Income Tax Appellate Tribunal - Agra
Nirmala Realtors Pvt. Ltd., Agra vs Assessee on 15 September, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL,
AGRA BENCH, AGRA
BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND
SHRI H.S. SIDHU, JUDICIAL MEMBER
ITA No. 69, 70 & 71/Agra/2011
Asstt. Year : 2003-04, 2004-05 & 2006-07
Nirmala Realtors Pvt. Ltd., vs. D.C.I.T., Circle 4(1),
64, Surya Nagar, Agra. Agra.
(Appellant) (Respondent)
For Appellant : Shri Vinod Nagpal, C.A.
For Respondent : Shri M.K. Srivastava, Sr. D.R.
ORDER
Per P.K. Bansal, A.M. :
For the sake of convenience all these three appeals are disposed of by this common order, as the issue involved in all these appeals are common. The assessee has taken following effective grounds :
ITA No. 69/Agra/2011 :
"1. That the order is against facts and law.
2. The Ld. CIT(A) has erred in not considering the facts stated by the assessee and coming to the conclusion that there was loan and advance of Rs.72 Lacs from the alleged lender.
3. The Ld. CIT(A) has erred in concluding that section 2(22)(e) is applicable in the case of the assessee. There is no payment received by the assessee and assessee is neither registered nor beneficial owner of any shares in the alleged lender.
4. The calculation of demand and tax is wrong."ITA No. 70/Agra/2011 :
"1. That the order is against facts and law.2
2. The Ld. CIT(A) has erred in not considering the facts stated by the assessee and coming to the conclusion that there was loan and advance of Rs.17 Lacs from the alleged lender.
3. The Ld. CIT(A) has erred in concluding that section 2(22)(e) is applicable in the case of the assessee. There is no payment received by the assessee and assessee is neither registered nor beneficial owner of any shares in the alleged lender.
4. The calculation of demand and tax is wrong."ITA No. 71/Agra/2011 :
"1. That the order is against facts and law.
2. In respect of the addition of Rs.2,85,470/- u/s. 68, the Ld. CIT(A) has erred in not considering the facts stated by the assessee and in not following the decision in earlier assessment years in assessee's own cases.
3. The Ld. CIT(A) has erred in not considering the facts stated by the assessee and coming to the conclusion that there was loan and advance of Rs.57,01,406/- from the alleged lender.
4. The Ld. CIT(A) has erred in concluding that section 2(22)(e) is applicable in the case of the assessee. There is no payment received by the assessee and assessee is neither registered nor beneficial owner of any shares in the alleged lender.
5. The calculation of demand and tax is wrong."
2. The grounds of appeal taken in assessment year 2003-04 and 2004-05 are common except change of the figures. The only issue involved in all the grounds in both the years relate to the deemed dividend u/s. 2 sub-sec. (22)(e) of the Income-tax Act. Similar issue has arisen in ground No. 3 & 4 for the assessment year 2006-07. First we are adjudicating the issue relating to the deemed dividend u/s. 2(22)(e) of the Act.
3
3. The brief facts of the case are that the Assessing Officer while framing the assessment for the assessment year 2006-07 came to know that the assessee has entered into transaction with its sister concern, M/s. Mahim Patran Pvt. Ltd. (hereinafter referred to as MPPL) by passing following entries.
Date Particulars Debit Credit
15.10.05 Savita Bhaskar (being amt. debited towards 8900000
Amount paid by MPPL on our behalf)
21.10.05 Bank of India C/A(being Ch. No.173901 issued 8900000
To M/s. MPPL in a/c of M/s. Nirmiti Associates
P. Ltd.
The assessee was asked to explain all the transactions made by the assessee with M/s. MPPL. The assessee vide reply dated 15.09.2008 submitted that net effect of the two entries each of Rs.89,00,000/- in the account of M/s. MPPL - one of the credit on 15.10.2005 and other of debit on 21.10.2005 is nil. In fact, M/s. MPPL had issued a cheque of Rs.89,00,000/- to Savita Bhasker, which as per advice of M/s. MPPL was credited to M/s. MPPL and debited to Savita Bhasker. Since M/s. MPPL claimed that payment on behalf of our company, the same was reimbursed to M/s. MPPL on 21.10.2005 through cheque. When subsequently, it was realized that the payment to Savita Bhaskar by M/s. MPPL was not on account of assessee, but on account of M/s. Nirmiti Associates Pvt. Ltd. (hereinafter referred to as NAPL), the assessee transferred debit in the account of Savita to NAPL and subsequently on 20.10.2005, NAPL paid the assessee by cheque. It was pointed out that the payment made by M/s. MPPL on behalf of Nirmala Realtors Pvt. Ltd. for the assessment year 2003-04 was to the extent of Rs.72,00,000/- the details of which are given at page 2 of the assessment order and similarly remaining Rs.17,00,000/- has been paid during the assessment year 2004-05 on behalf of the assessee. The assessee has entered into an agreement on 11.03.2002 with Shri Sanjeev Bhasker. As per the 4 agreement, the land was made available by Shri Sanjeev Bhaskar to the assessee and the finance for the construction was to be arranged by the assessee. The Assessing Officer accordingly was of the opinion that the payment made to Sanjeev Bhaskar's wife by M/s. MPPL was on behalf of the assessee in accordance with the agreement. Therefore, he treated the sum of Rs.72,00,000/- as deemed dividend u/s. 2(22)(e) for the assessment year 2003-04 and Rs.17,00,000/- for the assessment year 2004-05, as the case of the assessee, in his opinion was covered under the situation enumerated u/s. 2(22)(e) which states that any payment by the Private Limited company of any sum by way of loan or advance to the extent of accumulated profit to any person on behalf, or for the individual benefit, of any such shareholder, such shareholder here means a shareholder who is beneficial owner of shares holding not less than 10% voting power. The shareholders in M/s. MPPL having more than 10% shares are having substantial interest in assessee company. The share holding of the share holders of M/s. MPPL and that of the assessee are laid down as under :
M/s. MPPL Assessee
Milan Kapoor 10% 29%
Sudha Kapoor 10% 10%
Nirmala Kapoor 24% 01%
Madhukar Kapoor 24% 40%
Arvind Kapoor 24% 10%
Piyus Kapoor Nil 10%
As on 31.03.2002 and 31.03.2003, M/s. MPPL was having accumulated profit at Rs.1,89,77,272/- and Rs.2,59,07,641/- respectively.
4. The assessee went in appeal before the CIT(A). The CIT(A) confirmed the action of the Assessing Officer treating the sum of Rs.72,00,000/- as deemed dividend during the assessment year 2003-04 and Rs.17,00,000/- for the assessment year 2004-05 by observing as under : 5
"5. During the appellate proceedings, the arguments taken up before the AO were reiterated before me. After going through the records and carefully considering the submission of Ld. AR, I am of the opinion that provisions of sec. 2(22)(e) are clearly applicable in the appellant's case. Before I discuss the facts of the case of the appellant,t it is considered necessary to refer to the provisions of sec.2(22)(e). As per these provisions any loan or advance to a share holder or a concern is treated as dividend in certain cases to the extent of accumulated profits. The applicability of section 2(22)(e) depends on fulfillment of the following conditions-
(i) The company should be one in which the public are not substantially interested.
(ii) The equity shareholder, who is beneficial owner of shares holding not less than ten percent of voting power, or
(iii) Any concern in which share holder (holding not less 10% voting power) is a member or partner and in which he has a substantial interest, or
(iv) Any person, on behalf, or for the individual benefit of such shareholder. Such shareholder here means a shareholder who is beneficial owner of shares holding not less than 10% voting power.
The loan and advance given to such person shall be deemed to be dividend only to the extent to which it is shown that the company possesses accumulated profits on the date of loan etc. There are certain exceptions also provided in the subsection one of which is that any advance or loan to a share holder or specified concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company will not attract the provisions of sec. 2(22)(e). This exception shall apply only when two cumulative conditions are fulfilled - first, the loan should have been made by the company in the ordinary course of business and secondly, money lending should be substantial part of the company's business. Thus, the effect of sub-clause(e) of sub section (22) of sec. 2 is to create a fiction and treat the loans or advances to a shareholder who is the beneficial owner of shares holding 10% or more of the voting power of the company as dividend. It also includes payments made by the company on behalf or for the individual benefit of such share holder. It further includes advances or loans made to any concern in which such share holder is a member or partner and in which he has a substantial interest.
5.1 The Ld. AR has argued that the deemed dividend can be considered only in the hands of the shareholders and as the appellant is not a shareholder in M/s Mahin Patran (P)Ltd., therefore, u/s 2(22)(e) no deemed dividend can be considered in the hands of the appellant. If the argument of the Ld. AR is accepted that the advance or loan should be treated as dividend in hands of the shareholder concerned and not the concern, this construction as argued by the Ld. AR will create difficulties in a case where more than one shareholder has a substantial interest in the concern. It would, therefore, be more logical to tax the concern which enjoys benefit from the advance or loan though it has directly nothing to do with the closely held company. It is also conceivable that payments made to a concern in which the shareholder has no interest or even less than substantial interest if they can be shown to have been made on behalf of or for the individual benefit of such shareholder so as to attract the second part of the sub-clause (e) of sec.2(22). For this proposition of law a useful reference can be made to circular no. 495 dated 22.9.87 issued by the CBDT and the same is reproduced below- 6
"Definition of dividend - sec. 2(22)(e) Sec. 104 to 109 relates to levy of additional tax on certain closely-held companies (other than those in which the public are substantially interested) if they fail to distribute a specified percentage of their distributable profits as dividends. These provisions had lost much of their relevance with the reduction of the maximum marginal rate of personal tax to 50% which is lower than the rate for corporation tax on closely-held companies. Sec. 104 to 109 have, therefore, been omitted by the Finance Act, 1987.
With the deletion of sec. 104 to 109 there was a likelihood of closely-held companies not distributing their profits to shareholders by way of dividends but by way of loans or advances so that these are not taxed in the hands of the shareholders. To forestall this manipulation, sub- clause (e) of clause (22) of sec. 2 has been suitably amended. Under the existing provisions, payments by way of loans or advances to shareholders having substantial interest in a company to the extent to which the company possesses accumulated profits is treated as dividend. The shareholders having substantial interest are those who have a shareholding carrying not less than 20% voting power as per the provisions of sub-clause (32) of sec. 2. The amendment of the definition extends its application to payments made (i) to a shareholder holding not less than 10% of the voting power, or (ii) to a concern in which the shareholder has substantial interest. 'concern' as per the newly inserted explanation 3(a) to sec. 2(22) means an HUF or a firm or an AOP or a BOI or a company. A shareholder having a substantial interest in a concern as per part
(b) of the explanation 3 is deemed to be one who is beneficially entitled to not less than 20% of the income of such concern.
The new provision would, therefore, be applicable in a case where a shareholder has 10% or more of the equity capital. Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied.
(i) where the company makes the payments by way of loans or advances to a concern
(ii) where a member or a partner of the concern holds 10% of the voting power in the company
(iii) where the member or a partner of the concern is also beneficially entitled to 20% of the income of such concern With a view to avoid the hardship in cases where advances or loans have already been given, the new provisions have been made only in cases where loans or advances are given after 31.5.1987.
These amendments will apply in relation to AY 1988-89 and subsequent years."
Thus, the circular as reproduced above unequivocally states that on fulfillment of the conditions as mentioned above the deemed dividend would be taxed in the hands of the concern, in which a shareholder has substantial interest where such concern has received loan or advance from a closely held company. The AO's action in making the addition is in conformity with the circular of CBDT. The fact that the circulars issued by the CBDT are binding on the revenue authorities and cannot deviate therefrom nor can they take a view contrary thereto is well established by a catena of decisions from the Supreme Court as well as the High Courts and the Tribunals. The Ld. AR has relied on the case of CIT Vs. Bhaumik Color (P) Ltd. (120 TTJ) (Mumbai) (SB) 865 for the proposition that deemed dividend is taxable only in the hands of the shareholder and not in the hands of such concerns, which are not shareholder of the company. However, as pointed out the CBDT is of the view that the deemed dividend is taxable in the hands of 7 the concern in which the shareholder has substantial interest. In the case of Bhaumik Color (P) Ltd. (BCPL) the assessee company had taken interest free loan of Rs. 9 lakh from UPPL. The AO observed that though BCPL was not shareholder of UPPL yet both the companies had one common shareholder i.e. a trust NNT. The said trust was holding 20% shares of BCPL and 10% shares in UPPL. The AO, therefore, took the view that the said transaction was covered by the second limb of sec. 2(22) (e), however, the Hon'ble ITAT found NNT trust consisting of 3 trustees who held shares in UPPL and BPCL on behalf of 5 beneficiaries. On these facts the tribunal held that the expression 'shareholder being a person who is the beneficial owner of shares' referred to in first limb of sec. 2(22)(e) refers to both a registered shareholder and beneficial shareholder, if a person is registered shareholder but not the beneficial shareholder, then the provisions of sec. 2(22)(e) will not apply. The issue of deemed dividend came for consideration subsequently before Hon'ble ITAT Mumbai F Bench, Mumbai in the case of M/s Unisol Infraservices (P) Ltd. Vs. ITO Ward 8(3)(4) Mumbai and this case has been decided in ITA no. 2088/Mum/2008 vide order dated 11.8.09. The facts of the case were that Shri Rajiv Shete and Smt. Hemal Shete were common shareholders of the assessee company and M/s Element Investment (P) Ltd. with 34.65% and 25.86% shareholding in assessee company and 50.1% and 19.9% in M/s Element (P) Ltd. the assessee company took loan of Rs. 12 lakhs from M/s Element Investment (P) Ltd. The AO invoked the provisions of sec. 2(22)(e) and brought to tax the deemed dividend in the hands of the assessee. The CIT(A) confirmed the order of the AO. On further appeal the Hon'ble ITAT held as under :
''The Ld. AR for the assessee relying on the decision of the Special Bench of the Mumbai Tribunal in ACIT Vs. Bhaumik Colour (P) Ltd. (2009) 27 SOT 270 (Mum.) (SB). Further, the Ld. AR pointed out that the amount of Rs. 12,00,000 cannot be assessed in the hands of the assessee as the assessee's case covered by the sub-clause (ii) to sec. 2(22)(e) of the Act. The Ld. DR relied on the order of the authorities below.
