ITAT ‘A-1’ Bench, Mumbai
Before R. K. Gupta (JM) and Abraham P. George (AM)
ITA No. 6481/Mum/2007
A.Y. : 2003-04. Decided on : April, 2009.
Counsel for assessee/Revenue : Madhusudhan Saraf & Rajiv
Khandelwal/R. S. Srivastava
Income-tax Act, 1961 — Section 2(22)(e) — Whether in a
case where a shareholder holding more than 10% of the shareholding in a
company in which public are not substantially interested is a debenture holder
of such a company and also has current account with such a company, while
considering whether such a shareholder has taken a loan or advance from the
said company aggregate of balance in debenture account and also current
account needs to be considered —Held : Yes. Whether share premium account
forms part of accumulated profits for the purpose of S. 2(22)(e) — Held : No.
Per Abraham P. George :
Facts :
The assessee was a shareholder of Star Synthetics Pvt. Ltd.
(SSPL) having more than 10% of its shareholding. The assessee had also
subscribed to 4% non-secured convertible debentures issued by SSPL of
Rs.50,00,000. The Board resolution which approved the issue of debentures
provided that a debenture holder could have a current account with the
company, provided that the debit balance in current account could not exceed
the amount of debentures subscribed by the debenture holder. The Assessing
Officer (AO) noted that the assessee had two accounts with SSPL — one in his
individual name and another in the name of his proprietory concern. The
aggregate amount of loans taken by the assessee and his proprietary concern
from SSPL was Rs.23,65,000. SSPL had reserves of Rs.64,28,793. The AO regarded
the aggregate of amounts borrowed by assessee and his proprietary concern as
deemed dividend u/s. 2(22)(e).
Aggrieved, the assessee preferred an appeal to the CIT(A)
where he submitted that the AO ought to have considered the balance in
debenture account alongwith the balance in the current account of the assessee
and his proprietary concern, and if so considered the assessee did not owe any
amount to SSPL. He also submitted that while considering the amount of
accumulated profits of SSPL, the balance of share premium should not be
considered as forming part of accumulated profits. The CIT(A) was of the
opinion that since debentures are for a fixed period and bear a fixed rate of
interest, their nature is different from that of an unsecured loan. He
confirmed the addition made by the AO.
Aggrieved, the assessee preferred an appeal to the
Tribunal.
Held :
The Tribunal after considering the meaning of the term
‘debenture’ as per various dictionaries and judicial precedents held that
debenture account is only a loan account and that while considering the amount
of loan taken by the assessee from SSPL the AO ought to have considered all
the three accounts viz. the debenture account, the assessee’s personal
account and the account of his proprietary concern and then concluded whether
the assessee has received any loan from SSPL.
Since upon consideration of the balance in all the three
accounts in aggregate the assessee did not owe any money to SSPL, the addition
made by AO and confirmed by CIT(A) was deleted by the Tribunal.
As regards inclusion of share premium in computation of
accumulated profits, the Tribunal found the issue to be covered in favour of
the assessee by the decision of the Delhi Tribunal in the case of Maipo India.
Cases referred :
1 DCIT vs. Maipo India Ltd., (116 TTJ 791)(Del.)
2 Narendra Kumar vs. UOI, (1960)(47 AIR 0430)(SC).
