ITO 9(3)(3), MUMBAI v. VAID OVERSEAS P. LTD, NAVI MUMBAI

ITA 3600/MUM/2009 | 2006-2007
Pronouncement Date: 01-02-2010 | Result: Dismissed

Appeal Details

RSA Number 360019914 RSA 2009
Assessee PAN AAACV3717A
Bench Mumbai
Appeal Number ITA 3600/MUM/2009
Duration Of Justice 7 month(s) 29 day(s)
Appellant ITO 9(3)(3), MUMBAI
Respondent VAID OVERSEAS P. LTD, NAVI MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 01-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 01-02-2010
Assessment Year 2006-2007
Appeal Filed On 02-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI RAJENDRA SINGH (AM) ITA NO.3600/MUM/2009 ASSESSMENT YEAR : 2006-07 INCOME TAX OFFICER-9(3)(3) ROOM NO.261 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ..( APPELLANT ) VS. M/S. VAID OVERSEAS PVT. LTD. PLOT NO.8-856 TTC INDUSTRIAL AREA RABALE P.O. GHANSALI NAVI MUMBAI-400 701. ..( RESPONDENT ) P.A. NO. (AAACV 3717 A) APPELLANT BY : MS. S. PAL RESPONDENT BY : SHR I GOVIND GOYAL O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 17.3.2009 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 06-07 TAKING FOLLOWING EFFECTIVE GROUNDS OF APPE AL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE A DDITION OF RS.33 99 000/- (BEING LOAN TAKEN FROM M/S. VAID FINANCE P. LTD.) WHICH WAS ASSESSED AS DEEMED DIVID END U/S.2(22)(E) OF THE I.T ACT. ITA NO.3600/M/09 A.Y: 06-07 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING T HE SAID ADDITION OF RS.33 99 000/- BY ERRONEOUSLY HOLDING T HAT THE DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HAN DS OF THE PERSON WHO IS THE SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. 2. AT THE TIME OF HEARING THE LD. DR WHILE RELYING ON THE ORDER OF THE AO ALSO RELIED ON THE DECISION OF THE TRIBUNAL IN NCK SONS EXPORTS (P.) LTD. VS. ITO (2006) 102 ITD 311(MUM.). 3. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE WH ILE SUPPORTING THE ORDER OF THE LD. CIT(A) FURTHER SUBMI TS THAT THE ISSUE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT VS. BHAUMIK COLOUR(P.) LTD. (2009) 118 ITD 1(MUM.)(SB). HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 4. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIN D THAT DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS OBSERVED BY THE AO TH AT THE ASSESSEE HAS RECEIVED LOAN OF RS.33 90 000/- FROM M/S. VA ID FINANCE PVT. LTD. A COMPANY WHERE SHARE HOLDERS ARE COMMON AN D HAVE BENEFICIAL INTEREST IN BOTH THE COMPANIES. ACCORDINGLY T HE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE LOAN TAKEN FROM VA ID FINANCE PVT. LTD. SHOULD NOT BE TREATED AS DEEMED DIVIDEND WITHIN THE MEANING OF ITA NO.3600/M/09 A.Y: 06-07 3 SECTION 2(22)(E) OF THE INCOME TAX ACT 1961(THE ACT). IN RESPONSE IT WAS INTERALIA SUBMITTED BY THE ASSESSEE THAT ..THERE IS NO DOUBT THAT LOAN OR ADVANCE HAS BEEN RECEIVED FROM A COMPANY HAVING COMMON DIRECTORS AND SHAREHOLDERS. THE HOLDING IS CERTAIN LY MORE THAN 10% AND THE FINANCING COMPANY IS HAVING RESERVES A ND SURPLUS ALSO THUS PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE I N THE CASE. HOWEVER SUB-CLAUSE(II) OF SECTION 2(22)(E) ITSELF SPECIFI CALLY PROVIDES FOR AN EXCEPTION IN CASE WHERE THE LENDING COMPANY IS A FINANCE COMPANY WHOSE MAIN BUSINESS IS TO PROVIDE FINANCE. AS VAI D FINANCE PRIVATE LTD.S MAIN BUSINESS IS TO PROVIDE FINANCE AND AS THE SAME HAS BEEN PROVIDED IN ITS REGULAR COURSE OF BUSINESS THE EXCEP TION AS PROVIDED IN SUB-CLAUSE(II) IS APPLICABLE. THUS THE AMOUN T ADVANCED BY VAID FINANCE PRIVATE LIMITED CAN NOT BE TREATED AS DEE MED DIVIDEND. 5. HOWEVER THE AO WAS OF THE VIEW THAT IN THE INSTANT CASE THE ASSESSEE HAS RECEIVED LOAN FROM A COMPANY WHERE SHARE HOLDE RS ARE COMMON AND HAVE THE BENEFICIAL INTEREST IN BOTH COMPANI ES. AS SUCH THE LOAN RECEIVED FROM VAID FINANCE P. LTD. IS DEEME D DIVIDEND AND HAS TO BE TAXED IN THE HANDS OF THE ASSESSEE. ACCORDINGLY HE ADDED RS.33 90 000/- TO THE TOTAL INCOME OF THE ASSESSEE U/S.2(2 2)(E) OF THE ACT. ITA NO.3600/M/09 A.Y: 06-07 4 6. WE FURTHER FIND THAT ON APPEAL THE LD. CIT(A) WH ILE OBSERVING THAT THE APPELLANT COMPANY IS NOT A SHARE HOLDER OF V AID FINANCE PVT. LTD. FOLLOWED THE DECISION OF SPECIAL BENCH OF THE TR IBUNAL IN BHAUMIK COLOUR (P.) LTD. (SUPRA) AND HELD THAT THE PROVI SIONS OF SECTION 2(22)(E) CANNOT BE INVOKED AND HENCE DELETED THE AD DITION MADE BY THE AO. 7. IN BHAUMIK COLOUR (P.) LTD. (SUPRA) IT HAS BEEN HELD BY THE SPECIAL BENCH VIDE PARA-41 APPEARING AT PAGE-27 OF THE REPORT AS UNDER : ON THE FIRST QUESTION : DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION : THE EXPRESSION SHAREHOLDER REFERRED TO IN SECTION 2(22)(E) REFER S TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER . IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENE FICIAL SHAREHOLDER THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL S HAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE PROV ISIONS OF SECTION 2(22)(E) WILL NOT APPLY. IN THE CASE BEFORE US THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF VAID FINANCE PRIVATE LTD. THIS BE ING SO WE RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL (SUPRA) HOLD THAT THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND IN VIEW O F THE RATIO LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOU R (P) LTD. THE ITA NO.3600/M/09 A.Y: 06-07 5 DECISION RELIED ON BY THE LD. DR IS DISTINGUISHABLE AND NOT APPLICABLE. ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF T HE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO. THE GROUNDS T AKEN BY THE REVENUE ARE THEREFORE REJECTED. 8. IN THE RESULT REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.02.2010. SD/- SD/- (RAJENDRA SINGH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED:01.02.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI. ITA NO.3600/M/09 A.Y: 06-07 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 7.1.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 7.1.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 01-02-10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 03-02-10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER