2015 (6) TMI 63 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - CIT(A) deleted the addition on the ground that the loan has not been received by the assessee but by M/s Oryx Fisheries Pvt. Ltd. - Held that - Since the assessee is a share holder of the lending company and also having a substantial interest in the borrowing company, therefore, the condition as prescribed u/s 2(22)(e) are satisfied to include the payment in question in the ambit of dividend tobe taxed in the hands of the assessee. We do not agree with the contention of Ld. Authorized Representative that only a proportionate of the amount of loan received by the borrowing company can be assessed as dividend in the hands of the assessee to the extent of his share holding in the borrowing company due to the simple reason that as per provisions of section 2(22)(e) the two conditions are required to be fulfilled viz. the person having not less than 10% of voting power in the lending company and a substantial interest in the borrowing concern. Both these conditions are satisfied, therefore, in the absence of any such provision of proportionate addition nothing can be read in between the unambiguous language of the provision of section 2(22)(e). Further it is not the case of more than one share holder complying the conditions of having not less than 10% voting power in the lending company and also having substantial interest in the borrowing company. From perusal of share holding pattern at page 141 of the paper book, we find that only the assessee is holding 15% of the voting power in the lending company and 45% of voting power in the borrowing company and no other person/share holder is common other than the assessee. Therefore, there is no question of any proportionate addition when the assessee is the only share holder who fulfills the condition prescribed u/s 2(22)(e). The decision relied upon by the Ld. Authorized Representative in the case of Shri Subrata Banik Vs. CIT (2014 (1) TMI 928 - ITAT KOLKATA ) is not applicable to the facts of the present case rather the said decision is on the question of change of opinion while exercising the jurisdiction/revisional powers u/s 263 of the Income Tax Act. - Decided in favour of revenue.

Issues Involved:
1. Deletion of addition made under section 2(22)(e) of the Income Tax Act.
2. Applicability of CBDT's Circular No. 495 dated 22.09.1987.
3. Determination of deemed dividend in the hands of the assessee.
4. Proportionate addition based on shareholding.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 2(22)(e):
The primary issue involved the deletion of an addition of Rs. 99,86,274/- made under section 2(22)(e) of the Income Tax Act by the CIT(A). The Assessing Officer had treated the loan and advances received by M/s Oryx Fisheries Pvt. Ltd. from M/s Medley Laboratories Pvt. Ltd. as deemed dividend in the hands of the assessee, who held substantial shareholding in both companies. The CIT(A) deleted the addition on the grounds that the loan was received by the borrowing company and not directly by the assessee. However, the Tribunal noted that the assessee held 15% of shares in the lending company and 45% in the borrowing company, thus satisfying the conditions of section 2(22)(e).

2. Applicability of CBDT's Circular No. 495:
The revenue argued that the CIT(A) failed to appreciate CBDT's Circular No. 495, which explains the provisions of section 2(22)(e). The circular clarifies that deemed dividend would be taxed in the hands of a concern where a shareholder has 10% or more equity capital and is beneficially entitled to 20% of the income of such concern. The Tribunal upheld the applicability of the circular, stating that the assessee's substantial shareholding in both companies met these criteria.

3. Determination of Deemed Dividend in the Hands of the Assessee:
The Tribunal examined whether the loan given by M/s Medley Laboratories Pvt. Ltd. to M/s Oryx Fisheries Pvt. Ltd. could be treated as deemed dividend in the hands of the assessee. According to section 2(22)(e), any payment by way of loan to a concern where the shareholder has substantial interest is deemed as dividend. The Tribunal referenced the Hon'ble Jurisdictional High Court's decision in CIT vs. Universal Medicare Private Limited, which stated that dividend must be taxed in the hands of the shareholder. Since the assessee held substantial interest in both companies, the Tribunal concluded that the loan should be treated as deemed dividend in the hands of the assessee.

4. Proportionate Addition Based on Shareholding:
The assessee contended that the addition under section 2(22)(e) should be proportionate to his shareholding in the borrowing company, considering there were other shareholders. The Tribunal rejected this argument, stating that section 2(22)(e) does not provide for proportionate addition based on shareholding. The Tribunal emphasized that the conditions of holding not less than 10% voting power in the lending company and substantial interest in the borrowing company were satisfied solely by the assessee. Therefore, the entire loan amount should be treated as deemed dividend in the hands of the assessee.

Conclusion:
The Tribunal set aside the CIT(A)'s order and restored the Assessing Officer's order, treating the loan as deemed dividend under section 2(22)(e) in the hands of the assessee. The appeal by the revenue was allowed, and the order was pronounced in the open court on 14th November 2014.

← Previous Next →