2014 (8) TMI 1135 - HC - Income Tax

Deemed dividend addition u/s 2(22)(e) - Held that - We find that the issues are covered by the judgment of this Court delivered in CIT, Kolkata-III, Kolkata vs. M/s. Baljit Securities Pvt. Ltd. (2013 (6) TMI 793 - CALCUTTA HIGH COURT) in which it was held the definition of dividend has been enlarged by a legal fiction which does not extend to shareholder . In this case, the respondent assessee is not a shareholder of M/s. Pataka Industries Ltd. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of section 2(22)(e) of the Income Tax Act regarding deemed dividend.
2. Application of legal precedent from the judgment of CIT, Kolkata-III, Kolkata vs. M/s. Baljit Securities Pvt. Ltd.

Analysis:
1. The appeal before the Calcutta High Court involved the interpretation of section 2(22)(e) of the Income Tax Act regarding deemed dividend. The questions raised in the appeal pertained to whether the Tribunal was justified in upholding the decision of the CIT (Appeal) in deleting the additions made under section 2(22)(e) despite loans taken from a company with a common shareholder. The Court referred to a previous judgment delivered in a related case where it was held that the definition of 'dividend' does not extend to a 'shareholder' based on a legal fiction. In the present case, the respondent assessee was not a shareholder of the company from which the loans were taken. Therefore, the Court concluded that both questions raised in the appeal did not survive, leading to the dismissal of the application and the appeal.

2. The second issue involved the application of legal precedent from a judgment delivered by the Court in a related case, CIT, Kolkata-III, Kolkata vs. M/s. Baljit Securities Pvt. Ltd. The Court found that the issues raised in the present appeal were covered by the judgment in the related case, where it was established that the definition of 'dividend' under section 2(22)(e) does not encompass a 'shareholder' based on a legal fiction. As the respondent assessee in the present case was not a shareholder of the company in question, the Court relied on the previous judgment to dismiss both the application and the appeal.

In summary, the Calcutta High Court dismissed the appeal under section 260A of the Income Tax Act based on the interpretation of section 2(22)(e) regarding deemed dividend and the application of legal precedent from a related judgment. The Court held that the respondent assessee not being a shareholder of the company from which loans were taken meant that the questions raised in the appeal did not survive, leading to the dismissal of the application and the appeal.