TaxTMI 
TaxTMI 
2017 (11) TMI 1054
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.... was contended that while granting relief to the assessee circumstantial evidence were not considered by the First Appellate Authority. Reliance was placed upon the decision of the Tribunal in the case of Income Tax Officer vs M/s Diamond Investment & Properties (ITA No. 5537/Mum/2009) order dated 29/07/2010. On the other hand, Shri Vimal Punamiya, ld. counsel for the assessee filed written submissions defending the conclusion drawn in the impugned order by explaining the facts. Reliance was placed upon the decision from Hon'ble Apex Court in the case of K. P. Verghese vs Income Tax Officer (1981) 7 taxman. 13(SC) by submitting that the factum of payment of cash as on money is upon the Revenue and the assessee has never accepted or tendered in the statement that cash money was transacted for purchase of the property. Our attention was invited to the factual finding recorded by the Ld. Commissioner of Income Tax (Appeal). Further, reliance was made upon the decision in the case of CIT vs Gulshan Kumar (2002) 257 ITR 703 (Del.), CIT vs P. V. Kalyansundaram (2007) 294 ITR 49 (SC), Dua Auto components Pvt. Ltd. (ITA No.4802/Del./2009), CIT vs Indication Instruments Ltd. (ITA NO.603....
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....esumption of on money transaction has to be proved by the Revenue and the burden so lies upon the Department was never discharged. In such a situation the ratio laid down by Hon'ble Apex Court in K. P. Verghese vs Income Tax Officer clearly supports the case of the assessee. The relevant portion from the aforesaid order is reproduced hereunder for ready reference:- "13. Thus, it is not enough to attract the applicability of sub-s. (2), that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared in respect of the transfer by not less than 15% of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is understated or, in other words, shown at a lesser figure than that actually received by the assessee. Sub-s. (2) has no application in the case of an honest and bona fide transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15% difference between the fair market value of the capital asset as on the date of the trans....
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....n almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him." The Hon'ble Apex Court finally held as under:- "The object of imposing the condition of difference of 15% or more between the fair market value of the capital asset and the consideration declared in respect of the transfer clearly is to save the assessee from the rigour of sub-s. (2) in marginal cases where difference in subjective valuation by different individuals may result in an apparent disparity between the fair market value and the declared consideration. It is a well-known fact borne out by practical experience that the determination of fair market value of a capital asset is generally a matter of estimate based to some extent on guess work and despite the utmost bona fides, the estimate of the fair market value is bound to vary from individual to individual. It is obvious that if the restrictive condition of a difference of 15% or more between the fair market value of the capital asset as on the date of the transfer and the consideration declared in respect of the transfer were not provided in sub-s. (2), many marginal....
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.... "3. The respondent assessee vide a registered sale deed dt. 26th Oct., 1998 purchased certain land at Brindavan Road, Fairlands, Salem for a sum of Rs. 4.10 lakhs. During a search of the office and residential premises of Polimer Net Work, certain notes on loose sheets allegedly in the hands of the respondent were found and seized by the Department. In his statement recorded on 8th Dec., 1998, the assessee submitted that he could not remember as to why the notings had been made. The statement was further confirmed by another statement on 11th Dec., 1998. The Department also recorded the statement of the vendor Rajarathinam on 8th Dec., 1998 which too was confirmed on 11th Dec., 1998 in which he admitted that he had in fact received a total consideration of Rs. 34.35 lakhs and that the sum of Rs. 4.10 lakhs reflected in the sale deed had been received by him by way of a demand draft and the balance in cash. Rajarathinam however retracted from his statement on 8th Jan., 1999 and filed an affidavit deposing that the sale price was Rs. 4.10 lakhs only and that his statements earlier given to the authorities were incorrect. In a subsequent statement recorded on 20th Nov., 2000 Rajar....
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....venue is justified in fixing the sale consideration at the higher amount than what has been declared ? (b) When the assessee did not give any explanation to the notings found and at the same time the Revenue is able to corroborate the same with the statement of the seller for the purpose of determination of actual sale value, would the lower authority be justified in interfering with the same ? (c) When consistent sworn (statements) were taken into consideration along with evidences found at the time of search, would (they) all be liable to be rejected on the basis of one statement in between contradicting the earlier ones which was also explained away as a result of intimidation ? 4. The High Court relying heavily on the order of the CIT and the Tribunal held that no substantial questions of law had been raised and accordingly dismissed the appeal. It is this situation that the present matter is here before us. 5. Mr. G.N. Vahanvati, the learned Solicitor General has at the very outset raised serious objection to the order of the High Court pointing out that Division Bench had merely plagiarized substantial portions from the order of the CIT and....
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....a Auto Components Pvt. Ltd. (ITA No.4802/Del/2009), CIT vs Indication Instruments Ltd. (ITA NO.603 of 2011), CIT vs Prem Prakash Nagpal (ITA No.570 of 2012), Pramod Pandey vs ACIT (ITA NO.1295/Del./2012), CIT vs Vishal Rubber Products (2004) 136 taxman 151 (P & H). The relevant portion from the order from Hon'ble Punajab Haryana High Court is reproduced hereunder for ready reference:- "5. We have heard Dr. N.L. Sharda and perused the record. A reading of the order Annerure A2 passed by the CIT(A), Jalandhar, shows that while deleting the additions made by the AO, he made the following observations : "On merits however I find substantial force in the submissions of the appellant because no material could be found by the learned Asstt. CIT to corroborate the entries made in the impugned balance sheet. Neither it is supported by the entries in the books of account of the three partnership firms nor by any other material. It could not be established that the impugned balance sheet found in the course of the search from the residential premises of Shri O.P. Sehgal is a genuine balance sheet because no other evidence could be found like account books or any other ma....
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..... The finding recorded by the AO that the assessee had concealed the income is not supported by any tangible evidence available on record. Therefore, we do not find any merit in the appeal and dismiss the same." 2.7. In another case of CIT vs Shivakaami Co. Pvt. Ltd. (1986) 25 taxman 80K (SC) (1986) 52 CTR 0108 : (1986) 159 ITR 0071, the Hon'ble Apex Court observed/held as under:- "The onus was on the Revenue to prove that there was understatement in the document not that the goods were sold at undervalue. Understatement of a value is a mis-statement of value. Selling goods at an undervalue to defeat Revenue is different from understating the value in the document of sale. The proviso to s. 12B(2) of 1922 Act provides 'full value of the consideration for which the sale, exchange, relinquishment or transfer is made' to be taken as the basis for the computation of the capital gains. Therefore, unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. The onus is on the Revenue-the inference might be drawn in certain cases but to come to a conclusion that a particular higher ....
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.... Likewise, Hon'ble Delhi High Court in CIT vs Navi Gera (2010) 328 ITR 516 (Del.) held as under:- "The present appeal has been filed under s. 260A of IT Act, 1961 (for brevity "Act, 1961") challenging the order dt. 11th Sept., 2009 passed by the Income-tax Appellate Tribunal (in short "Tribunal") in ITA No. 66/Del/2001, for the block period 1st April, 1988 to 20th Aug., 1998. 2. Briefly stated the relevant facts of the case are that the respondentassessee had made investment in two plots of agricultural land in December, 1996. The investment in the farm houses were made by the assessee in the name of his father, namely, Mr. L.D. Gera for a total consideration of Rs. 41,35,700. The abovesaid properties were brought from Sam Aviation (P) Ltd. of which the assessee was one of the directors. It is an admitted fact that the sources and the investment made thereof in these two plots had been declared by the respondentassessee under Voluntary Disclosure of Income Scheme, 1997 (for short "VDIS"). On 20th Aug., 1998, a search and seizure under s. 132 of Act, 1961 was carried out at both the respondent assessee's residential and business premises. The sale deeds of ....