We have heard the rival submissions and perused the records. The facts and circumstances of the case before the Special Bench are entirely different to the facts and circumstances of the case before us. In the case before the Special Bench the trustees of Narmadaben Nandlal Trust (NNT) held the shares on behalf of the trust only as legal owners and were not the beneficial owners of the shares. Whereas, in the case before us, Shri Raju Shete and Smt. Hemal Shete are the common shareholders in both the companies i.e. in the assessee company as well as in the lending company i.e. M/s Element Investment (P) Ltd. The expression 'shareholder' referred to in sec. 2(22)(e) refers to both a registered shareholder and beneficial shareholder. In the case before us, Shru Raju Shete and Smt. Hemal Shete are the registered shareholders as well as the beneficial shareholders. Hence, the provisions of sec. 2(22)(e) of the Act are applicable in this case. Thus, this ground of appeal raised by the assessee is dismissed.'' Thus, it will seen that the Hon'ble Tribunal distinguished the case of Bhaumik Colour (P) Ltd. (cited supra) and held that as that as the share holders were common in both the companies and they were registered as well as beneficial shareholders, therefore, the provisions of sec. 2(22)(e) were applicable. As regards the case of CIT Vs. Hilltop (cited supra) it is not a case of jurisdictional High Court.
In the case of Aswani Enterprises Vs. ACIT (120 ITD 38) assessee firm received advances from a company in which its two partners were shareholders having substantial 8 interest which were utilised by the assessee in its own business and could not be said to be normal business transaction, on these facts the Hon'ble Tribunal held that amount received during the year had to be considered as deemed dividend u/s 2(22)(e) in the case of the assessee firm.
5.2 Now coming to the facts of the appellant's case the fact of the matter is that during the year under consideration as sum of Rs. 72 lacs was paid by MPPL on behalf of the appellant to Smt. Savita Bhaskar vide assessee's own admission cheque of Rs. 89 lacs was issued to Smt. Savita Bhaskar on behalf of the appellant co., therefore MPPL was credited to the extent and Smt. Savita Bhaskar was debited in the assessee's books of account. This payment of Rs. 89 lacs was also made by the assessee company to MPPL on 21.10.05 but as per the assessee the payment was paid by MPPL not on behalf of the appellant but on account of Nirmala Associates (P) Ltd. Therefore, it is clear that the sum of Rs. 72 lacs was paid by the MPPL on behalf of the appellant co. to Smt. Savita Bhaskar. Also, it is pertinent to mention here that jugglery of accounting entries cannot take away the substance and the nature of payments made to Smt. Savita Bhaskar. The payment made by MPPL to Smt. Savita Bhaskar on behalf of the appellant co. is not for any business consideration and it is also not covered by any of the exceptions as given in sec. 2(22)(e) of the Act. Therefore, I am in agreement with the AO that provisions of sec. 2(22)(e) are clearly applicable in the appellant's case. The grounds of appeal are dismissed".
5. The learned AR before us contended that the Assessing Officer has arrived at the conclusion that the payment made by M/s. MPPL to Smt. Savita Bhasker were on behalf of the assessee on the basis of the agreement dated 11.03.2002 between Sanjeev Bhasker and the assessee. The agreement was entered into between the assessee and Shri Sanjeev Bhasker. Smt. Savita Bhasker was not a party to this agreement. The agreement was merely a draft agreement and para 7 of the agreement clearly states that a formal corroboration /purchase agreement will be arrived at as soon as it is feasible but not later than 30.04.2002. The agreement dated 11.03.2002 ceased to operate, as no corroboration agreement was entered into by 30.04.2002.
Shri Sanjeev Bhaskr even did not return Rs.5,00,000/- given as an advance at the time of agreement dated 11.03.2002. The payment made by M/s. MPPL to Smt. Savita Bhasker has nothing to do with the agreement as well as the assessee company. The amount paid to Smt. Savita Bhasker has duly been shown as realizable in the books of M/s. MPPL. In the account of assessee, there is no liability in respect of Rs.72,00,000/- paid by M/s. MPPL to Smt. Savita 9 Bhasker. Referring to the final account of M/s. MPPL, it was pointed out that M/s. MPPL is showing these amounts recoverable from Smt. Savita Bhasker and not from the assessee. The assessee-company is not share holder in M/s. MPPL. The addition for the deemed dividend can be made only in the name of the registered share holder. Referring to section 2(22)(e), it was contended that that section deems following categories of Loans & Advances by closely held companies as deemed dividend subject to the fact that to that extent, it has accumulated profits :
a. to a shareholder having substantial interest in company who also is beneficial owner of shares.
b. To any concern in which such share holder is member or a partner having substantial interest.
c. Any payment on behalf of or individual benefit of such shareholder It was submitted that the amount of Rs. 72,00,000/- + Rs.17,00,000/- added as deemed dividend does not fall under any of these categories thus the addition is against facts. This issue is being dealt with subsequently where additions are being objected to on account of facts.
6. Narrating the legal situation on the point, it was argued that assuming for sake of agreements accepting that the amount added i.e. Rs. 72,00,000/- + Rs.17,00,000/- is a Loans & Advance of the categories (b) mentioned here in above. In other words if it is a deemed dividend then question arises in whose hand it will be taxed.
7. In the case of CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170 (SC), the provisions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income-tax Act, 1961 came up for consideration. In the said case, members of a Hindu undivided family acquired shares in a company with the fund of the family. Loans were granted to the Hindu 10 undivided family and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act,1922. The apex court held that only loans advanced to shareholders could be deemed to be dividends under section 2(6A)(e) of the Act, the Hindu undivided family could not be considered to be a " shareholder" under section 2(6A)(e) of the Act and hence, loans given to the Hindu undivided family will not be considered as loans advanced to " shareholder" of the company and could not, therefore, be deemed to be its income.
The apex court further held that when the Act speaks of shareholder it refers to the registered shareholder.
8. The aforesaid decision of the apex court in the case of C. P. Sarathy Mudaliar [1972] 83 ITR 170 has been followed by the apex court in the case of Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1. In this case, the company advanced the loans to the assessee-Hindu undivided family who was the beneficial owners of the shares in the company, but the shares were registered in the name of the individual karta, who held the shares for and on behalf of the Hindu undivided family. On the above facts, the question before the Supreme Court was whether the loans advanced to the Hindu undivided family-the beneficial owner of the shares-would be taxed as deemed dividend in the hands of the Hindu undivided family. The Supreme Court held that the Hindu undivided family being only the beneficial shareholder and not a registered shareholder would not fall within the purview of section 2(6A)(e) of the 1922 Act. The apex court observed as follows ::
"What section 2(6A)(e) is designed to strike at is advance or loan to a ` shareholder` and the word ` shareholder` can mean only a registered shareholder. It is difficult to see how a beneficial owner of shares whose name does not appear in the register of shareholders of the company can be said to be a ` shareholder'. He may be beneficially entitled to the share but he is certainly not a ` shareholder`. It is only the person whose name is entered 11 in the register of the shareholders of the company as the holder of the shares who can be said to be a shareholder qua the company and not the person beneficially entitled to the shares. It is the former who is a ` shareholder` within the matrix and scheme of the company law and not the latter. We are, therefore, of the view that it is only where a loan is advanced by the company to a registered shareholder and the other conditions set out in section 2(6A)(e) are satisfied that the amount of the loan would be liable to be regarded as ` deemed dividend` within the meaning of section 2(6A)(e)."
It was contended that It is clear from the observation of honorable Apex Court in these decisions that dividend can be Taxed only in the hand of registered shareholder. These two decisions were given by the Apex Court u/s 2(6A) of Income Tax Act 1922. The expression " shareholder" has been interpreted under the 1922 Act to mean a registered shareholder. This expression "
shareholder" found in the 1961 Act has to be, therefore, construed as applying only to registered shareholder. It is a principle of interpretation of statutes that where once certain words in an Act have received a judicial construction in one of the superior courts, and the Legislature has repeated them in a sub- sequent statute, the Legislature must be taken to have used them according to the meaning which a court of competent jurisdiction has given them.
9. The assessee is not shareholder of Mahim Patran (P) Ltd. neither registered nor beneficial. For this reason alone the addition must fail. The provisions of sec 2(22)(e) came for consideration before honorable Rajsthan High Court in the matter of CIT Vs Hotel Hiltop [2009] 313 ITR 116. In this case the Assessing Officer added Rs. 10 lakhs in hands of M/s Hotel Hiltop (a partnership firm) taking the amount received by this firm from Hiltop Palace Hotels (P) Ltd. as deemed dividends as the "payment to a concern" which satisfied the requirement of level of shareholding/interest as envisaged u/s sec 2(22)(e). The assessee objected to addition in first appeal on the ground that M/s Hotel hilltop is not registered shareholder of the Hiltop Palace Hotels (P) Ltd. and succeeded. The department went to the Tribunal but assessee's contention 12 succeeded. The hon` ble Rajasthan court on revenue's appeal held as follows (page 119 of 313 ITR) :
" The more important aspect, being the requirement of section 2(22)(e) is that the payment may be made to any concern, in which such shareholder is a member or partner and in which he has substantial interest or any payment by any such company on behalf or for the individual benefit of any such shareholder. Thus, the substance of the requirement is that the payment should be made on behalf of or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf or for whose individual benefit the amount is paid by the company whether to the shareholder or to the concerned firm. In which event, it would fall within the expression ` deemed dividend`. Obviously, income from dividend is taxable as income from the other sources under section 56 of the Act, and in the very nature of things the income has to be of the person earning the income. The assessee in the present case is not shown to be one of the persons being shareholder. Of course, the two individuals being Roop Kumar and Devendra Kumar are the common persons, holding more than requisite amount of shareholding and having requisite interest in the firm but then thereby the deemed dividend would not be deemed dividend in the hands of the firm rather it would obviously be deemed dividend in the hands of the individual, on whose behalf or on whose individual benefit being such shareholder the amount is paid by the company to the concern.
Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend could be attracted in the hands of the individuals being the shareholders and not in the hands of the firm."
The aforesaid decision of the Hon`ble Rajasthan High Court which is the only decision of the High Court, should be sufficient to answer reason/question No. 1.
10. The principle settled by Honourable High Court in the case of Hotel Hiltop was also followed by special Bench (SB) of ITAT constituted to consider provisions of sec 2 (22) (e) in view of two earlier conflicting decision of two separate benches in 2 separate cases. The decision of special bench in the case of "ACIT V Bhanmik Colour Pvt. Ltd." (2009) 313 ITR 0146 also concluded that loans & advances even if they fall in the definition of deemed dividends as envisaged in sec 2 (22) (e) can be taxed only if the assessee is registered and beneficial owner of shares. This is very detailed case law and while following decision of honourable Rajasthan High 13 court in the Case of M/s Hotel Hilltop SB observed that if the section 2(22) (e) envisaged taxing non shareholders then relief given in sec 2(22) (e) (iii) becomes redundant. This section 2 (22)
(iii) provides for set off of payment - considered as dividend under section 2(22) (e) against the subsequent dividend paid by the company. If the concerns without being shareholder are taxed for deemed dividend then the set off envisaged u/s 2(22) (e) (iii) can not be granted to them as the dividend will not be received by them they being not registered shareholders. This further establishes that sec 2 (22) (e) never contemplated taxing non registered shareholders. Thus it was submitted that the addition of Rs. 72,00,000/- + Rs.17,00,000/- is liable to be deleted deleted as the assessee is not a shareholder of Mahim Patran Pvt. Ltd.
11. The learned DR, on the other hand, vehemently contended that the payment of Rs.89,00,000/- was made by M/s. MPPL to Smt. Savita Bhasker only on behalf of the assessee and on account of the agreement being entered into between the assessee company as well as her husband, Sri Sanjeev Bhasker, as under the agreement, the finance for the construction of the building was to be arranged by the assessee. It is a case where the payment has been made by M/s. MPPL for the benefit of the assessee company. No doubt, the assessee company was not the share holder in M/s. MPPL, but all the share holders of M/s. MPPL were the share holders of Nirmala Realtors Pvt. Ltd. It is not in dispute that as on 31.03.2002 and 31.03.2003 M/s. MPPL was having accumulated profit to the extent the loan was granted to the assessee. He relied on the order of CIT(A) as well as on the order of the Assessing Officer.
12. We have carefully considered the rival submissions along with the order of the tax authorities below. This is uncontroverted fact that M/s. MPPL has paid a sum of Rs.89,00,000/-, 14 i.e., Rs.72,00,000/- on various dates during the assessment year 2003-04 and Rs.17,00,000/- on various dates during the assessment year 2004-05 to Smt. Savita Bhasker. The said amount has duly been shown in the audited balance sheet of M/s. MPPL under the head "advance to others"
as recoverable from Smt. Savita Bhasker, which is apparent from page 30 of the paper book.
There were following registered share holders in M/s. MPPL as well as in assessee-company.
