DCIT, Kottayam v. Sri. Ibrahim Jalal, Kottayam

ITA 296/COCH/2014 | 2008-2009
Pronouncement Date: 21-11-2014 | Result: Dismissed

Appeal Details

RSA Number 29621914 RSA 2014
Assessee PAN ACJPJ1226E
Bench Cochin
Appeal Number ITA 296/COCH/2014
Duration Of Justice 4 month(s) 25 day(s)
Appellant DCIT, Kottayam
Respondent Sri. Ibrahim Jalal, Kottayam
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 21-11-2014
Date Of Final Hearing 26-08-2014
Next Hearing Date 26-08-2014
Assessment Year 2008-2009
Appeal Filed On 26-06-2014
Judgment Text
1 ITA NO. 296/COCH/2014 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 296-COCH-2014 (ASSESSMENT YEAR 2008-09) DY.CIT CIR.1 VS SHRI IBRAHIM JALAL KOTTAYAM PULIMOOTTIL HOUSE KANJIRAPPALLY KOTTAYAM PAN : ACJPJ1226E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M ANIL KUMAR CIT / SMT. LATHA V KUMAR RESPONDENT BY : SHRI THOMAS CHERIAN DATE OF HEARING : 26-08-2014 DATE OF PRONOUNCEMENT : 21-11-2014 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-IV KOCHI DATED 26-02-2014 AND PERTAINS TO ASSESSMENT Y EAR 2008-09. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF RS.26 LAKHS U/S 2(22)(E) OF THE ACT AS DEEMED DIVIDEND. 2 ITA NO. 296/COCH/2014 2. SHRI M ANIL KUMAR THE LD.DR SUBMITTED THAT THE ASSESSEE IS THE MANAGING DIRECTOR OF M/S DEVAGIRI PLANTATIONS PVT L TD. THE ASSESSING IS HAVING SUBSTANTIAL INTEREST IN THE SAID COMPANY. A CCORDING TO THE LD.DR THE ASSESSEE RECEIVED RS.26 LAKHS AS LOAN FROM THE SAID COMPANY. THE ASSESSING OFFICER FOUND THAT THE ACCUMULATED PROFIT INCLUDING THE CAPITAL RESERVE AS ON 31-03-2007 COMES TO RS.4 58 72 894 AN D THE ACCUMULATED LOSS IS RS.3 04 164. THEREFORE ACCORDING TO THE L D.DR THE ACCUMULATED PROFIT AVAILABLE FOR DISTRIBUTION WAS RS.4 55 68 73 0. HOWEVER ON APPEAL BY THE ASSESSEE THE CIT(A) ALLOWED THE CLAIM OF THE AS SESSEE ON THE GROUND THAT CAPITAL GAIN ON SALE OF THE AGRICULTURAL LAND CANNOT FORM PART OF THE ACCUMULATED PROFIT. REFERRING TO EXPLANATION 2 TO SECTION 2(22)(E) OF THE ACT THE LD.DR SUBMITTED THAT ALL INCOMES OF THE CO MPANY WHICH IS AVAILABLE FOR DISTRIBUTION IRRESPECTIVE OF THE FACT WHETHER I T TAXABLE OR NOT WOULD FORM PART OF THE ACCUMULATED PROFIT. THEREFORE ACCORDI NG TO THE LD.DR THE CIT(A) IS NOT CORRECT IN ALLOWING THE CLAIM OF THE ASSESSEE. REFERRING TO THE JUDGMENT OF THE MADRAS HIGH COURT IN S KUMARASWAMY VS ITO (1961) 43 ITR 423 THE LD.DR SUBMITTED THAT EVEN THE LOAN AVA ILED BY THE SHAREHOLDER FROM THE ACCUMULATED PROFIT WHICH ARE EXEMPTED IN T HE HANDS OF THE COMPANY AS AGRICULTURAL INCOME HAS TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. THE LD.DR FURTHER SUBMI TTED THAT THE ACCUMULATED PROFIT AS ON 31-03-2007 IS RS.4 58 72 8 94. EVEN AFTER REDUCING THE CAPITAL GAIN FROM SALE OF AGRICULTURAL LAND THE NET ACCUMULATED 3 ITA NO. 296/COCH/2014 PROFIT WOULD BE RS.59 96 094 AND WHAT WAS GIVEN TO THE ASSESSEE IS ONLY RS.26 LAKHS. THEREFORE ACCORDING TO THE LD.DR IT CANNOT BE SAID THAT THE ACCUMULATED PROFIT WAS NOT DIVERTED TO THE ASSESSEE . 3. ON THE CONTRARY SHRI THOMAS CHERIAN THE LD.REPR ESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IT IS NOT IN DISPUTE THAT T HE ASSESSEE RECEIVED CAPITAL GAIN ON SALE OF AGRICULTURAL LAND WHICH IS EXEMPT FROM INCOME-TAX. ACCORDING TO THE LD.REPRESENTATIVE THE COMPANY IS NOT LIABLE TO PAY INCOME-TAX ON THE CAPITAL GAIN ARISING FROM THE SAL E OF AGRICULTURAL LAND. THEREFORE ONCE THE PROFIT ON SALE OF AGRICULTURAL LAND WAS DISTRIBUTED TO THE SHAREHOLDER THE COMPANY IS NOT LIABLE TO PAY ANY TA X. THE LD.REPRESENTATIVE PLACED HIS RELIANCE ON THE JUDGME NT OF THE APEX COURT IN TEA ESTATE INDIA P LTD VS CIT (1976) 103 ITR 785 (S C). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSEE RECEIVED RS.26 LAKHS AS LOAN FROM DEVAGIRI PLANTATIONS PVT LTD. T HE ASSESSEE IS THE MANAGING DIRECTOR OF THE COMPANY. THE ASSESSEE CLA IMS THAT WHAT WAS RECEIVED BY THE ASSESSEE IS THE CAPITAL GAIN ON SAL E OF THE AGRICULTURAL LAND OWNED BY THE COMPANY. THE QUESTION ARISES FOR CONS IDERATION IS WHEN THE ASSESSEE RECEIVED LOAN FROM THE COMPANY IN WHICH T HE ASSESSEE HAS SUBSTANTIAL INTEREST FROM CAPITAL GAIN ON SALE OF AGRICULTURAL LAND WHETHER 4 ITA NO. 296/COCH/2014 THE SAME SHALL BE TREATED AS DEEMED DIVIDEND U/S 2( 22)(E) OF THE ACT OR NOT? WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. ON THE DATE OF DISTRIBUTION OF LOAN IF TH E COMPANY HAD ACCUMULATED PROFIT THEN TO THE EXTENT OF ACCUMULAT ED PROFIT THE AMOUNT ADVANCED TO THE SHAREHOLDER WHO IS HAVING SUBSTANTI AL INTEREST HAS TO BE TREATED AS DEEMED DIVIDEND. THIS IS A FICTION CREA TED BY THE LEGISLATURE. THEREFORE WE HAVE TO EXAMINE WHETHER THE CAPITAL GA IN ON SALE OF AGRICULTURAL LAND WOULD FORM PART OF THE ACCUMULATE D PROFIT? 5. THE APEX COURT CONSIDERED THIS ISSUE IN TEA ESTA TE INDIA P LTD (SUPRA). AFTER CONSIDERING THE PROVISIONS OF SECTI ON 2(6A)(C) OF THE INCOME- TAX ACT 1922 THE APEX COURT FOUND THAT CAPITAL AP PRECIATION IN RESPECT OF LAND FROM WHICH AGRICULTURAL INCOME WAS DERIVED WAS NOT TAXABLE IN THE HANDS OF THE COMPANY AS CAPITAL GAIN. THEREFORE I T WOULD NOT ON DISTRIBUTION LIABLE TO BE TAXED AS DIVIDEND. IN T HIS CASE ALSO THE PROFIT ON SALE OF AGRICULTURAL LAND IS NOT TAXABLE IN THE HAN DS OF THE COMPANY AS CAPITAL GAIN THEREFORE DISTRIBUTION OF THE SAME A S DIVIDEND WOULD NOT ALSO EQUALLY BE TAXABLE. HENCE THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ADVANCING LOAN TO THE SHAREHOLDER FROM THE CAPITAL GAIN AROSE ON SALE OF AGRICULTURAL LAND OWNED BY THE COMPANY CANNOT FORM PART OF ACCUMULATED PROFIT FOR THE PURPOSE OF SECTION 2(22)(E) OF THE A CT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT EVEN THOUGH THE JUDGMENT OF THE APEX COURT WAS 5 ITA NO. 296/COCH/2014 DELIVERED IN THE CONTEXT OF INCOME-TAX ACT 1922 THE SAME WOULD EQUALLY BE APPLICABLE ON THE CONTEXT OF SECTION 2(22)(E) OF TH E INCOME-TAX ACT 1961. 6. THE NEXT CONTENTION OF THE LD.DR IS THAT EVEN AF TER REDUCING THE PROFIT ON SALE OF THE AGRICULTURAL LAND ACCUMULATED PROFI T REMAINS TO BE AT RS. 59 96 094. THEREFORE ADVANCE MADE BY THE COMPANY TO THE ASSESSEE HAS TO BE TREATED AS ADVANCE GIVEN FROM THE ACCUMUL ATED PROFIT. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD.DR. WHEN THE COMPANY HAD CAPITAL GAIN FROM SALE OF AGRICULTURAL LAND THE AD VANCE MADE TO THE EXTENT OF SUCH CAPITAL GAIN WHICH ARE NOT CHARGEABLE TO IN COME-TAX ACT CANNOT BE TREATED AS ACCUMULATED PROFIT. IT IS NOT THE CASE OF THE REVENUE THAT THE ADVANCE MADE TO THE ASSESSEE EXCEEDED THE CAPITAL G AIN ON SALE OF THE AGRICULTURAL LAND. 7. IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LOWER AUTHORITIES. ACCORDINGLY THE SAME IS CONFIRM ED. 8. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST NOVEMBER 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN DT : 21ST NOVEMBER 2014 PK/- 6 ITA NO. 296/COCH/2014 COPY TO: 1. DY.CIT CIR.1 KOTTAYAM 2. SHRI IBRAHIOM JALAL PULIMOOTTIL HOUSE KOTTAYAM 3. THE COMMISSIONER OF INCOME-TAX KOTTAYAM 4. THE COMMISSIONER OF INCOME-TAX(A)-IV KOCHI-11 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR INCOME-TAX APPELLATE TRIBUNAL COCHIN BENCH