2018 (5) TMI 1908 - AT - Income Tax

Deemed Dividend u/s 2(22)(e) - CIT (A) deleted the above addition on the ground that assessee is not a shareholder in M/s. IRIS Associates Pvt. Ltd and the money was received in normal course of business and therefore outside the purview of section 2 (22) (e) - HELD THAT - A perusal of the grounds raised by the revenue shows that the revenue has not challaneged the finding given by the CIT(A) that the money received was in normal course of business and therefore not covered by the section 2 (22) (e) of the IT Act. We therefore uphold the order of the CIT(A) deleting the addition on the ground that the money received being in normal course of business is beyond the purview of section 2 (22) (e) of the IT Act. Even otherwise also an it is an admitted fact that the assessee company is not a shareholder in M/s. IRIS Associates Pvt. Ltd. the Hon ble Supreme Court in the case of CIT Vs. Madhur Housing Development Company 2017 (10) TMI 1279 - SUPREME COURT where it has been held that although there were persons having substantial interest in the assessee company and company which gave the loan the assessee company not being shareholder of the company which gave the loan the loan was not assessable as deemed dividend in assessee s hands. Although this decision has been doubted by the Hon ble Supreme Court in the case reported as National Travel Services Vs. CIT 2018 (1) TMI 1159 - SUPREME COURT however unless the decision of the Hon ble Supreme Court is reversed the same is binding on the Tribunal. In this view of the matter we uphold the order of Ld. CIT (A) on both the counts i.e. (a) it is a commercial transaction and therefore beyond the purview of section 2(22)(e) and (b) assessee is not a shareholder in M/s. IRIS Associates Pvt. Ltd. therefore the provisions section 2 (22)(e) are not applicable. The grounds raised by the revenue are accordingly dismissed.

Summary

Issues:
1. Applicability of section 2(22)(e) regarding deemed dividend on advances received.
2. Interpretation of common shareholding and substantial interest in multiple companies.

Analysis:
Issue 1: The appeal addressed the applicability of section 2(22)(e) of the Income Tax Act concerning deemed dividend on advances received. The Assessing Officer observed that the assessee received a significant amount from another company and invoked the provisions of section 2(22)(e) to treat it as deemed dividend. The CIT (A) later deleted this addition based on arguments that the advance was for consultancy services and not covered by the said provisions. The Ld. CIT (A) emphasized that the money received was in the normal course of business and hence not within the purview of section 2(22)(e).

Issue 2: The case also delved into the interpretation of common shareholding and substantial interest in multiple companies. The revenue contended that since there were common shareholders with more than 20% stake in both companies, section 2(22)(e) should apply. However, the CIT (A) and the Tribunal upheld that the assessee was not a shareholder in the other company, thus the provisions did not apply. The Tribunal cited previous court decisions to support the view that the transaction was commercial and the assessee's lack of shareholding in the other company exempted them from the deemed dividend provisions.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT (A)'s decision to delete the addition under section 2(22)(e). The judgment highlighted the importance of shareholding, substantial interest, and the normal course of business in determining the applicability of deemed dividend provisions under the Income Tax Act.