ITO 8(2)(3), MUMBAI v. SAHIR SAMI KHATIB, MUMBAI

ITA 25/MUM/2011 | 2007-2008
Pronouncement Date: 14-11-2014

Appeal Details

RSA Number 2519914 RSA 2011
Assessee PAN AABPK6776G
Bench Mumbai
Appeal Number ITA 25/MUM/2011
Duration Of Justice 3 year(s) 10 month(s) 10 day(s)
Appellant ITO 8(2)(3), MUMBAI
Respondent SAHIR SAMI KHATIB, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-11-2014
Appeal Filed By Department
Bench Allotted E
Tribunal Order Date 14-11-2014
Date Of Final Hearing 10-11-2014
Next Hearing Date 10-11-2014
Assessment Year 2007-2008
Appeal Filed On 03-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; OA OA OA OA JH JH JH JH CH CHCH CH- -- - VKJ VKJVKJ VKJ- -- - CKLDJ.K CKLDJ.K CKLDJ.K CKLDJ.K] YS[KK LNL; ] YS[KK LNL; ] YS[KK LNL; ] YS[KK LNL; DS LE{K DS LE{K DS LE{K DS LE{K BEFORE SHRI VIJAY PAL RAO JUDICIAL MEMBER AND SHRI B.R. BASKARAN ACCOUNTANT MEMBER ITA NO.25/MUM/2011 ASSESSMENT YEAR: - 2007-08 INCOME TAX OFFICER 8(2)-3 ROOM NO. 213 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. V S. ` SHRI SAHIR SAMI KHATIB PLOT NO. 25 SHOA GREATER BOMBAY CO-OP SOC. GULMOHAR CROSS ROAD NO. 5 JVBP SCHEME MUMBAI - 400 049. PAN: AABPK6776G APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 13.9.2010 OF CIT(A) FOR THE A.Y. 2007-08. THE REVENUE HAS RAISED FOLLOWING GROUNDS:- 1) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS 99 86 2 74/- MADE U/S 2(22)(E)OF THE ACT RELYING ON THE DECISION OF THE CIT(A)-13 V IDE ORDER IT/242/2009-10 DATED 18-01-2010 WITHOUT APPRECIATING THE FACTS OF THE CASE WHICH ARE CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE ABOVE CASE DE CIDED BY THE SPECIAL BENCH IN THE CASE OF ACIT V/S BHAUMIK COLOURS PVT. LTD.'. 2) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS FAILED TO APPRECIATE THE CBDT'S CIRCULAR NO. 495 DATED 22.09.1987 WHEREIN THE PROVISIONS OF SECTION 2(22)(E) HAVE BEE N EXPLAINED AS UNDER: REVENUE BY SHRI NEIL PHILLIP ASSESSEE BY SHRI PRAKASH K. JOTWANI DATE OF HEARING 10.11.2014 DATE OF PRONOUNCEMENT 14-11-2014 SHRI SAHIR SAMI KHATIB 2 | P A G E THE NEW PROVISION WOULD THEREFORE BE APPLICATION IN A CASE WHERE A SHAREHOLDER HAS 10 PER CENT OR MORE OF THE EQUITY C APITAL. FURTHER DEEMED DIVIDEND WOULD BE TAXED IN THE HANDS OF A CONCERN W HERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED. (I) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF L OANS OR ADVANCES TO A CONCERN; (II) WHERE THE MEMBER OR PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO 20 PER CENT OF THE INCOME OF SUCH CONCE RN. WITH A VIEW TO AVOID THE HARDSHIP IN THE CASES WHER E ADVANCES OR LOANS HAVE ALREADY BEEN GIVEN THE NEW PROVISIONS HAVE BEEN MA DE APPLICABLE ONLY IN CASES WHERE LOANS OR ADVANCES ARE GIVEN AFTER 31ST MAY 1987. THESE AMENDMENTS WILL APPLY IN RELATION TO ASSESSME NT YEAR 1988-89 AND SUBSEQUENT YEARS.' 2. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING O FFICER NOTED THAT M/S MEDLEY LABORATORIES PVT. LTD. (MLPL) HAS GIVEN ADVANC E OF RS. 91 85 874/- TO ITS SISTERN CONCERN M/S ORYX FISHERIES PVT. LTD. THE SAID COMPANY M/S MLPL WAS HAVING CLOSING BALANCE ON 31.03.2007 AS ACCUMULA TED PROFITS AT RS. 99 86 874/-. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE IS HAVING SHARE HOLDING OF 15% IN M/S MLPL (THE LENDING COMPANY) AND 45% SHARE HOLDING IN ORYX FISHERIES PVT. LTD. (THE BORROWING COM PANY). THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER OF BOTH THE COMPANIES AND THEREFORE THE LOAN AND ADVA NCES IN QUESTION RECEIVED BY ORYX FISHERIES PVT. LTD. WAS TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AS HE IS HAVING SUBSTANTIAL SHARE HOLDING IN BOTH THE COMPANIES. SINCE THE LOAN AND ADVANCES IN QUESTION WAS ALSO TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE BORROWED COMPANY A ND ASSESSED AS SUBSTANTIVE BASIS THE SAID ADDITION HAS BEEN MADE IN THE HANDS OF THE ASSESSEE ON PROTECTIVE BASIS. 3. ON APPEAL THE CIT(A) DELETED THE ADDITION MADE U/ S 2(22)(E) ON THE GROUND THAT THE LOAN HAS NOT BEEN RECEIVED BY THE ASS ESSEE BUT BY M/S ORYX SHRI SAHIR SAMI KHATIB 3 | P A G E FISHERIES PVT. LTD. THE ADDITION MADE ON SUBSTANTIVE BASIS IN THE HANDS OF M/S ORYX FISHERIES PVT. LTD. HAS BEEN CONFIRMED BY THE CI T(A). 4. BEFORE US THE LD DR HAS POINTED OUT THAT THE ADDITI ON MADE U/S 2(22)(E) IN THE CASE OF M/S ORYX FISHERIES PVT. LTD. HAS BEEN DELETED BY THIS TRIBUNAL BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF BHAUMIK COLOUR PVT. LTD. 313 ITR 146 WHEREIN IT WAS HELD THAT NO ADDITION CAN BE MADE U/S 2(22)(E) OTHER THAN THE BEN EFICIARY SHARE HOLDER OF THE COMPANY. THE LD. DR SUBMITTED THAT THE ASSESSEE I S HAVING MORE THAN 10% SHARE HOLDING IN THE LENDING COMPANY AND ALSO HAVING SUB STANTIAL INTEREST IN THE BORROWING COMPANY HE IS HAVING 45% OF THE SHARE HOLD ING IN THE BORROWING COMPANY THEREFORE AS PER THE PROVISIONS OF SECTION 2(22)(E) THE LOAN AND ADVANCES GIVEN BY THE LENDING COMPANY TO THE SISTER CO NCERN IS ASSESSABLE AS DEEMED INCOME IN THE HANDS OF THE ASSESSEE. HE HAS REL IED UPON THE ORDER OF ASSESSING OFFICER. 5. ON THE OTHER HAND THE LD. AUTHORIZED REPRESENTATIV E HAS NOT DISPUTED THE SHARE HOLDING OF THE ASSESSEE IN BOTH THE COMPANIES H OWEVER HE HAS SUBMITTED THAT SINCE THE REVENUE HAS ALREADY CHALLENGED THE ORDER OF THIS TRIBUNAL IN THE CASE OF M/S ORYX FISHERIES PVT. LTD. THEREFORE THE REVENUE CANNOT ASSESS THE SAME INCOME IN THE HANDS OF TWO ASSE SSES. HE HAS FURTHER SUBMITTED THAT EVEN THE ADDITION U/S 2(22)(E) SHOULD N OT BE MADE IN FULL IN THE HANDS OF THE ASSESSEE WHEN THERE ARE OTHER SHARE HOLDERS O F THE BORROWING COMPANY AND THEREFORE IT CANNOT BE TERMED THAT THE ENTIRE BENEFIT HAS BEEN TAKEN BY THE ASSESSEE ALONE. THUS THE LD. AUTHORIZED R EPRESENTATIVE HAS SUBMITTED THAT THE ADDITION IF ANY U/S 2(22)(E) SHOULD IN PROPORTIONATE TO THE SHARE HOLDING OF THE ASSESSEE IN THE BORROWING COMPANY. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF KOLKATA BENCHES OF THIS TRIBUNAL SHRI SAHIR SAMI KHATIB 4 | P A G E DATED 11.07.2013 IN THE CASE OF SHRI SUBRATA BANIK VS. CIT IN ITA NO. 821 TO 830 OF MUMBAI 2011. 6. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE REGARDING THE F ACT THAT THE ASSESSEE IS HOLDING 15% SHARES IN M/S MLPL (THE LENDING COMPANY) AND 45% OF SHARE HOLDING IN M/S ORYX FISHERIES PVT. LTD. (THE BORROWING COMPANY). THE PROVISIONS OF SECTION 2(22)(E) EXPAND THE DEFINITION OF DIVIDEND AND INCLUDES CERTAIN LOAN AND ADVANCES BY A COMPANY AS DEEMED DI VIDEND IN THE HANDS OF THE SHARE HOLDER. FOR READY REFERENCE WE QUOTE SECTIO N 2(22)(E) AS UNDER:- SECTION 2(22) DIVIDEND INCLUDES- *********************** *********************** (E) ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WHETHER A S REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31ST DAY OF MAY 1987 BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE 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 WH ICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS T HE 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 CO MPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS BUT' DIVIDEND' DOES NOT INCLUDE-- (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB- CLAUSE (C) OR SUB- CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERA TION WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATI ON TO PARTICIPATE IN THE SURPLUS ASSETS; (IA) 1 A DISTRIBUTION MADE IN ACCORDANCE WITH SUB- CLAUSE (C) OR SUB- CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO T HE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO ITS E QUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH 1964 2 AND BEFORE THE 1ST DAY OF APRIL 1965 ];] SHRI SAHIR SAMI KHATIB 5 | P A G E (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER 3 OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPAN Y; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB- CLAUSE (E) TO THE EXTENT TO WHICH IT IS SO SET OFF. (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF S ECTION 77A OF HE COMPANIES ACT 1956 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHER OR NOT THERE IS REDUCTION OF CAPITAL IN THE DEMERGED COMPANY.] EXPLANATION 1-THE EXPRESSION' ACCUMULATED PROFITS' WHEREVER IT OCCURS IN THIS CLAUSE SHALL NOT INCLUDE CAPITAL GAINS ARISIN G BEFORE THE 1ST DAY OF APRIL 1946 OR AFTER THE 31ST DAY OF MARCH 1948 AND B EFORE THE 1ST DAY OF APRIL 1956 . EXPLANATION 2.-- THE EXPRESSION' ACCUMULATED PROFIT S' IN SUB- CLAUSES (A) (B) (D) AND (E) SHALL INCLUDE ALL PROFITS OF THE COMPA NY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB- C LAUSES AND IN SUBCLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE. DATE OF LIQUIDATION 4 BUT SHALL NOT WHERE THE LIQUIDATION IS CONSEQUENT ON T HE COMPULSORY ACQUISITION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATI ON OWNED OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE SUCCESSIVE PR EVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITI ON TOOK PLACE]. EXPLANATION 3.