Un-necessary litigation by revenue on settled legal issue: Provision of deemed dividend does not apply to a non-shareholder of lender/ depositor.

[CA DEV KUMAR KOTHARI]

Judgment of special bench of ITAT which has attained finality: 

Special Bench of ITAT in case ACIT v Bhaumik Colours Pvt. Ltd. (314 ITR 80) (AT) (SB)/ 2008 (11) TMI 273 - ITAT BOMBAY-E  in para 41 of the order has held as follows:

On the first question:

Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder.

  On the second question: The expression 'shareholder' referred to in s. 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provisions of s. 2(22)(e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the provisions of s. 2(22)(e) will not apply.”

No appeal by revenue:

On search in published books as well as websites,  on this issue, I could not find any appeal or order on appeal, against order of ITAT,  in case of Bhaumik Colours P. Ltd by  Bombay High Court.

I also checked website of the Supreme Court of India for the years 2008 to 2014 with ‘Bhaumik Colours’ as respondent. Any case or any order was not found on the website of the Supreme Court.  Therefore, possibility of unreported judgment of Bombay High Court in case of ‘Bhaumik Colours’  is also ruled out.

Therefore, it is clear enough that the judgment of ITAT, Special Bench, Bombay,in the case of  Bhaumik Colours P. Ltd was accepted by revenue, and it has attained finality. The Income Tax Act being a Central enactment, the revenue should follow decision in this case and should not raise a dispute on a matter which has already attained finality because the Special bench Judgment has been accepted by revenue.  

In this regard the rulings in Berger Paints India Ltd. Vs. CIT 2004 (2) TMI 4 - SUPREME Court,  Union of India v. Kilumudini Narayan Dalal 2000 (12) TMI 101 - SUPREME Court; CIT v. Narendra Doshi 2001 (7) TMI 10 - SUPREME Court and CIT v. Shivsagar Estate 2002 (7) TMI 103 - SUPREME Court  are relevant. In Berger Paints the Supreme Court considered that the  judgment of ITAT in case of Indian Communication Network Pvt. Ltd. v. lAC 1994 (1) TMI 245 - ITAT DELHI,  has been accepted and attained finality, and the same was also approved by some other High Courts which were also not challenged.  In such circumstances the revenue should not be permitted to challenge the same issue in another case, or in case of same assessee in other year, without any just cause.

Thus applying the above ruling, the judgment in case of Bhaumik Colours is binding all over India.  

Un-necessary litigation by revenue:

It appears that the revenue is indulging into unnecessary litigation by filing appeals before High Courts on a settled issue. For example, we find that in the case of Navyug Promoters P. Ltd the learned  CIT(A) deleted the addition by following   judgments of Tribunal  in case ACIT v Bhaumik Colours Pvt. Ltd. (314 ITR 80) (AT) (SB)/ 2008 (11) TMI 273 - ITAT BOMBAY-E, the revenue preferred appeal before ITAT and  the Tribunal confirmed the order of CIT(A) by  following  judgment in case of Bhaumik Colours , the revenue challenged order of ITAT and  the High Court also confirmed the same view and dismissed appeal of revenue. In this case there is concurrent finding of three appellate authorities and courts and is based on judgment of ITAT, SB, which has attained finality.

On search  on 11.02.14 of the website of the Supreme court ( for years 2011-2014 ) author did not find any SLP against this  judgment.  

In  Commissioner of Income-tax Versus Universal Medicare Private Limited 2010 (3) TMI 323 - BOMBAY HIGH COURT 2264 of 2009  order dt. Dated - 22 March 2010 the Court alos took similar view and held that “Even assuming that it was a dividend, it would have to be taxed not in the hand of the assessee but in the hands of the shareholder”.

Thus when the borrower company was not a shareholder in lender company, s. 2(22)(e) was not applied. In this case also Tribunal had followed ruling in Bhaumik Colours.

On search of the website of the Supreme Court of India in case status for years 2008 -2014 on 14.03.14 any SLP is not found when searched wth Universal Medicare.

Commissioner of Income-tax Versus MCC Marketing (P.) Ltd. 2011 (11) TMI 232 - DELHI HIGH COURT   ITA NO. 599 OF 2011  Dated - 21 November 2011

On search of the website of the Supreme Court of India in case status for years 2011 -2014 on 10.03.14 any SLP is not found when searched with MCC Marketing.

SLP in some other cases:

On same issue  in case of  CIT v Ankitech Pvt Ltd 2011 (5) TMI 325 - DELHI HIGH COURT (ITA No. 462/2009) SLP has been admitted and is pending,  being Petition(s) for Special Leave to Appeal (Civil)(CC 4707/2012)and has been tagged with Civil Appeal No.2076 of 2012  which is in case of CIT vs. M/S CAPARO INDIA P.LTD.

Un-necessary litigation:

It appears that revenue has filed SLP in some cases and not in many cases in which decision was similar to Bhaumik Colours and that judgment was also referred. It also seems that at the time of admittance of SLP, in some cases, only counsel of revenue was present and counsel of assessee was not present. The Counsel of Revenue must have fairly  informed the honorable lordships that revenue had not challenged ruling in case of Bhaumik Colours, however, in absence of any noting this is not ascertainable whether the Counsel made such disclosure or not.