M/s. Mana Ram Ganpat Ram & co., New Delhi v. ACIT, New Delhi

ITA 3456/DEL/2010 | 2007-2008
Pronouncement Date: 24-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 345620114 RSA 2010
Assessee PAN AAHFM2570Q
Bench Delhi
Appeal Number ITA 3456/DEL/2010
Duration Of Justice 2 month(s) 9 day(s)
Appellant M/s. Mana Ram Ganpat Ram & co., New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 24-09-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 24-09-2010
Assessment Year 2007-2008
Appeal Filed On 15-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI SHAMIM YAHYA I.T.A. NO. 3456/DEL/2010 ASSESSMENT YEARS: 2007-08 M/S. MANA RAM GANPAT RAM & CO. VS. ADDITIONAL CIT 257-DDA COMMERCIAL COMPLEX RANGE-38 JHANDEWALAN EXTN. NEW DELHI. NEW DELHI-55 PAN: AAHFM2570Q (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. KVS KRISHN A CA RESPONDENT BY: SHRI RP SINGH DR ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED CIT(APPEALS) DATED 29.3.2010 PASSED FOR ASSESSMENT YEAR 2007-08. THE GROUND NOS. 1 AND 5 TAKEN BY THE ASSESSEE ARE GENER AL IN NATURE THEREFORE NO SPECIFIC FINDING IS REQUIRED TO BE RECORDED THEY A RE REJECTED. 2. IN GROUND NOS. 2 AND 3 ASSESSEE IS CHALLENGING THE AD HOC DISALLOWANCE OF RS.1 LAC EACH FROM LABOUR & WAGES C HARGES AND PURCHASES. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. IT HAS FILED ITS RETURN OF INCOME ON 9.10.2007 DECLARING AN INCOME OF RS.58 06 108. THE CASE OF THE ASSESSEE 2 WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER CASS. A NOTICE UNDER SECTION 143(2) WAS ISSUED ON 15 TH SEPTEMBER 2008 WHICH WAS SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS ASSESSING OFFICER FOUND THAT ASSESSEE HAS DEBITED A SUM OF RS.1 24 38 950 UNDER THE HEAD LABOUR EXPENSES/CHARGES. SIMILARLY IT HAS CLAIME D EXPENSES ON PURCHASES AT RS.12 54 99 416. ASSESSING OFFICER DIRECTED THE ASSESSEE TO SUBMIT COMPLETE DETAILS OF WORK AND LABOURER EMPLOYED BY I T FOR THE PROJECTS UNDERTAKEN BY IT. ACCORDING TO THE ASSESSING OFFICE R ASSESSEE HAS PRODUCED MUSTER ROLL IN RESPECT OF WAGES PAID FOR FEW SITES. ON EXAMINATION OF THESE VOUCHERS IT REVEALED TO THE ASSESSING OFFICER THAT LABOURER HAVE PUT THUMB IMPRESSION AND ASSESSEE IS NOT IN A POSITION TO SUB MIT CORROBORATIVE EVIDENCE IN SUPPORT OF ITS CLAIM. IN THE ABSENCE OF COMPLETE DETAILS AND FOR NON- VERIFICATION OF THE EXPENSES ASSESSING OFFICER HAS MADE AN AD HOC DISALLOWANCE OF RS. 1 LAC. UNDER THE SIMILAR COMPEL LING CIRCUMSTANCES AN AD HOC DISALLOWANCE OF RS. 1 LAC HAS BEEN MADE OUT OF THE PURCHASES OF BUZRI CEMENT GRIT AND IRON ETC. 3 3. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT ASSESSEE HAS FILED THE COMPLETE LEDGER ACCOUNT FROM WHERE ASSESSING OFFICER COULD VERIFY LABOUR EXPENSES AS WELL AS PURCHASES. WE CONFRONTED THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEA RING TO SUBSTANTIATE THESE EXPENSES WITH COMPLETE DETAILS. HE POINTED OUT THAT IN THIS LINE OF BUSINESS IT IS QUITE DIFFICULT FOR THE ASSESSEE TO PRODUCE DETA ILS IN PRECISION. THE LABOURER EMPLOYED BY THE ASSESSEE WERE ILLITERATE PERSONS AN D THEY KEPT ON CHANGING THE EMPLOYER. THE ASSESSEE HAS PRODUCED THE DETAILS RELATING TO THE PURCHASES AND THEY ARE VERIFIABLE. ON THE OTHER HAND LEARNED DR POINTED OUT THAT ASSESSING OFFICER HAS RECORDED A SPECIFIC FINDING T HAT COMPLETE DETAILS IN RESPECT OF LABOUR EXPENSES AND PURCHASES WERE NOT F ILED. ON DUE CONSIDERATION OF THEIR ARGUMENTS AND THE RECORD W E ARE OF THE OPINION THAT LEARNED CIT(APPEALS) HAS RIGHTLY UPHELD THE DISALLO WANCE. ASSESSING OFFICER HAS SPECIFICALLY OBSERVED THAT ASSESSEE HAS PRODUCED MUSTER ROLL IN RESPECT OF WAGES EXPENSES FOR FEW SITES MEANING TH EREBY THE COMPLETE DETAILS WERE NOT SUBMITTED BEFORE THE ASSESSING OFF ICER. ASSESSING OFFICER 4 ON VERIFICATION OF THE DETAILS FORMED AN OPINION TH AT ELEMENT OF INCOMPLETENESS IS INVOLVED. ON THE BASIS OF THE DE FECT IN THE DETAILS OF EXPENSES HE MADE AN AD HOC DISALLOWANCE OF RS. 1 LA C. LEARNED CIT(APPEALS) AGAIN REAPPRECIATED THESE FACTORS AND THEREAFTER CONFIRMED THE DISALLOWANCE. IN OUR OPINION WHEN TWO AUTHORITIES HAVE GONE THROUGH THE ORIGINAL RECORD AND FOUND MISTAKES/OMISSION IN THOS E DETAILS IT IS NOT ADVISEABLE ON OUR PART TO DISREGARD THAT FINDING M ORE SO WITHOUT GOING THROUGH THOSE EXACT DETAILS. THE ASSESSEE HAS NOT D EMONSTRATED AS TO HOW THIS FINDING OF FACT IS WRONG. TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES WE DO NOT FIND ANY GROUND TO INTERFE RE IN THE ORDER OF THE LEARNED CIT(APPEALS) ON THESE ISSUES. ACCORDINGLY GROUND NOS. 2 AND 3 ARE REJECTED. GROUND NO.4: 5. IN THIS GROUND OF APPEAL ASSESSEE HAS PLEADED T HAT LEARNED CIT(APPEALS) HAS ERRED IN UPHOLDING THE ADDITION OF RS.12 93 779 BY TREATING IT AS DEEMED DIVIDEND UNDER SECTION 2(22)( E) OF THE ACT. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ISSUE IN DI SPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIA L BENCH OF THE ITAT IN THE CASE OF ACIT VS. DHAUMIK COLOURS (P) LTD. REPORTED IN 118 ITD 1 27 SOT 5 270 (2009). LEARNED COUNSEL FOR THE ASSESSEE FURTHE R SUBMITTED THAT ASSESSEE HAS CITED THE DECISION OF SPECIAL BENCH BEFORE THE LEARNED CIT(APPEALS) IN ITS WRITTEN SUBMISSIONS BUT LEARNED CIT(APPEALS) FA ILED TO TAKE COGNIZANCE OF THIS DECISION. HE TOOK US THROUGH THE COPY OF TH E WRITTEN SUBMISSIONS PLACED ON PAGE NO.1 OF THE PAPER BOOK 6. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES WE FIND THAT ASSESSING OFFICER ON PERUSAL OF THE RECORD FOUND TH AT ASSESSEE HAS TAKEN LOANS FROM TWO SISTER CONCERNS NAMELY BLACKBERRY MARKETING (P) LTD. AND M/S. SHARDA MANAGEMENT (P) LTD. THE DISPUTE RELATES TO M/S. SHARDA MANAGEMENT (P) LTD.. IN THIS CONCERN THE BALANCE A S ON 31.3.2006 WAS RS. 35 53 982 WHICH ENHANCED TO RS.1 24 90 992 AS ON 31 .3.2007. ASSESSING OFFICER FOUND THAT TWO PARTNERS IN THE ASSESSEES F IRM NAMELY SHRI PRAHLAD SINGH CHAUDHARY AND GANPAT RAM CHAUDHARY ARE HAVING MORE THAN 20% OF PROFIT SHARING RATIO IN THE PARTNERSHIP FIRM. THEY ARE HOLDING 18.75% AND 37.18% OF SHARES RESPECTIVELY IN M/S. SHARDA MANAGE MENT (P) LTD. BECAUSE OF THEIR SHAREHOLDING PATTERN ASSESSING OFFICER HA S TREATED THE LOANS IN THE HANDS OF ASSESSEE AS A DEEMED DIVIDEND. ASSESSING O FFICER HAS TREATED A SUM OF RS.12 93 779 AS DIVIDEND IN THE HANDS OF ASSESSE E AND MADE THE ADDITION. 6 7. THE SPECIAL BENCH OF THE ITAT IN THE CASE OF BHA UMIK COLOURS PVT. LTD. HAS CONSIDERED AN IDENTICAL ISSUE. THE FACTS I N THAT CASE WERE THAT THE ASSESSEE COMPANY TOOK AN INTEREST BEARING LOAN OF R S. 9 LACS FROM ANOTHER COMPANY M/S. UMESH PENCILS (P) LTD. (UPPL). IT WAS OBSERVED BY THE AO THAT THOUGH THE ASSESSEE WAS NOT A SHAREHOLDER OF U PP YET BOTH THE COMPANIES HAD ONE COMMON SHAREHOLDER I..E NARMADABE N NANDLAL TRUST (NNT) AND THAT THE SAID TRUST WAS HOLDING 20% SHARE S IN THE ASSESSEE COMPANY AND 10% SHARES IN UPPL. THUS THE AO TOOK T HE VIEW THAT THE IMPUGNED TRANSACTION OF LOAN WAS COVERED BY THE PRO VISIONS OF SEC. 2(22)(E). THE ASSESSEES CONTENTION IN THIS REGARD WERE THAT THE AFORESAID SHARES WERE HELD IN THE NAME OF 3 TRUSTEES ON NNT FOR AND ON BE HALF OF THE TRUST THAT THE BENEFICIARIES OF THE TRUST NNT WERE 5 IN NUMBER AND AS SUCH TO INVOKE THE PROVISIONS OF SEC. 2(22)(E) NNT MUST BE BOTH A REG ISTERED SHAREHOLDER AND ALSO BENEFICIAL SHAREHOLDER WHICH WAS NOT THE CASE . THE AO DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND TAX RS. 9 LAKHS IN THE HANDS OF THE ASSESSEE COMPANY AS DEEMED DIVIDEND. ON APPEAL THE CIT(A) DELETED THE ADDITION MADE BY THE AO HOLDING THAT NNT WAS NOT BE NEFICIAL SHAREHOLDER OF SHARES IN THE ASSESSEE COMPANY OR UPPL AND THERE FORE THE PROVISIONS OF SEC. 2(22)(E) COULD NOT BE INVOKED. 7 8. THE SPECIAL BENCH HAS UPHELD THE ORDER OF THE L EARNED CIT(A). THE RELEVANT OBSERVATION OF THE SPECIAL BENCH FROM PARA GRAPH NOS. 34 TO 41 READ AS UNDER :- 34. WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 2 ( 22 )( E ) DOES NOT SPELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OR THE CONCERN (NON-SHAREHOLDER). THE P ROVISIONS ARE AMBIGUOUS. IT IS THEREFORE NECESSARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF SECTION 2( 22 )( E ) OF THE ACT. 35. THE INTENTION BEHIND ENACTING PROVISIONS OF SECTION 2( 22 )( E ) ARE THAT CLOSELY HELD COMPANIES ( I.E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED) WHICH ARE CONTROLLED BY A GROUP OF MEMBERS EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOU LD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED T HE DIVIDEND INCOME WOULD BECAME TAXABLE IN THE HANDS OF THE SHAREHOLDE RS. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND COMPA NIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN W HICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT BY THE DEEMING PROVISIONS SUCH PAYMENT BY THE COMPANY IS T REATED AS DIVIDEND. 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 WHIC H ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST IS BASED ON THE PRESUMPTION T HAT THE LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLD ERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTION OF THE LE GISLATURE IS THEREFORE TO TAX DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER A ND NOT IN THE HANDS OF THE CONCERN. 8 36. THE BASIS OF BRINGING IN THE AMENDMENT TO SECTION 2 ( 22 )( E ) OF THE ACT BY THE FINANCE ACT 1987 WITH EFFECT FROM 1-4-1988 IS TO ENSURE THAT PERSONS WHO CONTROL THE AFFAIRS OF A COMPANY AS WEL L AS THAT OF A FIRM CAN HAVE THE PAYMENT MADE TO A CONCERN FROM THE COMPANY AND THE PERSON WHO CAN CONTROL THE AFFAIRS OF THE CONCERN CAN DRAW THE SAME FROM THE CONCERN INSTEAD OF THE COMPANY DIRECTLY MAKING PAYM ENT TO THE SHAREHOLDER AS DIVIDEND. THE SOURCE OF POWER TO CON TROL THE AFFAIRS OF THE COMPANY AND THE CONCERN IS THE BASIS ON WHICH THESE PROVISIONS HAVE BEEN MADE. IT IS THEREFORE PROPER TO CONSTRUE THOSE PROVISIONS AS CONTEMPLATING A CHARGE TO TAX IN THE HANDS OF THE S HAREHOLDER AND NOT IN THE HANDS OF A NON-SHAREHOLDER VIZ. CONCERN. A LOAN OR ADVANCE RECEIVED BY A CONCERN IS NOT IN THE NATURE OF INCOME. IN OTH ER WORDS THERE IS A DEEMED ACCRUAL OF INCOME EVEN UNDER SECTION 5( 1 )( B ) IN THE HANDS OF THE SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE PAYEE VIZ. NON-SHAREHOLDER (CONCERN). SECTION 5( 1 )( A ) CONTEMPLATES THAT THE RECEIPT OR DEEMED RECEIPT SHOULD BE IN THE NATURE OF INCOME. THEREFOR E THE DEEMING FICTION CAN BE APPLIED ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT THE NON- SHAREHOLDER VIZ. THE CONCERN. 