored the fact that Mr. K.P. Singh and Mrs. Indira K.P. Singh are holding more than 10% share in both donor and done companies and donor Co. M/s BPOM Pvt. Ltd. is having accumulated profits/reserves."
3. In this case assessee Assessing Officer observed that during the year the assessee has received Rs. 1,87,85,000/- from M/s Beverly Park Operations and Maintenance (P) Ltd. (hereinafter called BPOM) as loan by issuing 3757 number of debentures of Rs. 5000/- each fully paid up. Assessing Officer further found that the enquiry revealed that the assessee company and BPOM are related to DLF group. Assessing Officer observed following position also emerged :-
Name of the Loans given / Accumulated Share holding of (Ordinary company (taken) profits shares) Mr. K.P. Singh Mrs. Indira Singh BPOM 1,87,85,000/- 73,64,08,868 32.3% through 33.33% holding directly + companies* 32.3% through holding companies* Assessee (1,87,85,000) N.A. 58.27% (10,200 out of 17,502 Equity shares) Mr. K.P. Singh & Mrs. Indira K.P. Singh * A) M/s Venustar Properties Pvt Ltd. (VPPL) is holding 66.6% equity of BPOM. Both the Directors of VPPL, namely Svs. M.S. Rathee and Mahender Singh are employees of DLF Ltd. B) VPPL is wholly owned subsidiary company of M/s Supermart One Property Management Services Pvt. Ltd. (SOPM).2
ITA NO. 1429/DEL/2010 A.Y. 2006-07 C) Macknion Estates Pvt. Ltd. (MEPL) is holding 97% equity of SOPM.
D) Mrs. Indira K.P. Singh is holding 50% equity of MEPL. Sh. K.P. Singh is holding the remaining approx. 50% equity of MEPL. E) All these companies are having their registered office at DLF Centre and are the Group companies of DLF Group, controlled by Shri K.P. Singh and Family."
4. Assessing Officer referred the provisions of section 2(22)(e). The main contention of the assessee before the Assessing Officer was as under:-
"A) 'Mr. K.P. Singh and / or Mrs. Indira K.P. Singh' were not holding any equity of the assessee. The equity shares of 10,200 were being held by 'Mr. K.P. Singh and Mrs. Indira K.P. Singh' were actually held by GMC and registered in the name of their partners, 'Mr. K.P. Singh and Mrs. Indira K.P. Singh.' B) Payments by BPOM was an investment.
C) The said advance made by BPOM was in the ordinary course of business and money lending is a substantial part of the business of BPOM. Therefore since this is covered by the exceptions provided by section 2(22)(e), the payment by BPOM cannot be treated as dividend u/s 2(22)(e) of the Act."
4.1 Assessing Officer did not accept these contentions. He attached a copy of share certificate wherein it was mentioned that Mr. K.P. Singh Mrs. Indira K.P. Singh are the registered holders of 10200 ordinary shares of Rs. 100/- each. The member register of the assessee company also endorses the same facts. The shares were in the name of Mr. K.P. Singh and Mrs. Indira K.P. Singh. There is no 3 ITA NO. 1429/DEL/2010 A.Y. 2006-07 entry to the effect that GMC held any shares of the assessee. Hence, Assessing Officer found that Mr. K.P. Singh and Mrs. Indira K.P. Singh were the registered shareholders and beneficial owner of shares, satisfying the conditions of 'substantial interest', as per section 2(34) of the Act. Assessing Officer also rejected the contentions that the payment in question were not loans but were investment with the assessee company. He also did not accept the contention that the payment by BPOM was in the ordinary course of business and money lending. Assessing Officer proceeded to add the amount of Rs. 18785000/- as income from other sources.
5. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) referred to the Special Bench decision of the Tribunal in the case of ACIT vs. Bhaumik Colour (P) Ltd. 27 SOT 270 and noted that the Special Bench had held as under:-
"* 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 person than a shareholder; and * The expression 'shareholder' referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder than the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder the also the provisions of section 2(22)(e) will not apply.
Therefore, Ld. Commissioner of Income Tax (Appeals) held as under:-4
ITA NO. 1429/DEL/2010 A.Y. 2006-07 "As such, the case will have to be considered within the framework of the law laid down by the Special Bench. The facts of the case are that Mrs. Indira K.P. Singh was holding only 1000-15% Non cumulative preference shares of Rs. 100/- each fully paid up of the appellant company in her individual capacity. She did not hold any equity shares. The Preference shares held by her are non-voting. It is also observed that 10200-ordinary shares of Rs. 100/- each are held by General Marketing Corporation and registered in the name of their partners, Mr. K.P. Singh and Mrs. Indira K.P. Singh. These are, therefore, not beneficially shares held by them. Further, 3648 preference share of Rs. 100/- each were allotted to Mr. K.P. Singh in his individual capacity and are covered by the relevant provisions of the Act being entitled to a fixed rate of dividend. The decision of the Assessing Officer bring the amount of Rs. 1,87,85,000/- received from M/s BPOM by the appellant to tax in the hands of the appellant as deemed dividend under section 2(22)(e) of the Act has to be examined in the light of the above two principles laid down by the Hon'ble Special Bench of the Tribunal in the case of ACIT vs. Bhaumik Colors (P) Ltd. When the facts of the case are examined w.r.t. the above two principles, the decision of the Assessing Officer in taxing the sum received from M/s BPOM as deemed dividend in the hands of the appellant cannot be sustained. The appellant company was neither a registered shareholder nor a beneficial shareholder in M/s BPOM. Admittedly, Mrs. Indira K.P. Singh held equity shares in both the companies however, she did not hold any equity shares in the 5 ITA NO. 1429/DEL/2010 A.Y. 2006-07 appellant company in her individual capacity. The equity shares held by her in the appellant company were on behalf of partnership firm M/s General Marketing Corporation (GMC) in which she is one of the 11 partners. As partnership firms cannot legally hold share in companies, the share holding of the partnership firm in the appellant company was registered in the name of two of the partners i.e. Mrs. Indira K.P. Singh and Mr. K.P. Singh. The necessary forms declaring registration of such share were filed with the Registrar of Companies and copies have been attached to the paper book. From a perusal of these forms, it is seen that a declaration to the effect that the shares are registered in the names of partners as an Association of Persons (Firm-GMC) cannot become a members of a company, the shares are registered in the names of partners was filed before the Registrar of Companies. In light of these facts, and keeping the decision of Hon'ble Special Bench in ACIT vs. Bhaumik Colours (P) ltd. (supra), I am of the view that the provisions of section 2(22)(e) cannot be invoked in this case. It may be mentioned that the decision of the Special bench is binding on me as held by the Delhi High Court in Nokia Corporation vs. DIT(International Taxation) (2007) 292 ITR 22 (Delhi). As such, the addition of Rs. 1,87,85,000/- is directed to be deleted."
6. Against this order the Revenue is in appeal before us.
7. We have heard both the counsel and perused the records. Ld. counsel of the assessee submitted that the issue is squarely covered in favour of the 6 ITA NO. 1429/DEL/2010 A.Y. 2006-07 assessee by the decision of the Special Bench in the case of Bhaumik Colour (P) Ltd. (supra).
7.1 Ld. Departmental Representative on the other hand relied upon the order of the Assessing Officer and contended that the decision of the Special Bench in the case of Bhaumik Colour (P) Ltd. (supra) has not been accepted by the Revenue and necessary appeal has been filed before the Hon'ble High Court.
7.2 We have carefully considered the submissions. We find that Tribunal in the Special Bench decision in the case of Bhaumik Colours 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 the borrowing concern in which such shareholder is member or partner having substantial interest. Admittedly in the case assessee is not shareholder of BPOM. Hence the amount of Rs. 18785000/-
borrowed by the assessee from BPOM cannot be considered deemed dividend in the hands of the assessee.
7.3 Ld. Commissioner of Income Tax (Appeals) has followed the aforesaid Hon'ble Special Bench decision and found that the ratio is applicable in this case and no contrary decision or contrary facts has been brought to our notice. On the facts of the present case the ratio of the said decision is applicable. Hence, 7 ITA NO. 1429/DEL/2010 A.Y. 2006-07 we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals). Accordingly, we uphold the same.
8. In the result, the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 27/08/2010.
Sd/- Sd/-
[RAJ PAL YADAV ] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 27/08/2010
SRB
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY By Order,
Deputy Registrar,
ITAT, Delhi Benches
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