Income Tax Appellate Tribunal - Hyderabad
M/S. Ksr Infracon P. Ltd (Fromerly M/S. ... vs Department Of Income Tax on 22 September, 1987
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE THE HON'BLE VICE PRESIDENT, SHRI D.MANMOHAN AND
SHRI B.RAMAKOTAIAH, HON'BLE ACCOUNTANT MEMBER
ITA No.479/Hyd/2011 : Asst. Year 2007-08
Asstt. Commissioner of Income- V/s. M/s. KSR Infracon (P)Ltd.
tax, Circle 2(1), Hyderabad (Formerly M/s. KSR Infrastructure
Pvt. Ltd.), Hyderabad.
( PAN - AACCK 3530 C)
(Appellant) (Respondent)
Appellant by : Shri B.Yadagiri - DR
Respondent by : None
Date of Hearing 24.12.2013
Date of Pronouncement 24.12.2013
ORDER
Per D.Manmohan, Vice President:
This appeal by the Revenue is directed against the order passed by the CIT(A) Vijayawada and it pertains to assessment year 2007-08.
2. Following grounds were urged by the revenue-
"1. The order of the CIT(A) is erroneous both on facts and in law.
2. The learned CIT(A) erred interpreting the provisions of section 2(22)(e) and failed in following the CBDT's circular No.495 dated 22nd September 1987 wherein it was mentioned that the deemed dividend U/s. 2(22)(e)would be taxed in the hands of concern receiving the loan/advance as deemed dividend when the conditions are satisfied.
3. The learned CIT(A) erred in interpreting the provisions of section 2(22)(e) in so far as the loan/advance received by the assessee company from its holding company in which the directors who are common share holders of both the companies and having more than 10% of the voting rights."
3. Though notice was served upon the assessee through the Assessing Officer, none appeared on behalf of the assessee. We therefore, proceed to dispose of this appeal ex-parte -qua the assessee- on merits.
2 ITA No.479/Hyd/2011M/s. KSR Infracon (P)Ltd.
(Formerly M/s. KSR Infrastructure Pvt. Ltd.), Hyderabad.)
4. Facts necessary for the disposal of this appeal are stated in brief:
The assessee company is in the business of providing support services to infrastructure service providers. For the year under consideration, the return filed by the assessee was originally processed under S.143(1) of the Act, but subsequently, the same was taken up for scrutiny. During the course of scrutiny proceedings, the Assessing Officer noticed that the assessee company had received interest free unsecured loans from M/s. Sterling Stonex P.Ltd., which in turn, is a closely held company in which public are not interested. As on 1.4.2006 accumulated profits of the said company are Rs.5,08,07,339.
Directors of M/s. Sterling Stonex P. Ltd. held substantial shares of that company and in terms of percentage, the shares held by those directors in these companies are specified hereinbelow-
In assessee company
Name of the shareholder No. of shares held % of shares held
K.Venkateshwara Rao 80,000 26.67%
K.Srinivasa Rao 70,000 23.33%
K.Tirumala Rao 70,000 23.33%
In M/s. Sterling Stonex P. Ltd.
Name of the shareholder No. of shares held % of shares held
K.Venkateshwara Rao 1,70,000 22.67%
K.Srinivasa Rao 1,50,000 20%
K.Tirumala Rao 1,50,000 20%
5. Thus, the very same directors of M/s. Sterling Stonex P. Ltd. are also directors of assessee company with slight difference in the shareholding pattern. Thereupon, the Assessing Officer extracted the definition of the term 'dividend', provided in S.22(22)(e) of the I.T. Act, which speaks of 'payment made by a company of any sum by way of loan to a shareholder or to any concern in which such shareholder is a member.....'. In the opinion of the Assessing Officer the expression 'to any concern in which such shareholder is a member' covers the shareholding pattern of M/s. Sterling Stonex P. Ltd. in the present context. Since 3 ITA No.479/Hyd/2011 M/s. KSR Infracon (P)Ltd.
(Formerly M/s. KSR Infrastructure Pvt. Ltd.), Hyderabad.) the assessee company received payment in the form of loan to the extent of Rs.34,50,431 from M/s. Sterling Stonex P. Ltd. in which share holders of the assessee company with twenty percent of the voting power held more than 10% shares for assessment year 2007-08, apart from the fact that M/s. Sterling Stonex P. Ltd. has sufficient accumulated profits as on 1.4.2006 to cover the loan amount, the Assessing Officer assumed that the unsecured loan advanced by the second company partakes the character of deemed dividend in the hands of the assessee.