- FOR THE PURPOSES OF THIS CLAUSE - (A) ' CONCERN' MEANS A HINDU UNDIVIDED FAMILY OR A FI RM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INT EREST IN A CONCERN OTHER THAN A COMPANY IF HE IS AT ANY TIME DURING THE PR EVIOUS YEAR BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE IN COME OF SUCH CONCERN;] 7. CLAUSE (E) OF SECTION 2(22) OF INCOME TAX ACT C ONTEMPLATES THAT ANY PAYMENT BY A COMPANY (NOT BEING A COMPANY IN WHICH T HE PUBLIC ARE SUBSTANTIALLY INTERESTED ) WAS BY WAY OF ADVANCE OR LOAN TO A SHARE HOLDER WHO SHRI SAHIR SAMI KHATIB 6 | P A G E IS THE BENEFICIAL OWNER OF THE SHARES HOLDING NOT LESS THAN 10% OF VOTING POWER IS DEEMED AS DIVIDEND TO THE EXTENT TO WHICH THE COMPAN Y POSSESSES ACCUMULATED PROFIT. IT ALSO INCLUDES ANY SUCH PAYMEN T BY SUCH COMPANY TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS MEMBER OR PARTNER AND IN WHICH HE HAS THE SUBSTANTIAL INTEREST. THE THIRD SCENARIO UNDER WHIC H ANY PAYMENT BY SUCH COMPANY IS ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER. THEREFORE THERE ARE THREE POSSIBLE SITUATION UNDER WHI CH THE PAYMENT BY A COMPANY AS SPECIFIED U/S 2(22)(E) WILL BE TREATED A S DIVIDEND. FIRSTLY BY WAY OF LOAN OR ADVANCES TO SHARE HOLDER WHO IS HAVING NOT LESS THAN 10% OF THE VOTING POWERS IN THE SAID COMPANY. SECONDLY THE ADVANCES OR LOAN GIVEN BY THE SAID COMPANY TO A CONCERN IN WHICH A SHARE HOLDER HAVING NOT L ESS THAN 10% OF THE VOTING RIGHTS IN THE LENDING COMPANY IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. IN THE CASE IN HAND THE ADV ANCE/LOAN HAS BEEN GIVEN BY M/S MLPL TO M/S ORYX FISHERIES PVT. LTD WHICH IS NO T A SHARE HOLDER OF THE LENDER COMPANY BUT THE ASSESSEE IS HOLDING 15% OF THE V OTING POWER IN THE LENDING COMPANY AND 45% OF THE SHARES IN THE BORROWING COMPANY. THEREFORE THE PAYMENT IN QUESTION BEING LOAN HAS TO BE EXAMINED IN THE CONTEXT OF SECOND SITUATION WHEREIN THE PAYMENT IS GIVEN TO AN Y CONCERN IN WHICH THE SHARE HOLDER IS A MEMBER OR A PARTNER AND HAS A SUBST ANTIAL INTEREST. THERE IS NO QUARREL ON THE POINT THAT THE ASSESSEE IS HAVING MORE THAN 10% OF THE VOTING RIGHTS IN THE LENDING COMPANY. THEREFORE TO BRING THE PA YMENT IN QUESTION UNDER THE EXPRESSION OF DIVIDEND AS PER CLAUSE (E) OF SECTION 2(22) THE CONDITION THAT THE ASSESSEE IS HAVING A SUBSTANTIAL IN TEREST IN THE BORROWING COMPANY HAS TO BE SATISFIED. THE TERM CONCERN HAS BEEN DEFINED IN EXPLANATION 3 TO SECTION 2(22)(E) ABOVE WHICH INCLUDE S HUF OR FIRM OR AN ASSOCIATION OF PERSON OR A BODY OF INDIVIDUAL OR A COMPANY. THEREFORE M/S ORYX FISHERIES PVT. LTD FALLS UNDER THE AMBIT OF TER M CONCERN AS STIPULATED UNDER CLAUSE (E) OF SECTION 2(22). THE SUBSTANTIAL I NTEREST IN A COMPANY HAS NOT BEEN DEFINED U/S 2(22)(E) HOWEVER THIS TERM HAS BEE N DEFINED IN SECTION SHRI SAHIR SAMI KHATIB 7 | P A G E 2(32) AND IN THE EXPLANATION TO SECTION 40A(2) OF THE INCOME TAX ACT. WHEREBY A PERSON SHALL BE DEEMED TO HAVE SUBSTANTIAL INTEREST IN A BUSINESS OR A PROFESSION IF THE BUSINESS AND PROFESSION IS CARRI ED ON BY A