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2012 (8) TMI 1050
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....fit from potato trading after set off of interest can be separately added." 3. The AO noted with regard to the claim of deduction u/s. 80IB on the potato trading that it was not acceptable since the above provision has not envisaged any amount of deduction to any trading activity carried out by any assessee. Therefore, by no stretch of imagination any such deduction can be given on the profit earned on potato trading claimed by the assessee. The assessee submitted before the ld. CIT(A) that the assessee firm was running cold storage plant for preservation of agricultural produce and the assessee has also shown profit from trading of potatoes. It has been further submitted that major part of the storage rent is on account of storage of potatoes of various agriculturists. Besides this, the assessee has also done trading of potatoes. According to the assessee, the storage process in case of potatoes stored for agriculturists and for self is the same, i.e., process of unloading, pre-cooling, further cooling, humidity control, temperature control etc. The ld. CIT(A), however, did not accept the contention of the assessee and rejected the appeal of the assessee. The alternate contenti....
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....ng activities of potatoes, deduction u/s. 80IB(11) is not allowable and further contention of the assessee for interest has not been proved and no co-relation of funds claimed to have been invested in potato trading, on which the interest has been paid, has been established by the assessee. Therefore, both the grounds of assessee may be dismissed. 5. We have considered the rival submissions and the material on record. Section 80IB(11) provides for deduction in respect of the cases of Industrial Undertaking deriving profit from business of setting up and operating cold chain facility for agricultural produce. ITAT, Agra Bench in the case of Ambica Sheet Grah Pvt. Ltd. (supra) has held that those assessees who are in the business of running the cold storage are eligible for deduction u/s. 80IB(11) of the IT Act. The order is confirmed by the Hon'ble High Court. However, in the above provisions, no such deduction is permissible in respect of potato trading. Therefore, no deduction could be allowed on the profits earned on potato trading claimed by the assessee. The ld. counsel for the assessee also submitted that the assessee charged the amount from self for storage of their pot....
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.... Assessing Officer under section 56 of the I.T. act treating the same to be covered u/s. 2(22)(e) of the Act. 4. Because the Ld. CIT(A) has erred in not giving weightage to the fact that the assessee is a partnership firm and is not a shareholder in the company from whom loan has been taken. Ld. CIT(A) has further erred in not relying on the judgment of Hon'ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop reported in 313 ITR 116." 7. According to the AO, the assessee had taken loan from its sister concern M/s. Balaji Preservers Pvt. Ltd. to the tune of Rs. 10,00,000/-. The share holding pattern of M/s. Balaji Preservers Pvt. Ltd. and the details of partnership of the assessee firm has been given by the AO as under : Name of company Name of directors Share holding Accumulated profits M/s. Balaji Preservers Sandeep Rastogi 15.17% 527446 Ram Autar Rastogi 30.13 Prashant Rastogi 14.00 Kamini Rastogi 11.67 M/s. Rastogi Cold Storage Sandeep Rastogi 20 NA Ram Autar Rastogi 10 Prashant Rastogi 20 ....
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.... the individual benefit of any such shareholder . . . " Thus, the substance of the requirement is that the payment should be made on behalf of or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf or for whose individual benefit the amount is paid by the company whether to the shareholder or to the concerned firm. In which event, it would fall within the expression "deemed dividend". Obviously, income from dividend is taxable as income from other source under section 56 of the Act and in the very nature of things the income has to be of the person earning the income. The assessee partnership in the present case is not shown to be one of the persons being shareholder. Of course, the two individuals being Shri Ajay Kumar Agarwal, and Shri G.K. Agarwal persons holding more than requisite amount of shareholding and having requisite interest in the firm but then thereby the deemed dividend would not be deemed dividend in the hands of the firm rather it would obviously be deemed dividend in the hands of the individuals on whose behalf or on whose individual benefit being such sharehold....
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....ruck down. The Tribunal directed the Assessing Officer to allow the amount as claimed towards leave encashment. The issue as regards the correctness of the judgment of the Calcutta High Court in Exide Industries Ltd.'s case (supra) is pending in appeal before the Supreme Court and interim orders have been passed. The appeal, insofar as the issue of leave encashment is concerned is admitted on the following question of law : "Whether the Tribunal was justified in directing the Assessing Officer to allow the amount claimed by way of provision for leave encashment in view of the provisions of section 43B(f) of the Income-tax Act, 1961 ?" 3. The first and second questions are now taken up. Briefly stated, the admitted facts are that an amount of Rs. 32,00,000 was transferred from the bank account of a company by the name of Capsulation Services Private Limited (CSPL) to the account of the assessee maintained in the Chembur Branch of the State Bank of India. Mr. Vikram Tannan was a Director of CSPL. He held over 10 per cent of the equity capital of CSPL and over 20 per cent of the equity capital of the assessee. The Assessing Officer, in the course of the order of assessment....
