2016 (2) TMI 970 - HC - Income Tax

Deemed dividend under section 2(22)(e) - Held that - The issue raised in the present case is no longer res integra as this court in the case of CIT v. Impact Containers P. Ltd. reported in 2014 (9) TMI 88 - BOMBAY HIGH COURT and in the case of CIT v. Universal Medicare P. Ltd. 2010 (3) TMI 323 - BOMBAY HIGH COURT has held that a person liable to pay tax on deemed dividend is the person who is the shareholder of the company advancing the loan. Admittedly the respondent-assessee was not a shareholder of M/s. Arco Electro Technologies Pvt. Ltd. at the relevant time.

Summary

Issues:
Challenge to deletion of addition under section 2(22)(e) of the Income-tax Act 1961 for the assessment year 2007-08.

Analysis:
The appellant challenged the order of the Income-tax Appellate Tribunal (Tribunal) confirming the deletion of addition under section 2(22)(e) of the Income-tax Act 1961. The key question raised was whether the Tribunal was justified in upholding the decision of the Commissioner of Income-tax in deleting the addition of a loan received by the assessee-company, treated as deemed dividend under section 2(22)(e) of the Act. The appellant argued that the provisions of section 2(22)(e) were applicable to the assessee's case, as clarified in Circular No. 495 of the Central Board of Direct Taxes. The second issue raised was whether deemed dividend is taxable only in the hands of shareholders and not non-shareholders, citing relevant case law.

The respondent-assessee had taken a loan of a significant amount from a company in which two of its shareholders held shares exceeding 10 percent. The Revenue sought to tax this loan amount as deemed dividend under section 2(22)(e) of the Act. The Tribunal, however, dismissed the Revenue's appeal based on the decision of the Special Bench in a specific case.

The appellant acknowledged that the issue raised was no longer res integra, citing previous judgments by the High Court. It was established through case law that the person liable to pay tax on deemed dividend is the shareholder of the company providing the loan. Since the respondent-assessee was not a shareholder of the lending company at the relevant time, the Tribunal's decision was upheld. The appellant's argument was deemed invalid based on the established legal precedent, and no substantial question of law was found to arise for consideration.

In conclusion, the appeal challenging the deletion of the addition under section 2(22)(e) of the Income-tax Act 1961 was dismissed, with no order as to costs.