TMI Blog2012 (6) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... R Dr. O.K. Narayanan, Vice-President These two appeals are filed by the assessee. The relevant assessment years are 2003-04 and 2004-05. The appeals are directed against the common order passed by the Commissioner of Income-tax (Appeals)-III at Chennai, dated 11-1-2012. The appeals arise out of the assessments completed under section 143(3), read with section 147 of the Income-tax Act, 1961. 2. The assessee is a private limited company, mainly functioning in the role of a holding company over a number of hundred-percent subsidiary companies. The fully owned subsidiary companies are all engaged in carrying on business in leather industry, mainly in export of leather and leather products. 3. The assessee company filed its returns of income for the assessment years 2003-04 and 2004-05 and the returns were processed under section 143(1). Thereafter, on further examination of the records of earlier and subsequent assessments, the Assessing Officer found that the assessee company had received loan amounts from different subsidiaries and those borrowed funds were in turn advanced to other subsidiaries. According to the assessing authority, the loans obtained by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend without stabling the compliance of the conditions prescribed cumulatively on the facts and in the circumstances of the case. 2. The CIT(A) failed to appreciate that the decision of the Tribunal rendered in the assessee's own case for the assessment year 2005-06 under identical and similar circumstances was wrongly distinguished inasmuch as the judgment of the Supreme Court in the case of Ms. P. Sarada v. CIT reported in 229 ITR 444, had no application to the facts of the case while the said decision was quoted and applied erroneously and wrongly. 3. The CIT(A) failed to appreciate that the non consideration of the earlier decision of the Appellate Tribunal while not following the principles laid down therein would amount to violating the principles of judicial discipline, smacking the judicial hierarchy envisaged under the Act. 4. The CIT(A) failed to appreciate that misreading of the judgment of the Supreme Court while not considering the relevant facts would vitiate his action in sustaining the orders of the Assessing Officer in applying in the deeming provisions under consideration. 5. The CIT(A) failed to appreciate that non consideration of the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the complete ban on the practice by retired Members is stayed till the matter is disposed of by the court. The Hon'ble Bench has held that it would be open for the retired Members to practise before the Benches of the Tribunal where they had not remained posted and held courts temporarily or on regular basis. 9. In view of the above stay ordered by the Hon'ble Allahabad High Court, Shri Basha submitted that he may be permitted to appear before the Tribunal. He further submitted that all these matters are brought suo motu to the notice of the Tribunal to avoid any misgiving at present or in future. 10. We considered this preliminary issue. As per Rule 13E, retired Members are not permitted to appear and practise before the Tribunal. This position is acknowledged in the decision of the Special bench of the Tribunal in the case of Concept Creations ( supra ). But, as on today, the operation of the Notification as well as the Special Bench decision has been stayed by the Hon'ble Allahabad High Court. In their order passed by their Lordships on 19-1-2012, they have stayed the operation of the Rule as well as the Special Bench decision and have given a positive verdict t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictional Tribunal. In the case of Miss P. Sarada ( supra ), the Hon'ble Supreme Court has held that once the payment made to a shareholder is deemed as dividend, section 2(22)(e) is attracted and the fact that the amount was later repaid does not make any difference. ( iii ) The amplitude of section 2(22)(e) has been elaborated by the Central Board of Direct Taxes in their Circular No.495 dated 22-9-1987 relating to the Explanatory Notes to the Finance Act, 1987. As per the said Circular, three conditions need to be satisfied before applying section 2(22)(e). Those conditions are: ( a ) Where the company makes the payment by way of loans or advances to a concern; ( b ) Where a member or a partner of the concern holds ten per cent of the voting power; and ( c ) Where the member or the partner of the concern is also beneficially entitled to twenty per cent of the income of such concern. ( iv ) In the present case, the condition of holding ten per cent of voting power has not been satisfied. No member of the assessee company has a voting power of ten per cent in the company. Therefore, section 2(22)(e) cannot be invoked against the assessee. ( v ) The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary business transactions and none of the loans or advances was enjoyed by the assessee company. The Tribunal accepted the contention of the assessee. The above order of the Tribunal was not followed by the Commissioner of Income-tax(Appeals) for the reason that the decision of the Hon'ble Supreme Court in the case of Miss P. Sarada ( supra ) was not considered by the Tribunal and also the said decision of the Hon'ble apex court is squarely applicable to the assessee's case. In the case of Miss P. Sarada ( supra ) considered by the Hon'ble Supreme Court, the assessee, a major shareholder of a company in which the public were not substantially interested, had availed amounts by way of loan in the previous year relevant to the assessment year. On the last day of the previous year the assessee adjusted those loans against credit balance of another shareholder. The assessee had adopted an argument that the loan has been availed and the same had been repaid by way of adjustment in the account of another creditor and therefore there was no justification in treating those loans as deemed dividends under section 2(22)(e). The Hon'ble Supreme Court held that the withdrawals made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company to arrange for long-term and short-term funds for the purpose of carrying on the business of its fully owned subsidiaries. One of the methods of arranging such finance is to transfer the disposable funds available with some of its subsidiaries to the help of some other subsidiaries, which are in need of finance. This is a part of group control and finance management. This transfer of funds from one subsidiary to another is a continuing process, depending upon the requirements of finance by different subsidiaries. It is for the purpose of meeting the requirements of the subsidiary companies which are in need of finance, that the assessee company is availing loans from other subsidiaries having disposable funds, in its capacity as the holding company exercising management control over its subsidiaries. Therefore, it is to be seen that the assessee was transacting the loans as a treasury manager for its fully owned subsidiaries. The assessee company has not availed any benefit out of those loans availed from its subsidiaries. The assessee company had not retained those loan funds for its own activities. All the loan amounts have been redistributed to subsidiaries. These are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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