CIT vs. Impact Containers Pvt. Ltd (Bombay High Court)

S. 2(22)(e): The law laid down in Universal Medicare 324 ITR 263 (Bom) (approving Bhaumik Colour 313 ITR 146 (SB)), that s. 2(22)(e) does not apply to a non-shareholder, is good law

The Tribunal held that s. 2(22)(e) did not apply to the assessee as it was not a shareholder of the entity which lent advances to the assessee. It was held that the addition could be considered in the hands of the shareholder. The Tribunal followed Bhaumik Colour Pvt. Ltd 313 ITR (AT) 146(Mum)(SB) which has been approved in Universal Medicare Pvt Ltd 324 ITR 263 (Bom). The Revenue claimed that Universal Medicare was per incuriam and not good law and that an addition u/s 2(22)(e) could be made even in the case of an entity which is not a shareholder. HELD by the High Court dismissing the appeal:

(i) We have perused the provision carefully and equally the judgment in the case of Universal Medicare and the view following the same rendered by several High Courts. We are of the opinion that there is no merit in the contentions of the Revenue that Universal Medicare was either erroneously decided or that the view taken in Universal Medicare requires reconsideration. In that regard, we must not brush aside the binding precedent or the judgment of a coordinate bench simply because some of the arguments canvassed before us were either not canvassed or if canvassed were not considered. The binding precedent can be ignored only if it is per incuriam. Such is not the stand before us. All that is urged is several facets and which emerge from a reading of section namely Section 2(22) together with its sub-clauses have not been noticed by the Division Bench while deciding Universal’s case. We are unable to agree with the Revenue in this behalf;

(ii) We do not see how with this legal position and the status of the shareholder recognized in law can be ignored while interpreting Section 2 (22) (e) of the I. T. Act. Precisely, this is what has been done by this Court in the judgment rendered in the case of Universal Medicare. It is not necessary for us to make a detailed reference to the order of the Special Bench of the Tribunal in the case of Bhaumik Colour Pvt Ltd. Suffice it to hold that the view taken by this Court in the case of M/s. Universal Medicare does not require any reconsideration. We are not in agreement with Shri Gupta that the definition does not contemplate or does not stipulate any requirement of assessee being a shareholder of the assessee like the one in the present case. The view taken in the present case that the recipient/assessee was not a shareholder, thus is in consonance with the legal position noted by us hereinabove. We are of the further view that this Court merely restated this principle and which remains unaltered throughout from the case of Rameshwarlal Sanwarmal v/s CIT 122 ITR 1 (SC).