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2014 (4) TMI 303 - AT - Income TaxDeemed dividend u/s 2(22)(e) of the Act Loans received Held that - CIT(A) was right in holding that all the facts were not taken into consideration by the AO while passing the assessment orders - The assessment orders do not contain any reference to them - The AO went entirely wrong in observing that the interest income of M/s Shivalik Dairies was a part of about 0.02% of gross receipt Relying upon CIT vs. V.S. Shiva Subramaniam 1996 (1) TMI 18 - MADRAS High Court - where the assessee was a shareholder in a company doing only money lending business, the loan taken by the assessee could not be treated as deemed dividend, even though the company had accumulated profits thus, the amount of loan from M/s Shivalik Dairies Pvt. Ltd. by the assessee was loan in the ordinary course of business and for that interest has been charged during the year and in subsequent years - The receipt and payment of money to give effect commercial transactions does not fall within the definition of the deemed dividend u/s 2(22)(e) of the IT Act - Revenue has not been able to counter the observations of the CIT (A) Decided against Revenue.
Issues Involved:
1. Deletion of additions made on account of deemed dividend income under Section 2(22)(e) of the Income Tax Act for Assessment Years 2008-09 and 2009-10. Detailed Analysis: 1. Deletion of Additions on Account of Deemed Dividend Income: Background and Context: The Department appealed against the CIT (A)'s decision to delete additions of Rs. 32 lac for Assessment Year 2008-09 and Rs. 20 lac for Assessment Year 2009-10, which were made by the Assessing Officer (AO) as deemed dividend income under Section 2(22)(e) of the Income Tax Act. The AO noted that the assessee company received loans from M/s Shivalik Dairies Pvt. Ltd., where the major shareholders of the assessee company had substantial interest. Arguments by the Department: The Department argued that the CIT (A) erred in deleting the additions, failing to consider the Finance Act, 1987, which changed the definition of 'deemed dividend' under Section 2(22)(e). According to the Department, the loans received by the assessee company should be considered deemed income as the shareholders had substantial interest in both entities. The Department emphasized that all conditions prescribed by Section 2(22)(e) were satisfied, thus justifying the AO's treatment of the loans as deemed dividends. Arguments by the Assessee: The assessee contended that the CIT (A)'s orders were well-reasoned and that the loans were advanced by M/s Shivalik Dairies Pvt. Ltd. in the ordinary course of its business, where lending money was a substantial part of its business. The assessee cited the case of 'CIT vs. Bhopal Clothing Company Pvt. Ltd.' to support that the payment must be made to a registered shareholder to attract Section 2(22)(e). Tribunal's Findings: The Tribunal noted that it was undisputed that the loans were advanced in the ordinary course of business by M/s Shivalik Dairies Pvt. Ltd., which had no other business activity from FY 2007-08 to FY 2010-11 except lending money. The Tribunal found that the AO failed to consider the detailed business activities and the financial records of M/s Shivalik Dairies Pvt. Ltd., which showed 100% income from lending. Legal Precedents: The Tribunal referenced several legal precedents: - 'CIT vs. V.S. Shiva Subramaniam': Loans from a money-lending company to a shareholder cannot be treated as deemed dividends. - 'CIT vs. Parley Plastics Ltd.': Loans made in the ordinary course of business by a lending company are not regarded as dividends. - 'CIT vs. Gopal Clothing Company Pvt. Ltd.': Section 2(22)(e) requires the payment to be made to a registered shareholder. - 'CIT vs. MCC Marketing (P) Ltd.': Loans to a non-shareholder company are not covered under the definition of 'dividend' in Section 2(22)(e). Conclusion: The Tribunal upheld the CIT (A)'s decision, stating that the loans were advanced in the ordinary course of business and the lending of money was a substantial part of M/s Shivalik Dairies Pvt. Ltd.'s business. The Tribunal found no merit in the Department's arguments and dismissed both appeals, affirming that the transactions did not fall under the purview of deemed dividend as per Section 2(22)(e) of the Income Tax Act. Order Pronounced: The order was pronounced in the open court on 04.04.2014, dismissing both appeals filed by the Department.
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