Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Tuesday, 04 August 2015 12:10

Section 2(22)(e) allowed, Section 40(a)(ia) remitted back to AO with instructions

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Gist

Insertion of second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1.4.2005

As per section 2(22)(e) of the Act, the liability of tax can be fastened only on the shareholder of the payer company

Facts

  1. Assessee taken loan from company
  2. AO made an addition u/s 2(22)(e) as deemed dividend to the extent of accumulated profit
  3. AO also made addition u/s 40(a)(ia) on grounds that on perusal of Form 3CD it was seen that the auditors had reported that there was tax deductible at source which was not deducted at all
  4. CIT (A) deleted the addition u/s 2(22)(e) following decision of jurisdictional high court of CIT vs. Ankitech Pvt. Ltd and held that the liability of tax can be fastened only on the shareholder of the payer
  5. CIT(A) partly allowed the addition u/s 40(a)(ia)
  6. Honb. Tribunal held that CIT(A) rightly deleted the addition u/s 2(22)(e) and no interference was warranted
  7. For section 40(a)(ia) Honb. Tribunal upheld the grievance of the assessee principally and directed that the AO shall give due and fair opportunity of hearing to the assessee and decide the matter afresh in accordance with law by way of a speaking order after carrying out necessary verification regarding impugned payments having been taken into account by the recipients in the computation of their respective income, regarding payment of taxes in respect of such income and regarding filing of related income tax return by the recipients

Adjudication

1. For deemed dividend u/s 2(22)(e) - On careful consideration of above submissions, we are of the view that as per provisions of section 2(22)(e) of the Act, the liability of tax can be fastened only on the shareholder of the payer company. In the present case, the AO could not bring out any fact to support that the loan taken by the assessee company from M/s R.D. Finlease Pvt. Ltd. satisfies the requirement of section 2(22)(e) of the Act as the assessee company is not a shareholder of M/s R.D. Finlease Pvt. Ltd. In the light of above legal proposition and dicta laid down by the Jurisdictional High Court of Delhi in the case of CIT vs Ankitech Pvt. Ltd., we are of the opinion that the action taken by the AO was not in accordance with law and letter and spirit of section 2(22)(e) of the Act which was rightly directed to be deleted by the CIT(A) by passing the impugned order. Hence we reach to a logical conclusion that the view taken by the CIT(A) does not carry any infirmity or perversity and we are unable to see any valid reason to interfere with the same. Accordingly, sole ground of the revenue being devoid of merits is dismissed.

2. For addition u/s 40(a)(ia) - In view of the well-settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In this situation, agreeing to the said legal proposition of ITAT, Agra, we hold that the insertion of second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1.4.2005. Hence, respectfully following the legal proposition advanced by ITAT, Agra, we do not see any reason to take a different view on the issue than the view taken by ITAT Agra in the case of Shri Rajeev Kumar Agarwal vs JCIT (supra). Respectfully following the same, we uphold the grievance of the assessee principally and direct that the AO shall give due and fair opportunity of hearing to the assessee and decide the matter afresh in accordance with law by way of a speaking order after carrying out necessary verification regarding impugned payments having been taken into account by the recipients in the computation of their respective income, regarding payment of taxes in respect of such income and regarding filing of related income tax return by the recipients

Cases Referred to

CIT vs. Ankitech Pvt. Ltd. (2012) 340 ITR 14 (Del)
CIT vs. Hotel Hill Top (2009) 313 ITR 116
Rameshwarlal Sanwarmal vs. CIT 1980) 122 ITR 1
Shri Rajeev Kumar Agrawal vs. JCIT dated 29.5.2014 in ITA No. 338/Agra/2013
Merilyn Shipping & Transports vs. Addl. CIT (2012) 136 ITD 0023
Tube Investments of India Ltd. vs. ACIT (2010) 325 ITR 610
Bharati Shipyard Ltd vs. DCIT (141 TTJ 129)
CIT vs. Rajinder Kumar (362 ITR 241)

 

Additional Info

Read 3379 times Last modified on Saturday, 13 February 2016 16:59
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

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