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2016 (2) TMI 126 - ITAT DELHI

2016 (2) TMI 126 - ITAT DELHI - [2016] 46 ITR (Trib) 771 - Deemed dividend addition u/s 2(22)(e) - CIT(A) deleted the addition - Held that:- the assessee before the AO and the ld. CIT (A) has submitted that both these companies are public limited companies and they have produced evidences to substantiate that the STLL and PHDL are listed companies at Delhi Stock Exchange and PHDL is also listed on Ahmedabad Stock Exchange and also the shareholding pattern as on 31.03.2008. And that Section 2(22) .....

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hed to more than that for which the deeming provision can be literally interpreted. Nothing can be added or implied while interpreting a deeming provision. One can only look at the language used. Therefore, we concur with the ld. CIT (A) that the lender company i.e. M/s. STLL and M/s. PHDL are public limited companies and so the loan/advance/ICD given to the assessee does not fall in the ken of section 2(22)(e) and moreover, the lender companies are NBFC which are also excluded from the said dee .....

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filed against the order of the CIT (Appeals)-XI, New Delhi dated 14.03.2012 for the assessment year 2008-09. 2. The solitary ground taken by the revenue is against the deletion of addition of ₹ 2,70,00,000/- made by the AO under section 2(22)(e) of the Income-tax Act, 1961 (hereinafter the Act ). 3. The assessee is engaged in the business of media operation (publication of newspapers and maintenance and retrieval of trolleys at airport along with advertisement rights thereof), transportat .....

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.12.2010 was issued. The assessee filed the reply to the said notice. After considering the reply of the assessee, the AO found certain claims of the assessee not tenable. 3.1 Out of the those certain claims, one of the issues was against the addition of ₹ 2,70,00,000/- under section 2(22)(e) of the Act, which is the dispute in the present appeal. The facts relating to this issue are as follows. 3.2 The AO vide show cause notice dated 09.12.2010 asked the assessee to explain as to why loan .....

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areholdings of the STLL and in this situation, it could not be accepted that the STLL was a public company where public was substantially interested. He further observed that the percentage of shares of other directors and their family members would again go on to prove that it was not a company in which public are substantially interested, rather it was a company which was closely held by the promoter Mr. Sindhu and his family members and therefore the saving clause (ii) of section 2(22) of the .....

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so on the assessee company that the shares of the STLL were widely traded and its shares were available in the open market for purchase and sale by any common man/person; and held that the assessee failed to discharge its onus and the AO countered the submission of the assessee that the STLL was an NBFC and therefore the deeming provision of section 2(22)( e) would not be applicable, by giving following reasons:- The Income Tax Act provides certain exceptions with the respect to the provision of .....

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ances or loans were in the ordinary course of its business . The onus was cast on the assessee company to substantiate that the loans and advances received by it from the group company or associates company (STLL), in which common directors are beneficial share holders, were in the ordinary course of business i.e. advancing of loans & advances on Interest of the payer company. Same is the case of PHDL. The assessee has failed to prove that the advances were given in the normal course of busi .....

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y the assessee were liable to be taxed in the hands of the assessee as deemed dividend as per section 2(22)(e) r.w.s. 56 and section 115O of the Act and ₹ 2.70 crores was added back to the total income of the assessee. 3.4 Aggrieved, the assessee went in appeal before the ld. CIT (A) who deleted the addition by observing as under :- Ground No.4, 5, 6 & 7 : Addition of ₹ 2.70 crores u/s 2(22)(e) of the Income Tax Act, 1961 being loans received from associated companies. a. The AO .....

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saction. The major part of the assessment order deals with this addition, however after a careful perusal, reproducing the same was not found called for since the material issue is whether section 2(22)(e) of the Act is applicable in this case. b. The appellant has submitted extensive arguments on this issue. Again, the crucial issue is found to be whether the lender companies are ones in which the public are substantially interested. Section 2(22)(e): Not applicable to widely held Companies: Se .....

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vate company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely:- shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made th .....

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is quoted in the assessment order itself as, it will be well to recall the words of Rowlatt J in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 (KB) at page 71, that: "…..in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used". Even while quoting t .....

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of the appellant. 4. The revenue, being aggrieved, is in appeal before us on the aforesaid issue. 5. Ld. DR relied on the order of the Assessing Officer and submitted that loan of ₹ 1.50 crores taken from M/s. Sindhu Trade Links Ltd. (STLL) and loan of ₹ 1.20 crores taken from M/s. Parnami Habitat Developers Ltd. (PHDL) was rightly treated as deemed dividend in view of the facts that directors of the assessee company are substantially interested in the said company and also some of .....

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, rather it was a company which was closely held by the promoter Mr. Sindhu and his family members and therefore the saving clause (ii) of section 2(22) of the Act would not be applicable and come to the rescue of the Assessee Company insofar as invoking section 2(22) (e) was concerned. The ld. DR submitted that likewise, in the case of PHDL also, a perusal of the shareholdings patterns of this company as on 31.03.2008 will reveal that more than 50% shares were held by Mr. Sindhu and their famil .....

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re, submitted that the loans are nothing but deemed dividend and is liable to be taxed in the hands of the assessee and in this regard, he made reference to the various judicial pronouncements relied upon by the AO, which are reproduced below :- (i) Kantilal Manilal vs. CIT - (1961) 41 ITR 275 (SC); (ii) Sadhana Textiles Mills (P.) Ltd. vs. CIT - (1991) 188 ITR 318 (Bom.); (iii) Smt. Tarulata Shyam vs. CIT - (1977) 108 ITR 345 (SC); (iv) CIT vs. Mukundray K. Shah - 160 Taxman 276 (SC) (v) Miss P .....

