Case: Commissioner of Income-Tax,Central-Iv Vs. Jignesh P. Shah

Universal Medicare (P) Ltd. (supra) read with its decision in Bhaumik Colours (P) Ltd. (supra) and the decision of Rajasthan High Court in CIT v. Hotel Hilltop [2009] 313 ITR 116 /[2012] 205 Taxman 91 (Mag.)/18 taxmann.com 308 to uphold the order of the Commissioner of Income Tax (Appeals). Thus upholding the conclusion that deemed dividend can be assessed only in the hands of a shareholder of the lender company. In this case, the Respondent-Assessee is admittedly not the shareholder of M/s. NS Fincon (P) Ltd.9. This Court in the case of Universal Medicare (P.) Ltd. (supra) while approving the decision of the Special Bench of the Tribunal in Bhaumik Colours (P.) Ltd. (supra) inter alia observed that:"All payments by way of dividend have to be taxed in hands of the recipient of the dividend namely the share holder.… ... …. ….Consequently, the effect of clause (e) of Section2 (22) is to broaden the ambit of the expression dividend by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a share holder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder."10. Further, this Court in the case of CIT v. Impact Containers (P.) Ltd. [2014] 367 ITR 346 /225 Taxman 322 /48 taxmann.com 294 while dealing with the issue of deemed dividend categorically held that Section 2(220(e) of the Act cannot be applied/invoked where the assesee is not a shareholder of the leading company. The objective of Section 2(22)(e) of the Act is only to ensure that the Company in which the public are not substantially interested would not distribute its prosperity amongst shareholders by calling them the loan/ advances, as tax would be payable if the same were distributed as dividend.11. The submission on behalf of the Revenue made before us is that one has to look at the substance of the transaction and that if one looks at the substance, then the Respondent-Assessee would be chargeable to tax. This is not acceptable as fiscal status have to be interpreted strictly. We can do no better then meet the submission of the Revenue by inviting attention to the decision of the Supreme Court in CIT v. Vatika Township (P.) Ltd. [2014] 367 ITR 466 /227 Taxman 121 /49 taxmann.com 249 wherein it has been observed as under:—41.2:- At the same time, it is also mandated that there cannot be imposition of any tax without the authority of law. Such a law has to be unambiguous and should prescribe the liability to pay taxes in clear terms. If the provision concerned of the taxing statue is ambiguous and vague and as susceptible to two interpretations, the interpretation which favours the subjects, as against the Revenue, has to be preferred. This is a well-established principle of statutory interpretation, to help finding out as to whether particular category of assessee is to pay a particular tax or not. No doubt, with the application of this principle, the courts make endeavour to find out the intention of the legislature. At the same time, this very principle is based on "fairness" doctrine as it lays down that if it is not very clear from the provisions of the Act as to whether the particular tax is to be levied to a particular class of persons or not, the subject should not be fastened with any liability to pay tax. This principle also acts as a balancing factor between the two jurisprudential theories of justice - Libertarian theory on the one hand and Kantian theory along with Egalitarian theory propounded by John Rawls on the other hand.41.3 Tax laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of the tax.…. …. …. ….41.4 Again as United States v. Merraim, the Supreme Court clearly stated at US pp. 187.88" On behalf of the Government it is urged that taxation is a practical matter and concerns itself with the substance of the thing upon which the tax is imposed, rather than with legal forms or expressions. But in statutes levying taxes the literal meaning of the words employed is most important, for such statutes are not to be extended by implication beyond the clear impost of the language used. If the words are doubtful, the doubt must be resolved against the Government and in favour of the taxpayer. Gould v. Gould L Ed p. 213: Usp 153.41.5 As Lord Carins said many years ago in Partington v. Attorne General (LR p. 122)".... as I understand the principle of all fiscal legislation it is this: if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be."Thus on strict interpretation of Section 2(22)(e) of the Act, unless the Respondent-Assessee is the shareholder of the company lending him money, no occasion to apply it can arise.12. In the present facts, it is an admitted position that Respondent-Assessee is not a shareholder of M/s. NS Fincon Pvt. Ltd. from whom he has received loan. Therefore, no fault can be found with the decision of the Tribunal in having followed the decision of the High Court in Universal Medicare (P.) Ltd. (supra). This view has been further reiterated by another Division Bench of this Court in Impact Containers (P.) Ltd. (supra) rendered on 4th July, 2014.13. We are of the view that as the issue raised by the Revenue stands concluded by the order of this Court, no substantial question of law arises for our consideration.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]12. In the present facts, it is an admitted position thatis not a shareholder of M/s. NS Fincon Pvt. Ltd. from whom he has received loan. Therefore, no fault can be found with the decision of the Tribunal in having followed the decision of the High Court in Universal Medicare (P.) Ltd. (supra). This view has been further reiterated by another Division Bench of this Court in Impact Containers (P.) Ltd. (supra) rendered on 4th July, 2014.13. We are of the view that as the issue raised by the Revenue stands concluded by the order of this Court, no substantial question of law arises for our consideration.