COMPANY SUCH PERSON IS AT ANY TIME DURING THE PREVIOUS YEAR THE BENEFICIAL OWNER OF SHARES CARRYING NOT LESS THAN 20% OF THE VOTING POWERS. IN T HE CASE IN HAND THE ASSESSEE IS HAVING 45% OF SHARE HOLDING OF THE BORROWING C OMPANY THEREFORE BY APPLYING THE PARAMETERS AS PER SECTION 2(32) AND EXPLANATION TO SECTION 40A(2) AS WELL AS ANY OTHER PARAMETERS IN GENERAL THE ASSESSEE IS HAVING SUBSTANTIAL INTEREST IN THE BORROWING COMPANY I.E. M/ S ORYX FISHERIES PVT. LTD. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT. VS. UNIVERSAL MEDICARE PRIVATE LIMITED. (324 ITR 263) WHILE DEALING WITH THE ISSUE OF APPLICABILITY OF SECTION 2(22)(E) HAS OBSERVED AT PA GE 268 AS UNDER:- 10 IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF S ECTION 2(22) IS ATTRACTED THE PAYMENT BY A COMPANY HAS TO BE BY WA Y OF AN ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE AS THE CASE MAY BE EITHER TO A SHAREHOLDER BEING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PER CENT. OF THE VOTING POWER OR TO ANY CONCERN OF WHIC H SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST. THE TRIBUNAL IN THE PRESENT C ASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE SINCE THE AMOUNT IN QUESTION HAD ACTUALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATION SEEMS TO HAVE BEEN ACCEPTED SINCE THI S AMOUNT WAS ALLOWED AS A BUSINESS LOSS DURING THE COURSE OF THE ASSESSMENT YEAR 2006-07. CONSEQUENTLY ACCORDING TO THE TRIBUNAL TH E FIRST REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FULFILLED . IN OUR VIEW THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTIO N OF LAW. HOWEVER EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH TH E TRIBUNAL WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PL ACED ON THE PROVISIONS OF SECTION 2(22) (E) IS CORRECT. SECTION 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION 'DIVIDEND'. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF T HE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF SECTION 2(22) IS TO PROVIDE AN INCLUSIVE DEFINITION OF THE EXPRESSION 'DIVIDEND'. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLAUSE (E) OF SECTION 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHI CH COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED B Y WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN OF WHICH SUCH SHAREHOLDER IS SHRI SAHIR SAMI KHATIB 8 | P A G E A MEMBER OR PARTNER SUBJECT TO THE FULFILMENT OF T HE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY A P AYMENT MADE BY A COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT O F ANY SUCH SHAREHOLDER IS TREATED BY CLAUSE (E) TO BE INCLUDED IN THE EXPRESSION 'DIVIDEND'. CONSEQUENTLY THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION 'DIVIDEND' BY I NCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOA N OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LEGA L POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREH OLDER. CONSEQUENTLY IN THE PRESENT CASE THE PAYMENT EVEN