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....e to the conclusion that all the conditions for the application of section 2(22)(e) were fulfilled and the loan of Rs. 35,00,000 from CSPL would have to be treated as deemed dividend in the hands of the assessee. 5. In appeal, the Commissioner of Income-tax (Appeals) affirmed the order of the Assessing Officer, save and except with a modification that the actual amount which has been received by the assessee was held to be Rs. 32,00,000 and not Rs. 35,00,000 as determined by the Assessing Officer. 6. The Tribunal in appeal has reversed the findings of the Commissioner of Income-tax (Appeals) on two counts. Firstly, the Tribunal held that the provisions of section 2(22)(e) would be attracted if a loan was taken by the shareholder from any closely held company. In the present case, the Tribunal noted that the amount was part of a fraud committed on the assessee and the transaction was not reflected in its books of account. In the circumstances, section 2(22)(e) was held not to apply. Secondly, the Tribunal held that even otherwise, the amount would have to be taxed in the hands of the shareholder who obtained the benefit and not in the hands of the assessee. 7. Under section....
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....use (e) will apply to the extent to which the company, in either case, possesses accumulated profits. The remaining part of the provision is not material for the purposes of this appeal. By providing an inclusive definition of the expression 'dividend', section 2(22) brings within its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression 'dividend' by providing an inclusive definition. 9. In order that the first part of clause (e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent of the voting power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial interest. The Tribunal in the present case has found that as a matter of fact no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the books of account of the assessee. The fact that there was a defalcation seems to have been accepted since this amo....
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....e aforesaid reasons, the first and second questions will not give rise to any substantial questions of law." 7. Further, On identical set of facts, the Hon'ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop, 313 ITR 116 (Raj) has held as under :- (Page nos.117 to 120) "This appeal by the Revenue against the judgment of the Tribunal dated September 16, 2004, was admitted, vide order dated March 29, 2005, by framing the following substantial questions of law:- "1. Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in upholding the order of learned Commissioner of Income-tax (Appeals) deleting the addition of Rs. 10 lakhs as deemed dividend under section 2(22)(e) of the Income-tax Act ? 2. Whether the assessee-firm whose partners hold 100% share in M/s. Hilltop Palace Hotels (P.) Ltd., had received the payment of Rs. 10 lakhs by way of security and not as an advance is perverse?" The necessary facts are that a return was filed by the assessee (firm) M/s. Hotel Hilltop, 5, Ambavgarh, Udaipur, declaring income of Rs. 72,000/- on January 3, 1992. The case was taken under scrutiny and notices....
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....ssed to tax under section 2(22)(e). It was also found that this amount cannot be stated to be an advance or loan as the agreement specifically mentions it as security. It was also considered that as on April 1, 1990, the company has accumulated profits of Rs. 44,825/- only. Thus, the ingredients of the deeming clause are not satisfied. It was reiterated that unless the firm is a registered shareholder of the company any amount of advance to the partner cannot be taxed in the hands of the firm as such. Thus, the appeal was dismissed. We have heard learned counsel on the questions framed. Long drawn arguments were made on either side. However, before proceeding further, we may gainfully quote the provisions of section 2(22)(e), which read as under :- "2(22)(e) any payment 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) made after the 31st day of May, 1987, by way of advance or loan to a share holder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or with out a right to participat....
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....of shareholding and having requisite interest in the firm but then thereby the deemed dividend would not be deemed dividend in the hands of the firm rather it would obviously be deemed dividend in the hands of the individuals on whose behalf or on whose individual benefit being such shareholder the amount is paid by the company to the concern. Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax as deemed dividend could be attracted in the hands of the individuals being the shareholders and not in the hands of the firm. Thus, the result of the aforesaid discussion is that question No. 2, as framed, is answered in favour of the Revenue, and against the assessee, while question No. 1 is answered against the Revenue and in favour of the assessee though for different reasons. The net result of the answer to the above questions is, that the appeal fails and is dismissed." 8. As regards the judgement of Hon'ble Delhi High Court in the case of CIT vs. National Travel Services, 202 Taxman 327 (Delhi) cited by the ld. Departmental Representative, we noticed that in another judgement in the case of CIT vs. Ankitech (P) Ltd., 199 Taxman 34....
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.... that we have to see is, what is the true effect of the language employed in section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty." 10. The Hon'ble Patna High Court in the case of Tata Iron & Steel C. Ltd. vs. Union of India, 75 ITR 676 (Patna) has held that in a case of reasonable doubt, the construction must be beneficial to the tax payer is to be adopted. 11. In addition to above, the proposition of law relating to the issue as to which view, in case there are two possible views, should be followed, the decision in the following cases have been dealt with this proposition of law and have held that in case of provision of law is liable to interpretation, then interpretation in favour of the assessee should be adopted. (1) Mysore Minerals Ltd. vs. CIT, 239 ITR 775 (SC) (2) Orissa State Warehousing Corporation vs. CIT, 237 ITR589 (SC) (3) CIT vs. Podar Cement Pvt. Ltd. & Others, 226 ITR 625 (SC) (4) CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd., 196 ITR 1....