Commissioner of Income Tax vs Nitin Shantilal Parikh

D.A. Mehta, J.—The Income Tax Appellate Tribunal, Ahmedabad Bench ""C"" has referred following question u/s 256(2) of the Income Tax

Act, 1961 (''the Act'' for short), at the instance of the Commissioner of Income Tax:

Whether the Appellate Tribunal is right in law and on facts in observing that the conditions prescribed u/s 2(22)(e) of the Act were not satisfied in

the instant case and thereby deleting the addition made by that AO treating the benefits taken from the company as deemed dividend?

The assessment is in relation to block period commencing from 01.04.1985 and ending on 15.11.1995. The Assessing Officer made addition to

the tune of Rs. 1,55,68,150/- by invoking provisions of Section 2(22)(e) of the Act. When the matter was carried before the Tribunal, the Tribunal

came to the conclusion that the said provision requires establishment of either of the two facts : (i) the payment from the Company has to be by

way of advance or loan, or (ii) the payment is made for and on behalf of or for benefit of the assessee, but in both the cases the payment by the

Company has to be from the accumulated profits. That in the instant case the Tribunal found that Assessing Officer had not recorded any finding

that there were accumulated profits within the meaning of said term u/s 2(22)(e) of the Act. The Tribunal therefore deleted the addition.

Mr. M.R. Bhatt, learned Senior Standing Counsel appearing for the applicant revenue submitted that though it was prayed that the Assessing

Officer had not recorded any finding regarding accumulated profits being available, as the assessee had substantial interest in the Company, the

Tribunal ought to have restored the matter to the file of Assessing Officer for assessment afresh and recording a finding as to whether the

accumulated profits existed or not.

Mr. Saurabh N. Soparkar, Sr. Advocate appearing on behalf of the respondent assessee supported the order of the Tribunal.

On plain reading of Section 2(22)(e) of the Act, it becomes apparent that the provision defines ''dividend'' and the definition is inclusive one.

Vide Clause (e), any payment by the Company of the nature stipulated in the provision, either by way of advance or loan to a share holder, or any

payment by any such company on behalf or for individual benefit of any such share holder, can be deemed as a dividend provided the share holder

fulfills the requirements of being a beneficial owner of the share holding having not less than ten per cent of the voting power etc. However, before

such payment by the Company could be deemed to be dividend for bringing to tax, in the hands of the share holder concerned, it has to be found

as a matter of fact that the Company in either case possesses accumulated profits, and the amount which can be brought to tax, would be the

payment equivalent to the extent of accumulated profits.

In light of the view that the Court has taken, it is not necessary to enter into any discussion on the issue as to whether respondent assessee had,

or did not have, substantial interest or necessary percentage of share holding so as to fulfill the other requirement of Section 2(22)(e) of the Act

though Tribunal has categorically held that respondent assessee did not have such a share holding.

In the facts of the case, the record reveals that Tribunal has found as a matter of fact that there is no finding that payment was made out of

accumulated profits or that the company possessed accumulated profits. Therefore, on this count the impugned order of the Tribunal does not

suffer from any legal infirmity so as to warrant interference.

In so far as the contention that Tribunal ought to have sent the matter back to the Assessing Officer for ascertaining existence or otherwise of

accumulated profits suffice it to state that in absence of any pleadings or submissions to the said effect, the law does not require the Tribunal to give

a second innings to a party.

In the facts and circumstances of the case, the question referred for opinion of this High Court, is answered in the ''affirmative'' i.e. in favour of

the Assessee and against revenue. The reference stands disposed of accordingly with no order as to costs.