2011 (9) TMI 752 - HC - Income Tax

Deemed dividend u/s 2(22(e) - while rejected the revenue s appeal, HC held that - Even if the shareholders are common of two companies but the fact remains that the assessee is a separate juristic entity. The assessee is assessed to income tax separately than its shareholders. The loan has been advanced to a company who is not a shareholder of M/s Ankur Agro Pvt. Ltd. - Revenue appeal dismissed.

Summary

Issues:
- Whether the ITAT was justified in dismissing the appeal and upholding the deletion of the addition made under Section 2(22)(e) of the Income-tax Act.
- Whether the provisions of Section 2(22)(e) were applicable to the case.

Analysis:
1. The Revenue raised two substantial questions of law regarding the ITAT's order on the addition of Rs. 99,10,000 under Section 2(22)(e) of the Income-tax Act. The appellant argued that the loan from M/s Ankur Agro Pvt. Ltd to the assessee should be treated as a dividend. However, the Tribunal found that dividend income is assessable only in the hands of shareholders of the lending company, which the assessee was not. Therefore, the amount cannot be assessed in the assessee's hands under Section 2(22)(e) of the Act.

2. The appellant contended that since the shareholders of the lending company and the assessee were the same, the loan should be considered a loan to its shareholders. However, the court disagreed, stating that even if the shareholders were common, the assessee is a separate legal entity assessed to income tax separately from its shareholders. The loan was given to a company that was not a shareholder of M/s Ankur Agro Pvt. Ltd.

3. The court concluded that no substantial question of law arose in the appeal and dismissed the case. The judgment emphasized the distinction between the assessee as a separate juristic entity and its shareholders, highlighting that the loan transaction was not covered under Section 2(22)(e) of the Act due to the legal separation of the entities involved.