6. Therefore, the Assessing Officer called upon the assessee as to why deemed dividend cannot be assessed to tax in its hands. In response thereto, the assessee submitted that deemed dividend is not taxable in the hands of the assessee company, as it is not a shareholder of M/s. Sterling Stonex P. Ltd., which has disbursed the loan and in this regard, relied upon the decisions of the Apex Court in the case of Rameshwarlal Sanwarmal V/s. CIT(122 ITR 1) and CIT V/s. Shakuntala (43 ITR 352). The Assessing Officer did not accept the contention of the assessee on the ground that the above mentioned decisions of the Apex Court are rendered prior to the amendment made to S.2(22)(e) of the Act, whereas the amended provisions of the said section enlarges the scope to include within itself, the kind of the transaction involved in the present case.
7. It may be noticed that the assessee has also placed strong reliance upon the Special Bench(Mumbai) decision of the Tribunal in the case of ACIT V/s. Baumik Colour Pvt. Ltd. (ITA No.5030/Mum/04)(118 ITD 1)(SB), wherein the Special Bench had taken a view that amended provisions of S.2(22)(e) envisages to tax only registered shareholders but not non-shareholders like the assessee company. However, the Assessing Officer proceeded to differ with the observations made by the Special Bench of the Tribunal(Mumbai), by observing in para 9 of the assessment order as under-
".....I beg to differ with observation as such interpretation may not create any problems when there is only one shareholder who is interested in 4 ITA No.479/Hyd/2011 M/s. KSR Infracon (P)Ltd.
(Formerly M/s. KSR Infrastructure Pvt. Ltd.), Hyderabad.) both concerns i.e. lender company and the concern receiving the loan amount. But like in present case, when multiple shareholders with substantial interest are members of both companies, then problem arises ass to in which shareholder's hands the loan amount advanced is to be taxed."
The Assessing Officer therefore, arrived at a conclusion that unsecured loan advanced by M/s. Sterling Stonex P. Ltd. to the assessee during the year is nothing but deemed dividend within the meaning of S.2(22)(e) of the Act, and therefore, taxable under the head 'income from other sources.'
8. Aggrieved, assessee contended before the CIT(A) that the expression 'share holder' in S.2(22)(e) is followed by the word 'being a person who is beneficial owner of the shares' and on a conjoint reading, the word 'share holder' means not only registered shareholder, but also a beneficial share holder and in this behalf reliance was placed on the Special Bench decision of the Tribunal in the case of Bhaumik Colour P. Ltd. In the light of the decision of the Special Bench of the Tribunal, the learned CIT(A) accepted the contention of the assessee by observing as under-
"5. I have carefully considered the submissions made on behalf of the appellant. The main thrust of the argument is that the provisions of Sec.2(22)(e) are applicable only to shareholders and not to the recipient non-shareholder. Elaborating further, it was contended that the appellant company was not a registered shareholder of M/s Sterling Stonex Pvt Ltd. There is no dispute over the fact that the share holders of the appellant company have substantial interest in the company from which the above amount of Rs.34,50,431/- has been received by the appellant company during the relevant period. The contention that the appellant company is not a shareholder in M/s Sterling Stonex Pvt Ltd. and therefore the provisions of section 2(22)(e) are not applicable, deserves a closer examination. Admittedly the share holders in the appellant company only have a substantial interest in the above company in their individual capacities. The facts of the case are similar to the case of CIT vs Raj Kumar Singh 295 ITR 9 (All) 2007 wherein it has been held that loan received by the firm from a private limited company whose shareholders are partners of the firm is not deemed income. In that case that case the appellant firm had received an interest-free loan from a private limited company, whose shareholders were the partners of the assessee firm. The revenue authorities had treated the loan received by the firm as deemed dividend under section 2(22)(e). On appeal, the high court observed that section 2(22)(e) applies only in cases where a shareholder has received any loan from the private limited company, whose shares are held by the shareholder. In the said case, the firm was not the shareholder but the partners of the firm were the shareholders. Since the loan was received by the firm and not the partners of the firm, the court held that the loan cannot be 5 ITA No.479/Hyd/2011 M/s. KSR Infracon (P)Ltd.
(Formerly M/s. KSR Infrastructure Pvt. Ltd.), Hyderabad.) treated as deemed dividend. A similar view has been taken by the Mumbai Tribunal in the case of CIT vs Bhaunik Colour Pvt Ltd. In ITA No. 5030/Murnl04 dt 19111/2008. It has been held that the intention of the legislature is to tax dividend only in the hands of the shareholder and not in the hands of the concern. The Hon'ble ITAT, Hyderabad in the case of Marc Manufacturers Pvt. Ltd. , differing from the judgment of the ITAT, Hyderabad in the case of Hyderabad Chemical Products Ltd relied upon by the Assessing Officer, followed the Special Bench decision of the Mumbai Tribunal in the case of CIT vs Bhaurnik Colour Pvt. Ltd. The appellant has relied on several subsequent decisions which have been based on the above Special Bench decision of the Mumbai Tribunal. Following the above judicial pronouncements, it is held that the provisions of section 2(22(e) are not applicable to the appellant as the appellant company is not a shareholder in M/s Sterling Stonex Pvt Ltd. Consequently, the addition of Rs.35,40,431/- u/s 2(22)(e) made in the assessment order is not sustainable in law and therefore, is deleted."
Aggrieved, Revenue is in appeal before us.
9. The learned Departmental Representative submitted that the emphasis has to be given to the plain meaning of the statute and any judgment which is contrary to the letter of law does not deserve to be followed. He then adverted our attention to the expression 'dividend' under S.2(22)(e) of the Act, to highlight that the expression 'to any concern in which such shareholder is a member' is incorporated in the section only to enlarge the scope of the expression 'deemed dividend', and in the instant case, the loan was given by M/s. Sterling Stonex P. Ltd. to the assessee company and the directors are shareholders of both the companies and hence the inclusive definition of the word 'dividend' takes into its fold such transactions also.
10. We have carefully considered the submissions of the Learned Departmental Representative and also perused the record. It deserves to be noticed that the very same plea taken by the Learned Departmental Representative before us in this case, was considered by the Special Bench(Mumbai) of the Tribunal in the case of Bhaumik Colour Pvt. Ltd. (supra). The view taken by the Special Bench in that case was referred to, but not overruled by the Hon'ble Bombay High Court, in the case of CIT V/s Universal Medicare Private Limited (2010)324 ITR 263. No contrary decision was brought to our notice by the Revenue to show that the transaction of the nature involved 6 ITA No.479/Hyd/2011 M/s. KSR Infracon (P)Ltd.
(Formerly M/s. KSR Infrastructure Pvt. Ltd.), Hyderabad.) in the present case would fall within the definition of 'deemed dividend' provided in the Act. It also deserves to be noticed that the Assessing Officer having noticed the fact that the ITAT Special Bench (Mumbai) had considered the language used in S.2(22)(e) of the Act, the Assessing Officer choose not to follow the reasoning given by the special Bench of ITAT rather than distinguishing the decision. At this juncture, we have to make it clear that the principle of stare decisis comes into play only when the plea taken by the revenue in a particular case was not considered in the earlier instance, as otherwise the earlier decision is binding on all the Courts for the sake of consistency, more so, when it emanates from the Special Bench order of the Tribunal, which is binding on all the benches of the Tribunal, unless a contrary view of the jurisdictional High Court is brought to the notice of the Bench. Admittedly, no contrary view was taken on this aspect, and thus, the learned CIT(A) was justified in following the decision of the Special bench of the Tribunal, and in coming to the concision that the addition made by the Assessing Officer under S.2(22)(e) is not sustainable in law. We therefore, uphold the order of the CIT(A), and dismiss the appeal filed by the Revenue.
11. In the result, Revenue's appeal dismissed.
Order pronounced in the court at the conclusion of hearing on 24.12.2013 Sd/- Sd/-
(B.Ramakotaiah ) (D.Manmohan)
Accountant Member Vice President
Dt/- 24th December 2013
Copy forwarded to:
1. M/s. KSR Infracon (P)Ltd. (Formerly M/s. KSR Infrastructure Pvt. Ltd.), Hyderabad.
2. Asst. Commissioner of Income-tax Circle 2(1), Hyderabad
3. Commissioner of Income-tax(Appeals) , Vijayawada 7 ITA No.479/Hyd/2011 M/s. KSR Infracon (P)Ltd.
(Formerly M/s. KSR Infrastructure Pvt. Ltd.), Hyderabad.)
4. Commissioner of Income-tax Vijayawada
5. Departmental Representative, ITAT, Hyderabad. B.V.S