ASSUMING THAT IT WAS A DIVIDEND WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSE SSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS IN THE CIRCUM STANCES JUSTIFIED IN COMING TO THE CONCLUSION THAT IN ANY EVENT THE PA YMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCL UDING NOTE THAT THE BASIS ON WHICH THE ASSESSEE IS SOUGHT TO BE TAXED I N THE PRESENT CASE IN RESPECT OF THE AMOUNT OF RS. 32 00 000 IS THAT THER E WAS A DIVIDEND UNDER SECTION 2(22) (E) AND NO OTHER BASIS HAS BEEN SUGGESTED IN THE ORDER OF THE ASSESSING OFFICER. 9. SINCE THE ASSESSEE IS A SHARE HOLDER OF THE LENDING C OMPANY AND ALSO HAVING A SUBSTANTIAL INTEREST IN THE BORROWING COMPAN Y THEREFORE THE CONDITION AS PRESCRIBED U/S 2(22)(E) ARE SATISFIED TO INCLUDE THE PAYMENT IN QUESTION IN THE AMBIT OF DIVIDEND TOBE TAXED IN THE HANDS OF THE ASSESSEE. WE DO NOT AGREE WITH THE CONTENTION OF LD. AUTHORIZED REP RESENTATIVE THAT ONLY A PROPORTIONATE OF THE AMOUNT OF LOAN RECEIVED BY THE BORROWING COMPANY CAN BE ASSESSED AS DIVIDEND IN THE HANDS OF THE ASSESSEE TO THE EXTENT OF HIS SHARE HOLDING IN THE BORROWING COMPANY DUE TO THE SIMPLE REA SON THAT AS PER PROVISIONS OF SECTION 2(22)(E) THE TWO CONDITIONS AR E REQUIRED TO BE FULFILLED VIZ. THE PERSON HAVING NOT LESS THAN 10% OF VOTING POW ER IN THE LENDING COMPANY AND A SUBSTANTIAL INTEREST IN THE BORROWING C ONCERN. BOTH THESE CONDITIONS ARE SATISFIED THEREFORE IN THE ABSENCE OF ANY SUCH PROVISION OF PROPORTIONATE ADDITION NOTHING CAN BE READ IN BETWEE N THE UNAMBIGUOUS LANGUAGE OF THE PROVISION OF SECTION 2(22)(E). FURTHE R IT IS NOT THE CASE OF MORE THAN ONE SHARE HOLDER COMPLYING THE CONDITIONS OF HAVING N OT LESS THAN 10% VOTING POWER IN THE LENDING COMPANY AND ALSO HAVING SU BSTANTIAL INTEREST IN THE BORROWING COMPANY. FROM PERUSAL OF SHARE HOLDING PA TTERN AT PAGE 141 OF SHRI SAHIR SAMI KHATIB 9 | P A G E THE PAPER BOOK WE FIND THAT ONLY THE ASSESSEE IS HOL DING 15% OF THE VOTING POWER IN THE LENDING COMPANY AND 45% OF VOTING POWE R IN THE BORROWING COMPANY AND NO OTHER PERSON/SHARE HOLDER IS COMMON OTHE R THAN THE ASSESSEE. THEREFORE THERE IS NO QUESTION OF ANY PROP ORTIONATE ADDITION WHEN THE ASSESSEE IS THE ONLY SHARE HOLDER WHO FULFILLS THE CO NDITION PRESCRIBED U/S 2(22)(E). THE DECISION RELIED UPON BY THE LD. AUTHORIZ ED REPRESENTATIVE IN THE CASE OF SHRI SUBRATA BANIK VS. CIT (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE RATHER THE SAID DECISION IS ON THE QU ESTION OF CHANGE OF OPINION WHILE EXERCISING THE JURISDICTION/REVISIONAL POWERS U/S 263 OF THE INCOME TAX ACT. 10. IN VIEW OF THE ABOVE DISCUSSION WE SET ASIDE T HE IMPUGNED ORDER OF CIT(A) AND RESTORE THE ORDER OF ASSESSING OFFICER. 11. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DAY OF NOVEMBER 2014 (B.R.BASKARAN) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 14-11 -2014 SKS SR. P.S COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR E BENCH ITAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI