Ita/9/2013 Of Thankamma Oommen v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 15TH DAY OF JANUARY 2014/25TH POUSHA, 1935 ITA.No. 9 of 2013 () --------------------- AGAINST THE ORDER IN ITA 688/Coch/2010 of I.T.A.TRIBUNAL,COCHIN BENCHDATED 20-07-2012. APPELLANT(S)/APPELLANT/APPELLANT: --------------------------------- SMT.THANKAMMA OOMMEN, L/HR. OF LATE K.C.OOMMEN, MANNAR TRUST FUND, MANNAR C/O.RONY JOSEPH THOMAS, KANNUKUZHIYIL, MUTTAMBALAM.P.O KOTTAYAM. 686 004. BY ADVS.SRI.BECHU KURIAN THOMAS SRI.PAUL JACOB (P) RESPONDENT(S)/RESPONDENT:REVENUE --------------------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I, THIRUVALLA, PIN-689 101. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 15-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Manjula Chellur, C.J. & A.M. Shaffique, J.=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=I.T.A. No. 9 of 2013 =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=Dated this, the 15[th]day of January, 2014. J U D G M E N T Shaffique, J. This appeal is filed by the assessee against the orderpassed by the Income-tax Appellate Tribunal, Cochin Benchin ITA No. 688/Coch/2010 in respect of the assessment year2003-2004. 2.The facts involved in the above case woulddisclose that in respect of assessment year 2003-2004,proceedings were initiated by issuing notice under Section148 of the Income-tax Act on 12.5.2008. The assessee didnot file any return of income. Hence, notice was issued tothe assessee under Section 144 of the Income-tax Act. Areply was sent inter alia stating that the assessee expiredon 26.5.2008 and he is represented by legal heir, who is hiswife, that he had filed a return of income on 25.8.2003,which is to be treated as return for the purpose of Section148 of the Income-tax Act. Thereafter, notice under Section143(2) was issued to the assessee. 3.The Department had re-opened the assessmentfor the assessment year 2003-2004, intere alia, observingthat M/s. Thottakkad Estates (P) Ltd., Mannar, hasadvanced a loan to Sri. K.C. Oommen, its ManagingDirector, amounting to Rs. 69,50,432/-, which is deemed I.T.A. No. 9 of 2013 -: 2 :- dividend in the hands of the said K.C. Oommen underSection 2(22)(e) of the Income-tax Act. It is observedthat the deemed dividend escaped assessment andhence the assessment is required to be re-opened. 4.The assessee objected to the same bycontending that from 1996-1997 onwards, ThottakkadEstates (P) Ltd., was providing loans to Mannar ChitFund, a proprietary concern of the assessee, and thereturns along with relevant accounts were being filedby both the company as well as late Sri. K.C. Oommenshowing the particulars of loan and other details. It isalso contended that the amounts in question wereadvanced to M/s. Mannar Trust Fund, a proprietaryconcern of the assessee, as part of the money lendingbusiness of Thottakkad Estates (P) Ltd. In fact,Thottakkad Estates Limited had sold their property andthey have not shown any income from agriculturaloperations. The assessing officer found that theManaging Director of the Company was the only personto whom the company advanced money and thecompany was fully engaged in activities like investmentin shares and debentures and money lending was notits regular activity. In the said circumstances, theaforesaid amount was considered as deemed dividendand was treated as the income of the assessee. 5.The assessee preferred an appeal before the I.T.A. No. 9 of 2013 Commissioner of Income-tax (Appeals), who confirmedthe order passed by the assessing officer. On furtherappeal before the Tribunal, the Tribunal also concurredwith the said view. 6.The appellant has raised the followingquestions of law in the memorandum of appeal: 5.The assessee preferred an appeal before the I.T.A. No. 9 of 2013 Commissioner of Income-tax (Appeals), who confirmedthe order passed by the assessing officer. On furtherappeal before the Tribunal, the Tribunal also concurredwith the said view. 6.The appellant has raised the followingquestions of law in the memorandum of appeal: “(i)Whether Assessing Officer was right in reopeningassessment, when assessee had disclosed fullyand truly all material facts in all the years, and nonew material was brought to light to thesatisfaction of assessing officer and incomeescaped if any, was on account of mistake on thepart of the assessing officer so as to warrant achange of opinion?assessment, when assessee had disclosed fullyand truly all material facts in all the years, and nonew material was brought to light to thesatisfaction of assessing officer and incomeescaped if any, was on account of mistake on thepart of the assessing officer so as to warrant achange of opinion? (ii)Whether the assessing officer was justified in re-opening/assessing the assessee after four yearsfrom the assessment year in question withoutsatisfying Section 149 of the Income-tax Act?opening/assessing the assessee after four yearsfrom the assessment year in question withoutsatisfying Section 149 of the Income-tax Act? (iii)Whether reassessment done after 4 years issustainable, when the precondition of failure onthe part of the assessee to make full and truedisclosure is mandatory?sustainable, when the precondition of failure onthe part of the assessee to make full and truedisclosure is mandatory? (iv)Whether reassessment can be made sustainablewhen assessee was able to produce alldocuments