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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 3, Coimbatore, dated 27.10.2015 and pertains to assessment year 2009-10.
Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that the assessee is a shareholder and Director in M/s SKM Animal Feeds and Foods (India) Ltd. and M/s SKM Siddha and Ayurvedic Medicines India Pvt. Ltd. During the year under consideration, the assessee has received cash of ` 3,50,00,000/- and assets worth of ` 21,85,15,750/- from SKM Animal Foods and Feeds (India) Ltd. The CIT(Appeals) by following the order of this Tribunal in the assessee's own case for earlier assessment year, found that the assessee received cash and assets by way of family settlement, therefore, the provisions of Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act') is not applicable at all.
According to the Ld. D.R., the company is a separate and independent legal entity. Therefore, the assets of the company cannot be distributed in the so-called family agreement / settlement.
A company cannot be a member of the family, therefore, the transfer of company’s property in the guise of family arrangement would amount to transfer of capital asset. Therefore, according to the Ld. D.R., the assessee received cash and assets in violation of Section 2(22)(e) of the Act. Therefore, for all practical purposes, according to the Ld. D.R., the payment of cash and assets from the company has to be treated as deemed dividend, hence, the CIT(Appeals) is not right in deleting the addition made by the Assessing Officer.
On the contrary, Dr. Anita Sumanth, the Ld.counsel for the assessee, submitted that the family arrangement was subject matter of discussion before this Tribunal for assessment year 2008-09 in and 1965/Mds/2011 dated 17.07.2014.
This Tribunal after considering the family arrangement between the families found that the family of Shri SKM Maeilanandan acquired the movable and immovable properties collectively. The several companies formed by the family members are by the personal effort of Shri SKM Maeilanandan. The source for business in the company has come from Shri SKM Maeilanandan. This Tribunal further found that though the investments were held in the individual names of the members of the family, it was a combined effort of members of the family, therefore, it was to be considered as joint family property. Accordingly, this Tribunal found that the family arrangement was to settle the dispute among members of the family. In fact, the family arrangement was made by Arbitration Award. Accordingly, this Tribunal found that the provisions of Section 2(22)(e), 2(24(iv) and 56(2)(vi) of the Act cannot be invoked.
We have considered the rival submissions on either side and perused the relevant material available on record. In the earlier year also, the assets and cash were paid consequent to the family arrangement, which was subject matter of adjudication by this Tribunal for the assessment year 2008-09. This Tribunal for the assessment year 2008-09 found that the source for the investment in the company is nucleus of Hindu joint family. Hence, the nucleus of Hindu joint family was used for investment in companies in which the members of the family are shareholders. This Tribunal is of the considered opinion that the property / assets of the company including the shareholding has to be necessarily treated as joint family property. Merely because some individual members were holding shares of the company that will not give any right to them to hold the same as their own property. The family members, who are the shareholders in the respective companies are holding the share on behalf of Hindu Undivided Family. Therefore, all the members of the family have their own shares in the assets of th company, family properties, shares of the company, etc. Therefore, when there was dispute in the family, that was referred to Arbitration and the Arbitrator divided the properties by way of Arbitration Award.
Therefore, this Tribunal is of the considered opinion that the division effected by means of Arbitration Award in the property which stands in the names of individual family members, in the names of the company, in the names of partnership firm, etc. has to be necessarily construed as joint family property. Therefore, when the property was allotted in the shares of the assessee, the same cannot be treated as deemed dividend under Section 2(22)(e) of the Act. As rightly found by the co-ordinate Bench of this Tribunal to which one of us is a party, the provisions of Section 2(22)(e), 2(24(iv) and 56(2)(vi) of the Act cannot be invoked at all. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced on 11th August, 2016 at Chennai.