M/s. M.H. Medicus Pvt. Ltd., New Delhi v. ITO, New Delhi

ITA 4119/DEL/2011 | 2006-2007
Pronouncement Date: 18-11-2011 | Result: Allowed

Appeal Details

RSA Number 411920114 RSA 2011
Bench Delhi
Appeal Number ITA 4119/DEL/2011
Duration Of Justice 2 month(s) 5 day(s)
Appellant M/s. M.H. Medicus Pvt. Ltd., New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 18-11-2011
Date Of Final Hearing 14-11-2011
Next Hearing Date 14-11-2011
Assessment Year 2006-2007
Appeal Filed On 12-09-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 4119(DEL)2011 ASSESSMENT YEAR: 2006-07 M/S. M.H. MEDICUS PVT. LTD. IN COME TAX OFFICER VARDHMAN LOCATION PLAZA J-BLOCK V. WARD 6(1 ) NEW DELHI. COMM.COMPLEX RAJOURI GARDEN NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.S. SINGHVI CA RESPONDENT BY: SHRI R.S . NEGI SR. DR ORDER PER A.D. JAIN J.M . THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006- 07 AGAINST THE ORDER DATED 24.6.2011 PASSED BY THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS)IX NEW DELHI. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE:- 1(I). THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE CIT(A) WAS NOT JUSTIFIED IN PASSING EX-PARTE ORDER WITHOUT PRO PER SERVICE OF NOTICE. (II). THAT SOME OF THE NOTICES REFERRED TO IN TH E APPELLATE ORDER HAVE NOT BEEN SERVED AND AS SUCH PRESUMPTION ABOUT NON C OMPLIANCE IS WITHOUT ANY BASIS. ITA NO. 4119(DEL)2011 2 2. THAT EVEN OTHERWISE THE CIT(A) HAS NOT PASSE D A SPEAKING ORDER AS REQUIRED U/S 250(6) AND AS SUCH ORDER IS NOT SUS TAINABLE UNDER THE LAW. 3(I) THAT EVEN ON MERITS THE ORDERS OF THE LOWER AUTHORITIES ARE NOT SUSTAINABLE AS ADDITION U/S 2(22)(E) HAS BEEN MADE EVEN THOUGH THE APPELLANT COMPANY IS NOT A SHARE-HOLDER AND PROVISI ONS OF SECTION 2(22)(E) ARE NOT APPLICABLE. (II) THAT SECTION 2(22)(E) HAS BEEN APPLIED IN AN ILLEGAL AND ARBITRARY MANNER WITHOUT PROPER APPRECIATION OF FACTS AND LEG AL POSITION. 2. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSES SEE HAS STATED AT THE BAR THAT GROUND NOS. 1&2 ARE NOT PRESSED. REJECTED AS NOT PRESSED. 3. APROPOS GROUND NO.3 THE FACTS ARE THAT THE AO O BSERVED THAT THE ASSESSEE COMPANY HAD RECEIVED ` 1 00 000/- FROM M/S. PANCHDEEP MEDICARE PVT. LTD. (PMPL FOR SHORT) ON 13.02.2006 AS ADVAN CE/UNSECURED LOAN AND A TOTAL OF ` 4.25 LAKHS ON 2.7.05 4.11.05 AND 14.3.06 AS CREDI TS IN THE SHAPE OF ADVANCE UNSECURED LOANS FROM M/S. NOVOPHARM LIFE SC IENCES PVT.LTD. (NLSPL FOR SHORT). THE ASSESSEE COMPANY WAS ASK ED TO SHOW CAUSE AS TO WHY THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT BE NOT INVOKED REGARDING THESE RECEIPTS SINCE SHRI LAKVINDER SING H ARORA HAD A SHARE- HOLDING OF 76.86% IN PMPL WHICH HAD ACCUMULATED P ROFITS OF ` 27 75 394/- OF 22.28% IN NLSPL WHICH HAD ACCUMULA TED PROFITS OF ` 7 68 720/- AND OF 30% IN THE ASSESSEE COMPANY. ITA NO. 4119(DEL)2011 3 4. THE ASSESSEE CONTENDED THAT SHRI LAKVINDER SINGH ARORA HAD A CONSTANT CREDIT BALANCE IN THE BOOKS OF PMPL AS WEL L AS NLSPL; THAT HE INFERRED THAT THE PAYMENTS BY PMPL AND NLSPL WERE M ADE OUT OF THE MONEY RECEIVED FROM SHARE-HOLDERS THEMSELVES AND NO T OUT OF THE ACCUMULATED PROFITS; AND THAT THEREFORE THE DEEMIN G PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT APPLICABLE. 5. THE AO DISAGREEING WITH THE ASSESSEES STAND O BSERVED THAT SECTION 2(22)(E) OF THE ACT DOES NOT EXCLUDE OR DIFFERENTIA TE ON THE BASIS OF FUND FLOWS AS TO WHICH PENNY CAME FROM WHERE AND WENT W HERE; THAT THE DEFINITION OF DIVIDE IS AN INCLUSIVE ONE GOVERNE D BY THE PROVISIONS AND EXCLUSIONS SPECIFIED IN THE SECTION ITSELF; AND THA T THE ASSESSEES CASE DID NOT FALL WITHIN THE AMBIT OF EXCLUSIONS CONTAINED IN TH E SECTION. IN THIS MANNER THE AO MADE ADDITION OF ` 5 25 000/- TO THE INCOME OF THE ASSESSEE AS INCOME FROM OTHER SOURCES HOLDING THAT THE PAYMENT S BY PMPL AND NLSPL TO THE ASSESSEE COMPANY WERE DIVIDEND INCOMES IN TH E HANDS OF THE ASSESSEE AND WERE TO BE CREDITED ACCORDINGLY UPTO THE EXTEN T OF THE ACCUMULATED PROFITS OF PMPL AND NLSPL RESPECTIVELY. THE LD. CIT(A) IT IS SEEN IN THE IMPUGNED EX-PARTE ORDER HAS DITTOED THE ASSESS MENT ORDER. ITA NO. 4119(DEL)2011 4 6. BY VIRTUE OF THE IMPUGNED EX-PARTE ORDER THE LD . CIT(A) CONFIRMED THE ASSESSMENT ORDER. 7. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT HE STATES AT THE BAR THAT THE ASSESSEE COMPANY HAS NO SHARE-HOLDING EITHER IN PMPL OR NLSPL AND THAT THIS BEING THE CASE THE AO ERRED FROM THE VERY INCEPTION IN INVOKING THE PROVISIONS OF SECTION 2(2 2)(E) OF THE ACT. RELIANCE HAS BEEN SOUGHT TO BE PLACED ON THE DECISI ON OF THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT CIRCLE 33 MUMBAI V. BHA UMIK COLOUR (P)LTD. 118 ITD 1(MUM)(SB) WHEREIN IT HAS BEEN HELD INTE R ALIA THAT THE DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PER SON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PER SON OTHER THAN A SHAREHOLDER. RELIANCE HAS ALSO BEEN SOUGHT TO BE PLACED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT V. ANKITECH (P)LT D. 11 TAXMANN.COM 100(DELHI) (COPY PLACED ON RECORD) WHEREIN IT HAS BEEN HELD AGREEING WITH BHAUMIK COLOUR (P)LTD. (SUPRA) IT HAS BEEN HELD THAT WHERE IT IS FOUND THAT A LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEND AT THE HANDS OF A CONCERN WHICH IS NOT A SHAREHOLDER IN THE LENDER CO MPANY AID CANNOT BE AVAILED OF CBDT CIRCULAR NO. 495 DATED 22.9.97 REP RODUCED IN 168 ITR (STATUTES) 91 TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. ITA NO. 4119(DEL)2011 5 8. ON THE OTHER HAND THE LD. DR HAS CONTENDED THA T THE CASE NOW SOUGHT TO BE MADE OUT ON BEHALF OF THE ASSESSEE WAS NEVER RAISED BEFORE THE AUTHORITIES BELOW AND THEREFORE IT CANNOT BE ALLOW ED TO BE RAISED NOW. 9. HAVING HEARD THE PARTIES AND HAVING PERUSED THE MATERIAL ON RECORD WE ARE NOT IN AGREEMENT WITH THE CONTENTION ON BEHA LF OF THE DEPARTMENT THAT SINCE THE ISSUE OF THE ASSESSEE NOT HAVING ANY SHAR EHOLDING OF EITHER PMPL OR NLSPL AND THEREFORE THE PROVISIONS OF SECTION 2 (22)(E) OF THE ACT BEING NOT APPLICABLE WAS NOT RAISED BY THE ASSESSEE BEFO RE THE AUTHORITIES BELOW THE ASSESSEE IS PRECLUDED FOR DOING SO BEFORE US. 10. IT IS THE AO WHO SOUGHT TO MAKE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT APPLICABLE TO THE CASE OF THE ASSESSEE. NO W SECTION 2(22)(E) PROVIDES AS FOLLOWS:- 2(22) DIVIDEND INCLUDES (E) ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WH ETHER 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 PERSON WHO IS THE BENEFICIAL O WNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND W HETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN IN WHIC H SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBS TANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID C ONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE I NDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. ITA NO. 4119(DEL)2011 6 11. IN THE PRESENT CASE PMPL AND NLSPL HAVE MADE PAYMENTS TO THE ASSESSEE COMPANY. AS PER THE SECOND CONDITION LAI D DOWN IN SECTION 2(22)(E) IN ORDER TO BE INCLUDED IN DIVIDEND A PAYMENT MUST BE TO ANY CONCERN IN WHICH A SHAREHOLDER BEING THE BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER IS A MEMBER OR A PARTNER IN WHICH HE HAS SUBSTANTIAL INTEREST. HEREIN THE PAY MENT HAS BEEN MADE BY THE COMPANIES PMPL AND NLSPL TO A CONCERN I.E. THE ASSESSEE COMPANY. HOWEVER IT HAS NOT BEEN MADE OUT THAT THE ASSESSEE COMPANY HAS ANY SHAREHOLDING IN THE LOANER COMPANIES I.E. PMPL AN D NLSPL . THAT BEING SO THE REQUISITE STATUTORY MANDATORY CONDITION OF SECTION 2(22)(E) OF THE ACT DOES NOT STAND FULFILLED. 12. THE ABOVE POSITION STANDS CONSIDERED BY THE SPE CIAL BENCH OF THE TRIBUNAL IN BHAUMIK COLOUR (P)LTD. (SUPRA). TH EREIN IT WAS HELD INTER ALIA THAT DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDE R COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. 13. IN ANKITECH (P)LTD.(SUPRA) THE HONBLE JURIS DICTIONAL HIGH COURT HAS HELD INTER ALIA THAT A COMPANY IS SUPPOSED TO DISTRIBUTE PROFITS IN THE ITA NO. 4119(DEL)2011 7 FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SU CH DIVIDEND CANNOT BE GIVEN TO NON-MEMBERS; THAT THE SECOND CATEGORY SPEC IFIED IN SECTION 2(22)(E) OF THE ACT IS A CONCERN IN WHICH THE SHAREHOLDER OF THE PAIR COMPANY HAS AT LEAST TWENTY PER CENT OF VOTING POWER AND LOAN OR ADVANCE UNDER THIS CATEGORY NOT GIVEN TO A SHAREHOLDER/MEMBER OF THE P AYER COMPANY CANNOT UNDER ANY CIRCUMSTANCES BE TREATED AS SHAREHOLDER/ MEMBER RECEIVING DIVIDEND. 14. THE AFORESAID STATUTORY MANDATE OF SECTION 2(22 )(E) OF THE ACT HAVING NOT BEEN COMPLIED WITH THE AO OBVIOUSLY ERRED IN A PPLYING THE PROVISIONS OF SECTION 2(22)(E) TO THE CASE OF THE ASSESSEE AN D SO THE DEPARTMENT CANNOT NOW BE ALLOWED TO CONTEND THAT SINCE THE ASSESSEE D ID NOT RAISE THIS SUBMISSION BEFORE THE AUTHORITIES BELOW THE SAME C ANNOT BE ALLOWED TO BE DONE AT THIS STAGE. 15. IN VIEW OF THE ABOVE THE GRIEVANCE OF THE ASSE SSEE BY WAY OF GROUND NO. 3 IS JUSTIFIED AND IS ACCEPTED AS SUCH. FOR T HE PRECEDING DISCUSSIONS WE HOLD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE AND THAT THE SAME HAVE BEE N WRONGLY APPLIED BY THE AO FOR WHICH THE ASSESSMENT ORDER IS CANCELLED. ITA NO. 4119(DEL)2011 8 16. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED AS INDICATED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.11.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18.11.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR