Income Tax Appellate Tribunal - Chennai
Sindhya Infrastructure Development ... vs Department Of Income Tax on 27 February, 2009
IN THE INCOME-TAX APPELLATE TRIBUNAL
CHENNAI 'B' BENCH, CHENNAI.
Before Shri U.B.S. Bedi, Judicial Member &
Shri Abraham P. George, Accountant Member
I.T.A. No.484/Mds/2009
Assessment Year: 2006-07
M/s. Sindya Infrastructure The Assistant Commissioner of
Development Co. Pvt. Ltd., Vs. Income Tax,
77, Old No. 35, Pottipati Plaza, II Floor, Company Circle VI (3),
Nungambakkam High Road, Chennai.
Chennai 600 034.
[PAN:AAGCS6759M]
I.T.A. No. 1604/Mds/2009
Assessment Year: 2006-07
The Assistant Commissioner of Vs. M/s. Sindya Infrastructure
Income Tax, Development Co. Pvt. Ltd.,
Company Circle VI (3), 77, Old No. 35, Pottipati Plaza, II
Chennai. Floor, Nungambakkam High Road,
Chennai 600 034.
(Appellant) (Respondent)
Assessee by : Shri S. Sridhar
Revenue by Shri K.E.B. Rengarajan,
:
Jr. Standing Counsel
ORDER
PER U.B.S. Bedi, J.M.
These cross appeals - one by the Department and the other by the assessee are directed against the order passed by the ld. CIT(A) V, Chennai dated 27.02.2009 relevant to the assessment year 2006-07, whereby the Department in its appeal has challenged deletion of addition of `.10.19 crores made in the hands of assessee company on account of deemed dividend under section 2(22)(e), whereas in the appeal of the assessee, the challenge is with regard to action of ld. CIT(A) in not discussing and considering other relevant materials.
2 ITA Nos Nos. 484 & 1604/M 1604/Mds/ /Mds/0 ds/09
2. Facts indicate that the assessee, a closely held company, is in the business of real estate development. For the period under consideration, the return of income had been filed on 27.11.2007, the same was selected for scrutiny and assessment order dated 24.12.2008 was passed. The only addition to the returned income was taxation of a sum of `.10.19 crores received by the assessee company as unsecured loan from a sister concern Kalpatharu Enterprises Private Limited during the period under consideration, which was subjected to tax by the Assessing Officer as deemed dividend.
3. Aggrieved by this order of the Assessing officer, the assessee took up the matter in appeal. It was noticed by the ld. CIT(A) that during the course of assessment proceedings, from the details gathered, the Assessing Officer noted that the assessee company on 11.05.2005 had received a sum of `.10 crores from the sister concern Kalpatharu Enterprises Private Limited and another sum of `. 19 lakhs on 20.02.2006. Thus, the total of `.10.19 crores had been received by the aseessee company as unsecured loan from Kalpatharu Enterprises Private Limited. That company, it was also noted by the Assessing Officer, was one in which the public are not substantially interested and that company also had accumulated profits of `.12.72 crores. One Shri Dwarakanath Reddy owned 50% of the shares in the assessee company and also 48.45% of shares in the company Kalpatharu Enterprises Private Limited. On these facts, the Assessing Officer was of the opinion that all the conditions mentioned in the provisions of Section 2(22)(e) of the Income-tax Act had been met in this case and the amount of `. 10.19 crores was brought to tax as deemed dividend in the hands of the assessee company.
4. The ld. CIT(A), while considering the appeal of the assessee has concluded to allow the same vide para 3 of his order, which reads as under:
3 ITA Nos Nos. 484 & 1604/M 1604/Mds/ /Mds/0 ds/09 "3. The deeming provisions contained in Section 2(22)(e) come into operation in the case of any payment by way of advance or loan to a share holder or to any concern in which such share holder has substantial interest. Thus, loan or advance may be directly received by the share holder or in case the loan or advance is given to a concern in which such a share holder has substantial interest, such an indirect receipt of benefit to the share holder would come within the scope of Section 2(22)(e) and would be deemed to be dividend chargeable to tax. However, whether loan or advance had been received directly by the share holder or indirectly by way of loan or advance received by a concern in which such share holder had substantial interest, deemed receipt of dividend can only be in the hands of a substantial share holder. It is a fact that the assessee company itself is not a share holder in the company Kalpatharu Enterprises. Accordingly, no dividend, neither in the normal course nor deemed to have been received in terms of the provisions of Section 2(22)(e), could have been received by the assessee company from Kalpatharu Enterprises as long as the assessee company was not a share holder in that concern. Substantial share holder in the concern Kalpatharu Enterprises which gave the loan, was Shri P. Dwarakanath Reddy, and deemed dividend, if any, would be assessable in his hands alone and not in the hands of the assessee company. The assessment of deemed dividend in the hands of the assessee company, on the facts of the present case, was accordingly not correct and the appeal filed by the assessee company on this ground is hereby allowed."
