Cit vs M/S Gopal Clothing Compay Private ...
2012 Latest Caselaw 1983 Del

$~R-78.
*    IN THE HIGH COURT OF DELHI AT NEW DELHI


+       ITA 333/2006


        CIT                                       ..... Appellant
                          Through Mr. Anupam Tripthi, Advocate,
                          for Mr. Kamal Sawhney, Sr. Standing
                          Counsel.

                     versus

        M/S GOPAL CLOTHING COMPAY PRIVATE LIMITED
                                             ... Respondent
                     Through Mr. C.S. Aggarwal, Sr.
                     Advocate with Mr. Prakash Kumar,
                     Advocate.

         CORAM:
         HON'BLE MR. JUSTICE SANJIV KHANNA
         HON'BLE MR. JUSTICE R.V.EASWAR


                    ORDER

% 22.03.2012

In the cause list ITA No. 333/2006, Commissioner of

Income Tax versus M/s Gopal Clothing Company Private

Limited, which pertains to assessment year 1996-97, is listed.

However, we notice that along with the said appeal, the Registry

has also enclosed files of ITA Nos. 732/2004, 739/2004,

722/2005, 857/2006 and 861/2006. These appeals pertain to

assessment years 1994-95, 1994-95, 1996-97, 1997-98 and

1997-98, respectively. For each assessment year, two appeals

have been preferred because cross-appeals were filed before

the Income Tax Appellate Tribunal (tribunal, for short).

2. With the consent of the counsel for the parties, we take up

all the appeals for hearing. We may note that a common

question of law has been raised in these appeals and they relate

to question of deemed dividend under Section 2(22)(e) of the

Income Tax Act, 1961 (Act, for short).

3. The common substantial question of law raised in the

aforesaid appeals reads as under:

"Whether the ITAT was correct in law in holding that the provisions of Section 2(22)(e) of the Income Tax Act, 1961 were not applicable to the transaction in question, in the facts and circumstances of the present case?"

4. The respondent assessee is a company and had 10

shares in East India Impex (Delhi) Private Limited. The

assessee did not hold 10% or more voting rights in East India

Impex (Delhi) Private Limited. The Assessing Officer invoked

Section 2(22)(e) of the Act on the ground that one Subhash

Sahni had more than 10% shareholding in East India

Impex(Delhi) Private Limited and had substantial interest, i.e.,

more than 20% shareholding in the respondent assessee. The

Assessing Officer observed that the assessee had taken

unsecured loans in the three years from East India Impex (Delhi)

Private Limited and after examining the balance sheet of East

India Impex (Delhi) Private Limited held that they had sufficient

accumulated profits and balance in the general reserves for the

said company to pay dividend. Accordingly, Rs.1,46,72,750/-,

Rs.4,50,60,577/- and Rs.4,32,57,916/- were brought to tax as

deemed dividend in the assessment years 1994-95, 1996-97

and 1997-98 respectively.

5. In the first appeal, the Commissioner of Income Tax

(Appeals) reduced the said amount to Rs.15,11,000/-,

Rs.14,06,113/- and Rs.77,49,000/- for the assessment years

1994-95, 1996-97 and 1997-98 respectively. The reduction was

made by the CIT(Appeals) on the ground that certain amounts

had been repaid and that cannot be treated and regarded as

deemed dividend. The Assessing Officer, we may note had

computed the deemed dividend by taking into account the debit

balance at the end of the year but did not reduce from the said

amount the credit balance. We wish to clarify that we are not

expressing any opinion on the aforesaid method adopted by the

Assessing Officer or the CIT(Appeals).

6. On cross-appeals being preferred both by the Revenue

and the assessee, the tribunal by the impugned orders has

deleted the addition on various grounds. It has been held that

provisions of Section 2(22)(e) were not attracted as the

assessee was not holding the minimum prescribed voting rights

in M/s East India Impex(Delhi) Private Limited. The

shareholding of a common shareholder or a director cannot be

taken into consideration. The fact that two companies, i.e. the

assessee and the East India Impex (Delhi) Private Limited had

common shareholders, cannot be a ground to invoke Section

2(22)(e) of the Act, if the assessee did not have the prescribed

voting rights. The tribunal also examined the merits of the case

and held that the transactions between the assessee and the

East India Impex (Delhi) Private Limited were business

transactions and cannot be treated as loans or advance.

7. We need not examine the second aspect on merits. The

first aspect, i.e., whether or not the respondent assessee had

the requisite voting rights and shareholding of common

shareholders can be taken into consideration for applying

Section 2(22)(e) of the Act stands decided by this Court in CIT

versus Ankitech Private Limited, (2011) 242 CTR 129 (Delhi).

In the said decision, it has been held that to attract the

provisions of Section 2(22)(e) of the Act, payment must be made

to the person, who is a registered holder of shares and the

shareholder alone. Even after the amendment with effect from

1988 and introduction of the words "a person who is the

beneficial owner of shares" cannot be construed to in a way alter

the position that the shareholder has to be the registered

shareholder. The amendment imposes an additional condition

that the registered shareholder must also be the beneficial

shareholder of the company that has furnished loan/advance.

The fact that the shareholders of the assessee company were

also shareholders of the company which had given

"loan/advances" is not suffice and does not meet the

requirement of Section 2(22)(e). The voting rights of the

shareholder, i.e., the assessee can and should be taken into

consideration.

8. When we apply the aforesaid legal position to the admitted

facts as elucidated and stated above, the question of law has to

be answered in negative, i.e., in favour of the assessee and

against the Revenue.

The appeals are dismissed. No order as to costs.

SANJIV KHANNA, J.

R.V. EASWAR, J.

MARCH 22, 2012 VKR