37. THE DEFINITION OF DIVIDEND UNDER SECTION 2( 22 )( E ) OF THE ACT IS AN INCLUSIVE DEFINITION. SUCH INCLUSIVE DEFINITION ENL ARGES THE MEANING OF THE TERM DIVIDEND ACCORDING TO ITS ORDINARY AND NATURAL ME ANING TO INCLUDE EVEN A LOAN OR ADVANCE. ANY LOAN OR ADVANCE CANNOT BE DIVI DEND ACCORDING TO ITS ORDINARY AND NATURAL MEANING. THE ORDINARY AND NATU RAL MEANING OF THE TERM DIVIDEND WOULD BE A SHARE IN PROFITS TO AN INVEST OR IN THE SHARE CAPITAL OF A LIMITED COMPANY. TO THE EXTENT THE MEANING OF THE W ORD DIVIDEND IS EXTENDED TO LOANS AND ADVANCES TO A SHAREHOLDER OR TO A CONCERN IN WHICH A SHAREHOLDER IS SUBSTANTIALLY INTERESTED DEEMING THE M AS DIVIDEND IN THE HANDS OF A SHAREHOLDER THE ORDINARY AND NATURAL MEA NING OF THE WORD DIVIDEND IS ALTERED. TO THIS EXTENT THE DEFINITIO N OF THE TERM DIVIDEND 9 CAN BE SAID TO OPERATE. IF THE DEFINITION OF DIVID END IS EXTENDED TO A LOAN OR ADVANCE TO A NON-SHAREHOLDER THE ORDINARY AND NA TURAL MEANING OF THE WORD DIVIDEND IS TAKEN AWAY. IN THE LIGHT OF THE IN TENTION BEHIND THE PROVISIONS OF SECTION 2( 22 )( E ) AND IN THE ABSENCE OF INDICATION IN SECTION 2( 22 )( E ) TO EXTEND THE LEGAL FICTION TO A CASE OF LOAN OR ADVANCE TO A NON- SHAREHOLDER ALSO WE ARE OF THE VIEW THAT LOAN OR A DVANCE TO A NON- SHAREHOLDER CANNOT BE TAXED AS DEEMED DIVIDEND IN T HE HANDS OF A NON- SHAREHOLDER. 38. THE BASIC CHARACTERISTIC OF DIVIDEND AS HELD BY THE APEX COURT IN THE CASE OF KANTILAL MANILAL V. CIT [1961] 41 ITR 275 IS A SHARE OF PROFITS OF THE COMPANY GIVEN TO ITS SHAREHOLDERS. FURTHER SECTION 206 OF THE COMPANIES ACT 1956 PROHIBITS PAYMENT OF DIVIDEND TO ANY PERS ON OTHER THAN THE REGISTERED SHAREHOLDER. IF ONE WERE TO BREAK UP THE NATURAL MEANING THE FOLLOWING TO COMPONENTS EMERGE ( A ) DIVIDEND IS A SHARE OF PROFITS OF THE COMPANY ( B ) PAID TO ITS SHAREHOLDERS. SECTION 2( 22 ) OF THE ACT ARTIFICIALLY EXTENDS THE SCOPE OF DIVIDEND FROM BEING MORE THAN ONLY A DISTRIBUTION OF PROFITS TO COVER CERTAIN OTHER TYPES DISBURSEMENTS SUCH AS LOANS PAID ETC. (THE FIRST INGREDIENT MENTIONED ABOVE). IT DOES NOT HOWEVER ALTER THE SECOND COMPONENT OF ITS NATURAL MEANING VIZ. PAID TO ITS SHAREHOLDER. IN OTHER WORDS ALL THAT SECTION 2( 22 ) SEEKS TO DO IS TO EXPAND THE VARIOUS TYPES PAYMENTS THAT MAY BE REGARDED AS DIVIDEND. TH E APEX COURT WHILE CONSIDERING WHAT CAN COME WITHIN THE ARTIFICIAL DEF INITION OF DIVIDEND UNDER SECTION 2( 22 ) IN THE CASE OF CIT V. NALIN BEHARILALL SINGHA [1964] 74 ITR 849 (SC) DESCRIBED THE SCOPE OF THE DEFINITION OF DIVI DEND THUS THE DEFINITION IS IT IS TRUE AN INCLUSIVE DEFINI TION AND A RECEIPT BY A SHAREHOLDER WHICH DOES NOT FALL WITHIN THE DEFINITI ON MAY POSSIBLY REGARDED AS DIVIDEND WITHIN THE MEANING OF THE ACT UNLESS TH E CONTEXT NEGATIVES THAT VIEW. THE CONTENTION OF THE D.R. THAT PROVISIONS OF SECTI ON 8( A ) OF THE ACT 10 CREATES A FICTION BY WHICH EVEN PAYMENTS TO NON-SHA REHOLDERS CAN BE CONSTRUED AS DIVIDEND CANNOT BE ACCEPTED. THOSE PRO VISIONS MERELY FIX THE YEAR IN WHICH DIVIDEND HAS TO BE TAXED. IT IS THERE FORE CLEAR THAT THE SHAREHOLDER ALONE CAN IF AT ALL BE SUBJECTED TO T AX FOR HAVING EARNED DIVIDEND. 