2014 (7) TMI 309 - AT - Income Tax

Tribunal rules in favor of assessee, emphasizes statutory conditions and limitation periods.

The tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing all appeals of the Revenue. The judgment emphasized the ... Order u/s 201(1)/201(1A) of the Act – Deemed dividend u/s 2(22)(e) of the Act – Held that:- CIT(A) has held that this is not a case which is hit by the provisions of Section 2(22)(e) read with Section 194 of the Act - four years was a reasonable period for passing an order u/s 201(1)/201(1A), particularly when no limitation was prescribed for initiation of such proceedings under the Income-tax Act, 1961 - the proceedings u/s 201(1)/201(1A) were initiated after a lapse of nine years - CIT(A) has also erred in holding that payment to M/s Pure Drinks (New Delhi) Ltd. could not be treated as deemed dividend on the ground that M/s Pure Drinks (New Delhi) Ltd. is not the shareholder of the assessee (company) ignoring the fact that payment to this entity is very much covered by the definition of ‘dividend’ u/s 2(22)(e) of the Act - Revenue has failed to controvert the findings of CIT(A) on the issue – thus, there was no infirmity in the order of CIT(A). Assessee has also been able to prove that the provisions of section 2(22)(e) of the Act are not applicable in as much as both the conditions of a shareholder holding 10% shares in the payer company and more than 20% beneficial stakes in the payee entity do not exist - since the payments have been made to Statutory authorities for meeting the liabilities of the payee company Pure Drinks (New Delhi) Ltd. - the transactions have not resulted in any benefit to any of the shareholders of the company - in the case of deemed dividend the provisions of section 194 are applicable - no proceedings had been initiated in the normal assessment proceedings for the relevant AY i.e. A.Y. 2000-01, 2001-02 and 2002-03 in the case of the company - it is not a case which could be said to be hit by the provisions of Section 2(22)(e) of the Income Tax Act, much less for operation of Section 194 of the Act – Decided against Revenue. Issues involved:1. Interpretation of Section 2(22)(e) read with Section 194 of the Income-tax Act, 1961.2. Bar on limitation under Section 201(1)/201(1A) of the Act for FY 1999-2000 to 2001-02.Analysis:1. Interpretation of Section 2(22)(e) read with Section 194:The case involved whether the advances made by the assessee to another company fell under the purview of deemed dividend as per Section 2(22)(e) of the Income-tax Act. The Assessing Officer contended that the advances were covered under the said provision due to shareholding patterns. However, the CIT(A) disagreed, ruling that the conditions for deemed dividend were not met. The Revenue appealed, arguing that the liability to deduct tax arises when the payments fulfill the conditions mentioned in the relevant section, regardless of whether income has been assessed in the recipient's hands. The tribunal upheld the CIT(A)'s decision, emphasizing that the payments did not meet the criteria for deemed dividend as no benefit accrued to shareholders, and no proceedings under Section 194 were initiated in the relevant assessment years.2. Bar on limitation under Section 201(1)/201(1A) for FY 1999-2000 to 2001-02:The Revenue also challenged the CIT(A)'s ruling on the limitation of proceedings under Section 201(1)/201(1A) of the Act. The Revenue contended that the proceedings were not time-barred, but the CIT(A) relied on the decision of the Jurisdictional High Court, which stated that initiating proceedings after four years from the end of the assessment year was barred by time. The tribunal agreed with the CIT(A) and dismissed the Revenue's appeal, emphasizing that the proceedings in the instant case were initiated after a significant lapse of nine years, rendering them time-barred as per the High Court's judgment.In conclusion, the tribunal upheld the CIT(A)'s decision on both issues, ruling in favor of the assessee and dismissing all appeals of the Revenue. The judgment emphasized the importance of meeting the statutory conditions for deemed dividend and the significance of adhering to the limitation period for initiating proceedings under the Income-tax Act.