MPPL Assessee
Milan Kapoor 10% 29%
Sudha Kapoor 10% 10%
Nirmala Kapoor 24% 01%
Madhukar Kapoor 24% 40%
Arvind Kapoor 24% 10%
Piyus Kapoor Nil 10%
13. Shri Sanjeev Bhasker has entered into an agreement on 11.03.2002 titled as initial agreement with the assessee for the development of the project on a plot measuring 960 sq. meter situated at village Vahapur, Mathura Road, New Delhi. The land was to be contributed by Sri Sanjeev Bhasker and finance was to be arranged by the assessee company. As per clause 3 of the said agreement, the assessee company has paid Rs.5,00,000/- as refundable securities to first party, which was to be refunded on the completion of the project. In clause 7 of the said agreement it was mentioned that the formal corroboration/purchase agreement will be arrived at as soon as it is feasible, but not later than 30.04.2002. No formal agreement was ever entered into as claimed by the assessee and Shri Sanjeev Bhasker even did not return the amount of Rs.5,00,000/- to the assessee. The agreement ceased to exist on 01.05.2002. We noted from the facts for the assessment year 2003-04 that the first payment of Rs.7,00,000/- was made to Smt. Savita Bhasker by MPPL on 17.05.2002, i.e., much after the date of the agreement. No iota of evidence were brought on record or placed before us by the Revenue, which may prove that the 15 initial agreement remains in existence. Even there is no evidence available on record, which may prove that the payment has been made on behalf of the assessee company to Smt. Savita Bhasker. There is no entry in the books of the assessee in respect of the advance made by M/s.
MPPL to Smt. Savita Bhasker in the books relating to the assessment year 2003-04 and 2004-05.
This is the settled law that onus is on the person, who alleges apparent is not real in view of the decision of Hon'ble Supreme Court in the case of Daulat Ram Rawatmull, 87 ITR 349 (SC).
The onus, in our opinion lies on the revenue to prove that the payment has been made by M/s.
MPPL on behalf of the assessee to Smt. Savita Bhasker for executing the agreement entered into between assessee and Shri Sanjeev Bhaskar. The Revenue in this case except alleging that the payment has been made for the benefit of the assessee, has not brought any material on record.
Under these facts, we do not agree that the payment has been made by M/s. MPPL to Mrs. Savita Bhasker for an on behalf of the assessee. Smt. Savita Bhasker, we noted, is not a party even to the initial agreement entered into between the assessee and Sri Sanjeev Bhasker. Payment made to Smt. Savita Bhaskar cannot be deemed to have been made to Shri Sanjeev Bhaskar. Even there is no such deeming provision under the Income Tax Act. Each individual is a separate assessee.
14. Now we come to the question whether the provision of section 2(22)(e) is applicable in the case of the assessee or not. Before deciding this question, it would be better to examine the provisions of section 2(22)(e) of the Act. Section 2(22)(e) as amended with effect from 1st April, 1988 reads as under:-
"(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 the 31st day of May, 1987, by way of 16 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 a right to participate in profits) holding not less than ten per cent 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 (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."
15. This section which is equivalent to section 2(6A)(e) of the Income-tax Act, 1922 was for the first time introduced as by the Finance Act, 1955 which states as follows :
(a) "Any payment by a company, not being a company in which the public are substantially interested within the meaning of section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, or any payment by any such company on behalf, or for the individual benefit, of a shareholder, to the extent to which the company in either case possesses accumulated profits."
Prior to 1st April 1988, Section 2(22) of the Income-tax Act, 1961 defines dividend as follows :
"Section 2(22) "dividend" includes-- (a) to (d) ....................
(e) Any payment made 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) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, 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."
16. Under the Income-tax Act, 1922, two categories of payment were considered as dividend viz.
(a) any payment by way of advance or loan to a shareholder , or
(b) any payment by any such company on behalf or for the individual benefit of a shareholder.
17
17. In the 1961 Act, for these very same payments an additional condition was introduced that the payment should be to a shareholder being a person who is the beneficial owner of shares and who has a substantial interest in the company i.e. a shareholding which carries not less than 20% of the voting power. This percentage of voting power was reduced from 20% to 10% with effect from 1st April, 1988 by the 1987 amendment. By the very same amendment, 'payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest' was also considered as dividend. As per section 2(32) the expression "person who has a substantial interest in the company", in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than 20% of the voting power. "such shareholder" is the shareholder who is a registered and a beneficial holder of shares holding 10% voting power. (which in this case are only Mr. Milan Kapur and Mr. Madukar Kapur as each of them is holding more than 20% shareholding in assesse's capital).
18. Through this sub-clause, deeming fiction is created whereby the scope and ambit of the word dividend has been enlarged to bring within its cover loans granted by closely held companies to their shareholders. In order to have a check on similar transactions, the legislation widens the scope of the term 'dividend' to include loans granted to shareholder by the closely held companies. The word 'deemed' has not been defined anywhere in the Act. Neither has the word been used in section 2(22)(e). Deemed dividend is therefore a legal fiction created wherein certain payments by companies are deemed to be dividends. This is a settled law in view of the decisions of Apex Court in the case of State of Bombay vs. Pandurang Vinayak Chaphalkar (1953) SCR 773 that Legal fictions are created only for a definite purpose and they are limited to the purpose for which they are created and cannot extend beyond their legitimate field. The legal 18 fiction is of course to be carried to its logical conclusion, but that must be within the framework of the purpose for which it is created. The Courts must assume that such a state of affairs exists as real, and should imagine as real the consequences and incidents which invariably flow therefrom, and give effect to them. Further, a deeming provision may be intended to enlarge the meaning of a particular word or to include matters which otherwise may or may not fall within the main provision [ Refer: G. Viswanathan vs. Hon'ble Speaker, Tamil Nadu Legislative Assembly (1996) 2 SCC 353 (SC)]. This provision, thus, would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. It is now a well settled law that the fiction is to be carried to its logical end however, at the same time, it can also not be expanded so as to include the facts which require substantial modification as compared to the facts to be captured as prescribed by the legislature.
19. From the reading of section 2(22)(e), it is apparent that it has the effect of bringing to tax as dividend below referred types of payments made by a company:
• any payment of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder (extended to payment to concerns in which shareholder holds substantial interest);
• any payment on behalf of a shareholder; • any payment for the individual benefit of a shareholder.
20. Any of the above referred payments would be taxed under this sub-clause if following three conditions are fulfilled:
• The company not to be the one in which the 'Public are substantially interested" within the meaning of Section 2(18);
• If the advance or loan is made after 31 May, 1987 to a shareholder who beneficially owns at least 10 per cent of the equity capital, or to a concern in which he is member / partner and is beneficially entitled to not less than 20% of income of the concern.19
• The Company should possess accumulated profits at the time it makes the payment, the payment being deemed to be dividend only to the extent of such profits.
21. A loan to a shareholder is deemed as dividend, irrespective of the purpose of the loan or period of the loan. Under this sub-clause the 'deemed' dividend is to the extent of the entire accumulated profits and not merely a portion of such profits proportionate to the assessee's shareholding in the capital of the company. If the accumulated profits are capitalized, they cannot be taken into account for the purposes of this sub-clause. Similarly, when an amount lent has already been considered fictionally to be dividend, the same amount when repaid and relent cannot again attract the fiction and be once again deemed to be dividend. Therefore, in considering the taxability of subsequent transactions, the accumulated profits should be notionally reduced by the amount of all loans and other benefits which were once deemed to be dividend.
22. Further, in order to attract the application of this clause, the person should be a shareholder and he should beneficially own at least ten per cent of the equity capital. A shareholder means a person in whose name the shares stand in the share register of the company;
therefore, if a person is merely the beneficial owner of shares, without being the registered shareholder, this clause would not apply to him.
23. Section also prescribes an exception to the above rule. Such exception applies where two cumulative conditions are satisfied -
• Firstly, the loan should have been made by the company in the ordinary course of its business, and • Secondly, money lending should be a substantial part of the company's business. 20
24. Further, the section also gives relief by providing that any subsequent dividend declared by the company and set-off against the loan or advance, which has been deemed as 'dividend' under sub-clause (e), then to the extent of such set-off, it would not be again treated as dividend. That is to say, if the dividend is not so set off but is paid to the shareholder while the loan remains outstanding, the benefit of sub-cl (iii) cannot be obtained.
25. Shareholder has not been defined and in absence of specific definition it will only refer to registered shareholder. In the case of CIT vs. C.P. Sarathy Mudaliar 83 ITR 170 (SC) as relied by Ld. AR, the provisions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income-tax Act, 1961, came up for consideration. In the said case, members of HUF acquired shares in a company with the fund of the family. Loans were granted to HUF and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act, 1922. The apex Court held that only loans advanced to shareholders could be deemed to be dividends under section 2(6A)(e) of the Act; the HUF could not be considered to be a 'shareholder' under section 2(6A)(e) of the Act and hence, loans given to the HUF will not be considered as loans advanced to "shareholder" of the company and could not, therefore, be deemed to be its income. The apex Court further held that when the Act speaks of shareholder it refers to the registered shareholder. The aforesaid decision of the apex Court in the case of C.P. Sarathy Mudaliar (supra) has been reiterated by the apex Court in the case of Rameshwarlal Sanwarmal vs. CIT 122 ITR 1 (SC). It is clear from the aforesaid pronouncement of the Supreme Court that to attract the provisions of section 2(22)(e) 21 the payment must be to a person who is a registered holder of shares. In the instant case the assessee company is not the registered shareholder of M/s MPPL.
26. The condition under the Income Tax Act, 1961 regarding the payee being a shareholder remains the same as it was under the Income-tax Act, 1922 and the condition that such shareholder should be beneficial owner of the shares and the percentage of voting power that such shareholder should hold has been prescribed as an additional condition under the present law. In the Act, the word "shareholder" is followed by the expression "being a person who is the beneficial owner of shares". This expression used in section 2(22)(e) both in the Act, and in the amended provisions with effect from 1st April, 1988 only qualifies the word "shareholder" and does not in any way alter the position that the shareholder has to be a registered shareholder. Therefore, decisions of the apex Court in the case of CIT Vs. Sarathy Mudaliar (supra) and that of Rameshwarlal Sanwarmal Vs. CIT (Supra) interpreting the term "shareholder" under the Income-tax Act, 1922, in our opinion, is equally applicable to section 2(22)(e) as is in existence today. This also does not reduce the requirement of being a registered shareholder to a requirement of merely holding a beneficial interest in the shares without being a registered holder of shares. The expression "being a person who is the beneficial owner of shares" is therefore a further requirement before a shareholder can be said to fall within the parameters of section 2(22)(e) of the Act. In the Act, section 2(22)(e) imposes a further condition that the shareholder has also to be beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power.
22
27. The expression "shareholder being a person who is the beneficial owner of shares"
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, then the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. Mumbai ITAT Special Bench in the case of ACIT vs. Bhaumik Colour P. Ltd., 313 ITR (AT) 147 (Mumbai) [SB] has held that for the purpose of deemed dividend under section 2(22)(e) the shareholder must be both registered and beneficial shareholder on which the Ld. AR has heavily relied.
28. Until 1987, only payments to shareholders were deemed as 'dividend' under sub-clause
(e). However, with effect from 1st April, 1988, 'payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest' was also included in deeming fiction of Section 2(22)(e). Explanation 3 to Section 2(22) declares that a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern. In relation to a company, section 2(32) defines the expression "person who has a substantial interest in the company", to mean a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than 20% of the voting power. If the payment is to a concern, then such a person should also be a member or a partner in the said concern, holding substantial interest in the concern. In case the concern is a company, then he must be the owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than 20% of the voting power. If the concern is not a company, he must at any time during the previous year, be beneficially entitled to not less than 20% of the 23 income of such concern. "Such shareholder" is the shareholder who is a registered and a beneficial holder of shares holding 10% voting power. Therefore, the expanded meaning of 'dividend' as applied to payments to even non-shareholder would be applicable if all of the following conditions are fulfilled -
(a) The person is a registered shareholder of the company
(b) The person is beneficially entitled to shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power of the company;
(c) The person is a member or partner in other concern
(d) The person has substantial interest in the concern referred to in clause (c) above.
29. In the case of DCIT vs. National Travel Services 31 SOT 76 (Del), the Tribunal held that where a firm is only a beneficial owner of shares and the shares are registered in the names of the partners, the loan obtained by the firm from the company whose shares to the extent of 48.18 per cent are held by the partners of the firm, cannot be deemed as dividend in the hands of the firm. In case the amount received by the assessee is treated as loan and advances given by the company, this decision is squarely applicable to the facts of impugned case and the assessee company cannot be liable for deemed dividend. Similarly, in the case of Raj Kumar Singh & Co. vs. DCIT 52 TTJ 221 (All), the Tribunal held that Sec. 2(22)(e) can be invoked only in case of registered shareholder and not a beneficial shareholder . Shares, though belonging to the firm but registered in the name of partners, the firm cannot be made liable under s. 2(22)(e) in respect of loans obtained from the company.
30. In the case of the assessee since the assessee is not the shareholder of the company, the payment made to Savita Bhaskar even if it is assumed are made on behalf of the assessee cannot 24 be regarded to be the deemed dividend within the provisions of section 2(22)(e) of the Income Tax Act, 1961.
31. Another important issue that arises for consideration is, whether this payment can be assessed in the hand of the assessee as deemed dividend being the payment to a concern where shareholder holds substantial interest, in whose hands the income would be brought to tax, whether in the hands of the "concern" or the "share holder? The assessing officer added it in the hands of the concern i.e. the assessee and CIT(A) has also confirmed the same. Even though CBDT Circular No.495, dated September 22, 1987, 168 ITR (St.) 87 states that the deemed dividend would be taxed in the hands of a concern (non-shareholder) if the conditions mentioned in the section are satisfied. However, our view is different in view of the decisions taken by the various courts.
32. The similar issue came up for consideration before Mumbai ITAT (Special Bench) in case of ACIT vs. Bhaumik Colour P. Ltd. 313 ITR 146 (AT). The Special Bench held that the provisions of section 2(22)(e) do not spell out as to whether the income has to be taxed in the hands of the shareholder or the concern (non shareholder). It further observed that since the provisions are ambiguous, it is therefore necessary to examine the intention behind enacting the provisions of section 2(22)(e) of the Act. In furtherance it was stated that the intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the Legislature is therefore to tax dividend only in the hands of the shareholder and 25 not in the hands of the concern and accordingly it held that deemed dividend under section 2(22)(e) of the Act can be assessed only in the hands of a shareholder of the lender company and not in the hands of any other person.
33. We also noted recently, Mumbai High Court, in its decision in case of CIT Vs. Universal Medicare Private Limited (324 ITR 263), approved the position taken by the Special Bench decision in case of ACIT vs. Bhaumik Colour P. Ltd. (supra) holding that the definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. It further observed that the effect of clause (e) of Section 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder and thereby it has to be taxed in the hands of shareholder. Hon'ble Rajasthan High Court also taken the similar view in the case of Hilltop Palace Hotels P. Ltd 313 ITR 116 (Raj). No contrary decision was brought to our knowledge.
34. Now, we would like to deal with the contention of the Ld. A.R. whether the said judgment of the Bombay High Court and Rajasthan High Court are having binding force on us or not. On this issue , We find that the Bombay High Court in the case of Thana Electricity Supply Ltd. 206 ITR 727 has laid down categorically with regard to the precedent that the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its territorial jurisdiction. In the said judgment, Hon'ble High Court after discussing the various judgments of Hon'ble Supreme Court hold the following proposition of law on the binding force of a judgement at page 738 of the judgment :
"(a) The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme 26 Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is binding is, of course, the ratio of the decision and not every expression found therein.
(b) The decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction.
(c) The position in regard to the binding nature of the decisions of a High Court on' different Benches of the same court may be summed up as follows:
(i) A single judge of a High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with the same, the proper procedure is" to refer the binding decision and direct, the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question (see Food Corporation of India v.
Yadav Engineer and Contractor, AIR 1982 SC 1302).
(ii). A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should' refer the case to a larger Bench.
(iii). Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decisions is to be preferred if reached after full consideration of the earlier decisions.
(d) The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own' territorial jurisdiction. It is well-settled that the decision of a High', Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other State or outside the territorial jurisdiction of that High Court it may, at' best, have only persuasive effect. By no amount of stretching of the doctrine of stare decisis, can judgments of one High Court be given the status of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their 27 jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of article 141 of the Constitution."
35. Thus, the Mumbai High Court in the aforesaid judgment has clearly laid down that the decision of the non-jurisdictional High Court is not binding. In order to understand and appreciate the binding force of a decision, it is always necessary to see what were the facts of the case and what was the point which had to be decided. A precedent is a judicial decision which contains in itself a principle. The underlying principle which thus forms its authoritative element is called ratio decendi. The concrete decision is binding between the parties to it, but it is the abstract ratio decidendi which alone has the force of law as regards the world at large. 'The only use of authorities or decided cases' is the establishment of some principle, which the judge can follow out in deciding the case before him'. The only thing in a judge's decision binding as an authority upon a subsequent judge is the principle upon which the case was decided. The only judicial principles which are authoritative are those which are thus relevant in their subject matter and limited in their scope. All others, at the best are of merely persuasive efficacy. They are not true ratio decidendi, and are distinguished from them, under the name of dicta or obiter dicta i.e. things said by the way. The prerogative of judges is not to make law by formulating and declaring it-this pertains to the legislature-but to make law by applying it. Judicial declaration, unaccompanied by judicial application, is not of binding authority. All persons within a state are bound to follow the decisions of the high court for that state, until they are subsequently overruled either by a larger bench of that court or by a decision of the Supreme Court or by an enactment passed by the legislature. It is, however, a statutory rule that a judge is not to be assumed to have intended to overrule or disapprove of an authority which has not been cited to him and which he does not even mention. Moreover, it is not open to the legislature to overrule 28 or set aside a decision of the court. It is open to the legislature, within certain limits, to amend the provisions of an Act retrospectively and to declare what the law shall be deemed to have been, but it is not open to the legislature to say that a judgment of a court properly constituted and rendered in exercise of its powers in a matter brought before it shall be deemed to be ineffective and the interpretation of the law shall be otherwise than as declared by the court. The legislature could not say that declaration of law was erroneous, invalid or ineffective either as a precedent or between the parties. If there is only High Court decision, it prevails over an order of the Tribunal on the basis of the view that the High Court is above the Tribunal in judicial hierarchy. There is no contrary decision of any other high court being pointed out to us. Therefore, in our view, we are bound by the decisions of the High Courts. Even otherwise, the decision of the special bench is binding on us. Our aforesaid view is also supported by the decision of the Hon'ble President, Income Tax Appellate tribunal Shri R.V. Easwar as Third Member in the case of Kanel Oil & Export Inds. Ltd. Vs. JCIT (Asst.), SR-2, Ahmedabad (2009) 121 ITD 596 (Ahd.) (TM), wherein it has been held as under :-
"In the instant case, question that came up for consideration was as to whether the order of the Special Bench upholding the levy of interest in the light of sub-section (4) of section 115JA should be followed or the judgment of the Bombay High Court in Snowcem India Ltd.'s case (supra), also rendered in the context of section 115JA, had to be applied. Both the decisions were under section 115JA. One was of a Special Bench of the Tribunal, Ahmedabad and the other was of a High Court, though not a jurisdictional High Court. A simple answer would be that the judgment of a High Court, though not of a jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench (of the Tribunal) on the basis of the view that the High Court is above the Tribunal in the judicial Hierarchy. But this simply view is subject to some exceptions. It can work efficiently when there is only one judgment of a High Court on the issue and no contrary view has been expressed by any other High Court. But when there are several decisions of non-jurisdictional High Courts expressing contrary views, it has been recognized that the Tribunal is free to choose to adopt that view which appeals to it.29
The other exception is where the judgment of the non-jurisdictional High Court, though the only judgment on the point has been rendered without having been informed about certain statutory provisions that are directly relevant. A judgment rendered without noticing a previous binding precedent or a relevant statutory rule is considered to have been rendered 'per incuriam'. It is even said that such a judgment need not be given effect to by a lower court. In the instant case, the attention of the Bombay High Court in Snowcem India Ltd.'s case (supra) was not drawn to sub-section (4) of section 115JA, as had been pointed out by the Accountant Member in his dissent. The High Court, therefore, had no occasion to examine the question whether the decisions of the Karnataka High Court and the Supreme Court in Kwality Biscuits (supra), rendered in the context of section 115J which did not have a sub-section similar to sub-section (4) of section 115JA, would still be applicable as binding precedent in a case which arose under section 115JA."
In view of the decision of Mumbai High court, Rajasthan High Court and that of Special Bench, we hold that the no addition on account of deemed dividend can be made in the hands of the assessee company Accordingly on this basis also, the order of the CIT(A) stand set aside and additions made as deemed dividend are deleted.
