2015 (3) TMI 487 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - loans taken by the assessee from M/s Bhambani Shipping Pvt. Ltd. whereas Mr. Hariram Bhambani is holding 90% shares of M/s Bhambani Shipping Pvt. Ltd. and 20% shares of the assessee company and whereas, M/s Bhambani Shipping Pvt. Ltd. had reserves and surplus of ₹ 2,53,87,248/- - CIT(A) deleted the addition - Held that - In the instant case, the ld. CIT(A) recorded a categorical finding to the effect that the assessee is not a shareholder of M/s Bhambhani Shipping Pvt. Ltd., therefore, the amount received by the assessee is not liable to be taxed u/s 2(22)(e) of the Act. This finding of the ld. CIT(A) has not been controverted by the ld. D.R. by bringing any positive material on record. The ld. CIT(A) has relied on the decision of ITAT Special Bench in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E wherein it was held that provisions of section 2(22)(e) can be applied only in the hands of the beneficial and registered shareholder of the company which has given loan. Respectfully following the decision of Hon ble jurisdictional High Court and ITAT Special Bench, as discussed above we do not find any infirmity in the order of the ld. CIT(A) for deleting the addition made u/s 2(22)(e) of the Act. - Decided in favour of assessee. Disallowance of hiring charges u/s 40(i)(a) - CIT(A) deleted addition - Held that - Since the amount was already paid and the taxes are paid by the recipient, in our opinion, the decision of the Special Bench in the case of Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) is applicable and by following the decision of the ITAT, Mumbai Benches (supra) we hold that the Tax Authorities have wrongly invoked provisions of section 40(a)(ia) in the instant case. No infirmity in the order of the ld. CIT(A) deleting the disallowance u/s 40(a)(ia) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961.
2. Disallowance of hiring charges under Section 40(a)(ia) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 2(22)(e):
The primary issue in this case was whether the loan/advances of Rs. 4,36,68,525/- taken by the assessee from M/s Bhambani Shipping Pvt. Ltd. could be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer (A.O.) made an addition of Rs. 2,53,87,248/- under this section, arguing that Mr. Hariram Bhambani, who held significant shares in both companies, indirectly benefited from the transaction. However, the CIT(A) deleted this addition, stating that the assessee was not a shareholder of M/s Bhambani Shipping Pvt. Ltd., and thus, Section 2(22)(e) could not be applied. This decision was based on the precedent set by the ITAT Special Bench in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. and the Rajasthan High Court in CIT vs. Hotel Hilltop. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in CIT vs. Universal Medicare Pvt. Ltd., which affirmed that deemed dividend could only be assessed in the hands of the beneficial and registered shareholder.

2. Disallowance of Hiring Charges under Section 40(a)(ia):
The second issue concerned the disallowance of Rs. 11,96,62,680/- claimed by the assessee as hiring charges for shipping or vessels. The A.O. disallowed the entire amount under Section 40(a)(ia) due to non-deduction of TDS. The assessee contended that TDS was not required on the amount actually paid during the financial year, relying on the ITAT's decision in M/s Merilyn Shipping and Transport vs. ACIT, which interpreted "payable" in Section 40(a)(ia) as not including amounts already paid. The CIT(A) deleted the disallowance, dividing the amount into three parts: Rs. 4,03,43,500/- paid during the year, Rs. 4,83,64,270/- on which TDS was deducted as per a certificate, and Rs. 3,09,54,910/- on which TDS was deposited before the due date of filing the return. The Tribunal upheld this deletion, citing the Allahabad High Court's ruling in CIT vs. Vector Shipping Services (P) Ltd., which was affirmed by the Supreme Court, stating that Section 40(a)(ia) applies only to amounts payable at the end of the year.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s deletion of the additions under Sections 2(22)(e) and 40(a)(ia). The judgment emphasized that deemed dividend under Section 2(22)(e) could only be taxed in the hands of the registered shareholder and that disallowance under Section 40(a)(ia) did not apply to amounts already paid during the financial year.