39. IN THE DECISION OF THE TRIBUNAL IN THE CASE OF NIKKO TECHNO-LOGIES (I) (P.) LTD. ( SUPRA ) RELIANCE HAS BEEN PLACED ON CIRCULAR NO. 495 DAT ED 23-9-1987 WHICH STATES AS FOLLOWS : FURTHER DEEMED DIVIDEND WOULD BE TAXABLE IN THE HA NDS OF THE CONCERN WHERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED. . . . WE ARE OF THE VIEW THAT CIRCULAR OF CBDT TO THE EXT ENT THAT THEY DO NOT TONE DOWN THE RIGOR OF THE PROVISIONS OF THE ACT IN THE SENSE TO THE EXTENT THEY ARE NOT BENEVOLENT ARE NOT BINDING. 40. APART FROM THE ABOVE IT IS ALSO NOTICED THAT SECTI ON 2( 22 )( E )( III ) PROVIDES RELIEF TO A SHAREHOLDER AS FOLLOWS : DIVIDEND DOES NOT INCLUDE : ( I ) & ( II ) ** ** ** ( 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. IN THE EVENT OF THE PAYMENT OF LOAN OR ADVANCE BY A COMPANY TO A CONCERN BEING TREATED AS DIVIDEND AND TAXED IN THE HANDS OF THE CONCERN THEN THE BENEFIT OF SET OFF CANNOT BE ALLOWED TO THE CONCERN BECAUSE THE CONCERN CAN NEVER RECEIVE DIVIDEND FROM THE COMPANY WHICH IS ON LY PAID TO THE SHAREHOLDER WHO HAS SUBSTANTIAL INTEREST IN THE CO NCERN. THE ABOVE PROVISIONS ALSO THEREFORE CONTEMPLATE DEEMED DIVI DEND BEING TAXED IN THE HANDS OF A SHAREHOLDER ONLY. FOR THE REASONS STATED ABOVE WE ARE OF THE VIEW THAT THE LAW LAID DOWN IN THE CASE OF NIKKO TECHNOLOGIES (I) (P.) LTD. ( SUPRA ) IS NOT CORRECT. WE THEREFORE HOLD THAT DEEMED D IVIDEND UNDER SECTION 11 2( 22 )( E ) OF THE INCOME-TAX ACT 1961 CAN BE ASSESSED ONLY IN THE HANDS OF A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF ANY OTHER PERSON. 41. IN THE LIGHT OF THE ABOVE DISCUSSION THE QUESTIONS REFERRED TO THE SPECIAL BENCH ARE ANSWERED AS FOLLOWS : ON THE FIRST QUESTION : DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS O F A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION : THE EXPRESSION SHAREHOLDER REFERRED TO IN SECTION 2( 22 )( E ) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEF ICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BE NEFICIAL SHAREHOLDER THEN THE PROVISIONS OF SECTION 2( 22 )( E ) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHO LDER THEN ALSO THE PROVISIONS OF SECTION 2( 22 )( E ) WILL NOT APPLY. 9. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES WE FIND THAT ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH RESPECTFULLY FOLLOWING THE DE CISION OF THE SPECIAL BENCH WE ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE AND DELETE THE ADDITION. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 24. 09.2010 ( SHAMIM YAHYA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24/09/2010 MOHAN LAL 12 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR