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2019 (9) TMI 1572 - AT - Income TaxDeemed dividend u/s 2(22)(e) - shareholder of M/s Gayatri Films Music Pvt. Ltd viz. Mr.Jyoti Sagar (holding 21.06% shares) was also having substantial shareholding of 26.94% in the assessee company viz. M/s Sagar Arts Pvt. Ltd. - HELD THAT - Admittedly, as is borne from the records, the assessee company is not a shareholder in M/s Gayatri Films Music Pvt. Ltd. In fact, the entire issue hinges around the aspect as to whether any shareholder of M/s Gayatri Films Music Pvt. Ltd. (holding not less than ten percent shares) was simultaneously during the year holding not less than twenty percent of equity shares in the assessee company viz. M/s Sagar Arts Pvt. Ltd., or not. As per the revenue, one common shareholder viz. Mr. Jyoti Sagar who was holding 21.06% shares in M/s Gayatri Films Music Pvt. Ltd., was simultaneously having a 26.94% shareholding in the assessee company. We have perused the records and are unable to persuade ourselves to subscribe to the manner in which the shareholding of Mr. Jyoti Sagar in the assessee company and M/s Gayatri Films Music Pvt. Ltd. has been worked out by the A.O - Decided against revenue.
Issues Involved:
1. Deletion of addition made under Section 2(22)(e) of the Income-tax Act, 1961 concerning the advance received from M/s Gayatri Films & Music Pvt. Ltd. 2. Determination of substantial shareholding of Mr. Jyoti Sagar in the assessee company and the lender companies. 3. Nature of the amount received from M/s Gayatri Films & Music Pvt. Ltd. and M/s Sagar Entertainment Ltd. and its classification as deemed dividend under Section 2(22)(e). Detailed Analysis: 1. Deletion of Addition Made Under Section 2(22)(e): The primary issue in the appeal was whether the CIT(A) erred in deleting the addition of ?1,72,10,898/- made under Section 2(22)(e) of the Income-tax Act, 1961. The CIT(A) had directed the deletion of this addition, which was made by the Assessing Officer (A.O) on the grounds that the assessee had received substantial amounts from M/s Gayatri Films & Music Pvt. Ltd. (GFMPL) and M/s Sagar Entertainment Ltd., which were treated as deemed dividends. 2. Determination of Substantial Shareholding: The A.O had clubbed the individual shareholding of Mr. Jyoti Sagar with his shareholding as an executor of the estate of Shri Subhash Sagar to determine his substantial shareholding in the assessee company and the lender companies. The CIT(A) found this approach unjustified and concluded that the A.O was not correct in clubbing the shareholdings held in different capacities. It was observed that neither the assessee company nor its shareholders held substantial shareholding in the lender companies, which is a prerequisite for treating the received amounts as deemed dividends under Section 2(22)(e). 3. Nature of the Amount Received and Its Classification: The CIT(A) observed that the amounts received from GFMPL and M/s Sagar Entertainment Ltd. were for commercial purposes, specifically for the co-production of TV serials, and were treated as inter-corporate deposits. The CIT(A) concluded that such commercial transactions do not fall within the definition of deemed dividend under Section 2(22)(e). The Tribunal upheld this view, noting that the shareholding pattern and the nature of transactions had not changed from the previous year, where a similar issue was decided in favor of the assessee. Conclusion: The Tribunal dismissed the revenue's appeal, agreeing with the CIT(A) that the amounts received by the assessee were for commercial purposes and did not qualify as deemed dividends under Section 2(22)(e). The Tribunal also upheld the CIT(A)'s observation that the A.O's method of determining substantial shareholding by clubbing different capacities of shareholding was incorrect. Final Order: The appeal of the revenue was dismissed, and the order of the CIT(A) deleting the addition of ?8,50,80,367/- was upheld. The Tribunal refrained from addressing the deletion of the addition of ?2,48,51,759/- as it was not assailed by the revenue in the present appeal. The order was pronounced in the open court on 18.09.2019.
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