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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri Waseem Ahmed & Shri K. Narasimha Chary
Per Shri K. Narasimha Chary, J.M.: This appeal by the assessee is challenging the order dated 25.03.2013 passed by the ld. Commissioner of Income Tax, Kolkata-XIII, Kolkata (hereinafter called as “the CIT” in short) in respect of the assessment year 2008-09.
Brief facts of the case are that the assessee is engaged in conducting manufacturing industries and deriving income from trading in steel tubes. The assessee filed its return of income for the year under consideration on 27.09.2008 declaring a total income of Rs.10,16,470/-. The Assessing Officer by way of an order dated 04.01.2010 processed the same on the returned income. However, the case was selected for scrutiny and after following the procedure and hearing the assessee, the Assessing Officer assessed the income. Subsequently the ld. CIT by way of an order dated 25.03.2013 enhanced the
I.T.A. No. 541/KOL./2014 Assessment year: 2008-2009 Page 2 of 9 income and assessed the same at Rs.1,05,87,423/-. In the process, the ld. CIT added deemed dividend to a tune of Rs.95,70,953/-, which was the unsecured loan given by M/s. Mascot Woodcraft Pvt. Ltd. Challenging the same, the assessee carried the matter in appeal before the Tribunal on the following grounds:- (1) For that on the facts of the case, the order passed u/s 263 by the ld. CIT-XIII, Kolkata is completely arbitrary, unjustified and illegal.
(2) For that on the facts of the case, the ld. CIT-XIII, Kolkata was wrong in passing the order u/s 263 without considering the facts that the AO has considered all the points raised by the ld. CIT-XIII, Kolkata in the notice u/s 263, therefore, the order passed by the ld. CIT-XIII, Kolkata u/s 263 is completely arbitrary, unjustified and illegal.
(3) For that on the facts of the case, the ld. CIT-XIII, Kolkata was wrong in adding Rs.95,70,953/- u/s 2(22)(e) as deemed dividned which was duly considered by the AO at the time of assessment, therefore, the direction given by the ld. CIT-XIII, Kolkata is completely arbitrary, unjustified and illegal.
(4) For that on the facts of the case, the ld. CIT-XIII, Kolkata was wrong in not considering the fact that the accommodation of Rs.95,70,953/- as received from the Group Companies purely on banking compulsions and business issues which was duly considered by the AO at the time of assessment, therefore, the direction given by the ld. CIT-XIII, Kolkata is completely arbitrary, unjustified and illegal.
(5) For that on the facts of the case, the appellant reserve the right to adduce any further ground or grounds if necessary, on or before the hearing of the appeal.
There was a delay of 303 days on the part of the assessee in filing this appeal before the Tribunal and according to the assessee, as soon as the order under section 263 of the Act was passed, the assessee approached one Shri P.K. Sarkar, FCA on the legal aspects, but since the said Chartered Accountant was not very conversant with the Income Tax Appellate Tribunal, he could not advise the assessee properly. Further, the contention of the assessee is that Smt. Kamala Saha, partner of the assessee-firm, was suffering from Tumor in Uterus and Arthritis and was admitted in Hospital for operation, as such she was unable to
I.T.A. No. 541/KOL./2014 Assessment year: 2008-2009 Page 3 of 9 work for a considerable long time. However, subsequently she engaged one Mr. Balaram Sardar, Advocate, who advised her to file this appeal but by that time, a delay of 303 days occurred.
We have heard the ld. A.R. and ld. D.R. on this aspect. The ld. counsel for the assessee placed reliance on the decision of this Tribunal in the case of Shri Anupam Biswas, Kolkata –vs.- ITO, Kolkata in ITA No. 2198/KOL/2014 delivered on 09.12.2015 and also another decision in the case of M/s. Fibre Box Company (since dissolved) –vs.- ITO in ITA No. 1301 & 983/KOL/2008 delivered on 24.12.2008. The ld. counsel for the assessee submitted that these two decisions were rendered condoning the delay on identically situated facts. On the other hand, the ld. D.R. submitted that the assessee is a partnership firm and the partners other than the one, who sworn the affidavit could have pursued the matter diligently as such the medical exigency of one partner will not give any benefit to other partner. On this premise, the ld. D.R. prayed not to condone the delay.
We have perused the relevant material available on record. In so far as the sworn statement of the deponent to the effect that their former counsel, i.e. Mr. P.K. Sarkar, FCA, could not give proper guidance due to his lack of knowledge with the matter relating to the Income Tax Appellate Tribunal, and after engaging Mr. Balaram Sardar, deponent, Smt. Kamala Saha, partner of the assessee-firm, had fallen sick due to Tumor in Uterus and Arthritis and was admitted in Hospital and as such, the delay occurred, is concerned absolutely there is no dispute as to the correctness of this statement. In above cited decision, incompetency of the Chartered Accountant in giving proper advice was considered as sufficient cause. Hon’ble Supreme Court in the case of Collector Land Acquisition – vs.- Mst. Katiji & Others reported in 1987 AIR 1353 laid down the following guidelines for evaluating the applications for condonation of such delay:-
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Guidelines laid down by the Hon’ble Supreme Court in the case of Collector Land Acquisition –vs.- Katiji & Others: “The legislature has conferred the power to condone delay by enacting Section 5 of the Indian Limitation Act of 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on 'merits'. The expression "sufficient cause" employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice -that being the life-purpose for the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that:-
"Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period”.
Ordinarily a litigant does not stand to benefit by lodging an appeal late.
Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.
"Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner.
When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.
There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.
It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
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Hon’ble Calcutta High Court in the case of Indian Oil Corporation Limited –vs.- CEGAT & Others 2002 (104) ECR 609 laid down the following guidelines:-
“11. Rules of limitation are not meant to destroy the rights of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. The law of limitation fixes a life span for such legal remedy for the redress of the legal injury so suffered. Time is precious and wasted time would never revisit. During the efflux of time, newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a lifespan must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. The law of limitation is thus founded on public policy. It is enshrined in the maxim 'interest reipublicae up sit finislitium' (it is for the general welfare that a period be put to litigation). Rules of limitation are not meant to destroy the rights of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time.
A court knows that refusal to condone delay would result in foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the Court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal constitution so as to advance substantial justice vide Shakuntala Devi Jain v. Kuntal Kumari and State of W.B. v. Administrator, Howrah Municipality.
It must be remembered that in every case of delay, there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy, the Court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time, then the court should lean against acceptance of the explanation. While condoning the delay, the court should not forget the opposite party altogether. It must be borne in mind that he is a loser and he too would have incurred quite large litigation expenses. It would be a salutary guideline that when courts condone the delay due to latches on the part of the applicant, the Court shall compensate the opposite party for his loss”.
As could be seen from the facts of the present case, the assessee does not stand to gain by filing this appeal with a delay of 303 days. At the same time, no rights are crystallized in favour of the Revenue by afflux of time. In our considered opinion, the highest that would happen
I.T.A. No. 541/KOL./2014 Assessment year: 2008-2009 Page 6 of 9 by condoning the delay is that a cause would be decided on merits after hearing the parties. With this view of the matter, we hold that non- condonation of delay would amount to preferring technical consideration, as envisaged the possibility of rendering justice on the merits of the case. Therefore, delay is to be condoned and we condone the same.
Now coming to the merits of the case, challenge is only in respect of the addition made by the ld. CIT under section 263 order to a tune of Rs.95,70,953/-. According to the ld. CIT, the unsecured loan advanced by M/s. Mascot Woodcraft Pvt. Limited is hit by section 2(22)(e) of the Act and it shall be deemed as dividend. The reason given by the ld. CIT is that the two partners of the assessee- firm, namely Mrs. Kamala Saha and Mr. Asim Kumar Saha Mondal, were holding 60% and 40% of shares respectively in the assessee-firm. Mrs. Kamala Saha’s shareholding in M/s. Saha & Sarkar Saw Mill Pvt. Ltd. was at 6.18% and in M/s. Mascot Woodcrafts Pvt. Ltd. at 11.67%, whereas Mr. Asim Kumar Saha Mondal was holding 6.57% of shares in Mascot Woodcrafts Pvt. Limited and as such any loan or advance given by M/s. Mascot Woodcraft Pvt. Limited in the hands of the person with shares of 10% or more shall be deemed to be the dividend. On this premises, the ld. CIT proceeded to add Rs.95,70,953/-.
