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TMI Blog2011 (6) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... ural income made by the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... heque of Rs. 89,00,000 to Savita Bhasker, which as per advice of M/s. MPPL was credited to M/s. MPPL and debited to Savita Bhasker. Since M/s. MPPL claimed that payment on behalf of our company, the same was reimbursed to M/s. MPPL on 21-10-2005 through cheque. When subsequently, it was realized that the payment to Savita Bhaskar by M/s. MPPL was not on account of assessee, but on account of M/s. Nirmiti Associates Pvt. Ltd. (hereinafter referred to as NAPL), the assessee transferred debit in the account of Savita to NAPL and subsequently on 20-10-2005, NAPL paid the assessee by cheque. It was pointed out that the payment made by M/s. MPPL on behalf of Nirmala Realtors Pvt. Ltd. for the assessment year 2003-04 was to the extent of Rs. 72,00,000 the details of which are given at page 2 of the assessment order and similarly remaining Rs. 17,00,000 has been paid during the assessment year 2004-05 on behalf of the assessee. The assessee has entered into an agreement on 11-3-2002 with Shri Sanjeev Bhasker. As per the agreement, the land was made available by Shri Sanjeev Bhaskar to the assessee and the finance for the construction was to be arranged by the assessee. The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing not less than ten per cent of voting power, or (iii) Any concern in which shareholder (holding not less 10 per cent voting power) is a member or partner and in which he has a substantial interest, or (iv) Any person, on behalf, or for the individual benefit of such shareholder. Such shareholder here means a shareholder who is beneficial owner of shares holding not less than 10 per cent voting power. The loan and advance given to such person shall be deemed to be dividend only to the extent to which it is shown that the company possesses accumulated profits on the date of loan etc. There are certain exceptions also provided in the sub-section one of which is that any advance or loan to a shareholder or specified concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company will not attract the provisions of section 2(22)(e). This exception shall apply only when two cumulative conditions are fulfilled - first, the loan should have been made by the company in the ordinary course of business and secondly, money lending should be substantial part of the company's business. Thus, the effect of sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits to shareholders by way of dividends but by way of loans or advances so that these are not taxed in the hands of the shareholders. To forestall this manipulation, sub-clause (e) of clause (22) of section 2 has been suitably amended. Under the existing provisions, payments by way of loans or advances to shareholders having substantial interest in a company to the extent to which the company possesses accumulated profits is treated as dividend. The shareholders having substantial interest are those who have a shareholding carrying not less than 20 per cent voting power as per the provisions of sub-clause (32) of section 2. The amendment of the definition extends its application to payments made (i) to a shareholder holding not less than 10 per cent of the voting power, or (ii) to a concern in which the shareholder has substantial interest. 'Concern' as per the newly inserted Explanation 3(a) to section 2(22) means an HUF or a firm or an AOP or a BOI or a company. A shareholder having a substantial interest in a concern as per part (b) of the Explanation 3 is deemed to be one who is beneficially entitled to not less than 20 per cent of the income of such concern. The new provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e), however, the Hon'ble ITAT found NNT trust consisting of 3 trustees who held shares in UPPL and BPCL on behalf of 5 beneficiaries. On these facts the tribunal held that the expression 'shareholder being a person who is the beneficial owner of shares' referred to in first limb of section 2(22)(e) refers to both a registered shareholder and beneficial shareholder, if a person is registered shareholder but not the beneficial shareholder, then the provisions of section 2(22)(e) will not apply. The issue of deemed dividend came for consideration subsequently before Hon'ble ITAT Mumbai Full Bench, Mumbai in the case of Unisol Infraservices (P.) Ltd. v. ITO Ward 8(3)(4) Mumbai and this case has been decided in ITA No. 2088/Mum./2008 vide order dated 11-8-2009. The facts of the case were that Shri Rajiv Shete and Smt. Hemal Shete were common shareholders of the assessee company and M/s Element Investment (P.) Ltd., with 34.65 per cent and 25.86 per cent shareholding in assessee company and 50.1 per cent and 19.9 per cent in M/s Element (P) Ltd., the assessee company took loan of Rs. 12 lakhs from M/s Element Investment (P.) Ltd. The Assessing Officer invoked the provisions of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered as deemed dividend under section 2(22)(e) in the case of the assessee firm. 5.2 Now coming to the facts of the appellant's case the fact of the matter is that during the year under consideration as sum of Rs. 72 lakhs was paid by MPPL on behalf of the appellant to Smt. Savita Bhaskar vide assessee's own admission cheque of Rs. 89 lakhs was issued to Smt. Savita Bhaskar on behalf of the appellant company, therefore MPPL was credited to the extent and Smt. Savita Bhaskar was debited in the assessee's books of account. This payment of Rs. 89 lakhs was also made by the assessee company to MPPL on 21-10-2005 but as per the assessee the payment was paid by MPPL not on behalf of the appellant but on account of Nirmala Associates (P.) Ltd. Therefore, it is clear that the sum of Rs. 72 lakhs was paid by the MPPL on behalf of the appellant company to Smt. Savita Bhaskar. Also, it is pertinent to mention here that jugglery of accounting entries cannot take away the substance and the nature of payments made to Smt. Savita Bhaskar. The payment made by MPPL to Smt. Savita Bhaskar on behalf of the appellant company is not for any business consideration and it is also not covered by any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst facts. This issue is being dealt with subsequently where additions are being objected to on account of facts. 6. Narrating the legal situation on the point, it was argued that assuming for sake of agreements accepting that the amount added i.e., Rs. 72,00,000 + Rs. 17,00,000 is a Loans & Advance of the categories (b) mentioned hereinabove. In other words if it is a deemed dividend then question arises in whose hand it will be taxed. 7. In the case of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC), the provisions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income-tax Act, 1961 came up for consideration. In the said case, members of a Hindu undivided family acquired shares in a company with the fund of the family. Loans were granted to the Hindu undivided family and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act,1922. The Apex Court held that only loans advanced to shareholders could be deemed to be dividends under section 2(6A)(e) of the Act, the Hindu undivided family could not be considered to be a "shareholder" under section 2(6A)(e) of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed only in the hand of registered shareholder. These two decisions were given by the Apex Court under section 2(6A) of Income-tax Act 1922. The expression "shareholder" has been interpreted under the 1922 Act to mean a registered shareholder. This expression "shareholder" found in the 1961 Act has to be, therefore, construed as applying only to registered shareholder. It is a principle of interpretation of statutes that where once certain words in an Act have received a judicial construction in one of the superior courts, and the Legislature has repeated them in a subsequent statute, the Legislature must be taken to have used them according to the meaning which a court of competent jurisdiction has given them. 9. The assessee is not shareholder of Mahim Patran (P.) Ltd., neither registered nor beneficial. For this reason alone the addition must fail. The provisions of section 2(22)(e) came for consideration before Hon'ble Rajsthan High Court in the matter of CIT v. Hotel Hiltop [2009] 313 ITR 116. In this case the Assessing Officer added Rs. 10 lakhs in hands of M/s Hotel Hiltop (a partnership firm) taking the amount received by this firm from Hiltop Palace Hotels (P.) Ltd., as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble High Court in the case of Hotel Hiltop (supra) was also followed by special Bench (SB) of ITAT constituted to consider provisions of section 2(22)(e) in view of two earlier conflicting decision of two separate benches in 2 separate cases. The decision of Special Bench in the case of Asstt. CIT v. Bhaumik Colour (P.) Ltd. [2009] 118 ITD 1 (Mum.) also concluded that loans and advances even if they fall in the definition of deemed dividends as envisaged in section 2(22)(e) can be taxed only if the assessee is registered and beneficial owner of shares. This is very detailed case law and while following decision of Hon'ble Rajasthan High court in the case of Hotel Hiltop (supra) SB observed that if the section 2(22)(e) envisaged taxing non shareholders then relief given in section 2(22)(e)(iii) becomes redundant. This section 2(22)(iii) provides for set off of payment - considered as dividend under section 2(22)(e) against the subsequent dividend paid by the company. If the concerns without being shareholder are taxed for deemed dividend then the set off envisaged under section 2(22)(e)(iii) can not be granted to them as the dividend will not be received by them they being not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid Rs. 5,00,000 as refundable securities to first party, which was to be refunded on the completion of the project. In clause 7 of the said agreement it was mentioned that the formal corroboration/purchase agreement will be arrived at as soon as it is feasible, but not later than 30-4-2002. No formal agreement was ever entered into as claimed by the assessee and Shri Sanjeev Bhasker even did not return the amount of Rs. 5,00,000 to the assessee. The agreement ceased to exist on 1-5-2002. We noted from the facts for the assessment year 2003-04 that the first payment of Rs. 7,00,000 was made to Smt. Savita Bhasker by MPPL on 17-5-2002, i.e., much after the date of the agreement. No iota of evidence were brought on record or placed before us by the Revenue, which may prove that the initial agreement remains in existence. Even there is no evidence available on record, which may prove that the payment has been made on behalf of the assessee company to Smt. Savita Bhasker. There is no entry in the books of the assessee in respect of the advance made by M/s. MPPL to Smt. Savita Bhasker in the books relating to the assessment years 2003-04 and 2004-05. This is the settled law that onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the public are substantially interested within the meaning of section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, or any payment by any such company on behalf, or for the individual benefit, of a shareholder, to the extent to which the company in either case possesses accumulated profits." Prior to 1-4-1988, section 2(22) of the Income-tax Act, 1961 defines dividend as follows : "Section 2(22) "dividend" includes-- (a) to (d) ……………….. (e) Any payment made by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits." 16. Under the Income-tax Act, 1922, two categories of payment were considered as dividend viz. "(a) any payment by way of advance or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amework of the purpose for which it is created. The Courts must assume that such a state of affairs exists as real, and should imagine as real the consequences and incidents which invariably flow therefrom, and give effect to them. Further, a deeming provision may be intended to enlarge the meaning of a particular word or to include matters which otherwise may or may not fall within the main provision [Refer : G. Viswanathan v. Speaker, Tamil Nadu Legislative Assembly [1996] 2 SCC 353]. This provision, thus, would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. It is now a well settled law that the fiction is to be carried to its logical end however, at the same time, it can also not be expanded so as to include the facts which require substantial modification as compared to the facts to be captured as prescribed by the legislature. 19. From the reading of section 2(22)(e), it is apparent that it has the effect of bringing to tax as dividend below referred types of payments made by a company: l any payment of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly, money lending should be a substantial part of the company's business. 24. Further, the section also gives relief by providing that any subsequent dividend declared by the company and set-off against the loan or advance, which has been deemed as 'dividend' under sub-clause (e), then to the extent of such set-off, it would not be again treated as dividend. That is to say, if the dividend is not so set off but is paid to the shareholder while the loan remains outstanding, the benefit of sub-clause (iii) cannot be obtained. 25. Shareholder has not been defined and in absence of specific definition it will only refer to registered shareholder. In the case of C.P. Sarathy Mudaliar (supra) as relied by ld. AR, the provisions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income-tax Act, 1961, came up for consideration. In the said case, members of HUF acquired shares in a company with the fund of the family. Loans were granted to HUF and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act, 1922. The Apex Court held that only loans advanced to shareholders could be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 27. The expression "shareholder being a person who is the beneficial owner of shares" referred to in section 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 section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. Mumbai ITAT Special Bench in the case of Bhaumik Colour (P.) Ltd. (supra) has held that for the purpose of deemed dividend under section 2(22)(e) the shareholder must be both registered and beneficial shareholder on which the Ld. AR has heavily relied. 28. Until 1987, only payments to shareholders were deemed as 'dividend' under sub-clause (e). However, with effect from 1st April, 1988, 'payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest' was also included in deeming fiction of section 2(22)(e). Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, this decision is squarely applicable to the facts of impugned case and the assessee company cannot be liable for deemed dividend. Similarly, in the case of Raj Kumar Singh & Co. v. Dy. CIT [1995] 52 TTJ 221/[1994] 51 ITD 131 (All.), the Tribunal held that section 2(22)(e) can be invoked only in case of registered shareholder and not a beneficial shareholder. Shares, though belonging to the firm but registered in the name of partners, the firm cannot be made liable under section 2(22)(e) in respect of loans obtained from the company. 30. In the case of the assessee since the assessee is not the shareholder of the company, the payment made to Savita Bhaskar even if it is assumed are made on behalf of the assessee cannot be regarded to be the deemed dividend within the provisions of section 2(22)(e) of the Income-tax Act, 1961. 31. Another important issue that arises for consideration is, whether this payment can be assessed in the hand of the assessee as deemed dividend being the payment to a concern where shareholder holds substantial interest, in whose hands the income would be brought to tax, whether in the hands of the "concern" or the "shareholder? The Assessing Officer ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar view in the case of Hotel Hilltop (supra). No contrary decision was brought to our knowledge. 34. Now, we would like to deal with the contention of the Ld. A.R. whether the said judgment of the Bombay High Court and Rajasthan High Court are having binding force on us or not. On this issue. We find that the Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 has laid down categorically with regard to the precedent that the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its territorial jurisdiction. In the said judgment, Hon'ble High Court after discussing the various judgments of Hon'ble Supreme Court hold the following proposition of law on the binding force of a judgment at page 738 of the judgment : "(a) The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is binding is, of course, the ratio of the decision and not every expression found therein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly one decision of any one High Court on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of article 141 of the Constitution." 35. Thus, the Mumbai High Court in the aforesaid judgment has clearly laid down that the decision of the non-jurisdictional High Court is not binding. In order to understand and appreciate the binding force of a decision, it is always necessary to see what were the facts of the case and what was the point which had to be decided. A precedent is a judicial decision which contains in itself a principle. The underlying principle which thus forms its authoritative element is called ratio decidendi. The concrete decision is binding between the parties to it, but it is the abstract ratio decidendi which alone has the force of law as regards the world at large. 'The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble President, Income-tax Appellate Tribunal Shri R.V. Easwar as Third Member in the case of Kanel Oil & Export Inds. Ltd. v. Jt. CIT (Asstt.), [2009] 121 ITD 596 (Ahd.), wherein it has been held as under:- "In the instant case, question that came up for consideration was as to whether the order of the Special Bench upholding the levy of interest in the light of sub-section (4) of section 115JA should be followed or the judgment of the Bombay High Court in Snowcem India Ltd.'s case (supra), also rendered in the context of section 115JA, had to be applied. Both the decisions were under section 115JA. One was of a Special Bench of the Tribunal, Ahmedabad and the other was of a High Court, though not a jurisdictional High Court. A simple answer would be that the judgment of a High Court, though not of a jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench (of the Tribunal) on the basis of the view that the High Court is above the Tribunal in the judicial Hierarchy. But this simply view is subject to some exceptions. It can work efficiently when there is only one judgment of a High Court on the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agricultural income, which was accepted in the earlier years. The assessee is having five acres of land. The CIT(A) did not agree with the assessee and confirmed the order of the Assessing Officer. 37. Before us, the learned AR referred to page 44 of the paper books and pointed out that the assessee was owning five acres of land and in the past years the assessee has shown agricultural income, which was duly accepted by the Assessing Officer, the details of which are given as under:-- Year Gross Receipts from agriculture (Rs.) Net income from agriculture (Rs.) Assessed under section A.Y. 2001-02 1,90,328 80,698 143(3) A.Y. 2002-03 2,02,137 90,257 143(3) A.Y. 2003-04 2,06,183 1,11,318 143(3) A.Y. 2004-05 2,12,379 1,23,975 143(1) A.Y. 2005-06 2,78,472 1,84,297 143(1) The revenue has not disputed the agricultural income shown by the assessee during the year. The assessee has shown agricultural income at Rs. 1,92,149 from the total sale proceeds of Rs. 2,85,470 which were a little higher as compared to the earlier year. Thus, it was contended that the addition made must be deleted. 38. The learned DR, on the other hand, relied on the orders of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al course and M/s. Mahim Patran Pvt. Ltd. has debited the assessee's account in its books of account. The land was subsequently purchased by the assessee. The Assessing Officer noted the share holding pattern in the case of M/s. Mahim Patran Pvt. Ltd. and the assessee as under : Name of the Company Name of directors share holding accumulated profit M/s. MPPL (1) Nirmala Kapur 24 % 4,88,47,179 (2) Milan Kapur 10 % (3) Sudha Kapur 10 % (4) Madhukar Kapur 24 % (5) Arvind Kapur 24 % M/s. Nirmal Realtors (1) Milan Kapur 29 % 51,82,704 (2) Sudha Kapur 10 % (3) Nirmala Kapur 1 % (4) Madhukar Kapur 40 % (5) Arvind Kapur 10 % (6) Peeyus Kapur 10 % The Assessing Officer ultimately carved out the transaction relating to the year under consideration and noted that a sum of Rs. 57,01,406 was paid by M/s. MPPL on behalf of the assessee. Therefore, he treated the said amount as deemed dividend. The assessee went in appeal before the CIT(A). The CIT(A) confirmed the order of the Assessing Officer. 41. Before us, the assessee has vehemently argued and taken the plea that the assessee company is not the shareholder of M/s. MPPL. Therefore, no addition can be made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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