5. The assessee as well as the Department are in appeal and the ld. Counsel for the assessee, at the very outset submitted that as a matter of fact, the assessee company is not a share holder in the company Kalpatharu Enterprises. Accordingly, no dividend would either in the normal course or deemed to have been received in terms of provisions of section 2(22)(e), could have received by the assessee company from the said company Kalpatharu Enterprises, as long as the assessee company was not a share holder in that concern. It was further submitted that the substantial share holder in the concern Kalpatharu Enterprises, which gave the loan, was Shri P. Dwarakanath Reddy and deemed dividend, if any, would be assessable in his hands and not in the hands of the assessee company. Therefore, assessment of the deemed dividend, in view of the facts and circumstances, in the hands of the assessee could not be made and it is submitted that the issue is squarely covered in favour of the assessee by the Special Bench decision in the case of ACIT vs. Bhaumik Colour (P.) Ltd. [2009] 118 ITD 4 ITA Nos Nos. 484 & 1604/M 1604/Mds/ /Mds/0 ds/09 1 (MUM)(SB). Since the issue is covered by the decision of the Special Bench of the Tribunal and the order of the ld. CIT(A) may be upheld and the appeal of the Revenue should be dismissed.
6. The ld. DR could not controvert this factual aspect and otherwise, he was not in a position to support the order of the Assessing Officer with any documentary material to suggest that either on facts or in law the decision of the ld. CIT(A) is not correct.
7. After having heard both the sides, considering the material on record and precedents relied upon by the ld. Counsel for the assessee, we find that the basis and reasoning as given by the ld. CIT(A) in deleting the addition made by the Assessing Officer are sound and convincing and moreover, the issue is squarely covered in favour of the assessee by the Special Bench decision in the case of ACIT vs. Bhaumik Colour (P.) Ltd. in which, the highlighted held portion reads as under:
Section 2(22) of the Income-tax Act, 1961 - Deemed dividend - Assessment year 1997-98 - Whether 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 other than a shareholder - Held, yes - Whether expression 'shareholder' referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder and, thus, if a person is a registered shareholder but not beneficial shareholder then provisions of section 2(22)(e) would not apply and similarly if a person is a beneficial shareholder but not a registered shareholder then also provisions of section 2(22)(e) would not apply - Held, yes - Whether deeming provision of section concern in which its shareholder has substantial interest, is based on presumption that loan or advances would ultimately be made available to shareholders of company giving loan or advance, and, thereore, intention of Legislature is to tax dividend only in hands of shareholder and not in hands of concern - Held, yes.
Words and phrases - The expression 'being a person who is beneficial owner of shares' occurring in section 2(22)(e) of Income-tax Act, 1961."
8. Therefore, we do not find any infirmity or flaw in the order passed by the ld. CIT(A), which is upheld and the appeal of the Revenue is dismissed.
5 ITA Nos Nos. 484 & 1604/M 1604/Mds/ /Mds/0 ds/09
9. So far as the appeal of he assessee is concerned, the ld. Counsel for the assessee very fairly conceded that the issue is squarely covered by the decision of the Special Bench of the Tribunal, therefore, there is no point in pressing the appeal and the same can be dismissed and the ld. DR did not object to such plea of the ld. Counsel for the assessee.
10. After considering the rival submissions, we dismiss the appeal of the assessee being not pressed.
11. As a result, the appeal of the Revenue and the appeal of the assessee are dismissed.
Order pronounced soon after the conclusion of hearing on 01.06.2011.
Sd/- Sd/- (ABRAHAM P. GEORGE) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER Vm/- Dated : 01.06.2011. Copy To: The assessee//A.O./CIT(A)/CIT/D.R.