Assessment year 2006-07 :
36. Ground No. 1, 5 & 6 are general and do not require any adjudication. Ground No. 2 relate to the addition of Rs.2,85,470/-. Brief facts relating to this ground are that the assessee has shown profit from agricultural operation of Rs.1,92,149/- while the total sale proceeds from agricultural produce of Rs.2,85,470/-. The Assessing Officer treated the sale proceeds to be the cash credit and made the addition u/s. 68 of the Act. The assessee went in appeal before the CIT(A). Before the CIT(A), the assessee cntended that the assessee has carried out agricultural operations and always his sale proceeds were through employees of the sister concern and never through the Mandi in the past years. The assessee has shown the agricultural income, which was 30 accepted in the earlier years. The assessee is having five acres of land. The CIT(A) did not agree with the assessee and confirmed the order of the Assessing Officer.
37. Before us, the learned AR referred to page 44 of the paper books and pointed out that the assessee was owning five acres of land and in the past years the assessee has shown agricultural income, which was duly accepted by the Assessing Officer, the details of which are given as under :-
Year Gross Receipts from Net income from Assessed u/s
agriculture (Rs) agriculture (Rs.)
A.Y. 2001-02 1,90,328/- 80,698/- 143(3)
A.Y. 2002-03 2,02,137/- 90,257/- 143(3)
A.Y. 2003-04 2,06,183/- 1,11,318/- 143(3)
A.Y. 2004-05 2,12,379/- 1,23,975/- 143(1)
A.Y. 2005-06 2,78,472/- 1,84,297/- 143(1)
The revenue has not disputed the agricultural income shown by the assessee during the year. The assessee has shown agricultural income at Rs.192,149/- from the total sale proceeds of Rs.2,85,470/- which were a little higher as compared to the earlier year. Thus, it was contended that the addition made must be deleted.
38. The learned DR, on the other hand, relied on the orders of the CIT(A).
39. We have carefully considered the rival submissions and perused the material available on record including the orders of the tax authorities below. We noted that the assessee is having agricultural land and is regularly showing agricultural income which has been accepted by the Revenue in the earlier years. The agricultural income in earlier five years shown and accepted by the department are given as under :
31
Year Gross Receipts from Net income from Assessed u/s
agriculture (Rs) agriculture (Rs.)
A.Y. 2001-02 1,90,328/- 80,698/- 143(3)
A.Y. 2002-03 2,02,137/- 90,257/- 143(3)
A.Y. 2003-04 2,06,183/- 1,11,318/- 143(3)
A.Y. 2004-05 2,12,379/- 1,23,975/- 143(1)
A.Y. 2005-06 2,78,472/- 1,84,297/- 143(1)
In view of the fact that the agricultural income has been accepted by the department in the earlier years and there is no change in the facts and that the assessee is having same agricultural land, in our view, taking into consideration the rule of consistency, the Revenue cannot reject the claim of the agricultural income made by the assessee. We accordingly, delete the addition of Rs.2,85,470/-. Thus, ground No. 2 stands allowed.
40. Ground No. 3 & 4 relate to the deemed dividend added u/s. 2(22)(e) of the Act. Brief facts relating to this addition are that the Assessing Officer during the course of assessment proceedings noted that certain transactions had taken place between the assessee company and M/s. Mahim Patran Pvt. Ltd. As per Assessing Officer, the money has been received and paid as per requirement of both the companies where as the transaction entered into between the assessee-company and Mahim Patran Pvt. Ltd. are detailed at page No. 2 to 4 of the assessment order. The assessee company owned a farm at Sohana and payment on account of wages were paid by M/s. Mahim Patran Pvt. Ltd. on behalf of the assessee. When asked for, the assessee pointed out that net credit balance in assesee's books of M/s. Mahim Patran Pvt. Ltd. has been reduced from 2.24 lacs as on 01.04.2005 to Rs. 1.25 lacs as on 31.03.2006. During the year most of the business transactions were entered into for a sum of Rs.5,00,000/- paid to Dr. Sanjay Dubey. It was pointed out that this amount was paid in advance for the purchase of land at 5/169, 32 Halwai Ki Bagichi, Agra and on assessee's request this amount was paid by M/s. Mahim Patran Pvt. Ltd. in the normal course and M/s. Mahim Patran Pvt. Ltd. has debited the assesse's account in its books of account. The land was subsequently purchased by the assessee. The Assessing Officer noted the share holding pattern in the case of M/s. Mahim Patran Pvt. Ltd. and the assessee as under :
Name of the Company Name of directors share holding accumulated profit M/s. MPPL 1) Nirmala Kapur 24% 4,88,47,179
2) Milan Kapur 10%
3) Sudha Kapur 10%
4) Madhukar Kapur 24%
5) Arvind Kapur 24% M/s. Nirmal Realtors 1) Milan Kapur 29% 51,82,704
2) Sudha Kapur 10%
3) Nirmala Kapur 1%
4) Madhukar Kapur 40%
5) Arvind Kapur 10%
6) Peeyus Kapur 10% The Assessing Officer ultimately carved out the transaction relating to the year under consideration and noted that a sum of Rs.57,01,406/- was paid by M/s. MPPL on behalf of the assessee. Therefore, he treated the said amount as deemed dividend. The assessee went in appeal before the CIT(A). The CIT(A) confirmed the order of the Assessing Officer.
41. Before us, the assessee has vehemently argued and taken the plea that the assessee company is not the share holder of M/s. MPPL. Therefore, no addition can be made in the hands of the assessee. In this regard reliance was placed on the decision of Special Bench in the case of ACIT vs. Bhaumik Colours (P) Ltd. (2009) 313 ITR (AT) 146 as well as that of Rajasthan High Court in the case of CIT vs. Hotel Hilltop (2009) 313 ITR 116(Raj.) The learned DR, on the other hand, relied upon the order of the Assessing Officer and that of the CIT(A). 33
42. We have carefully considered the rival submissions and perused the material available on record including the orders of the tax authorities below. We noted that in this case, the assessee company is not the share holder in M/s. MPPL. We have already while disposing of the similar ground in the assessment year 2003-04 and 2004-05 in the preceding paragraphs have categorically held, relying on the decision of Mumbai High in the case of CIT Vs. Universal Medicare Private Limited (324 ITR 263) and Rajasthan High Court in the case of Hilltop Palace Hotels P. Ltd 313 ITR 116 (Raj) and that of Special Bench in the case of ACIT vs. Bhaumik Colour P. Ltd. (supra), that no addition can be made in the hands of the assessee company as deemed dividend. We respectfully following our finding given hereinabove from para Nos.12 to 33 deleted this addition. Thus, ground No. 3 & 4 are allowed.
43. In the result, the appeal for the assessment year 2003-04, 2004-05 and 2006-07 stand allowed.
Order pronounced in the open court on 17.06.11.
Sd/- Sd/-
(H.S. SIDHU) (P.K. BANSAL)
Judicial Member Accountant Member
Dated: 17th June, 2011
*aks/-
Copy of the order forwarded to :
1. Appellant
2. Respondent
3. CIT(A) By order
4. CIT, concerned
5. DR, ITAT, Agra
6. Guard file Assistant Registrar
True copy