The assessee is challenging this finding by contending that the deemed dividend, if any, is taxable in the hands of the person, who is the shareholder of the lender Company and not in the hands of the persons or entities other than the shareholder. Fact remains in this matter is that M/s. Birendra Kumar Saha is not the shareholder of M/s. Mascot Woodcrafts Pvt. Ltd., but it is only Smt. Kamala Saha, who is the shareholder, and ultimately deemed dividend can be assessed arising out of the loans advanced by M/s. Mascot Woodcrafts Pvt. Ltd. in the hands of Mrs. Kamala Saha. In support of his contention, ld. counsel for the assessee placed reliance on the decision of ITAT, Mumbai Bench in the case of ACIT –vs.- Bhaumik Colour (P) Limited reported in (2009) 118 ITD 1 (MUM.)(SB)
I.T.A. No. 541/KOL./2014 Assessment year: 2008-2009 Page 7 of 9 and the decision of the ITAT, Kolkata Bench in the case of Shiv Transport & Travels –vs.- ITO reported in (2016) 67 taxmann.com 108 (Kolkata-Trib.). In Bhaumik Colour (P) Limited’s case, a Coordinate Bench of this Tribunal held that section 2(32) defines the expression ‘person who has a substantial interest in the company’ in relation to a company, means 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, carrying not less than 20% of the voting power. Under the Income Tax Act, 1922, two categories of payment were considered as dividend, viz. (a) any payment by way of advance or loan to a shareholder was considered as dividend paid to shareholder or (b) any payment by any such company on behalf or for the individual benefit of a shareholder was considered as dividend. In 1961 Act, the very same two categories of payment were considered as dividend but an additional condition, that payment should be to a shareholder being a person who is the beneficial owner of shares and who has a substantial interest in the company, viz. shareholding which carries not less than 20% of the voting power, was introduced. Therefore, that 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) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder than also the first limb of provisions of section 2(22)(e) will not apply.
In the case of Shiv Transport & Travels (supra), the Single Member Court Bench of this Tribunal followed the same and observed in paragraphs no. 15 & 16 as under:- “15. The Special Bench further held as follows:- 34. We are of the view that the provisions of Sec.2(22)(e) does not spell out as to whether the income has to be taxed in the hands of the shareholder or the concern(non-shareholder). The provisions are ambiguous. It is therefore necessary to examine the intention behind enacting the provisions of Sec.2(22)(e) of the Act.
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The intention behind enacting provisions of section 2(22)(e) are that closely held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would became taxable in the hands of the shareholders. Instead of distributing accumulated 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 provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which it’s shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern.
The basis of bringing in the amendment to Sec.2(22)(e) of the Act by the Finance Act, 1987 w.e.f 1-4-88 is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can drawn the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore proper to construe those provisions as contemplating a charge to tax in the hands of the shareholder and not in the hands of a non-shareholder viz., concern. A loan or advance received by a concern is not in the nature of income. In other words there is a deemed accrual of income even u/s.5(1)(b) in the hands of the shareholder only and not in the hands of the payee viz., non-shareholder (Concern). Sec.5(1)(a) contemplates that the receipt or deemed receipt should be in the 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.
The definition of Dividend U/s.2(22)(e) of the Act 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 provisions of Sec.2(22)(e) and in the absence of indication in Sec.2(22)(e) to extend the legal fiction to a case of loan or advance to a non-shareholder also, we are of the view that loan
I.T.A. No. 541/KOL./2014 Assessment year: 2008-2009 Page 9 of 9
or advance to a non-shareholder cannot be taxed as Deemed Dividend in the hands of a non-shareholder.” 16. The aforesaid view has since been approved in several decisions rendered by Hon’ble High Court of Bombay and Delhi in the case of CIT Vs. Universal Medicare Pvt. Ltd., 324 ITR 263 (Bom) and CIT Vs. Ankitech Pvt.Ltd. & others 340 ITR 14 (Del.). Since the Assessee in the present case is not a shareholder in the lender company, I am of the view that the above decision is squarely applicable to the facts of the Assessee’s case”.
Here in this case, M/s. Birendra Chandra Saha admittedly is not a shareholder in M/s. Mascot Woodcraft Pvt. Ltd. and the loan was advanced to the assessee-company. The beneficiary shareholder of M/s. Mascot Woodcraft Pvt. Limited, i.e. Smt. Kamala Saha is not the registered shareholder of M/s. Mascot Woodcrafts Pvt. Limited. In these circumstances, the decision of this Tribunal in the case of Bhaumik Colour (P) Limited is applicable on all fours. Respectfully following the same, we hold that the ld. CIT is not justified in making the addition of Rs.95,70,953/- under section 2(22)(e) of the Act as deemed dividend. We accordingly allow this appeal.
In the result, the appeal of the assessee is treated as allowed. Order pronounced in the open Court on August 26, 2016. Sd/- Sd/- (Waseem Ahmed) (K. Narasimha Chary) Accountant Member Judicial Member Kolkata, the 26th day of August, 2016 Copies to : (1) Mr. Birendra Chandra Saha, 65/1, M.D. Road, Nimtalla, Kolkata-700 006 (2) Assistant Commissioner of Income Tax, Circle-39, Kolkata, 18, Rabindra Sarani, Kolkata-700 001 (3) Commissioner of Income Tax, Kolkata-XIII, Kolkata; (4) The Departmental Representative (5) Guard File By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.