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TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1007
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....ted profits as on 31.3.2010 1 Yasham Bio Science Pvt. Ltd. (YBPL) 40% 20% 2 Yasham Cemphar Pvt. Ltd. (YCPL) 84% 16% Rs.1,25,65,608/- 3 Yasham Importers & Exporters Pvt. Ltd. (YIEPL) 55.71% 18.57% Rs.2,61,39,865/- YBPL had during the relevant year taken unsecured loans from YCPL and YIEPL, as under, both of which had accumulated profits (as at 31.3.2010), i.e., as at the beginning of the relevant year, in excess of the amounts lent: Sr. No. Name of the party from whom loan taken Loans during the year 1 Yasham Cemphar Pvt. Ltd. Rs.10,00,000/- 2 Yasham Importers & Exporters Pvt. Ltd. Rs.1,82,00,000/- Total Rs.1,92,00,000/- It was under these circumstances, drawing support from the decisions in CIT vs. Universal Medicare (P) Ltd. [2010] 324 ITR 263 (Bom) and Asst. CIT vs. Bhaumik Colour (P). Ltd. [2009] 27 SOT 270 (Mum)(SB), held by the ld. CIT, in exercise of his revisionary powers u/s. 263 of the Act, that the amounts lent are....
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....d by the Assessing Officer (AO) in the assessment proceedings. His order is, thus, erroneous in-so-far it is prejudicial to the interests of the Revenue on the ground of non-application of mind and failure to make proper enquiry (refer, inter alia, Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC); Toyota Motor Corporation vs. CIT [2008] 306 ITR 52 (SC); Gee Vee Enterprises vs. Addl. CIT [1975] 99 ITR 375 (Del); and Rajalakshmi Mills Ltd. Vs. ITO [2009] 121 ITD 343 (Ch.)(SB)). So, however, the ld. CIT, the competent authority, has given a definite direction to the AO to frame fresh assessment, setting aside that made in the first instance, in terms of his directions, i.e., of the loan/s amount being assessable as deemed dividend u/s. 2(22)(e) in the assessee's hands, so that it is a decision on merits as well; the AO having no scope for (different) adjudication. In other words, it is incumbent on us to, therefore, issue a decision on merits of the issue as well. 4.2 We may begin by reproducing the relevant provision, as under: 'Definitions 2. In this Act, unless the context otherwise requires,- (1) ................... (22) dividend in....
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.... fundamental rights guaranteed under Article 19(1)(f) and (g) of the Constitution. The scope of the relevant entry (in the Legislative lists) are not powers but fields of legislation and the widest import and significance should be attached to them. While section 2(6A), analogous to section 2(22) of the Act, defines dividend, including deemed dividend (under certain specified conditions) (both per clause (e) thereof), s.12(1B) provides for bringing the amount outstanding as on 01.4.1955, i.e., even where received or accumulated over the past years, to tax. The Hon'ble Court noted a circular by the Board providing a window whereby the provision was excepted on genuine repayments of such outstanding by 30.6.1955 (Circular No. 20 (XXI-6/55) dated 10.5.1955). The Hon'ble Court examined several precedents, including challenges to the provision of section 12B, enhancing the scope of 'income' to include 'capital gains'; to section 23A(1), providing an artificial dividend payout at a minimum of 60%, lest the shortfall therein be liable to super-tax, i.e., restraining the company from accumulating its' profit beyond 40% to build up reserves or to provide for capital expenditure; and sec. 16....
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....(at pg. 208): "Generally speaking, surtax is charged only on individuals, not on companies or other bodies corporate. Various devices have been adopted from time to time to enable the individual to avoid surtax on his real total income or on a portion of it, and one method involved the formation of what is popularly called a 'one- man company'. The individual transferred his assets, in exchange for shares, to a limited company, specially registered for the purpose, which thereafter received the income from the assets concerned. The individual's total income for tax purposes was then limited to the amount of the dividends distributed to him as practically the only shareholder, which distribution was in his own control. The balance of the income, which was not so distributed, remained with the company to form, in effect, a fund of savings accumulated from income which had not immediately attracted surtax. Should the individual wish to avail himself of the use of any part of these savings he could effect this by borrowing from the company, any interest payable by him going to swell the savings fund; and at any time the individual could acquire the whole balance of the....
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.... the case of Navnit Lal C. Jhaveri (supra). Taxability of income was with reference to the year of receipt or accrual, so that it gets clothed with the character of income on its' accrual or, as the case may be, receipt (pgs. 356-358). In its words: 'The charge being on accrual or receipt the statutory fiction created by s. 2(6A)(e) and s. 12(1B) would come into operation at the time of the payment by way of advance or loan, provided the other conditions are satisfied.' (pg. 358) In rejecting the assessee's appeal, the Hon'ble Court relied on the salutary principle of interpretation of statutes, further adding that once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. In its' view, the Parliament had deliberately omitted to import the last limb of section 108(1) of the Common Wealth Act, providing instead for exclusion only for repayments made up to 30.6.1955. The controversy involved in Sarda (P.) vs. CIT [1998] 229 ITR 444 (SC) was that if the withdrawal/s made by a shareholder from his account with a company (in which he had substantial interest), which....
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....so be made to Shitlal Kumar Vij v. Astt. CIT (in ITA No. 406/Asr./2009 dated 20/9/2012), wherein the tribunal refers to the dictionary (Black Law's) meaning of the word (at para 7.1). Two, the lending companies are not in the business of lending of money. In fact, the accounts are in the nature of running accounts, with amounts being both paid and received; the payee (lendee)-company having a debit (negative) balance in the accounts of the payer-companies at all material times. That is, there is nothing to show that the sums given are ICDs; to the contrary, there is material to show that they are not, but only loans or, in any case, advances. Rather, as it would appear to us, the defining attribute/s of ICDs, i.e., in contradistinction to loans and advances, having not been explained, ICDs are only a species of loans and advances. The law states 'any loan or advance', so that it would mean just that, i.e., a loan or advance of any nature. The argument with regard to inter-corporate deposits (ICDs) is under the circumstances misconceived and untenable, both on facts and in law. The main thrust of the assessee's arguments, relying on the decision in Mukundray K. Shah (supra), w....
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....sted by the assessee in bonds, tracing the source thereof (on the basis of the said diary) to two concerns, and which had been, in turn, released funds by the payer company in which (the assessee) had substantial interest. It was on that basis that the provision of section 2(22)(e) became applicable, and which was upheld by the Hon'ble Court. The reliance on the said decision is, thus, completely misplaced. Apart from Mukundray K. Shah (supra), the assessee places reliance on Bagmane Constructions (P) Ltd. (supra). The question of law that arises for and considered by the Hon'ble Court was: "Whether any payment by a company by way of advance or loan to a shareholder or to any concern made u/s. 2(22)(e) of the Income Tax Act, 1961, to the extent to which the company possessed the accumulated profits includes a trade advance and constitutes deemed dividend?". The Hon'ble Court after noting some precedents held that where the loan or advance is given in return to an advantage conferred upon the company by such shareholder, as where it is given as a trade advance as a consideration for the goods received or for purchase of a capital asset which would benefit the company ....