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made before the ld. CIT (A) and for the sake of clarity, the same are reproduced hereunder :- "It was submitted vide letter dated 15.12.2010 (Copy enclosed) that both STLL and PHDL are NBFC certificate holding companies and also stock exchange listed companies. Proof of being NBFC and Listed companies were submitted during the course of assessment proceedings. It was also pleaded while submitting the shareholding charts of STLL and PHDL that Assessee Company is not holding shares exceeding .....

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(e) of the Income Tax Act. 1961 was not applicable: At the outset, we wish to draw your kind attention to Section 2(22)(e) of the Income Tax 1961 which is reproduced as under: 2. (22) "dividend" includes- ... (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a pers .....

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o which the company in either case possesses accumulated profits; .... But dividend" does not include - (ii) any advance or loan made to a shareholder [or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; From the reading of above Section, following interpretations can be drawn. The interpretation of the Section has been dealt point wise vis a vis observation of the Ld. AO and submission ag .....

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e of the Assessee Company (Copy enclosed) and Shareholding charts of STLL and PHDL, it is clear that the Assessee Company is not holding any shares In these companies and hence in no way the amounts can be taxed in the hands of Assessee Company. Further note from Shareholding charts of STLL and PHDL that there is no shareholder holding 10% in these companies, who is further holding 20% in the Assessee Company. Hence Section 2(22)(e) of the Income Tax Act, 1961 is not applicable since shareholdin .....

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de. 3. Section 2(22)(e): Not applicable to widely held Companies: Section 2(22)( e) uses the words : any payment by a company "not being a company in which the public are substantially interested" meaning thereby that Section is applicable only to companies which are commonly known as closely held companies. Section 2(18) of the Act reads as under: "(18) "company in which the public are substantially interested''-a company is said to be a company in which the public a .....

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ities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder; It was submitted before the Ld. AO that STLL and PHDL are Public Limited Company through following evidences which have been discussed by Ld. AO at page no. 11 to 15 in the Assessment order: (a) Listing evidences of being listed on Delhi Stock Exchange and Jaipur Stock Exchange. (b) Shareholding pattern as on 31.03.008 of the Assessee Company Submission before your good self against Ld. AO observation: The observ .....

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been suspended or de-listed, is not correct. As an evidence of being listed on Jaipur and Delhi Stock Exchanges, the Assessee Company submitted the Annual Listing fee bills raised by the respective stock exchanges on the STLL and PHDL. Proof of payment of listing fee for both the stock exchanges were submitted during the course of assessment proceedings vide letter date 15.12.2010. Had the STLL or PHDL were been suspended or delisted, stock exchanges would not have raised the annual listing fee .....

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Ahemdabad Stock Exchange website at http://www.aselindia.org/companies/listed-companies.htmlit can be seen that PHDL is listed company on Ahemdabad Stock Exchange. Since the list involve 226 companies, we are producing herewith relevant extract showing evidence in regard to PHDL only. Also note that there was no adverse material on record or brought on record by the Ld. AO to support her contentions regarding STLL and PHDL. Hence the allegations made by the Ld. AO is baseless, arbitrary and mad .....

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NSE and BSE. From the shareholding pattern of these companies, you will see that Promoter shareholding for these companies is much more that what is for the Assessee Company. Somewhere it is hovering around 88%. Still they are regarded as listed and widely held companies. So the same parameter shall be used for Assessee Company also . Further as per Securities Contract (Regulation) Rules, 1957, Rule 19(2)(b) provides following with respect to public shareholding for a listed company: "Requ .....

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e of such offer were allotted subject to the following conditions: (a) minimum 20 lakh securities (excluding reservations, firm allotment and promoters contribution) was offered to the public; (b) the size of the offer to the public, i.e., the offer price multiplied by the number or securities offered to the public was minimum ₹ 100 crores; and (c) the issue was made only through book building method with allocation of 60 per cent of the issue size to the qualified institutional buyers as .....

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ny would take away the benefit of listing, is purely baseless. 4. Section 2(22)(e): Not applicable on Inter Corporate Deposits Provisions of Section 2(22)(e) of the Income Tax Act, 1961 are not applicable to Inter Corporate Deposits. They are applicable to payments by way of advance or loans only. Reliance in this regard has been placed on Bombay Oil Industries Ltd. vs DCIT (2009) 28 SOT 383 (ITAT Mum) (Copy enclosed) wherein the Hon'ble ITAT Mumbai has held that since there is a clear disti .....

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g of money is a substantial part of the business of the company. As submitted earlier also that the Assessee Com an is not a shareholder in the STLL and PHDL, further note that the STLL and PHDL are Non Banking Finance Company and Registered with Reserve Bank of India since 1998 in Category of Loan Investment Company and engaged in activities of shares sale, financial activities, loan syndication activities and hypothecation activities. Proof of being FC companies was submitted during the course .....

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ceipts in nature of Processing fee etc. 1,647,815.06 - Total 44,485,134.10 62,64,244.00 The above details shows that STLL and PHDL are pursuing NBFC activities and Inter Corporate Deposit has also been advanced in the ordinary course of activities. In the light of the above submission, the ld AR does not want us to interfere in the order of ld CIT(A) 7. We have heard both the sides and perused the material on record. The only dispute is whether the lender companies which has made deposits (Inter .....

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ed in the Companies Act, 1956 (1 of 1956) and the conditions specified either in Item A or in Item (B) are fulfilled, namely :- (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder. We find t .....

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