TMI Blog2012 (8) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 3. The AO noted with regard to the claim of deduction u/s. 80IB on the potato trading that it was not acceptable since the above provision has not envisaged any amount of deduction to any trading activity carried out by any assessee. Therefore, by no stretch of imagination any such deduction can be given on the profit earned on potato trading claimed by the assessee. The assessee submitted before the ld. CIT(A) that the assessee firm was running cold storage plant for preservation of agricultural produce and the assessee has also shown profit from trading of potatoes. It has been further submitted that major part of the storage rent is on account of storage of potatoes of various agriculturists. Besides this, the assessee has also done trading of potatoes. According to the assessee, the storage process in case of potatoes stored for agriculturists and for self is the same, i.e., process of unloading, pre-cooling, further cooling, humidity control, temperature control etc. The ld. CIT(A), however, did not accept the contention of the assessee and rejected the appeal of the assessee. The alternate contention of the assessee was also rejected. The finding of the ld. CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd further contention of the assessee for interest has not been proved and no co-relation of funds claimed to have been invested in potato trading, on which the interest has been paid, has been established by the assessee. Therefore, both the grounds of assessee may be dismissed. 5. We have considered the rival submissions and the material on record. Section 80IB(11) provides for deduction in respect of the cases of Industrial Undertaking deriving profit from business of setting up and operating cold chain facility for agricultural produce. ITAT, Agra Bench in the case of Ambica Sheet Grah Pvt. Ltd. (supra) has held that those assessees who are in the business of running the cold storage are eligible for deduction u/s. 80IB(11) of the IT Act. The order is confirmed by the Hon ble High Court. However, in the above provisions, no such deduction is permissible in respect of potato trading. Therefore, no deduction could be allowed on the profits earned on potato trading claimed by the assessee. The ld. counsel for the assessee also submitted that the assessee charged the amount from self for storage of their potatoes. Such a contention is not acceptable because no self income cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same to be covered u/s. 2(22)(e) of the Act. 4. Because the Ld. CIT(A) has erred in not giving weightage to the fact that the assessee is a partnership firm and is not a shareholder in the company from whom loan has been taken. Ld. CIT(A) has further erred in not relying on the judgment of Hon ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop reported in 313 ITR 116. 7. According to the AO, the assessee had taken loan from its sister concern M/s. Balaji Preservers Pvt. Ltd. to the tune of ₹ 10,00,000/-. The share holding pattern of M/s. Balaji Preservers Pvt. Ltd. and the details of partnership of the assessee firm has been given by the AO as under : Name of company Name of directors Share holding Accumulated profits M/s. Balaji Preservers Sandeep Rastogi 15.17% 527446 Ram Autar Rastogi 30.13 Prashant Rastogi 14.00 Kamini Rastogi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2(22)(e) of the Act, it is clear that it comprehends manifold requirements, the first being the payment should be made by way of loan or advance to the concern. Of course, on this aspect, the conclusion has been recorded by the Revenue authorities in favour of the Revenue which is not in dispute. The more important aspect, being the requirement of section 2(22)(e) is that the payment may be made to any concern, in which such shareholder is a member or partner and in which he has substantial interest or any payment by any such company on behalf or for the individual benefit of any such shareholder . . . Thus, the substance of the requirement is that the payment should be made on behalf of or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf or for whose individual benefit the amount is paid by the company whether to the shareholder or to the concerned firm. In which event, it would fall within the expression deemed dividend . Obviously, income from dividend is taxable as income from other source under section 56 of the Act and in the very nature of things the income has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leave encashment without appreciating the fact that the disallowance was made as there was no proof of payment furnished to the effect that the same was paid before the due date of filing the return under section 139(1) of the Incomes-tax Act ? 2. For convenience of reference, it would be appropriate to take up the third question initially. The Tribunal has relied upon the judgment of the Calcutta High Court in the case of Exide Industries Ltd. v. Union of India [2007] 292 ITR 4701, in which the provisions of section 43B(f) have been struck down. The Tribunal directed the Assessing Officer to allow the amount as claimed towards leave encashment. The issue as regards the correctness of the judgment of the Calcutta High Court in Exide Industries Ltd. s case (supra) is pending in appeal before the Supreme Court and interim orders have been passed. The appeal, insofar as the issue of leave encashment is concerned is admitted on the following question of law : Whether the Tribunal was justified in directing the Assessing Officer to allow the amount claimed by way of provision for leave encashment in view of the provisions of section 43B(f) of the Income-tax Act, 1961 ? 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the subsequent defalcation of funds was immaterial. The Assessing Officer held that the loan was received from the bank account of CSPL; the money was deposited in the bank account of the assessee and the subsequent defalcation of the funds after the receipt of moneys by the assessee was an extraneous circumstance which made no difference to the application of section 2(22)(e). The Assessing Officer found that Mr. Vikram Tannan who was a Director of the assessee held more than 20 per cent of the equity capital of CSPL. The Assessing Officer came to the conclusion that all the conditions for the application of section 2(22)(e) were fulfilled and the loan of ₹ 35,00,000 from CSPL would have to be treated as deemed dividend in the hands of the assessee. 5. In appeal, the Commissioner of Income-tax (Appeals) affirmed the order of the Assessing Officer, save and except with a modification that the actual amount which has been received by the assessee was held to be ₹ 32,00,000 and not ₹ 35,00,000 as determined by the Assessing Officer. 6. The Tribunal in appeal has reversed the findings of the Commissioner of Income-tax (Appeals) on two counts. Firstly, the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers a payment made by way of a loan or advance to (a) a shareholder, being a beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; or (b) any concern in which such shareholder is a member or a partner and in which he has a substantial interest; (iii) Clause (e) also includes in its purview any payment made by a company on behalf of or for the individual benefit, of any such shareholder; (iv) Clause (e) will apply to the extent to which the company, in either case, possesses accumulated profits. The remaining part of the provision is not material for the purposes of this appeal. By providing an inclusive definition of the expression dividend , section 2(22) brings within its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression dividend by providing an inclusive definition. 9. In order that the first part of clause (e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee. We may in concluding note that the basis on which the assessee is sought to be taxed in the present case in respect of the amount of ₹ 32,00,000 is that there was a dividend under section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer. 10. For the aforesaid reasons, the first and second questions will not give rise to any substantial questions of law. 7. Further, On identical set of facts, the Hon ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop, 313 ITR 116 (Raj) has held as under :- (Page nos.117 to 120) This appeal by the Revenue against the judgment of the Tribunal dated September 16, 2004, was admitted, vide order dated March 29, 2005, by framing the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in upholding the order of learned Commissioner of Income-tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an appeal before the learned Tribunal and the Tribunal found that the provisions under section 2(22)(e) are deeming provisions and are aimed at including the obvious or what is uncertain or to impose for the purpose of a statute an artificial construction of a word or phrase that would not otherwise prevail. Then the definition, as given in section 2(22)(e) was also considered and found that since the firm is not a shareholder of the company the amount of ₹ 10 lakhs could not be assessed to tax under section 2(22)(e). It was also found that this amount cannot be stated to be an advance or loan as the agreement specifically mentions it as security. It was also considered that as on April 1, 1990, the company has accumulated profits of ₹ 44,825/- only. Thus, the ingredients of the deeming clause are not satisfied. It was reiterated that unless the firm is a registered shareholder of the company any amount of advance to the partner cannot be taxed in the hands of the firm as such. Thus, the appeal was dismissed. We have heard learned counsel on the questions framed. Long drawn arguments were made on either side. However, before proceeding further, we may gainfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder or to the concerned firm. In which event, it would fall within the expression deemed dividend . Obviously, income from dividend is taxable as income from other source under section 56 of the Act and in the very nature of things the income has to be of the person earning the income. The assessee in the present case is not shown to be one of the persons being shareholder. Of course, the two individuals being Roop Kumar and Devendra Kumar are the common persons holding more than requisite amount of shareholding and having requisite interest in the firm but then thereby the deemed dividend would not be deemed dividend in the hands of the firm rather it would obviously be deemed dividend in the hands of the individuals on whose behalf or on whose individual benefit being such shareholder the amount is paid by the company to the concern. Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax as deemed dividend could be attracted in the hands of the individuals being the shareholders and not in the hands of the firm. Thus, the result of the aforesaid discussion is that question No. 2, as framed, is answered in favour of the Revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty. 10. The Hon ble Patna High Court in the case of Tata Iron Steel C. Ltd. vs. Union of India, 75 ITR 676 (Patna) has held that in a case of reasonable doubt, the construction must be beneficial to the tax payer is to be adopted. 11. In addition to above, the proposition of law relating to the issue as to which view, in case there are two possible views, should be fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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