2013 (3) TMI 557 - AT - Income Tax

Deemed dividend - Section 2(22)(e) of the Income Tax Act - Share Application money received under Current Liabilities - Held that - we are of the view that the amount received by the assessee does not come under the scheme of loan and advances, therefore, the ld.CIT(A) was fully justified in holding that the provisions of section 2(22)(e) are not attracted and hence the case falls outside the ambit of deemed dividend u/s 2(22)(e). We upholding the order passed by the ld. CIT(A). CIT(A) observed that it is agreed by the AO that the sums received are towards share application money. He further observed that when the nature of receipt partakes the character of share application money, it cannot be treated as loan/advance. He further observed that at the time of receipt of money the intention was to invest in shares of the appellant company and hence the nature of the receipt was not that of loan or advance. He further observed that only loans and advances can be considered as deemed dividend for the purpose of section 2(22)(e) and accordingly held when what has been received as share application money on which there is no dispute, the provisions of section 2(22)(e) are not attracted and hence deleted the addition made by the AO. CIT(A) on this account reject the grounds taken by the Revenue and Revenue s appeal stands dismissed.

Summary

Issues:
1. Whether the amount received by the assessee company as share application money is deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute regarding the treatment of share application money received by the assessee company. The Assessing Officer (AO) added the amount as deemed dividend income under section 2(22)(e) of the Income Tax Act, 1961. The AO based this decision on the common directors between the assessee company and the entity providing the share application money. The AO contended that since the amount was shown under current liabilities, it was in the nature of a loan/advance. The assessee argued that the amount was rightfully treated as share application money pending allotment and not a loan or advance. The Commissioner of Income Tax (Appeals) agreed with the assessee, holding that when the nature of the receipt is share application money, it cannot be considered a loan or advance.

Upon further appeal, the Revenue challenged the deletion of the addition made by the AO under section 2(22)(e) of the Act. The Revenue argued that since the assessee had refunded the amount, it should be treated as a loan/advance and subject to tax under section 2(22)(e). The assessee, supported by case law and the Companies Act, maintained that the share application money was correctly classified under current liabilities and was not a loan or advance. The Appellate Tribunal considered the arguments and evidence presented by both parties. The Tribunal noted that the mere entry in the balance sheet does not determine the nature of the transaction. In the absence of evidence proving that the share application money was not intended for shares or that the entries were false, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) that the provisions of section 2(22)(e) were not applicable. Consequently, the Tribunal dismissed the Revenue's appeal, affirming that the amount received did not fall under the deemed dividend category.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the assessee, holding that the share application money received was not deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The Tribunal emphasized the importance of the actual nature of the transaction over the mere accounting treatment, ultimately rejecting the Revenue's appeal and upholding the decision of the Commissioner of Income Tax (Appeals).