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2016 (8) TMI 656 - ITAT MUMBAI

2016 (8) TMI 656 - ITAT MUMBAI - TMI - Deemed 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 Inv .....

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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 deeme .....

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e 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 inter .....

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A) was justified in entertaining, adjudicating and passing order on the charge of dividend distribution tax u/s 115-0 of the Act, when such charging of dividend distribution tax is not an appealable order uls 246A of the Act?; 2. Without prejudice to the Ground of Appeal No. 1 above, whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in holding that the issue of bonus shares does not entail release of assets of the company to attract provisions of .....

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same, is, therefore, dismissed in limine as not pressed. 3. We have heard rival contentions and found from the record that during the year under consideration, the assessee company had issued equity shares by way of bonus shares to its existing shareholders. The share capital of the assessee company as on 31/3/2009 consisted of 50,000 equity shares of ₹ 10/each fully paid up as against general reserve at Rs;5,42,62,295 as on that date. The assessee company had issued 49,50,000 equity share .....

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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 .....

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erm of section 2(22)(a), as applied by the AO on this transaction, the only requisite laid down by this clause is that distribution should entail a release of the assets of the company to the shareholders. If there is no release of assets, there is no dividend. This aspect of the case, viz. of the release of assets, arises in the following situation: "Section 205(3) of the Companies Act, 1956, states that 'no dividend shall be payable except in cash: provided that nothing in this clause .....

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ion of the allottees and a copy of the resolution authorizing the issue of such shares." . The implication of these provisions is that in the case of a bonus shares, there is no release of any asset of the company, since the profit is capitalized for purpose of increase of share capital. The same is also enacted by the Regulations of Schedule I, Table A 'of the Companies Act, 1956. When any action is taken by the company under the aforesaid Regulations, it would be seen that no part of .....

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y be. The transaction would take nothing out of the company's coffers and put nothing into the pockets of the shareholder. The very language of subparagraph (2) of Regulation 96 that the sum resolved to be capitalized shall not be paid in cash, but shall be applied in paying up amounts for the time 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( .....

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(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' on .....

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vidend within the meaning of section 2(22)(a) of the IT. Act pg. 12 of the assessment order is based on the view that "the bonus shareholders became legally entitle to the proportionate share in all assets of the company". 6.8 However, the requirement of "distribution" ' entailing release of assets of the company' appearing in this subsection is primafacie not fulfilled as understood by the AO. The extended interpretation that legal entitlement in the assets of the co .....

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r because there is no distribution of dividend in terms of section 1150 as well as in terms of section 2(22) of the Act. Hence, for the reasons above, under the facts and circumstances of the case, ground no. 3 of the appeal is allowed and taxability of ₹ 4,,95,00,000/u/ s 1150 of the Act as held by the AO vide the said assessment order is deleted. 5. The AO also made addition u/s.41(1) of the Act for cessation of liability towards M/s Colgate Palmolive India Ltd. This addition has been di .....

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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 tha .....

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India Ltd. receivable from the appellant. The appellant has also sought the reply received from M/s Colgate Palmolive India Ltd. surrendering such claim for the purpose of confirmation, as noted in the reply of the appellant, filed before the AO. In the reply of the appellant before the AO this matter has been clarified in para7, 8 and 9 noted in the assessment order as follows: 7. In your above referred notice you have mentioned that a copy of the communication received from Colgate is enclosed .....

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h, 2013 and we will write back the amount in the current Financial Year '201213 i.e. Assessment Year 201314, if advised, 8. In any view of the matter, it is respectfully submitted that the aforesaid liability of ₹ 75,33,226/has not ceased till date and therefore, the question of treating the aforesaid amount as income of the assessee company in the year ended 31st March, 2010 relevant to A. Y. 201011 is incorrect, contrary to the facts on record and contrary to the law. 9. The assessee .....

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he liability and same is duly .reflected 'in the books' of accounts. The appellant has also shown the willingness to .writeoff the said liability after verification' with M/s Colgate Palmolive India Ltd. based on the letter/record by the AO. However, somehow the exercise of verification and writingoff in the books of the appellant is not carried out and completed in this assessment year which is under appeal. At the same time the SLP No. 9820 of 2006 referred above is also pending in .....

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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 di .....

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refully gone through the orders of authorities below. As per our considered view 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. 11. The Hon ble Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. (52 ITR 567) 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, e .....

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