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....rned counsel for the Revenue submitted that both CIT(A) and Tribunal have erred in law in deleting the addition of Rs. 2,24,08,820 made by the AO on the ground that addition based on DVO's report could not be sustained as no adverse material had been found during the search. She also relied upon the Supreme Court's decision in CIT vs. Mukundray K. Shah (2007) 209 CTR (SC) 97 : (2007) 290 ITR 433 (SC) to contend that the block assessment of undisclosed income can be based on the evidence found in the search and/or material or information gathered in post-search inquiries made on the basis of evidence found in the search. 6. Mr. Piyush Kaushik, learned counsel for the respondent-assessee contended that no addition could be made by AO in the absence of any incriminating evidence found during the search. He submitted that no adverse material was found during the search which could show that respondent-assessee had made more investment in the property than what had been declared in the sale deed and consequently, no reference could be made to the DVO. 7. Mr. Kaushik further submitted that the reference to the Valuation Officer and consequent addition made on th....
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....e the details of the properties had already been disclosed under VDIS, it cannot be said that the Department came in possession of any information which it did not possess earlier. 11. We are further in agreement with the submission made by Mr. Kaushik the proviso to s. 142A of the Act, 1961, has no retrospective effect. The relevant extract of s. 142A of the Act, 1961 reads as under : "142A. Estimate by Valuation Officer in certain cases.-(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in s. 69 or s. 69B or the value of any bullion, jewellery or other valuable article referred to in s. 69A or s. 69B or fair market value of any property referred to in sub-s. (2) of s. 56 is required to be made, the AO may require the Valuation Officer to make an estimate of such value and report the same to him. (2) ....... (3) ....... Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th Sept., 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a ....
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....hen the Ld. Assessing Officer recorded the statement of Shri Atul Sud, Director of the assessee company, though he admitted the transaction to be made through demand draft but he never tendered that any cash was transacted. Ms. Zaver Cyrus Dadina completely expressed or ignorance with regard to details of land dealings as has been alleged. The efforts of Assessing Officer to record the statement of Miss Damini Vadhwa, and Miss Reeta Bhatia also could not provide any information leading to the addition. The seized material/print out was not in the handwriting of the assessee and even there is no material to suggest that the seized material was maintained either by the assessee or it's of or employees. Even the statement of Rajaratanam was discarded by the Ld. Commissioner of Income Tax (Appeal) as the floor price, fixed by the authorities, for such property was found much lower than the value. Considering the factual matrix and the judicial pronouncements, discussed hereinabove, we find no infirmity in the conclusion of the Ld. First Appellate Authority. Our view is further fortified by the fact that the concerned data was even not found from the premises of the assessee and further....
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....ection 2(22)(e) of the Act on the funds acquired by the assessee from SCCPL. The assessee vide letter dated 11/12/2013 explained that the provision of the deem dividend is not attracted and further vide letter dated 30/01/2014 asserted that the trust is not a private limited company therefore the provision is not applicable. However, the Ld. Assessing Officer assessed Rs. 40 lakh as deemed dividend on the plea that the common directors hold more than 10% share holding even though the assessee is not registered share holder of the company. Before adverting further, we are expected to analyze section 2(22)(e) of the Act, which is reproduced hereunder for ready reference:- "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 loan9 to a shareholder9, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any co....
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....ident (Finance). The fact that the amount has been defalcated could not, according to the assessee, be disputed in view of the fact that it has been allowed by the AO as a business loss during the asst. yr. 2006-07. Hence, the contention of the assessee was twofold. First, according to the assessee, for s. 2(22)(e) to apply the amount ought to have been received as an advance or loan from a company to a concern in which the shareholder had substantial interest. This condition, according to the assessee, was not met since the amount was neither an advance nor a loan to the assessee but represented misappropriation of funds by the Vice President (Finance). Consequently, even if the amount is treated as deemed dividend within the meaning of s. 2(22)(e), it is taxable in the hands of the shareholder and not in the hands of the assessee. Secondly, even on the assumption that this was an amount advanced to the assessee by the CSPL, for the purposes of taxation, a deemed dividend would be taxable in the hands of the shareholder and not the assessee to whom the payment was advanced. 4. The AO came to the conclusion that the provisions of s. 2(22)(e) are attracted the moment a loan....
