TaxTMI 
TaxTMI 
2011 (6) TMI 387
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.... The calculation of demand and tax is wrong." ITA No. 70/Agra/2011 "1. That the order is against facts and law. 2. The ld. CIT(A) has erred in not considering the facts stated by the assessee and coming to the conclusion that there was loan and advance of Rs. 17 Lacs from the alleged lender. 3. The ld. CIT(A) has erred in concluding that section 2(22)(e) is applicable in the case of the assessee. There is no payment received by the assessee and assessee is neither registered nor beneficial owner of any shares in the alleged lender. 4. The calculation of demand and tax is wrong." ITA No. 71/Agra/2011 "1. That the order is against facts and law. 2. In respect of the addition of Rs. 2,85,470 under section 68, the ld. CIT(A) has erred in not considering the facts stated by the assessee and in not following the decision in earlier assessment years in assessee's own cases. 3. The ld. CIT(A) has erred in not considering the facts stated by the assessee and coming to the conclusion that there was loan and advance of Rs. 57,01,406 from the a....
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....irmala Realtors Pvt. Ltd. for the assessment year 2003-04 was to the extent of Rs. 72,00,000 the details of which are given at page 2 of the assessment order and similarly remaining Rs. 17,00,000 has been paid during the assessment year 2004-05 on behalf of the assessee. The assessee has entered into an agreement on 11-3-2002 with Shri Sanjeev Bhasker. As per the agreement, the land was made available by Shri Sanjeev Bhaskar to the assessee and the finance for the construction was to be arranged by the assessee. The Assessing Officer accordingly was of the opinion that the payment made to Sanjeev Bhaskar's wife by M/s. MPPL was on behalf of the assessee in accordance with the agreement. Therefore, he treated the sum of Rs. 72,00,000 as deemed dividend under section 2(22)(e) for the assessment year 2003-04 and Rs. 17,00,000 for the assessment year 2004-05, as the case of the assessee, in his opinion was covered under the situation enumerated under section 2(22)(e) which states that any payment by the Private Limited company of any sum by way of loan or advance to the extent of accumulated profit to any person on behalf, or for the individual benefit, of any such shareholder, such sh....
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.... profits on the date of loan etc. There are certain exceptions also provided in the sub-section one of which is that any advance or loan to a shareholder or specified concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company will not attract the provisions of section 2(22)(e). This exception shall apply only when two cumulative conditions are fulfilled - first, the loan should have been made by the company in the ordinary course of business and secondly, money lending should be substantial part of the company's business. Thus, the effect of sub-clause (e) of sub-section (22) of section 2 is to create a fiction and treat the loans or advances to a shareholder who is the beneficial owner of shares holding 10 per cent or more of the voting power of the company as dividend. It also includes payments made by the company on behalf or for the individual benefit of such shareholder. It further includes advances or loans made to any concern in which such shareholder is a member or partner and in which he has a substantial interest. 5.1 The Ld. AR has argued that the deemed dividend can be considered onl....
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....than 20 per cent voting power as per the provisions of sub-clause (32) of section 2. The amendment of the definition extends its application to payments made (i) to a shareholder holding not less than 10 per cent of the voting power, or (ii) to a concern in which the shareholder has substantial interest. 'Concern' as per the newly inserted Explanation 3(a) to section 2(22) means an HUF or a firm or an AOP or a BOI or a company. A shareholder having a substantial interest in a concern as per part (b) of the Explanation 3 is deemed to be one who is beneficially entitled to not less than 20 per cent of the income of such concern. The new provision would, therefore, be applicable in a case where a shareholder has 10 per cent or more of the equity capital. Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied. (i) where the company makes the payments by way of loans or advances to a concern (ii) where a member or a partner of the concern holds 10 per cent of the voting power in the company (iii) where the member or a partner of the concern is also beneficially entitled to 20 per cent ....
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....ue of deemed dividend came for consideration subsequently before Hon'ble ITAT Mumbai Full Bench, Mumbai in the case of Unisol Infraservices (P.) Ltd. v. ITO Ward 8(3)(4) Mumbai and this case has been decided in ITA No. 2088/Mum./2008 vide order dated 11-8-2009. The facts of the case were that Shri Rajiv Shete and Smt. Hemal Shete were common shareholders of the assessee company and M/s Element Investment (P.) Ltd., with 34.65 per cent and 25.86 per cent shareholding in assessee company and 50.1 per cent and 19.9 per cent in M/s Element (P) Ltd., the assessee company took loan of Rs. 12 lakhs from M/s Element Investment (P.) Ltd. The Assessing Officer invoked the provisions of section 2(22)(e) and brought to tax the deemed dividend in the hands of the assessee. The CIT(A) confirmed the order of the Assessing Officer. On further appeal the Hon'ble ITAT held as under : "The ld. AR for the assessee relying on the decision of the Special Bench of the Mumbai Tribunal in ACIT v. Bhaumik Colour (P.) Ltd. [2009] 27 SOT 270. Further, the ld. AR pointed out that the amount of Rs. 12,00,000 cannot be assessed in the hands of the assessee as the assessee's case covered by the sub-clause (ii)....
