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High Court Of Calcutta
D. K. Seth, Soumitra Pal
MUKUNDRAY.K.SHAH - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
I. T. A. 21 Of 2005
Decided On : 05/12/2005
INCOME TAX - Assessment - Block Assessment - Deemed Dividend - Provisions of Section 2 (22) (e) of the Income-tax Act, 1961 - Applicability - Held, that the payments made by the companies to the firms were not by way of loan or advance either to the assessee as such shareholder or to such concern. On the other hand, these were abundantly clear to be repayment of the advances received by the companies from the respective firms. The same cannot be held to have been made for the benefit of the assessee being such shareholder. The said firms could have been said to be conduits and the principles of lifting the veil would have been justified if there were anything to show that this was a device to avoid Section 2 (22) (e). On the facts it could not be said so. The learned Tribunal had avoided the issue and sidetracked the same without proper justification and in effect the learned Tribunal had forced itself to a conclusion without any foundation tending to be perverse on the basis of the materials disclosed.
Fact of the Case:
The assessee is an individual. The assessee had invested a sum of Rs. 26,35,00,000 in 9 per cent. RBI Relief Bonds during the previous year 1999-2000. The Assessing Officer treated these investments as deemed dividend in the hands of the assessee within the meaning of Section 2 (22) (e) of the 1961 Act. The assessee contended that he did not have the requisite shareholding in MKTPL during the previous year 1999-2000, namely, he was a beneficial owner of shareholding with 9. 3 per cent. of its total voting power. The assessee further claimed that during the said financial year 1999-2000, he had only 0. 20 per cent. of shares in SCPL out of its total voting power. The assessee had shareholding having more than 10 per cent. of the voting power in MKSEPL. However, this was disputed by the Revenue. The assessee also contended that the respective companies and the firms are closely held between the assessee and the members of his family. The Assessing Officer made the impugned addition on the basis of the statement prepared by the authorised representative of the Shah group, Mr. Rohit Shukla, chartered accountant, indicating the source at the hands of the two partnership firms.
Finding of the Court:
The Tribunal held that the payments appearing in the seized document ML-20 for the purchase of bonds were from disclosed sources, that such payments were by cheque from disclosed bank accounts and that the accounts were available to the Assessing Officer in the normal course. In other words, ML-20 was sought to be trivialized. The Tribunal further held that the existence of unreported deemed dividend income, which is the very subject of this appeal, would have never entered into contention.
Issues: Whether the payments made by the companies to the firms were by way of loan or advance either to the assessee as such shareholder or to such concern?
Ratio Decidendi: The payments made by the companies to the firms were not by way of loan or advance either to the assessee as such shareholder or to such concern. On the other hand, these were abundantly clear to be repayment of the advances received by the companies from the respective firms. The same cannot be held to have been made for the benefit of the assessee being such shareholder. The said firms could have been said to be conduits and the principles of lifting the veil would have been justified if there were anything to show that this was a device to avoid Section 2 (22) (e). On the facts it could not be said so. The learned Tribunal had avoided the issue and sidetracked the same without proper justification and in effect the learned Tribunal had forced itself to a conclusion without any foundation tending to be perverse on the basis of the materials disclosed.
Final Decision: Appeal allowed.
( 1 ) THIS appeal under Section 260a of the Income-tax Act, 1961 ("the 1961 Act"), has been preferred against the order dated January 28, 2005, passed by the learned Tribunal in the block assessment against the assessee for the period April 1, 1990 to August 24, 2000. The dispute relates to a few entries for the previous year 1999-2000 in relation to the assessee's investment in 9 per cent. RBI Relief Bonds amounting to Rs. 6,93,00,000 out of total investment of Rs. 26,35,00,000 made in the said previous year. The Assessing Officer had treated these investments as deemed dividend in the hands of the assessee within the meaning of Section 2 (22) (e) of the 1961 Act.
( 2 ) IN order to appreciate the situation, we may briefly refer to those portions of facts, which are relevant for the present purpose. M/s. M. K. Tea Pvt. Ltd. (MKTPL), in which the assessee is one of the shareholders, paid Rs. 69,00,000 on December 7, 1999, and Rs. 25,00,000 on December 22, 1999 to M/s. M. K. Foundation (MKF), a partnership firm, in which the assessee was one of the partners. M/s. Safari Capitals Pvt. Ltd. (SCPL), in which the assessee was a beneficial owner of shares, paid a sum of Rs. 2,04,00,000 on January 11, 2000, and Rs. 75,00,000 on January 28, 2000 to M/s. M. K. Industries (MKI) in which the assessee is one of the partners. M. /s. M. K. Shah Exports Pvt. Ltd. (MKSEPL) paid a sum of Rs. 1,10,00,000 on December 1, 2000, Rs. 1,10,00,000 on December 4, 2000 and Rs. 1,00,00,000 on February 11, 2000 to MKF. Apart from these amounts, various other amounts were also paid by the respective companies to the respective firms out of which the RBI Relief Bonds were purchased by the assessee during the previous year 1999-2000 amounting to Rs. 26,35,00,000. Except the amounts referred to above, the rest payments were held to be disclosed income and were exempted from being taxed under the block assessment. Whereas these seven transactions were held to be deemed dividend received at the hands of the assessee.
( 3 ) EXTREME, erudite and elaborate arguments have been made by both Mr. N. K. Poddar, learned senior counsel appearing on behalf of the assessee, and Mr. D. K. Shome, learned senior counsel appearing for the Department. Our attention was drawn to various facts, materials, laws and decisions. Various intricacies of fine argument were advanced by both learned counsel.
( 4 ) HAVING regard to the facts and circumstances and the issues involved, in our view, the question does not seem to pose any difficulty and can be answered simply on the basis of the admitted facts applying the relevant tests for treating those amounts as deemed dividend. The question is dependent simply on the interpretation of the provisions of Section 2 (22) (e) of the 1961 Act and its applicability in the given facts available in this case.
( 5 ) THE definition of "deemed dividend" defined in Section 2 (22) (e) applies to three categories of cases. The first category relates to any payment made by a company, in which public are not substantially interested, by way of loans or advances to a shareholder having not less than 10 per cent. voting power. The second category includes any payment by such a company to any concern in which such shareholder is a member or a partner having substantial interest not less than 20 per cent. of the income of such concern. The third category relates to any payment by any such company on behalf or for the individual benefit of any such shareholder. But in all these three categories the extent of deemed dividend is confined to the available accumulated profits of such company. The assessee had claimed that he did not have the requisite shareholding in MKTPL during the previous year 1999-2000, namely, he was a beneficial owner of shareholding with 9. 3 per cent. of its total voting power. The assessee further claimed that during the said financial year 1999-2000, he had only 0. 20 per cent. of shares in SCPL out of its total voti
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