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....the assets of the company or otherwise) made after the 31st May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether 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 which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) 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;" 8. Clause (e) of s. 2(22) is not artistically worded. For facility of exposition, the contents can be broken down for analysis : (i) Clause (e) applies to 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 May 1987; (ii) Clause (e) covers a payment made by way of a loan or advance to (a) a shareholder, being a beneficial owner of shares (not being ....
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....definition of the expression dividend. Clause (e) expands the nature of payments which can be classified as a dividend. Clause (e) of s. 2(22) includes a payment made by the company in which the public is not substantially interested by way of an advance or loan to a shareholder or to any concern to which such shareholder is a member or partner, subject to the fulfilment of the requirements which are spelt out in the provision. Similarly, a payment made by a company on behalf, or for the individual benefit, of any such shareholder is treated by cl. (e) to be included in the expression 'dividend'. Consequently, the effect of cl. (e) of s. 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case, the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the ....
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.... Similarly, a payment made by a company on behalf, or for the individual benefit, of any such shareholder is treated by cl. (e) to be included in the expression 'dividend'. Consequently, the effect of cl. (e) of s. 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee. 3.5. If the facts and the ratio laid down in the aforesaid case are analyzed with the facts of the present appeal, the first requirement of section (2(22)(e) of there being and advance or loan was not fulfilled and even assuming that it was a dividend, it has to be taxed in the hands of the sha....
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....aid by a company which is set off by the company against the whole or any part of sum previously paid by it and treated as a dividend within the meaning of subclause (e) to the extent to which it is so set off, is not dividend within the meaning of this definition. 16. We are strictly not concerned with clauses (iv) and (v) which payments are not termed as dividend or Explanations 1 and 2. Explanation (3) states that for the purpose of this clause namely clause (a) "concern" means a Hindu undivided family or a firm or an association of persons or a body of individuals or a company. The explanation also states and explains 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, beneficially entitled to not less than 20% of income of such concern. 17. We would, for the sake of appreciation of the rival contentions note the facts in the Appeal which is styled as Income Tax Appeal No.114 of 2012. There, return of income was filed by the assessee declaring total income of Rs. 3,77,11,467/. The return was processed under Section 143(1) of the I. T. Act. The assessment was subsequent....
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.... thus, he could have concluded that the credit entries are not covered by this provision and the payment does not fall therein. However, he assumed that the share holding pattern is such that the provisions of Section 2(22)(e) will be attracted, but concluded that the other argument, namely, deemed dividend can be assessed only in the case of a person who is a shareholder of the lender company and not in the hands of the person other than the shareholder, deserves acceptance. That is how paragraph nos.6.3 and 6.4 of the order of the Commissioner would read. In coming to this conclusion, he relied upon the order of the special bench of the Tribunal in the case of Assistant Commissioner of Income Tax v/s Bhaumik Colour Pvt Ltd. 19. The result of this discussion was that the Commissioner of Income Tax(Appeals) partly allowed the Appeal of the assessee. 20. The Deputy Commissioner of Income Tax(Revenue) carried the matter in Appeal. The Income Tax Appellate Tribunal, in Income Tax Appeal No.1597 of Mum/2010 and in dealing with this ground, in paragraph no.6 of the order dated 13th April 2011, held as under: "The second ground is that the CIT(A) erred in delet....
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....in the case of Universal Medicare formulated two questions and termed them as substantial questions of law. They were posed for consideration and determination of this Court. They were pressed during the course of arguments, as well. The judgment in the case of Universal Medicare takes note of the questions of law and particularly, question no.2. The ratio of the decision of the special bench of the Tribunal in the case of Bhaumik Colour Pvt Ltd., was also a question posed for answer by this Court in Universal Medicare (supra). 23. Thereafter, the Tribunal's findings have been referred to at page no.267 of the report. In paragraph no.7, the Division Bench referred to the definition of the term "dividend" as appearing in the I. T. Act and which we have reproduced above, and then held as under: "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....
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....the voting power; or (b) any concern in which such shareholder is a member or a partner and in which he has a substantial interest; (iii) Clause (e) also includes in its purview any payment made by a company on behalf of or for the individual benefit, of any such shareholder; (iv) Clause (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', Clause 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 Tribuna....
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.... in the hands of the assessee. We may in concluding note that the basis on which the assessee is sought to be taxed in the present case in respect of the amount of Rs. 32,00,000/ is that there was a dividend under Section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer." We are of the opinion that the Revenue cannot urge before us that the conclusion rendered by the Division Bench in the case of Universal Medicare on the second aspect which had weighed with the Tribunal in that case, is merely an observation or in the nature of obiter dictum and that cannot be said to be the ratio of the judgment is the first contention before us. We are unable to accept this contention for more than one reason. The Universal Medicare's case also was a Revenue's appeal. In Universal Medicare, the Court was dealing with three questions termed as substantial questions of law on behalf of the Revenue. The Revenue specifically urged that the Tribunal's findings on the first as well as the second aspect are erroneous and raised substantial questions of law. It was contended that the Tribunal could not have arrived at a factual conclusion that Sec....
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....fically refers to a person who is a beneficial owner of the shares. It is submitted that there are several words which have been substituted by the amendment. The words " being a person who is a beneficial owner of share", therefore, cannot be given the same meaning as is assigned to it in the judgment delivered by the Hon'ble Supreme Court in the case of Rameshwarlal Samwarmal Vs. CIT (Assam) reported in (1979) 122 ITR page 1. In other words, any interpretation of the provision prior to its amendment cannot serve as a guide even if the same fall for interpretation again. The Court will have to bear in mind that the legislature stepped in to amend the subclause with some definite intent and purpose. The purpose was not to allow circumvention or bye passing a statute like the I. T. Act 1961. Therefore, any reference to the position of the shareholders/members of a company as is to be found in the Indian Company Act, 1956 is wholly unwarranted and uncalled for. The words "shareholder being a person who is the beneficial owner of the assessee", therefore, must receive an interpretation in consonance with the legislative intent. That being not to restrict it to a shareholder regist....
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....would receive the sum from a company and which is not strictly falling within the concept of "dividend". Firstly, because that was received by way of advance or loan, secondly, an attempt was made to show that the advance or loan is not to the shareholder who is registered as such but to a concern in which he is a member or a partner and in which he may have a substantial interest but that cannot be termed as advance or loan to the shareholder. With a view to take care of such stand of the shareholders and not allow them to escape the liability to pay tax that the definition came to be broadly worded by indicating therein the reference to any concern. Equally, any payment made by such company on behalf of the shareholder or for individual benefit of any shareholder to the extent to which the company in other case possesses accumulated profits has also been brought in. Thus, in addition to distribution of accumulated profit, debenture stock or deposit certificate etc, a payment of the aforesaid nature has been termed as "dividend" and included in the definition. At the same time, the legislature has taken care not to include any advance or loan made to a shareholder or the said conc....
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....Act 1922 are satisfied that the amount of the loan would be liable to be regarded as deemed dividend within the meaning of that provision. The loan granted to the beneficial owner of the share, who is not registered shareholder would not fall within the meaning of Section 2 (6A) (e) of the I. T. Act. What the section is designed to strike at is advance or loan to a shareholder and the word shareholder can mean only the registered shareholder. The Hon'ble Supreme Court following the judgment in the case of Commissioner of Income Tax v/s C. P. Sarathy reported in 1972 (83) ITR 170(SC) held that the beneficial owner of shares whose name does not appear in the register of the shareholders of the company cannot be said to be a shareholder though he may be beneficially entitled to the shares but he is not a shareholder. Mr. Gupta, appearing before us for the Revenue would submit that much water has flown after the decision in the case of Rameshwarlal and C. P. Sarathy(supra) because the provision has been amended since then. The fiction therefore must be carried to its logical end and its purpose should not be defeated by narrow construction as was placed on the provision prior to it....
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....mulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provision, such payment by the company is treated as dividend. The purpose is to tax dividend in the hands of the shareholder. 33. We do not see how such a view taken by the Delhi High Court and which reaffirms that of this Court in Universal Medicare can be said to be contrary to the legal fiction or the intent and purpose of the legislature in enacting it. The view taken by the Delhi High Court in the Commissioner of Income Tax v/s Ankitech Pvt Ltd (supra) has thus our respectful concurrence. 34. We do not make reference to the other judgments because this line of reasoning has been followed in the same. It is not necessary to multiply our judgment by making reference to each of the orders following the judgment in Ankitech Pvt Ltd and rendered by Delhi High Court or by the Allahabad High Court and Gujrat High Court. 35. We are of the view that so long as the Tribunal in the matters ....
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....ccording to CIT(A), the nature of transactions between MKF and MKSEPL consisted of a running account; it consisted of giving of loans and repayments thereof. According to CIT(A), none of the two firms had any substantial interest in MKSEPL, SCPL and MKTPL. According to CIT(A), all withdrawals made by the assessee from MKF and MKI including the impugned sum were debited to the assessee's capital account in the books of MKF and MKI. According to CIT(A), MKSEPL and SCPL had a regular account in MKF and MKI even before the purchase of the said Bonds and that the said two firms had advanced loans to MKSEPL and SCPL even in the earlier years as well as in the financial year 1999- 2000 and, therefore, there was no motive in the debtor companies repaying their debts to MKF and MKI. According to CIT(A), merely because repayments were made by MKSEPL and SCPL through MKF and MKI in January/February, 2000 and merely because the said amounts were partly utilized by the said two firms in making payments to the assessee who bought 9% RBI Relief Bonds therefrom, did not necessarily mean that the assessee had routed the funds of MKSEPL through MKF and MKI for his individual benefit. According to CI....
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....cumstances, the Tribunal took the view that MKSEPL made payment to the said two firms for the benefit of the assessee who thereafter bought the said Bonds. According to the Tribunal, MKSEPL was the only company which made the disbursement through MKF and MKI. According to the Tribunal, it is true that the assessee bought the said Bonds for Rs. 26.35 crores but the AO had taxed only a fraction of Rs. 5.99 crores. However, according to the Tribunal, for the purposes of applicability of s. 2(22)(e) of the said Act payment has to originate from a company. After excluding known company sources, according to the Tribunal, the AO was right in restricting the deemed dividend amount to Rs. 5.99 crores since known company sources had to be eliminated. According to the Tribunal, the AO was right in identifying MKSEPL as the originating company, the identity of the ultimate beneficiary, the amount to be taxed, that is, Rs. 5.99 crores and the sufficiency of accumulated profits of MKSEPL in which the assessee had more than 10 per cent voting power. Accordingly the Tribunal allowed the Department's appeal. 5. Aggrieved by the decision of the Tribunal dt. 28th Jan., 2005, the assessee ca....
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....nds of the assessee under s. 2(22)(e). Learned counsel urged that the five entries discovered in the search represented five transactions/payments for purchase of 9% RBI Relief Bonds. These, according to the learned counsel, were not repayment of loans, they were payments for purchase of the said bonds during the financial year 1999-2000. 7. On behalf of the assessee (respondent), Mr. N.K. Poddar, learned senior counsel, submitted that the impugned block assessment was wholly without jurisdiction having regard to the fact that the alleged deemed dividend of Rs. 5.99 crores relate to transactions recorded and reflected in the regular books and tax records even before the search; that no incriminating document or evidence was found by the Department during the search which falsify such transactions entered into by the assessee in the normal course; that the expression "undisclosed income" has been defined in s. 158B(b) of the said Act and since block assessment was relatable to such evidence recovered during search in the present case s. 158BB(1) was not applicable in this case since no such evidence was recovered during the search. Learned counsel submitted that Chapter XIV....
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....d in the tax records of the assessee long before the search. Learned counsel urged that the immediate source of investment was the withdrawal of Rs. 26.35 cores from the partners' capital account with MKF and MKI. It was urged that the cash flow statement was not an admission on the part of the assessee and, therefore, it was not open to the Department to invoke Chapter XIV-B. Learned counsel submitted that the Tribunal had erred in holding that the fact that SCPL had a running current account with MKI in the usual course of business, was irrelevant. Learned counsel submitted that SCPL had borrowed substantial amounts from MKI and in January, 2000 SCPL repaid Rs. 2.79 crores to MKI which were not on behalf of or for the benefit of the assessee. It was urged that MKI had never borrowed money from SCPL at any time. Learned counsel urged that the Tribunal was wrong in holding that the fact that MKI had never borrowed money from SCPL, was irrelevant. Learned counsel urged that Rs. 2.79 crores were withdrawn by the assessee from his firm styled MKI on 28th Jan., 2000 and such withdrawal was debited by MKI to the capital account of the assessee. It was urged that MKSEPL had borrowed subs....
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....t. 5th July, 2001 approving merger of SCPL with MKSEPL cannot enable the Revenue to treat the accumulated profits of MKSEPL as part of the accumulated profits of SCPL. Learned counsel further submitted that MKF never held any shares in MKSEPL. Learned counsel urged that Rs. 2.04 crores were paid on 11th Jan., 2000 and Rs. 75 (lakhs) were paid on 28th Jan., 2000 by SCPL to MKI. Therefore, according to the learned counsel, if SCPL wanted to declare dividends it could have done so only to the extent of accumulated profits in its own hands and since SCPL on the above two dates could not have declared dividends in excess of its accumulated profits, the Department was wrong in treating the accumulated profits of MKSEPL as accumulated profits of SCPL merely because the merger became effective retrospectively w.e.f. 18th May, 1998. 9. We find merit in this civil appeal. The companies having accumulated profits and the companies in which substantial voting power lies in the hands of the person other than the public (controlled companies) are required to distribute accumulated profits as dividends to the shareholders. In such companies, the controlling group can do what it likes wit....
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....same time. Moreover, in MKSEPL the assessee is not only a shareholder having more than 10 per cent of total voting power, he is also a director of that company. The said company is also a partner in MKF and MKI which explains why the amount of Rs. 5.99 crores was routed by splitting the said amount into two parts of Rs. 2.79 crores and Rs. 3.20 crores. In the present case, the most important aspect, which has not been considered by the High Court, was that withdrawal of money by the assessee from his capital account, in the books of MKI, during financial year 1999- 2000 led to a debit balance of Rs. 8.18 crores as on 31st March, 2000. To this extent, the finding given by the AO and by the Tribunal remains unchallenged. Lastly, on the maintainability of the block assessment, we are of the view that the Department was right in assessing the said amount as deemed dividend in the hands of the assessee under s. 2(22)(e) of the Act. The impugned assessment order was passed under s. 158BC. That assessment originated on account of a search conducted under s. 132(1) of the Act. In that search the diary "ML-20" was identified. That identification was the starting point of connected enquiries....
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.... assessee. So far as Rs. 75,000 is concerned it is found by the Tribunal, though not very clearly, that this amount was received by Indira & Co. from the said company and the same amount was given to the assessee by Indira & Co. The Tribunal inferred from the said facts that this was a payment by the said company meant for the benefit of the assessee. This conclusion involves two findings of fact, namely, the factum of payment by the company and the motive or intention of the company making such payment, namely, a benefit accruing to the assessee. These are essentially findings of fact and have not been challenged by the assessee by an appropriate question." (emphasis, italicised in print, supplied) We also quote hereinbelow para 19 and para 21 of the judgment of the Bombay High Court in the case of CIT vs. P.K. Badiani (1970) 76 ITR 369 (Bom) : "19. Now, the assessee's account for 1st April, 1957, to 31st March, 1958, shows that there are credits as well as debits. What has to be ascertained is whether the debits are 'loans', so that they can be deemed as dividends. The account is a mutual, open, and current account. Every debit, i.e., every payment by t....
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....f the assessee. All these contentions of Mr. Rajgopal ignore the basic fact that s. 2(6A)(e) uses the words 'any payment' which means, every payment, and s. 2(6A)(e) requires the determination of two factors, viz., whether the payment is a loan and whether at the date when the payment is made there were 'accumulated profits' and that these two factors are to be correlated and the result must be ascertained at the date of each such payment." (emphasis, italicised in print, supplied) 13. The above two judgments indicate that the question as to whether payment made by the company is for the benefit of the assessee is a question of fact. In this case, the Tribunal has concluded that the payment routed through MKF and MKI was for the benefit of the assessee. This was a finding of fact. It was not perverse. Therefore, the High Court should not have interfered with the said finding. Further, the above two judgments lay down that the concept of deemed dividend under s. 2(22)(e) of the Act postulates two factors, namely, whether payment is a loan and whether on the date of payment there existed "accumulated profits". These two factors have to be correlated. This correlation has ....
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....beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power was substituted. Thus, the percentage of voting power was reduced from twenty per cent to ten per cent. By the very same amendment a new category of payment was also considered as dividend, viz., payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest. Substantial interest has been defined to mean holding of shares carrying 20 per cent of voting power. [Para 18] The provisions of section 2(22 )(e) create a fiction bringing in amounts paid otherwise than as dividend into the net of dividends. Therefore, clause (e) of section 2(22) must be given a strict interpretation. In the instant case, there was no dispute that the companies which gave the loan or advance were one in which public was not substantially interested. Nor was there any dispute that these companies possessed accumulated profits to the extent of the loan or advance. [Para 19] In view of the judgments of the Supreme Court in the cases of CIT v. C.P. ....
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.... a beneficial ownership of shares would be sufficient. [Para 23] The expression 'Shareholder being a person who is the beneficial owner of shares' referred to in first limb of 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 than the provisions of section 2(22)( e) would not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of section 2(22 )(e) would not apply. [Para 24] The new category of payment which was considered as dividend introduced by the Finance Act, 1987 with effect from 1-4-1988 by the second limb of section 2(22)(e ) is payment 'to any concern in which such shareholder is a member or a partner and in which he has a substantial interest'. [Para 25] The following conditions are required to be satisfied for application of the above category of payment to be regarded as dividend : (a) There must be a payment to a concern by a company. (b) A person must be shareholder of the company being a registered holder and beneficial owner of shares (n....
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....he rights and interest of persons who for any reason are unable effectively to protect them for themselves. Such protection is required for four classes of people, (a) unborn persons; (b) infants, lunatics, or other disqualified persons; (c) a large number of persons who are interested in common; and (d) persons having conflicting interest in the same property, i.e., an owner and an encumbrancer or different kinds of encumbrancers. Therefore, the first requirement of holding of shares both as a legal registered owner and beneficial owner of such shares was not satisfied in the case of the assessee. Therefore, provisions of section 2(22)(e ) would not be applicable at all to the case of the assessee. [Para 27] The provisions of section 2(22 )(e) which brought in a new category of payment which was to be considered as dividend as introduced by the Finance Act, 1987 with effect from 1-4-1988, viz., payment by a company 'to any concern in which such shareholder is a member or a partner and in which he has a substantial interest' do not say as to in whose hands the dividend has to be brought to tax, whether in the hands of the 'concern' or the 'shareholder'. [Para 30] ....
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.... nature of income. Therefore, the deeming fiction can be applied only in the hands of the shareholder and not the non-shareholder, viz., the concern. [Para 36] The definition of dividend under section 2(22 )(e) is an inclusive definition. Such inclusive definition enlarges the meaning of the term 'dividend' according to its ordinary and natural meaning to include even a loan or advance. Any loan or advance cannot be dividend according to its ordinary and natural meaning. The ordinary and natural meaning of the term 'dividend' would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word 'Dividend' is extended to loans and advances to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word 'Dividend' is altered. To this extent the definition of the term 'Dividend' can be said to operate. If the definition of 'Dividend' is extended to a loan or advance to a non-shareholder, the ordinary and natural meaning of the word 'dividend' is taken away. In the light of the intention behind the provisi....