2009 (9) TMI 1068 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) u/s 143(3)/147 for AY 2002-03 regarding addition of deemed dividend u/s 2(22)(e) of IT Act.

Summary:

Issue 1: Addition of deemed dividend u/s 2(22)(e) of IT Act
The assessee, a resident of Canada and director of an Indian company, received an advance of Rs.8 lakh from the company. The AO initiated reassessment proceedings u/s 147, treating the advance as deemed dividend u/s 2(22)(e) of the IT Act and DTAA between India and Canada. The CIT(A) upheld the AO's decision, stating that all conditions u/s 2(22)(e) were fulfilled. However, the ITAT held that the DTAA prevails over the IT Act, and the advance cannot be considered as deemed dividend under Article 10 of the DTAA with Canada, which defines dividends as income from shares or rights participating in profits. Citing relevant case laws, the ITAT concluded that the loan received by the assessee cannot be treated as deemed dividend under the DTAA.

Decision:
The appeal of the assessee was allowed, and it was held that the advance received by the assessee cannot be considered as deemed dividend under the DTAA.