ACIT, New Delhi v. Sardar Joginder Singh,, New Delhi

ITA 3943/DEL/2009 | 2006-2007
Pronouncement Date: 31-03-2011 | Result: Dismissed

Appeal Details

RSA Number 394320114 RSA 2009
Assessee PAN ABXPS1217P
Bench Delhi
Appeal Number ITA 3943/DEL/2009
Duration Of Justice 1 year(s) 6 month(s) 8 day(s)
Appellant ACIT, New Delhi
Respondent Sardar Joginder Singh,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 31-03-2011
Date Of Final Hearing 30-03-2011
Next Hearing Date 30-03-2011
Assessment Year 2006-2007
Appeal Filed On 22-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 3943(DEL)/2009 ASSESSMENT YEAR: 2006-07 ASSTT. COMMISSIONER OF INCOME S. JOGINDER SINGH PROP. TAX CIRCLE 27(1) NEW DELHI. VS. J.S . POLYMERS B-114A MANSAROVER GARDEN NEW DELHI. PAN-ABXPS1217P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.K. LAL SR. DR RESPONDENT BY : SHRI K. SAMPATH ADVOCATE ORDER PER K.G. BANSAL : AM THE ONLY GROUND TAKEN IN THIS APPEAL BY THE REV ENUE IS TO THE EFFECT THAT THE LEARNED CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 1 43 96 908/- MADE BY THE AO ON ACCOUNT OF DIV IDEND U/S 2(22)(E) OF THE ACT. IT IS MENTIONED THAT THE ASSESSEE WAS NO T ABLE TO PROVE THE BONA- FIDES OF HIS CLAIM REGARDING CARRYING ON OF R EAL ESTATE BUSINESS AND THE AUDITED ACCOUNTS HAD SHOWN THE AMOUNT AS UNSECU RED LOANS. 2 2. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HOLDS 90% BENEFICIAL INTEREST IN SHARE CAPITAL OF GURURAKHA PLASTICS PVT. LTD. A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTE D. HE IS ALSO THE REGISTERED SHAREHOLDER IN THE BOOKS OF THE ASSESSEE-COMPANY F OR HIS 90% STAKE IN THE SHARE CAPITAL. THIS COMPANY HAS PAID A SUM OF RS. 1 43 96 908/- TO THE ASSESSEE ON VARIOUS DATES BETWEEN 01.04.2005 A ND 31.03.2006 BEING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE HAD ACCUMU LATED PROFITS IN THE FORM OF FREE RESERVES AND SURPLUS AMOUNTING TO R S. 1 43 96 908/-. THE COMPANY HAS BEEN CARRYING ON THE BUSINESS OF MAN UFACTURE IMPORTERS EXPORTERS AND DEALERS IN ALL KINDS OF PLASTIC AND RUBBER GOODS BOTH NATURAL AND SYNTHETIC. ITS MAIN OBJECTS CLAUSE ALSO PERMIT IT TO CARRY ON THE BUSINESS TO BUY STORE SELL EXCHANGE ETC. AND DEAL IN CHEMICALS AND RAW-MATERIALS. SINCE THE COMPANY ADVANCED A SUM OF RS. 1 43 96 908/- TO THE ASSESSEE THE AMOUNT WAS BR OUGHT TO TAX AS DIVIDEND UNDER THE DEEMING PROVISIONS OF SECTION 2(22)(E). THE LD. CIT(APPEALS) DELETED THIS ADDITION ON THE GROUND THAT MONIES RECEIVED BY THE ASSESSEE FROM THE COMPANY WERE IN THE NATURE OF DEPOSITS AND NOT LOANS OR ADVANCES. 3 3. BEFORE US THE LD. DR SUBMITTED THAT- (I) THE AMOUNTS WERE IN THE NATURE OF LOANS AND A DVANCES AS SHOWN IN THE AUDITED ACCOUNTS OF THE ASSESSEE; (II) THE AMOUNTS WERE NOT ADVANCED BY THE COMPANY IN T HE NORMAL COURSE OF ITS BUSINESS; AND (III) THE ASSESSEE COMPANY HAD SUFFICIENT FREE RESERVE AND SURPLUS TO COVER THE AMOUNTS. 3.1 ACCORDINGLY IT IS ARGUED THAT THE AO RIGHTLY BROUGHT THIS AMOUNT TO TAX AS DIVIDEND U/S 2(22)(E) OF THE ACT. 4. IN REPLY THE LD. COUNSEL HAS SUBMITTED THAT THE BACKGROUND FACTS REGARDING THE PAYMENT OF VARIOUS AMOUNTS HAD BEE N SUBMITTED BEFORE THE AO. BRIEFLY SPEAKING THESE ARE THAT THE COMPA NY WAS IN THE PROCESS OF CLOSING DOWN ITS BUSINESS OF PLASTICS. THE AS SESSEE WAS THE OWNER OF TWO PLOTS OF LAND SITUATED SHRI SATGURU RAM DAS MARG MANSAROVER GARDEN 4 NEW DELHI-110015 WITH THE COMBINED AREA OF 410 SQ. YDS. THE ASSESSEE AND THE COMPANY ENTERED INTO AN AGREEM ENT ON 01.04.2005 UNDER WHICH THE ASSESSEE APPROACHED THE COMPANY TO DEVELOP AND CONSTRUCT ON THE SAID PLOTS INDUSTRIAL BUILDINGS OFFICES GODOWNS AS PER PLANS SANCTIONED BY THE DELHI DEVELOPMENT AUTHORI TY. AS PER PARAGRAPH NO. 11 OF THE COLLABORATION AGREEMENT THE COMPAN Y WAS TO PROVIDE AN ADVANCE OF RS. 4.00 CRORE TO THE ASSESSEE WHEREU PON THE ASSESSEE SHALL GIVE VACANT POSSESSION OF THE LAND AND STRUCTURES THEREON TO ESTABLISH THE SITE OFFICE AND COMMENCE NECESSARY WORKS ON THE S AID LAND. THIS AGREEMENT HAS BEEN PLACED IN THE PAPER BOOK ON PAGE NOS. 65 TO 71. THE MAIN OBJECTS OF THE COMPANY DID NOT PROVIDE FOR C ARRYING ON THE BUSINESS OF REAL ESTATE DEVELOPERS. THEREFORE A RESOLUTION WAS PASSED ON 31.1.2005 TO PURSUE OBJECT NO. 13(A) IN RESPECT OF PURCHASE SALE DEVELOP ETC. OF LAND SHOPS DEPOTS ETC. A COPY OF THIS RESOLUTION WAS FURNISHED TO THE AO VIDE LETTER DATED 11.12.2008 WHICH HAS BEEN IGNORE D BY HIM. THE RESOLUTION INTER-ALIA MENTIONS THAT IT IS PROPOSED THAT AN AGREEMENT IS ENTERED INTO WITH SHRI JOGINDER SINGH AS PER DRAFT AGREEMENT P LACED ON THE TABLE CONTAINING DETAILED TERMS AND CONDITIONS SETT LED WITH HIM. SMT. AJIT KAUR DIRECTOR WAS AUTHORIZED TO SIGN THE AGREE MENT WITH THE ASSESSEE. COPIES OF APPLICATION TO MUNICIPAL CORPORATION OF DELHI FOR CONSTRUCTION 5 OF PROPOSED BUILDING PROJECT REPORT OF MULTI-S TOREYED SHOPPING-CUM- OFFICE COMPLEX AT MANSAROVER GARDEN SITE MAP OF PROPOSED BUILDING AND VALUATION REPORT OF THE ARCHITECT WERE ALSO FURN ISHED WHICH HAVE NOW BEEN PLACED IN THE PAPER BOOK ON PAGE NOS. 37 TO 68. 4.1 IT IS SUBMITTED THAT THE AMOUNTS WERE GIVEN TO THE ASSESSEE AS PER THE COLLABORATION AGREEMENT FOR THE PURPOSE OF CA RRYING ON THE BUSINESS OF REAL ESTATE DEVELOPMENT. IT HAS BEEN STATED BEFO RE US BY THE LD. COUNSEL BY WAY OF STATEMENT AT BAR THAT THE COLLABORATION A GREEMENT HAS BEEN ACTED UPON BY BOTH THE PARTIES. IN THE LIGHT OF THESE FACTS IT IS ARGUED THAT THE MONIES WERE ADVANCED IN THE COURSE OF BUSINESS OF THE COMPANY AND THEREFORE THE PROVISION CONTAINED IN SECTION 2 (22)(E) ARE NOT APPLICABLE. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE R ECEIVED AN AGGREGATE SUM OF RS. 1 43 96 908/- FROM GURURAKHA PLASTICS PVT. LTD . IN WHICH HE HAS SUBSTANTIAL INTEREST AND IN WHICH PUBLIC ARE N OT SUBSTANTIALLY INTERESTED. THE MONIES WERE RECEIVED IN PURSUANCE OF COLLA BORATION AGREEMENT DATED 01.04.2005 UNDER WHICH THE ASSESSEE AND T HE COMPANY AGREED FOR DEVELOPMENT OF PLOTS OF LAND FOR CONSTRUCTION OF COMMERCIAL BUILDINGS. 6 THE COMPANY WAS TO PAY A TOTAL SUM OF RS. 4.00 CRORE TO THE ASSESSEE IN LIEU OF WHICH THE VACANT POSSESSION OF PLOTS OF L AND AND CONSTRUCTION THEREON WAS TO BE HANDED OVER TO THE COMPANY. THIS AGREEMENT WAS ACTED UPON. THE COMPANY PASSED A RESOLUTION T O CARRY ON THE BUSINESS OF REAL ESTATE DEVELOPER WITH THE RESULT THAT IT BECAME ONE OF THE MAIN OBJECTS OF THE COMPANY. THE QUESTION IS-WHETHER THE AMOUNTS SO RECEIVED ARE LIABLE TO BE TAXED AS DIVIDEND UNDER THE PRO VISION CONTAINED IN SECTION 2(22)(E)? 5.1 THE PROVISION READS AS UNDER:- - - - - - - - - - 22. DIVIDEND INCLUDES- (E) ANY PAYMENT BY A COMPANY NOT BEING A COMPAN Y IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED O F ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31 ST DAY OF MAY 1987 BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER BEING A PER SON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARE S ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN T EN PER CENT OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHA REHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBS TANTIAL 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 T HE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES AC CUMULATED PROFITS; 7 5.2 IN THE CASE OF CIT VS. AMBASSADOR TRAVELS PVT. LTD. (2009) 318 ITR 376 (DEL) IT IS MENTIONED THAT THE ASSESS EE WAS A TRAVEL AGENCY AND THE TWO CONCERNS THAT IT HAD DEALINGS WITH WERE ALSO IN THE TOURISM BUSINESS. THE ASSESSEE WAS INVOLVED IN BOOKING O F RESORTS FOR THE CUSTOMERS OF THESE COMPANIES AND ENTERED INTO NORM AL BUSINESS TRANSACTIONS AS A PART OF ITS DAY-TO-DAY BUSINE SS ACTIVITY. IT WAS HELD THAT HE FINANCIAL TRANSACTIONS CANNOT IN ANY CIRCUMST ANCES BE TREATED AS LOANS OR ADVANCES RECEIVED BY THE ASSESSEE FROM THES E TWO CONCERNS. IN THE CASE OF CIT VS. RAJ KUMAR (2009) 318 ITR 462 (DEL) THE FACTS ARE THAT THE ASSESSEE SHOWED LIABILITY OF A SUM OF RS. 14 59 770/- TO CEI UNDER THE HEAD ADVANCES RECEIVED FROM CUSTOMERS. I T WAS SUBMITTED THAT NEARLY 90% OF THE SALES OF THE ASSESSEE WERE TO CEI. THE ADVANCES WERE RECEIVED AGAINST FUTURE SUPPLIES WHICH WERE BACK ED BY SALES MADE IMMEDIATELY UPON MANUFACTURE OF GOODS. THE ADVAN CES WERE NOT RETURNED BY CHEQUE OR OTHERWISE. THE HONBLE COURT HELD THAT THE ADVANCES COULD NOT BE DEEMED TO BE DIVIDEND U/S 2(22)(E) OF THE ACT. WHILE DOING SO FOUR CONDITIONS WERE LAID DOWN ON SATISFACTION OF WHICH THE PAYMENT WOULD ACQUIRE THE ATTRIBUTES OF A DIVIDEND. THE SE ARE AS UNDER:- (I) THE COMPANY MAKING THE PAYMENT IS ONE IN WHICH PUB LIC ARE NOT SUBSTANTIALLY INTERESTED. 8 (II) MONEY SHOULD BE PAID BY THE COMPANY TO A SHAREHOL DER HOLDING NOT LESS THAN TEN PER CENT (10%) OF THE VOTING POWER OF THE SAID COMPANY. IT WOULD MAKE NO DIFFERENCE IF THE PAYMEN T WAS OUT OF THE ASSETS OF THE COMPANY OR OTHERWISE. (III) THE MONEY SHOULD BE PAID EITHER BY WAY OF AN ADVA NCE OR LOAN OR IT MAY BE ANY PAYMENT WHICH THE COMPANY MAY MA KE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF AN Y SHAREHOLDER OR ALSO TO ANY PERSON IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE IS SUBSTANTIALLY INTEREST ED. (IV) AND LASTLY THE LIMITING FACTOR BEING THAT THES E PAYMENTS MUST BE TO THE EXTENT OF ACCUMULATED PROFITS POSSE SSED BY SUCH A COMPANY. 5.3 IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING P. LTD. (2009) 318 ITR 476 (DEL) THE HONBLE COURT MENTIONS THA T THE WORD ADVANCE HAS TO BE READ IN CONJUNCTION WITH THE WORD LOAN . USUALLY ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDIN G COUPLED WITH ACCEPTANCE 9 BY THE OTHER SIDE OF THE MONEY AS LOAN. IT GENER ALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND IN ITS WIDEST MEANING THE TERM ADVANCE MAY OR MAY NOT INCLU DE LENDING. THE WORD :ADVANCE IF NOT FOUND IN COMPANY OF OR IN CONJU NCTION WITH A WORD LOAN MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES THEN IT WOULD BE A LOAN. THUS ARISES THE CONUND RUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM ADVANCE. THE RULE OF CONSTRUCTION TO OUR MINDS WHICH ANSWERS THIS CONUMDRUM IS NOSCI TUR A SOCIIS. THEREFORE THE WORD HAS TO BE CONSTRUED WITH REFERENCE TO WOR D FOUND IN ITS PROXIMITY. ACCORDINGLY IT WAS HELD THAT THE ADV ANCE COULD NOT BE DEEMED AS DIVIDEND BECAUSE THE SAME WAS RECEIVED FOR SUPPLY OF GOODS. AS WE HAVE THE BENEFIT OF THREE DECISIONS OF THE JURISD ICTIONAL HIGH COURT IT MAY NOT BE NECESSARY FOR US TO GO INTO OTHER CASES DISCUSSED BY THE LOWER AUTHORITIES. 5.4 COMING TO THE FACTS THE MONIES WERE ADVANC ED IN PURSUANCE OF THE MEMORANDUM OF AGREEMENT FOR DEVELOPING PLOTS O F LAND INTO COMMERCIAL BUILDINGS ONE OF THE OBJECTS OF THE COMPANY. THE PLOTS BELONGED TO THE ASSESSEE WHICH WERE TO BE HANDED OVER TO THE COMPAN Y FOR CONSTRUCTION AS PER APPROVED PLANS. IT WAS THE BUSINESS OF THE CO MPANY TO UNDERTAKE REAL 10 ESTATE CONSTRUCTION BUSINESS. IN A WAY THE ASSESSEE BECAME A PARTNER WITH THE COMPANY TO CARRY ON REAL ESTATE BUSINESS DURING THE COURSE OF WHICH THE ADVANCES WERE RECEIVED. IN SUCH A S ITUATION THE ADVANCES CANNOT BE DEEMED TO BE DIVIDEND. 6. IN THE RESULT THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 3 1ST MARCH 2011. SD/- SD/- (I.P. BANSAL) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 31ST MARCH 2011. SP SATIA COPY OF THE ORDER FORWARDED TO: S. JOGINDER SINGH NEW DELHI. ASSTT. CIT CIRCLE 27(1) NEW DELHI. CIT(A) CIT THE DR ITAT NEW DELHI. ASSISTANT REG ISTRAR.