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.... the assessee's books of account. This payment of Rs. 89 lakhs was also made by the assessee company to MPPL on 21-10-2005 but as per the assessee the payment was paid by MPPL not on behalf of the appellant but on account of Nirmala Associates (P.) Ltd. Therefore, it is clear that the sum of Rs. 72 lakhs was paid by the MPPL on behalf of the appellant company to Smt. Savita Bhaskar. Also, it is pertinent to mention here that jugglery of accounting entries cannot take away the substance and the nature of payments made to Smt. Savita Bhaskar. The payment made by MPPL to Smt. Savita Bhaskar on behalf of the appellant company is not for any business consideration and it is also not covered by any of the exceptions as given in section 2(22)(e) of the Act. Therefore, I am in agreement with the Assessing Officer that provisions of section 2(22)(e) are clearly applicable in the appellant's case. The grounds of appeal are dismissed". 5. The learned AR before us contended that the Assessing Officer has arrived at the conclusion that the payment made by M/s. MPPL to Smt. Savita Bhasker were on behalf of the assessee on the basis of the agreement dated 11-3-2002 between Sanjeev Bhasker and ....
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.... the case of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC), the provisions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income-tax Act, 1961 came up for consideration. In the said case, members of a Hindu undivided family acquired shares in a company with the fund of the family. Loans were granted to the Hindu undivided family and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act,1922. The Apex Court held that only loans advanced to shareholders could be deemed to be dividends under section 2(6A)(e) of the Act, the Hindu undivided family could not be considered to be a "shareholder" under section 2(6A)(e) of the Act and hence, loans given to the Hindu undivided family will not be considered as loans advanced to "shareholder" of the company and could not, therefore, be deemed to be its income. The Apex Court further held that when the Act speaks of shareholder it refers to the registered shareholder. 8. The aforesaid decision of the Apex Court in the case of C.P. Sarathy Mudaliar (supra) has been followed by the Apex Court in the case of Rameshwarlal Sanwar....
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....n words in an Act have received a judicial construction in one of the superior courts, and the Legislature has repeated them in a subsequent statute, the Legislature must be taken to have used them according to the meaning which a court of competent jurisdiction has given them. 9. The assessee is not shareholder of Mahim Patran (P.) Ltd., neither registered nor beneficial. For this reason alone the addition must fail. The provisions of section 2(22)(e) came for consideration before Hon'ble Rajsthan High Court in the matter of CIT v. Hotel Hiltop [2009] 313 ITR 116. In this case the Assessing Officer added Rs. 10 lakhs in hands of M/s Hotel Hiltop (a partnership firm) taking the amount received by this firm from Hiltop Palace Hotels (P.) Ltd., as deemed dividends as the "payment to a concern" which satisfied the requirement of level of shareholding/interest as envisaged under section 2(22)(e). The assessee objected to addition in first appeal on the ground that M/s Hotel hiltop is not registered shareholder of the Hiltop Palace Hotels (P.) Ltd., and succeeded. The department went to the Tribunal but assessee's contention succeeded. The Hon'ble Rajasthan High Court on revenue's ap....
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....deemed dividends as envisaged in section 2(22)(e) can be taxed only if the assessee is registered and beneficial owner of shares. This is very detailed case law and while following decision of Hon'ble Rajasthan High court in the case of Hotel Hiltop (supra) SB observed that if the section 2(22)(e) envisaged taxing non shareholders then relief given in section 2(22)(e)(iii) becomes redundant. This section 2(22)(iii) provides for set off of payment - considered as dividend under section 2(22)(e) against the subsequent dividend paid by the company. If the concerns without being shareholder are taxed for deemed dividend then the set off envisaged under section 2(22)(e)(iii) can not be granted to them as the dividend will not be received by them they being not registered shareholders. This further establishes that section 2(22)(e) never contemplated taxing non registered shareholders. Thus it was submitted that the addition of Rs. 72,00,000 + Rs. 17,00,000 is liable to be deleted as the assessee is not a shareholder of Mahim Patran (P.) Ltd. 11. The learned DR, on the other hand, vehemently contended that the payment of Rs. 89,00,000 was made by M/s. MPPL to Smt. Savita Bhasker only ....
