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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1.1 As per the provisions of Section 2(22)(e) of the Income Tax Act, 1961 [in short ‘Act’], dividend includes any payment of any sum, by a company Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 (not being a company in which the public are substantially interested), by way of advance or loan to a shareholder, being the person who is the beneficial owner of shares holding not less than 10% 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 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’. However, any advance or loan to a shareholder or the said concern by a company in the ordinary course of its business, where lending of money is a substantial part of business of the company would not constitute dividend. As per Explanation-3, the term ‘concern’ would include Hindu Undivided family or a firm or an association of persons or a body of individuals or a company. 1.2 The Special Bench of Mumbai Tribunal in ACIT V/s Bhaumik Color (P.) Ltd. [118 ITD 1 19/11/2008], interpreting the provisions of Section 2(22)(e), held that deemed dividend could be assessed only in the hands of a person who is a shareholder of lender company and not in the hands of a person other than the shareholder. Further the shareholder should both be a registered shareholder as well as beneficial shareholder for the applicability of the said provisions. If a person is a registered shareholder but not beneficial shareholder or vice-versa, then provisions of section 2(22)(e) would not apply. Further, the deeming provision of Section 2(22)(e) as it applies to case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on presumption that Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 loan or advances would ultimately be made available to shareholders of company giving loan or advance, and, therefore, intention of Legislature is to tax dividend only in hands of shareholder and not in hands of concern. 1.3 The Hon’ble Bombay High Court in CIT V/s universal Medicare Pvt. Ltd. [324 ITR 263 22/03/2010] declined to admit revenue’s appeal and confirmed the stand of Tribunal, which held that deemed dividend would be taxable in the hands of shareholders and not in the hand of the concern, to which such loans have been granted. This judgement has subsequently been followed by the Hon’ble Court in catena of its own judgement, one of which is the judgment in CIT V/s Impact Containers Pvt. Ltd. [367 ITR 346 04/07/2014] wherein Hon’ble Court, after elaborate discussion, has confirmed the stated position as under: - 28. We are unable to agree with the Revenue in this behalf. What we have noted is that the legislature has incorporated and inserted the definition of the term "dividend". It is made inclusive of distribution of profits, any distribution to the shareholders by a company of debentures, debenture-stock, or deposit certificate in any form, or distribution made to the shareholders upon liquidation of a company. Equally, amount distributed on reduction of capital is termed as dividend. What is also then included is a payment made by a company to its shareholder. That is by way of advance or loan to him. This is included so as to visit the shareholder with a liability to pay tax. It is eventually, the shareholder who will pay tax on the same. The shareholder cannot escape that liability merely because the loan or advance has been made over to any concern in which such shareholder is a member or a partner and in which he has substantial interest. Earlier, legislature noted that the shareholder 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, Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 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 concern in which such shareholder is a member or a partner and in which he has substantial interest in the ordinary course of the business of the company and where lending of money is substantial part of the business of the company. Equally, any dividend paid by the company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off, is also excluded advisedly.
