TMI Blog2016 (8) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 was transferred from general reserve account and capitalized. The AO treated the said bonus shares issued to the shareholders as liable to dividend distribution tax under the provisions of Section 2(22)(a) of the Act. 4. By the impugned order, the CIT(A) set aside the order of the AO after having the following observation : 6.4 I have carefully considered the facts and circumstances of the case, assessment order and submissions of the appellant. The decision in the case of Hansur Plywood works Ltd. Vs. CIT (229 ITR 112) as relied by the appellant for the sake of clarity is reproduced again that - In this case, neither in form nor in substance, has there been any distribution of profits by the company in making the bonus issue. If the substance and not the form of the transaction is looked to, the issue of bonus shares was, in the language of Viscount Cave, J. a bare machinery for capitalizing profits and there was not distribution of profit of the shareholder. The appellant has also relied on the decision of authority for advance ruling which is also in support of the arguments submitted by the appellant. 6.5 Section 2(22) is a deeming provision a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being unpaid on the old shares or new shares to be issued, denotes that there is no release of any of its assets by the company. In such a situation, on the language of subclause (a) of section 2(22) of the Incometax Act the issue of such bonus shares does not constitute a dividend. In view of the above facts and circumstances of the case and also as held in the case of Shashibala Navnitlal Vs.CIT(1964) 54 ITR 478 (Guj) that 'when bonus shares are issued/credited as fully paid up out of capitalized accumulated profit, there is distribution of capitalized accumulated profits but such'distribution does not entail release of assets of the company so as to fall within section 2(64)(a) of the 1922 Act', I find that section 2(22)(a) is not applicable. 6.6 It is also important that the AO has' considered and distinguished this matter with reference to section 1150 of the Act. This section applies to the distributed profits of the domestic companies. The operative word in this section is 'any amount declared, distributed, or paid by such company by way of dividends (whether interim or otherwise)' .In any case operation of section 115-0 is dependent&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that there are no transactions with the assessee company in the FY:200910. They have also confirmed vide letter dtd.31.12.2012 that there is no amount payable or receivable from Coral Cosmetics as on 31.03.2010. 6. By the impugned order the CIT(A) deleted the addition after observing as under : 7. I have carefully considered the assessment order, submissions of the appellant and facts and circumstances of the ,case. The appellant has furnished copies of SLP filed in the Hon. Apex Court and SLP is stated to be pending for, decision on the issue of amount under question. It appears that. the. AO had added the amount to the income of the appellant based on the letter received in response to section 133(6) of the IT Act sent by the AO to M/s Colgate Palmolive India Ltd. It is on record that the amount of ₹ 75,33;226/is lying credit to the account of M/s Colgate Palmolive India Ltd. in the books of the appellant and issue is also pending litigation in .the Apex Court. It has been further stated that the appellant is not aware of surrender of claim by M/s Colgate Palmolive India Ltd. receivable from the appellant. The appellant has also sought the reply received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also pending in the Hon. Supreme Court by which it is clear that the issue is not settled. Under the circumstances, I am unable to hold that the liability acknowledged and accepted in the books of the appellant, can be unilaterally writtenoff on the basis of third party letter and taxed u/s 41(1) of the IT. Act without being writtenoff in the books of the appellant. There may be reasons to do so but only when the liability is settled between both the parties and written off in the books of accounts of both the parties. In view of the above, ground no.4 is allowed and addition made by the AO for cessation of liability is deleted. 7. Against the above order of CIT(A), revenue is in further appeal before us. 8. Ld.AR placed on record decision of Authority For Advance Rulings, New Delhi in case of Briggs of Burton (India) Pvt. Ltd. In re, 274 ITR 595(AAR), wherein it was held that when a company allots bonus shares to its existing equity shareholders, company is not required to deduct tax at source as distribution of accumulated profits by the company through issue of bonus shares through existing shareholders would not bring it within the mischief of Section 2(22) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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