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2019 Supreme(Mad) 2524
IN THE HIGH COURT OF JUDICATURE AT MADRAS
M.S. RAMESH, J.
R. Chitra - Petitioner
Versus
The Vice Chairman, Income Tax Settlement Commission, Chennai & Others - Respondents
W.P. No. 34786 of 2015 & M.P. No. 1 of 2015
Decided On : 24-09-2019
For the Petitioner:Jehangir D.J. Mistri, Sr. Counsel, R. Srinivasan, Advocate
For the Respondents: ANR. Jaya Prathap, JSC, A.P. Srinivas, Senior Standing Counsel.
Headnote:
CBDT Circulars are binding on the Courts, especially when it is against the provisions of law. Circular No. 19 of 2017 directs that advances in the nature of commercial transactions would not fall within the ambit of Section 2 (22) (e) and that no appeals be filed by the Department on this ground and those already filed shall be withdrawn or not pressed upon. Circular No. 495 of 1987 directs that deemed dividend will be taxable in the hands of the concern were loan/advances are made by a Company to concern with common shareholder. These circulars of the CBDT are binding in nature and the contents of these two Circulars would allure to the benefit of the petitioner herein.
Fact of the Case:
The petitioner had made an application under Section 245 C of the Act for settlement of her cases. The petitioner offered the income of Rs.35 lakhs seized from her residence as additional income for the assessment year 2013-2014 and also disclosed that the said income was derived out of the sale of Silver Oak trees which were felled at her agricultural lands. The application for settlement was claimed to have been made since the petitioner was not able to prove that the seized cash is out of the sale of such trees. The petitioner had also filed the Returns of Income for the assessment years 2013-2014 under Section 139 of the Act on 30.09.2013. Pending the assessment of her income for the assessment years 2007-2008 to 2012-2013 under Section 153 A r/w. 153 C & for the assessment year 2013-2014 under Section 143 of the Act, the petitioner had made an application under Section 245 C of the Act for settlement of her cases. The petitioner offered the income of Rs.35 lakhs seized from her residence as additional income for the assessment year 2013-2014 and also disclosed that the said income was derived out of the sale of Silver Oak trees which were felled at her agricultural lands. The application for settlement was claimed to have been made since the petitioner was not able to prove that the seized cash is out of the sale of such trees.
Finding of the Court:
The impugned order of the Income Tax Settlement Commission comprised in file number No. TN/CN-53/2013-14/45/IT dated 14.09.2015, insofar as it relates to determination of deemed dividend as the income of the petitioner for the assessment years 2009-2010 to 2013-2014 are concerned, is hereby quashed.
Issues: 1. Whether the impugned order of the Settlement Commission is in accordance with the provisions of the Act. 2. Whether the Circulars of the CBDT are binding on the Courts. 3. Whether the contents of the circulars would allure to the benefit of the petitioner.
Ratio Decidendi: 1. The impugned order of the Settlement Commission is not in accordance with the provisions of the Act. 2. The Circulars of the CBDT are binding on the Courts. 3. The contents of the circulars would allure to the benefit of the petitioner.
Final Decision: The impugned order of the Income Tax Settlement Commission comprised in file number No. TN/CN-53/2013-14/45/IT dated 14.09.2015, insofar as it relates to determination of deemed dividend as the income of the petitioner for the assessment years 2009-2010 to 2013-2014 are concerned, is hereby quashed.
JUDGMENT :
(Prayer: Writ Petition is filed under Article 226 of the Constitution of India, praying for a Writ of Certiorari, calling for the records comprised in File No.TN/N-53/2013-14/45/IT dated 14.09.2015 on the file of the first respondent and to quash the same insofar as it relates to determination of deemed dividend as the income of the petitioner for the assessment years 2009-10 to 2013-14.)
1. The order of the Income Tax Settlement Commission dated 14.09.2015, insofar as it includes the deemed dividend for the purpose of determining the total income of the petitioner for the assessment years 2009-10 to 2013-14 is concerned, is under challenge in the present Writ Petition.
2. Heard Mr.Jehangir D.J.Mistri, learned Senior counsel for the petitioner and Mr.ANR. Jaya Prathap, JSC & Mr.A.P. Srinivas, learned Senior Standing Counsel appearing on behalf of the respondents.
3. The brief facts of the case are as follows:
(a) M/s. Rasi Seeds Private Limited and Rasi Tex Private Limited are two Private Limited Companies in both of which, Mrs. Chitra, the petitioner herein, is a shareholder. On 10.01.2013, search and seizure operations were carried out in the residential and business premises of the petitioner, by the Income Tax Department under Section 132 of the Income Tax Act (hereinafter referred to as 'the Act'). During the course of the search, the Department seized cash to the extent of Rs.35 lakhs from the residential premises of the petitioner. In pursuance to the search, the jurisdictional Assessing Officer issued a notice dated 30.09.2013 to the petitioner under Section 153A, r/w. Section 153 C of the Act, for the assessment years 2007-2008 to 2012-2013. The petitioner had responded to the said notices by filing the Returns of Income for each of these years on 28.02.2014. The petitioner had also filed the Returns of Income for the assessment years 2013-2014 under Section 139 of the Act on 30.09.2013.
(b) Pending the assessment of her income for the assessment years 2007-2008 to 2012-2013 under Section 153 C and for the assessment year 2013-2014 under Section 143 of the Act, the petitioner had made an application under Section 245 C of the Act for settlement of her cases. The petitioner offered the income of Rs.35 lakhs seized from her residence as additional income for the assessment year 2013-2014 and also disclosed that the said income was derived out of the sale of Silver Oak trees which were felled at her agricultural lands. The application for settlement was claimed to have been made since the petitioner was not able to prove that the seized cash is out of the sale of such trees.
(c) In the application before the Income Tax Settlement Commission (hereafter referred to as ‘Commission’), the petitioner had disclosed that she was a shareholder, holding more than 20% of equity share capital in each of the two Companies namely, M/s. Rasi seeds Private Limited (RSPL) and M/s. Rasi Tex India Private Limited (RTPL) and that RSPL had advanced monies in the ordinary course of its business as inter corporate loans to RTPL.
(d) The second respondent submitted a report under Rule 9 of the Income Tax Settlement Commission Procedure Rules, requesting the Commission to hold that the petitioner is liable to be taxed on the deemed dividend under Section 2 (22) (e) of the Act and alternatively to treat the application is invalid.
(e) The Commission, through the impugned order dated 14.09.2015 held that the sum of Rs.137,19,75,000/- advanced by RSPL to RTPL is to be assessed as deemed dividend in the hands of the petitioner, along with the income returned in each of the years and the additional income offered in the application. This order is put under challenge in the present Writ Petition.
4. Mr.Jehangir D.J.Mistri, learned Senior Counsel for the petitioner assailed the impugned order on the following grounds:
a. While Circular No. 19 of 2017 directs that deemed dividend under Section 2(22) (e) of the Act cannot apply where transactions entere
