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2016 (8) TMI 656 - AT - Income TaxDeemed dividend - whether the issue of bonus shares does not entail release of assets of the company to attract provisions of sec. 2(22)(a) of the Act requiring dividend distribution tax to be paid by the assessee? - Held that:- The issue of bonus shares by the assessee company does not entail the release by the assessee company to its shareholders all or any part of the assets of the company. The Hon’ble Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. (1964 (3) TMI 17 - SUPREME Court ) held that the conversion of reserves into capital does not involve the release of profit to the shareholders; the money remains where it was, that is to say, employed in the business. Furthermore, the Supreme Court in the case of Hansur Plywood Works Ltd. v. CIT (1997 (11) TMI 1 - SUPREME Court ) held that issuance of bonus shares does not amount to distribution of accumulated profit of a company. The Authority for Advance Rulings in the case of Briggs Burton (India) Pvt. Ltd (2005 (4) TMI 9 - AUTHORITY FOR ADVANCE RULINGS ) held that at the stage of issue of bonus shares there was no release of assets of the company and therefore, the Legislative intent in section 2(22)(a) and (b) is that the issue of bonus/preference shares to equity shareholders should not be treated as deemed dividend at the time of issue. Thus we do not find any infirmity in the order of CIT(A) for holding that issue of bonus shares does not amount to deemed dividend within the meaning of provisions of Section 2(22)(a) of the I.T.Act. - Decided in favour of assessee. Cessation of liability - Held that:- The litigations commenced by the assessee company by filing a writ petition in respect of the unutilised MODVAT Credit of ₹ 98,19,113/was still pending in the Supreme Court and therefore, the liability to pay the sum of ₹ 60,47,226/by the assessee company to M/s. Colgate Palmolive India Ltd. was still subsisting. After applying the proposition of law laid down by the decision of Hon’ble Supreme Court in the case of Sugauli Sugar Works Pvt. Ltd. (1999 (2) TMI 5 - SUPREME Court ) to the facts of the instant case, the CIT(A) has correctly came to the conclusion that the unilaterally right back of the amount by M/s. Colgate Palmolive India. Ltd. does not amount to cessation of liability in the hands of the assessee company. Detailed finding recorded by CIT(A) are as per material on record, therefore, do not require any interference on our part. - Decided in favour of assessee.
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