to show that he is entitled to claimexemption as provided in clause (ii) of Section 2(22)(e) of Income-tax Act?when assessee was able to produce alldocuments to show that he is entitled to claimexemption as provided in clause (ii) of Section 2(22)(e) of Income-tax Act? (v)Whether a composite order rejecting assessees’objections and making reassessment withoutgiving an opportunity to the assessee to pursuefurther remedy on rejection of objections issustainable?objections and making reassessment withoutgiving an opportunity to the assessee to pursuefurther remedy on rejection of objections issustainable? (vi)Whether when the nature of money advanced bythe assessee are not from accumulated profits,the assessee are not from accumulated profits, I.T.A. No. 9 of 2013 can such advance be classified as deemeddividend?dividend? (vii) Whether in the facts of the case, the money givenas a loan to the Trust can be regarded as deemeddividend especially in the light of Section 2(22)(ii)of Income-tax Act 1963?”as a loan to the Trust can be regarded as deemeddividend especially in the light of Section 2(22)(ii)of Income-tax Act 1963?” 7.As far as grounds (i) to (iii) are concerned,the matter is covered by the judgment of the SupremeCourt in Asst. C.I.T. v. Rajesh Jhaveri Stock Broker(P) Ltd., 291 ITR 500. Insofar as the originalassessment is not completed, it cannot be stated thatan opinion was formed earlier to attract any limitation.Therefore, the short question to be considered in theabove appeal is whether the alleged loans given by thecompany M/s. Thottekkad Estates (P) Ltd., to Sri. K.C.Oommen or the the proprietary concern of M/s. MannarTrust Fund, is a deemed dividend. There is no disputeabout the fact that the dividend includes any paymentby a Company by way of advance or loan to a shareholder, who is the beneficial owner of shares who isholding not less than 10% of the voting power or to anyconcern in which such share holder is a member or apartner and in which he has substantial interest orunder other circumstances as stated in Section 2(22)(e).However, the argument of the learned counsel for theappellant is that the amount advanced is excluded asper the provision contained under Section 2(22)(e)(ii), I.T.A. No. 9 of 2013 -: 5 :- which reads as under: (ii)any advance or loan made to a shareholder orthe said concern by a company in the ordinary courseof its business, where the lending of money is asubstantial part of the business of the company. xx 8.The question is whether the company wasdealing in lending of money or dealing in the businessof lending of money and whether such businessamounts to a substantial part of the business of thecompany. The learned counsel for the appellant placedreliance on the judgment of the Supreme Court in TheCommissioner of Income-tax, Nagpur v. M/s.Sutlej Cotton Mills Supply Agency Ltd., (1975) 2SCC 538. Reference is made to paragraph 10 tocontend that it is not necessary to constitute trade thatthere should be a series of transactions, both ofpurchase and of sale. A single transaction of purchaseand sales outside the assessee’s line of business mayconstitute as adventure in the nature of trade. Even ifthe activity is not repeated or continued, nevertheless itconstitutes a transaction which is an adventure in thenature of trade. On this basis, it is contended that evenif the company had given loan only to one person I.T.A. No. 9 of 2013 during the relevant time, it amounts to a substantialbusiness of the company. We do not think that thefacts involved in the above judgment of the SupremeCourt has any application to the facts on hand. This isan instance where the only beneficiary of the loan wasthe Managing Director. It is not in dispute that after1996, the company has not shown any income fromagricultural operations. There is no material to indicatethat it has any income from money lending businessalso. There is a clear finding by the assessing officer aswell as the appellate authorities that the companybasically invest in shares and debentures and earnsincome by way of interest and dividend. Therefore,when the assessing officer forms an opinion based onthe materials on record that the company was fullyengaged in activities like investing in shares anddebentures and earns income by way of interest anddividend, in the absence of any other materials, adifferent finding is not possible. It is also not disputedthat during the relevant time, the company had notgiven any loan to any other person other than theManaging Director. Certain materials had beenproduced to indicate that subsequent to the assessmentyear, certain loans were given to other persons. Suchpersons were all employees who were connected withthe company. Since the Tribunal and the first appellate I.T.A. No. 9 of 2013 -: 7 :- authority have considered the entire facts of the caseand confirmed the order of the assessing officer, we donot think that anyquestionof law arises forconsideration in this case as there is no material toindicate that the appellant is entitled for the benefit ofexclusion as stated in Section 2(22)(e)(ii) of the Income-tax Act. Under these circumstances, we do not thinkthat the questions of law narrated by the appellant arisefor consideration in this appeal. In the result, the appeal is dismissed. Sd/- Manjula Chellur, Chief Justice. Sd/- A.M. Shaffique, Judge. Tds/ [True copy] P.S to Judge.