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TMI Blog2012 (9) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, this issue is squarely covered in favour of the assessee. Addition on account of the payment made to GMB as plot development fees - CIT(A) deleted the addition - assessee is engaged in the business of Ship Breaking - Held that:- As the assessee-company possessed plot No.96 and on request made to GMB, permission sought was granted for plot No.V-5. The original plot No.96 was acquired by paying premium of Rs.9,11,250/- for 30 months. Since the same was used for 8 months the previous year relevant to assessment year 2003-04 the value written off is Rs.2.43 lakh - as in the year under consideration the total premium for the period from 01.10.2004 to 30.09.2005 was Rs.16.20 lakh and the assessee has claimed a sum of Rs.8.10 lakh for this period. The balance amount of Rs.8,74,200/- was claimed for the period from 01.12.2002 to 30.09.2004 and Rs.1,82,250/- for the period ending 30th September, 2004. In view of this face the assessee has rightly claim deduction of Rs.18,66,460/-, which was allowed by CIT(A)- in favour of the assessee. - I.T.A. No.727/Ahd/2012 - - - Dated:- 30-7-2012 - Shri D.K. Tyagi and Shri Anil Chaturvedi, JJ. Department by : Shri B.K.S. Pandya, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not holding a single share in MRML. It is therefore stated that the assessee company is neither a registered shareholder nor a beneficial shareholder of MRML. This is an accepted position and which is not disputed at any stage. Reliance is placed on the following judicial pronouncements in support of our contention wherein it is held that for treating any loan or advance as deemed dividend the assessee company has to be a registered or beneficial shareholder of the lender company. a. CIT v Hotel Hiltop (2009) 313 ITR 116 (Raj.) b. ACIT v Bhaumick Color (P) Ltd. (2009) 118 ITD (Mum.) (SB.) Relying on the above judicial pronouncements the Honourable ITAT in our group company Mahavir Rolling Mills Ltd. in ITA No.2337/A/2008 Co. No.181/A/2008 on similar facts and circumstances has decided the issue in the favour of the group company. Xerox coy of the order passed by the Honourable ITAT in the case of Mahavir Rolling Mills Ltd. is enclosed for your kind reference. In view of the above facts and circumstances it is enclosed for your kind reference. In view of the above facts and circumstances it is requested that no additions be made with regards deemed dividend under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee's sister concern in ITA No.2337/Ahd/2008 (supra) as under:- 13. At the outset Ld. Counsel for the assessee argued that this issue is squarely covered in favour of assessee and against the Revenue by the decision of Special Bench Mumbai Tribunal in the case of ACIT v. Bhaumik Colour (P.) Ltd.(2009) 118 ITD 1 (Mum) (SB) and further by the decision of Hon'ble Rajasthan High Court in the case of CIT v. Hotel Hilltop (2009) 313 ITR116(Raj). 14. We have heard rival contentions and gone through the facts and circumstances of the case. We find from the assessment order that the Assessing Officer observed that M/s. MIPL is a company in which the public is not substantially interest and one of the Director, Shri K.K Bansal holds more than 20% of share both in the assessee-company and M/s MRPL, the AO further observed that as per the books of account, M/s. MRPL has advanced huge sum to M/s MRPL i.e. the assessee-company and MIPL have shown reserves and surplus at Rs.1,01,54,414/-. The AO therefore observed that the loans and advances made by MIPL to MRML is liable to taxed as deemed dividend. In response to the show cause notice asking the assessee to explain why the amount s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person who is the recipient of the payment from the company. The Tribunal has thereafter referred to Circular No.495 dated September 22, 1987, of the Central Board of Direct Taxes wherein it has been opined that deemed dividend would be taxed in the hands of a concern (non-shareholder) also if the conditions mentioned in the section are satisfied. 34. We are of the view that the provisions of section 2(22)(e) do not spell out as to whether the income has to be taxed din the hands of the share-holder or the concern (nonI. shareholder). The provisions are ambiguous. IT is therefore necessary to examine the intention behind enacting the provisions of section 2(22)(e)of the Act. 35. The intention behind enacting the provisions of section 2(22)(e) is that closely held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend companies distribute them as loan or advances to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning of the term dividend would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word "dividend" is extended to loans and advances to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word "dividend" is altered. To this extent the definition of the term "dividend" can be said to operate. If the definition of "dividend" is extended to a loan or advance to a non-shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of section. 2(22)(e) and in the absence of indication in section 2 (22)(e) to extended the legal fiction to a case of loan or advance to a non-shareholder also, we are of view that loan or advance to a non-shareholder cannot be taxed as deemed dividend in the hands of a non-shareholder. 38. The basic characteristic of dividend as held by the apex court in the case of Kantilal Manilal v. CIT [1961] 41 ITR 275 is a share of profits of the company given to its shareholders. Further, section 206 of the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e) to the extent to which it is so set off." In the event of the payment of loan or advance by a company to a concern being treated as dividend and taxed in the hands of the concern then, the benefit of set off cannot be allowed to the concern, because the concern can receive dividend from the company which is only paid to toe shareholder, who has substantial interest in the concern. The above provisions also therefore contemplate deemed dividend being taxed m the hands of a shareholder only. For the reasons stated above, we are of the view that the law laid down in the case of Nikko Technologies Ltd. (supra) is not correct. We, therefore, hold that deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, can be assessed only in the hands of a shareholder of the lender company and not in the hands of any other person. 41. In the light of the above discussion, the questions referred to the Special Bench are answered 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development fees. The A.O., while making this addition has observed as under:- i. The assessee is engaged in the business of Ship Breaking. The assessee has paid GMB plot rent expenses of Rs.3,60,000/- and has deducted TDS on it. This is the yearly rent paid by the assessee for using GMB plot for Ship Breaking. Apart from this, the assessee has deducted Rs.12,00,000/- from the total income of the assessee as lease rental paid to GMB. The assessee was asked to show cause why the same should not be added as capital expenditure. ii. It has been stated that why the various amounts given to GMB should not be treated as capital expenses. The payments made to GMB are with reference to plot premium charges paid GMB has issued a letter dated 09.10.2007 which is enclosed for your kind reference. The perusal of the same indicates that the development fees have to be paid for the period commencing from 01.10.2004 to 30.09.2008. They have also enclosed the copy of the development fees challan payable to GMB. Accordingly, the payments have been made to GMB and the amount pertaining to the year under assessment has been claimed by way of deduction. The assessee company has claimed the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. f) In this respect the following case laws are important: - 1.) National Dairy Development Board V s. Addl. CIT (ITAT ,Ahd) 310 ITR(AT) 325 2.) Gobind Sugar Mills Ltd. Vs. CIT (SC) 232 ITR 319 3.) Universal Capsules (P) Ltd. Vs. DCIT (ITAT.Mum) 76 ITD 403 Thus the same expense of Rs.12,00,000/- is not allowed as revenue expenses and added back to the total income of the assessee. 8. In appeal ld. CIT(A) has deleted this addition following the earlier order of the Tribunal in assessee s own case for the assessment year 2005-06. 9. After hearing both the parties we find that the issue is now covered in favour of the assessee and against the Revenue vide order dated 10th December, 2010 in ITA No.2349/Ahd/2008 for A.Y.2005-06 wherein following was held:- We have heard the rival contentions and gone through the facts of the case. We find that assessee-company possessed plot No.96 and on request made to GMB, permission sought was granted for plot No.V-5. The original plot No.96 was acquired by paying premium of Rs.9,11,250/- for 30 months. Since the same was used for 8 months the previous year relevant to assessment year 2003-04 the value written off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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