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....njeev Bhasker even did not return the amount of Rs. 5,00,000 to the assessee. The agreement ceased to exist on 1-5-2002. We noted from the facts for the assessment year 2003-04 that the first payment of Rs. 7,00,000 was made to Smt. Savita Bhasker by MPPL on 17-5-2002, i.e., much after the date of the agreement. No iota of evidence were brought on record or placed before us by the Revenue, which may prove that the initial agreement remains in existence. Even there is no evidence available on record, which may prove that the payment has been made on behalf of the assessee company to Smt. Savita Bhasker. There is no entry in the books of the assessee in respect of the advance made by M/s. MPPL to Smt. Savita Bhasker in the books relating to the assessment years 2003-04 and 2004-05. This is the settled law that onus is on the person, who alleges apparent is not real in view of the decision of Hon'ble Supreme Court in the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349. The onus, in our opinion lies on the revenue to prove that the payment has been made by M/s. MPPL on behalf of the assessee to Smt. Savita Bhasker for executing the agreement entered into between assessee and Shri....
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....sses accumulated profits." Prior to 1-4-1988, section 2(22) of the Income-tax Act, 1961 defines dividend as follows : "Section 2(22) "dividend" includes- (a) to (d) .................... (e) Any payment made by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits." 16. Under the Income-tax Act, 1922, two categories of payment were considered as dividend viz. "(a) any payment by way of advance or loan to a shareholder , or (b) any payment by any such company on behalf or for the individual benefit of a shareholder." 17. In the 1961 Act, for these very same payments an additional condition was introduced that the payment should be to a shareholder being a person who is the beneficial owner of shares and who has a substantial interest in the company i.e....
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....y or may not fall within the main provision [Refer : G. Viswanathan v. Speaker, Tamil Nadu Legislative Assembly [1996] 2 SCC 353]. This provision, thus, would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. It is now a well settled law that the fiction is to be carried to its logical end however, at the same time, it can also not be expanded so as to include the facts which require substantial modification as compared to the facts to be captured as prescribed by the legislature. 19. From the reading of section 2(22)(e), it is apparent that it has the effect of bringing to tax as dividend below referred types of payments made by a company: l any payment of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder (extended to payment to concerns in which shareholder holds substantial interest); l any payment on behalf of a shareholder; l any payment for the individual benefit of a shareholder. 20. Any of the above referred payments would be taxed under this sub-clause if fol....
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....et-off against the loan or advance, which has been deemed as 'dividend' under sub-clause (e), then to the extent of such set-off, it would not be again treated as dividend. That is to say, if the dividend is not so set off but is paid to the shareholder while the loan remains outstanding, the benefit of sub-clause (iii) cannot be obtained. 25. Shareholder has not been defined and in absence of specific definition it will only refer to registered shareholder. In the case of C.P. Sarathy Mudaliar (supra) as relied by ld. AR, the provisions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income-tax Act, 1961, came up for consideration. In the said case, members of HUF acquired shares in a company with the fund of the family. Loans were granted to HUF and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act, 1922. The Apex Court held that only loans advanced to shareholders could be deemed to be dividends under section 2(6A)(e) of the Act; the HUF could not be considered to be a 'shareholder' under section 2(6A)(e) of the Act and hence, loans given to the HUF will not be ....
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....on "shareholder being a person who is the beneficial owner of shares" referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder, then the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. Mumbai ITAT Special Bench in the case of Bhaumik Colour (P.) Ltd. (supra) has held that for the purpose of deemed dividend under section 2(22)(e) the shareholder must be both registered and beneficial shareholder on which the Ld. AR has heavily relied. 28. Until 1987, only payments to shareholders were deemed as 'dividend' under sub-clause (e). However, with effect from 1st April, 1988, 'payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest' was also included in deeming fiction of section 2(22)(e). Explanation 3 to section 2(22) declares that a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year,....
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....dend. Similarly, in the case of Raj Kumar Singh & Co. v. Dy. CIT [1995] 52 TTJ 221/[1994] 51 ITD 131 (All.), the Tribunal held that section 2(22)(e) can be invoked only in case of registered shareholder and not a beneficial shareholder. Shares, though belonging to the firm but registered in the name of partners, the firm cannot be made liable under section 2(22)(e) in respect of loans obtained from the company. 30. In the case of the assessee since the assessee is not the shareholder of the company, the payment made to Savita Bhaskar even if it is assumed are made on behalf of the assessee cannot be regarded to be the deemed dividend within the provisions of section 2(22)(e) of the Income-tax Act, 1961. 31. Another important issue that arises for consideration is, whether this payment can be assessed in the hand of the assessee as deemed dividend being the payment to a concern where shareholder holds substantial interest, in whose hands the income would be brought to tax, whether in the hands of the "concern" or the "shareholder? The Assessing Officer added it in the hands of the concern i.e. the assessee and CIT(A) has also confirmed the same. Even though CBDT Circular No. 4....
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....ke to deal with the contention of the Ld. A.R. whether the said judgment of the Bombay High Court and Rajasthan High Court are having binding force on us or not. On this issue. We find that the Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 has laid down categorically with regard to the precedent that the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its territorial jurisdiction. In the said judgment, Hon'ble High Court after discussing the various judgments of Hon'ble Supreme Court hold the following proposition of law on the binding force of a judgment at page 738 of the judgment : "(a) The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is binding is, of course, the ratio of the decision and not every expression found therein. (b) The decisions of the High Court are binding on the subordinate courts and authorities or ....
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....ourt on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of article 141 of the Constitution." 35. Thus, the Mumbai High Court in the aforesaid judgment has clearly laid down that the decision of the non-jurisdictional High Court is not binding. In order to understand and appreciate the binding force of a decision, it is always necessary to see what were the facts of the case and what was the point which had to be decided. A precedent is a judicial decision which contains in itself a principle. The underlying principle which thus forms its authoritative element is called ratio decidendi. The concrete decision is binding between the parties to it, but it is the abstract ratio decidendi which alone has the force of law as regards the world at large. 'The only use of authorities or decided c....
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....dent, Income-tax Appellate Tribunal Shri R.V. Easwar as Third Member in the case of Kanel Oil & Export Inds. Ltd. v. Jt. CIT (Asstt.), [2009] 121 ITD 596 (Ahd.), wherein it has been held as under:- "In the instant case, question that came up for consideration was as to whether the order of the Special Bench upholding the levy of interest in the light of sub-section (4) of section 115JA should be followed or the judgment of the Bombay High Court in Snowcem India Ltd.'s case (supra), also rendered in the context of section 115JA, had to be applied. Both the decisions were under section 115JA. One was of a Special Bench of the Tribunal, Ahmedabad and the other was of a High Court, though not a jurisdictional High Court. A simple answer would be that the judgment of a High Court, though not of a jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench (of the Tribunal) on the basis of the view that the High Court is above the Tribunal in the judicial Hierarchy. But this simply view is subject to some exceptions. It can work efficiently when there is only one judgment of a High Court on the issue and no contrary view has b....
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...., which was accepted in the earlier years. The assessee is having five acres of land. The CIT(A) did not agree with the assessee and confirmed the order of the Assessing Officer. 37. Before us, the learned AR referred to page 44 of the paper books and pointed out that the assessee was owning five acres of land and in the past years the assessee has shown agricultural income, which was duly accepted by the Assessing Officer, the details of which are given as under:- Year Gross Receipts from agriculture (Rs.) Net income from agriculture (Rs.) Assessed under section A.Y. 2001-02 1,90,328 80,698 143(3) A.Y. 2002-03 2,02,137 90,257 143(3) A.Y. 2003-04 2,06,183 1,11,318 143(3) A.Y. 2004-05 2,12,379 1,23,975 143(1) A.Y. 2005-06 2,78,472 1,84,297 143(1) The revenue has not disputed the agricultural income shown by the assessee during the year. The assessee has shown agricultural income at Rs. 1,92,149 from the total sale proceeds of Rs. 2,85,470 which were a little higher as compared to the earlier year. Thus, it was contended that the addition made must be deleted. 38. The learned DR, on the other hand,....
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.... on assessee's request this amount was paid by M/s. Mahim Patran Pvt. Ltd. in the normal course and M/s. Mahim Patran Pvt. Ltd. has debited the assessee's account in its books of account. The land was subsequently purchased by the assessee. The Assessing Officer noted the share holding pattern in the case of M/s. Mahim Patran Pvt. Ltd. and the assessee as under : Name of the Company Name of directors share holding accumulated profit M/s. MPPL (1) Nirmala Kapur 24 % 4,88,47,179 (2) Milan Kapur 10 % (3) Sudha Kapur 10 % (4) Madhukar Kapur 24 % (5) Arvind Kapur 24 % M/s. Nirmal Realtors (1) Milan Kapur 29 % 51,82,704 (2) Sudha Kapur 10 % (3) Nirmala Kapur 1 % (4) Madhukar Kapur 40 % (5) Arvind Kapur 10 % (6) Peeyus Kapur 10 % The Assessing Officer ultimately carved out the transaction relating to the year under consideration and noted that a sum of Rs. 57,01,406 was paid by M/s. MPPL on behalf of the assessee. Theref....