The ratio of the above decisions has subsequently been followed by various benches of Tribunal in umpteen number of decisions. 2.1 Keeping in view the above legal position in mind, the assessee before us, is a resident corporate assessee assessed in scrutiny assessment u/s 143(3) on 27/02/2015. During the course of assessment proceedings, it transpired that the assessee was in receipt of loan of Rs.142 Lacs from an entity namely M/s Lucky Vyapar and Holdings Pvt. Ltd. The shareholding pattern of the lender company as well as the assessee was broadly as follows: - Shareholding pattern of Assessee Company No. Name of the shareholder Percentage of shareholding 1. M/s. Lucky Vyapar and Holding Pvt.Ltd. 40% 2. Shri Nandan Damani 30% 3. Shri Arvind Agarwal 30% TOTAL 100% Shareholding pattern of Lender Company No. Name of shareholder Percentage of shareholding 1. Shri Nandan Damani 64.24% 2. Mrs. Shreelekha Damani 32.91% TOTAL 97.16% Admittedly, Shri Nandan Damani hold substantial interest in both the entities within the meaning of Section 2(22)(e). It is also undisputed fact that Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 accumulated reserves of lender company are quite sufficient to cover the said loans. Another undisputed fact is that the assessee is neither beneficial not registered shareholder of the lender company. During the course of hearing before Ld. Assessing Officer, the assessee, inter-alia, drew attention to the fact that substantial loan was received by the assessee, before Shri Nandan Damani became shareholder of the assessee company. However, disregarding the same and invoking the provisions of Section 2(22)(e), Ld. Assessing Officer treated the amount of loan as ‘deemed dividend’ and added the same to the income of the assessee. While doing so, Ld. AO, inter-alia, placed reliance on the decision of Hon’ble Delhi High Court rendered in Ld. CIT V/s National Travel Services [14 Taxmann.com 14]. Upon further appeal, Ld. first appellate authority deleted the additions by relying upon the decision of Hon’ble Bombay High Court rendered in CIT V/s Impact Containers Pvt. Ltd. [supra]. 2.2 Aggrieved, the revenue is before us with following grounds of appeal: - (i) The Ld. CIT(A) has erred in deleting the addition of Rs.1,42,00,000/- u/s 2(22)(e) of the Income Tax Act, 1961 without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. (ii) The Learned CIT(A) has erred on facts and in law in deleting the addition of Rs.1,42,00,000/- u/s 2(22)(e) of the Income Tax Act, 1961 holding that the deemed dividend is taxable only in the hands of shareholders by placing reliance upon the decision of Mumbai Tribunal in the case of ACIT vs. Bhaumik Colours (2009) SOT (Mum SB) ignoring the intent of Legislation as envisaged in CBDT Circular No.495 dated 22/09/1987.
The assessee, upon receipt of notice of hearing, has filed cross-objections against the same by pleading that Ld. first appellate authority erred in not adjudicating the alternative pleas of the assessee as raised during the Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 course of appellate proceedings. In these submissions, the assessee had pleaded that the advances were in the nature of inter-corporate deposits [ICD] and therefore, the provisions of Sec. 2(22)(e) were not applicable to ICD. Another plea was that lending of money was substantial part of lender and therefore, the said provisions were not applicable. Lastly, it was pleaded that substantial loan was received by the assessee before Shri Nandan Damani became shareholder of the assessee and therefore, the loan received before that date could not be treated as deemed dividend u/s 2(22)(e). However, these grounds were not adjudicated by Ld. first appellate authority since relief was already granted on the plea that the assessee was neither beneficial nor registered shareholder of the lender company.
We have carefully heard the rival submissions and perused relevant material on record. We find that Ld. first appellate authority has deleted the impugned additions by relying upon the decision of jurisdictional High Court. Nothing on record suggest that the aforesaid decision is not applicable to the facts of the present case.
The revenue, during the course of hearing, has placed on record the decisions of Hon’ble Supreme Court rendered in National Travel Services V/s CIT [89 Taxmann.com 332] & Gopal & Sons HUF V/s CIT [77 Taxmann.com 71] to submit that the provisions of Section 2(22)(e) has rightly been invoked on given factual matrix. However, we find that both the decisions are distinguishable on facts which is evident from the orders of this Tribunal rendered in Neha Home Builders Pvt. Ltd. V/s DCIT [98 Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 Taxmann.com 465 05/10/2018] & DCIT V/s Gilbarco Veeder Root India (P.) Ltd. [96 Taxmann.com 262 20/06/2018].
5. The relevant observation of Tribunal in Neha Home Builders Pvt. Ltd. V/s DCIT [supra], for ease of reference, could be extracted in the following manner: - 18. Now we deal with the decisions relied by the CIT(A) for holding that amount received by the assessee is liable to be taxed as deemed dividend.
In the case of Gopal And Sons (HUF) v/s CIT [2017] 77 taxmann.com 71 SC, the assessee is a Hindu Undivided Family (HUF). During the previous year, the assessee had received certain advances from one M/s. G.S. Fertilizers (P) Ltd. (hereinafter referred to as the 'Company'). The Company is the manufacturer and distributor of various grades of NPK Fertilizers and other agricultural inputs. In the audit report and annual return for the relevant period, which was filed by it before the Registrar of Companies (ROC), it was found that the subscribed share capital of the said Company was Rs. 1,05,75,000/- (le., 10,57,500 shares of Rs. 10/- each). Out of this, 3,92,500 number of shares were subscribed by the assessee which represented 37.12% of the total shareholding of the Company. From this fact, the AO concluded that the assessee was both the registered shareholder of the Company and also the beneficial owner of shares, as it was holding more than 10% of voting power. On this basis, after noticing that the audited accounts of the Company was showing a balance of Rs. 1,20,10,988/- as "Reserve & Surplus" as on 31st March, 2006, this amount was included in the income of the assessee as deemed dividend.
It is also found as a fact, from the audited annual return of the Company filed with ROC that the money towards share holding in the company was given by the assessee / HUF. Though, the share certificates were issued in the name of the Karta, Shri Gopal Kumar Sanei, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. In any case, it cannot be doubted that it is the beneficial shareholder. Even if we presume that it is not a registered shareholder, as per the provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and shareholder (Mr. Sanei, karta, in this case) is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act.
It is clear from the above order that all the parties have clearly held that HUF was real beneficial owner of the company, accordingly amount so received was correctly held to be deemed dividend. However, in the present case assessee neither a registered nor beneficial share holder of EIPL which is not disputed by the revenue authority. Hence, decision of Gopal and Sons HUF will not apply in present case. But it supports the contention of assessee that .addition cannot be made in assessee’s hand because NHBPL is not a beneficial shareholder of EIPL.
In the case of National Travel Services [2018] 89 taxmann.com 332 (SC), the assesses is a partnership firm consisting of three partners, namely, Mr. Naresh Goyal, Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 Mr. Surinder Goyal and M/s Jet Enterprises Private Limited having a profit sharing ratio of 35%, 15% and 50% respectively. The Assessee firm had taken a loan of Rs.28,52,41,516/- from M/s Jetair Private Limited, New Delhi. In this Company, the Assessee subscribed to the equity capital of the aforesaid Company in the name of two of its partners, namely, Mr. Naresh Goyal and Mr. Surinder Goyal totaling 48.19 per cent of the total shareholding. Thus Mr. Naresh Goyal and Mr. Surinder Goyal are shareholders on the Company's register as members of the Company. They hold the aforesaid shares for and on behalf of the firm, which happens to be the beneficial shareholder.
However, in the present case assessee is neither registered shareholder nor beneficial shareholder of EIPL.
National Travel case neither any decision was rendered nor was any stay on applicability of decision of Hon'ble Supreme Court in case of CIT Vs. Ankitech P. Ltd. in Civil Appeal No.3961 of 2013 given. In that case matter was only referred to larger bench for reconsideration and nothing has been decided yet. Hence, till date Larger Bench not decided the case, the earlier law will hold good and be in operation and binding on all courts and tribunal throughout; the territory of India. As per Article 141 of the Constitution of India which lays down that the \ law declared by the Supreme Court shall be binding on all courts throughout the territory of India. Earlier in case of CIT Vs. Ankitech P. Ltd. in Civil Appeal No.3961 of 2013 Hon'ble Supreme Court lay down the Law that for attracting section 2(22)(e) shareholder needs to be registered and beneficial share holder. In the present case it is a settled fact that the assessee is neither a registered nor a beneficial shareholder. Thus with no stretch of imagination the assessee can be covered under the definition of Section 2(22)(2) i.e., deemed dividend.
The similar issue was come before the Hon’ble Kerala High Court in case of CIT v/s Settlement Commission (IT & WT) (2009) 176 Taxman 421 (Kerala) where the Hon’ble High Court held as under:- “In this case, the Settlement Commission has rejected Ext. P2 on the ground that the issue raised is a debatable issue. But, I feel that when there is a decision of the Apex Court, no Inferior Court or Tribunal can say that the issue is a debatable issue for the reason that a Bench of two Judges of the Apex Court has doubted the correctness of the decision of the Constitution Bench. Even assuming there is a final judgment of a two Judges Bench of the Apex Court, the same has to be ignored and Inferior Courts and Tribunals are bound to follow the decision of the Constitution Bench in view of the law relating to precedents and also article 741 of the Constitution of India. So, the rejection of Ext. P2 application is unjustified.”
In view of the above, the decision of the Hon’ble Supreme Court as on today established binding. Under Article 141 of the Constitution, ratio of decision of the Hon’ble Supreme Court and principle underlying decision is binding. It is most crucial to note that in that case matter was referred to reconsider the earlier decision with their observation that for applying deemed dividend provision it is sufficient if the shareholder is beneficial shareholder. It need not be necessary that shareholder must be registered shareholder. Because as per earlier decision for applying deemed dividend shareholder must satisfy both character of shareholder i.e. Registered as well as beneficial shareholder. Thus, as per observation of this decision also shareholder needs to be beneficial Shareholder. If the shareholder is not a beneficial shareholder then as per this Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 observation also provisions of deemed dividend will not apply. Hence, all the decision supports the contention of assessee that deemed divided cannot be apply in assessee’s hand as it is neither registered nor beneficial shareholder of EIPL.
In view of the above discussion, we can safely conclude that since assessee was neither the beneficial nor the registered shareholder of the company, the amount so received is not liable to be taxed as deemed dividend. Moreover, the transaction between two group concerns were in the nature of current account and inter banking account containing both types of entries i.e., receipts and payments, the same cannot be brought in the purview of loans and advances so as to attract Section 2(22)(e).”
Similar is the decision of this Tribunal in DCIT V/s Gilbarco Veeder Root India (P.) Ltd. [supra], wherein it has been held as under: - 10. We have considered this aspect of the matter as also the provisions of Sec. 2(22)(e) of the Act. Shorn of other details, Sec. 2(22)(e) of the Act covers within its sweep three categories of payments. Firstly, the payment by way of loan or advance to a shareholder; secondly, payment to any concern in which such shareholder is a member or a partner; and, thirdly, any payment made on behalf of or for the individual benefit of any such shareholder. Ostensibly, assessee-recipient is not a shareholder in the payer company, i.e. Portescap and, therefore, it is not covered by the first category of payment. In fact, it is the second category which is sought to be invoked by the Assessing Officer. No doubt, there is a common shareholder, both in the assessee- company and Portescap, and even if we were to assume that the amount received by the assessee-company is for the benefit of the stated aforesaid common shareholder, yet, it could only be assessed in the hands of such registered shareholder and not in the hands of the assessee-company. This proposition has been relied upon by CIT (A) to delete the addition, and which is well supported by the judgments of the Hon'ble Bombay High Court in the case of Universal Medicare (P.) Ltd. (supra), Impact Containers (supra) and NSN Jewellers (P.) Ltd. (supra). Thus, we find no justifiable ground to interfere in the conclusion drawn by the CIT (A). 11. So far as the reliance placed by the Revenue on the judgment of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is concerned, the same, in our view, is quite inapplicable to the facts of the present case. Firstly, the assessee before the Hon'ble Supreme Court was a HUF and the issue was as to whether the loans and advances received by the HUF could be treated as 'deemed dividend' within the meaning of Sec. 2(22)(e) of the Act. Notably, in the case before the Hon'ble Supreme Court, the payment was made by the company to the HUF and the shares in the company were held by the karta of the HUF. It is in this context that the Hon'ble Supreme Court upheld the addition in the hands of the HUF as factually the HUF was the beneficial shareholder. The fact-situation in the case before us stands on an entirely different footing inasmuch as the assessee-recipient of money is neither the registered nor the beneficial shareholder of the payer company, i.e. Portescap. Ostensibly, the common registered as well as beneficial shareholder of assessee-company and Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 Portescap is Kollmorgen and not the assessee-company. Therefore, the decision of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is inapplicable to the facts of the present case. In fact, the learned representative for the respondent- assessee has correctly placed reliance on the judgment of the Hon'ble Madras High Court in the case of Ennore Cargo Container Terminal (P.) Ltd. (supra), which has been rendered in a somewhat identical situation. In order to elaborate the point, the following discussion in the judgment of the Hon'ble Madras High Court, which is reproduced hereinafter, would show that in the present circumstances before us, the ratio of the decision of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is not attracted :— "4.2 The Revenue seeks to assess as income the capital advance received by the assessee-company from Indev Logistics Pvt. Ltd. on the ground that it is deemed dividend received by the assessee-company for the benefit of the registered shareholder. For this purpose, the provisions of Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act') is sought to be relied upon. The Tribunal has rejected the said contention of the Revenue, principally, on the ground that deemed dividend can only be assessed in the hands of the registered shareholder for whose benefit the money was advanced. 4.3 As indicated above, there is no dispute that the assessee did receive capital advance from Indev Logistics Pvt. Ltd. There is also no dispute that there are common shareholders both in the assessee-company and Indev Logistics Pvt. Ltd. Therefore, quite correctly, as noted by the Tribunal, though, the advance received by the assessee company may have been for the benefit of the aforementioned registered shareholders, it could only be assessed in the hands of those registered shareholders and not in the hands of the assessee-company. 4.4 In our view, on a plain reading of the provisions of Section 2 (22)(e) of the Act, no other conclusion can be reached. As a matter of fact, a Division Bench of this Court, in the case of Commissioner of Income Tax v. Printwave Services P. Ltd., (2015) 373 ITR 665 (Mad.), has reached a somewhat similar conclusion.
Mr. Senthil Kumar, however, contends to the contrary and relies upon the judgment of the Supreme Court in Gopal and Sons (HUF) v. Commissioner of Income-tax, Kolkata-XI, (2017) 77 taxmann.com 71 (SC). 5.1 In our view, the question of law considered by the Supreme Court in the case of Gopal and Sons (supra) was different from the issue which arises in the present matter. The question of law which the Supreme Court was called upon to consider was whether loans and advances received by a HUF could be deemed as a dividend within the meaning of Section 2(22)(e) of the Act. The assessee in that case was the HUF and the payment in question was made to the HUF. The shares were held by the Karta of the HUF. It is in this context that the Supreme Court came to the conclusion that HUF was the beneficial shareholder. 5.2 In the instant case, however, both the registered and beneficial shareholders are two individuals and not the assessee-company. Therefore, in our view, the judgment of the Supreme Court does not rule on the issue which has come up for consideration in the instant matter."
Simplex Renewable Resources Pvt. Ltd. Assessment Year-2012-13 12. Thus, in view of the aforesaid discussion, we hereby affirm the decision of CIT (A) and Revenue fails in its appeal. 13. In the result, appeal of the Revenue is dismissed.
In both these decisions, the decisions cited by the revenue has been distinguished on facts and found to be not applicable on given factual matrix.
Therefore, respectfully following the binding judicial precedent in the shape of decisions of Hon’ble Bombay High Court and the decision of co- ordinate bench of the Tribunal, we confirm the stand of Ld. first appellate authority in deleting the impugned addition and dismiss revenue’s appeal. Consequently, the assessee’s cross-objections become infructuous.
Resultantly, the appeal as well as cross-objections stand dismissed.