Commissioner Of Income Tax Chennai v. Mrs.c.rajini

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 29.01.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE DR.JUSTICE ANITA SUMANTH Tax Case No.1351 of 2007 Commissioner of Income Tax Chennai. .... Appellant Vs. Mrs.C.Rajini 19/1 Third Cross Street,R.A.Puram, Chennai - 600 028. .... Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'A' Bench, Chennai, dated 09.03.2007 made inITA No.2705/Mds/2005 for the assessment year 2002-03 against theorder of the Commissioner of Income Tax (Appeals)-I, Chennai -34, dated 31.08.2005 made in ITA No.30/2005-06 against the orderof the Assistant Commissioner of Income Tax, Central Circle -IV(3), Chennai dated 31.03.2005 made in PAN/G.I.No. /717-R for the Assessment year 2002-03. For Appellant : Mr.T.Ravikumar Sr.Standing Counsel The Revenue has filed this Tax Case Appeal under section260 A of the Income Tax Act, 1961 (in short 'Act') aggrieved bythe order passed by the Income Tax Appellate Tribunal, Madrasdated 09.03.2007 dismissing the Revenue's appeal for theAssessment Year 2002-03. https://hcservices.ecourts.gov.in/hcservices/ 2. The following substantial questions of law which wereadmitted in the present appeal are quoted below for readyreference: "1.Whether in the facts and circumstances ofthe case, the Tribunal was right in holding that theprovisions of sec.2(22)(e) treating a loan oradvance as a deemed dividend does not apply if theloan is given as part of a contractual obligation?2. Whether on the facts and circumstances ofthe case, the Tribunal was right in interpreting thesection on the basis of intention of thelegislature, when the words of the section are clearand unambiguous? 3. Whether on the facts and circumstances ofthe cae, the Tribunal was right in looking at thetransaction between the two companies in other yearsto arrive at the conclusion that the loan granted inthe relevant financial year does not amount todeemed dividend under section 2(22)(e) of the Act?" 3. Both the Appellate Authorities, namely, Commissioner ofIncome Tax (Appeals) as well as the Tribunal held in favour ofthe assessee that as per the provisions of Section 2(22)(e) ofthe Act, the payments made by the company M/s.Ceebros PropertyDevelopment Private Limited to M/s.Ceebros Hotels P. Ltd. couldnot be treated as deemed dividend in the hands of therespondent/assessee Mrs.C.Rajini, W/o Mr.C.Subba Reddy, who heldsubstantial shareholding in both the companies. 4. The learned counsel for the assessee has submittedbefore us that as far as husband's assessment is concerned, theCo-ordinate Bench of this Court, in which one of us (Dr.AnitaSumanth,J) was a party, has upheld the order passed by thelearned Tribunal, while dismissing the Revenue's appeal in T.C.(A)No.1465 of 2007 dated 19.12.2016 (Commissioner of Income TaxV. Mr.C.Subba Reddy), holding that payments made by M/s.CeebrosProperty Development Private Limited could not be treated asdeemed dividend in the hands of the respondent/assessee/husband.The relevant portion of the said judgment of the Co-ordinateBench of this Court are quoted below for ready reference: '7. The provisions of Section 2(22)(e) impose adeeming fiction and the conditions imposed therein callfor strict and concurrent satisfaction being # (i)payment by closely held company, (ii) of the nature ofan advance or loan, (iii) to a share holder orbeneficial owners of shares, (iv) with more than 10%voting power, (v) for his individual benefit. 8. In the present case, the credit arises by virtue of acontractual obligation and a business transaction and '7. The provisions of Section 2(22)(e) impose adeeming fiction and the conditions imposed therein callfor strict and concurrent satisfaction being # (i)payment by closely held company, (ii) of the nature ofan advance or loan, (iii) to a share holder orbeneficial owners of shares, (iv) with more than 10%voting power, (v) for his individual benefit. 8. In the present case, the credit arises by virtue of acontractual obligation and a business transaction and has been settled the very next year. There is noindividual benefit derived by the Assessee. Moreover,the credit does not satisfy the definition of #advance#or #loan#. The fiction thus fails on several counts. TheRevenue relies upon the judgment of the Supreme Court inthe case of Miss P.Sarada vs. Commissioner of Income Tax(229 ITR 444) and the decision of the Calcutta HighCourt in M.D.Jindal vs. Commissioner of Income Tax (164ITR 28). 9. In the first case, the assessee had madewithdrawals from out of accumulated profits that weredeemed to be dividend u/s 2(22)(e) of the Act. Thedefence taken was that the withdrawals could be taken tohave been paid from out of monies lying to the credit ofanother shareholder. This was negatived by the SupremeCourt. In the present case, there are no withdrawals andas the findings of fact by the lower authorities reveal,the frequency of advances by the Assessee to the companywas more than in the reverse. The Calcutta High Court,in the case of M.D.Jindal, dealt with a transaction thatwas found to be colourable. The concurrent finding offact in that case was to the effect that the transactionwas a device designed to circumvent the provisions ofSection 2(22)(e) of the Act. The veil was thus liftedand the true facts brought to light. In the presentcase, there is no such allegation and on the contrary,the concurrent finding is to the effect that no benefithas accrued to the assessee, the credit is the result ofa business transaction and is neither in the nature of aloan or a deposit. The decisions relied upon by therevenue do not advance its case, being distinguishableon facts. 10. Various case laws have been cited by the counselappearing for the Assessee but we do not consider itnecessary to advert to the same in view of ourconclusion on the facts of the present case, that theprovisions of Sections 2(22)(e) of the Act do not standattracted.' 5. Learned counsel for the Revenue, however, cited ajudgment of the Supreme Court in the case of Gopal and Sons(HUF) V. Commissioner of Income Tax ((2017) 145 DRT 289)(SC)wherein the Honourable Supreme Court in the facts obtainingbefore it held that the payments made to HUF defined as a'concern' in Explanation to Section 3(a) of the Act were rightlytreated as deemed dividend in the hands of the assessee invokingthe provisions of Section 2(22)(e) of the Act. 6. We find the facts of the said case before the HonourableSupreme Court are distinguishable, as the present case before us https://hcservices.ecourts.gov.in/hcservices/ is that of a juristic person, namely, a Private Limited Company.Since the assessment of the husband, who is similarly situatedas the respondent/assessee, wife in the present case before us,has already been decided in favour of the assessee by the Co-ordinate Bench of this Court dated 19.12.2016 (supra), we do notfind any merit in the contention of the learned counsel for theRevenue before us. The appeal of the Revenue, therefore,deserves to be dismissed, following the aforesaid judgment ofthe Co-ordinate Bench. 7. Accordingly, the substantial questions of law areanswered in favour of the assessee and against the Revenue.This Tax Case (Appeal) filed by the Revenue is dismissed. Nocosts. https://hcservices.ecourts.gov.in/hcservices/ is that of a juristic person, namely, a Private Limited Company.Since the assessment of the husband, who is similarly situatedas the respondent/assessee, wife in the present case before us,has already been decided in favour of the assessee by the Co-ordinate Bench of this Court dated 19.12.2016 (supra), we do notfind any merit in the contention of the learned counsel for theRevenue before us. The appeal of the Revenue, therefore,deserves to be dismissed, following the aforesaid judgment ofthe Co-ordinate Bench. 7. Accordingly, the substantial questions of law areanswered in favour of the assessee and against the Revenue.This Tax Case (Appeal) filed by the Revenue is dismissed. Nocosts. sl Sd/- Assistant Registrar //True Copy// Sub Assistant RegistrarTo1. The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai.2. The Commissioner of Income Tax(Appeals)-I, Chennai - 34.3. The Commissioner of Income Tax Chennai.4. The Assistant Commissioner of Income Tax, Central Circle IV(3), Chennai. +1cc to Mr.T.Ravikumar, Advocate, S.R.No.7003 Kak(06/03/2019)