2017 (4) TMI 615 - HC - Income Tax

Deemed dividend addition u/s 2(22)(e) - HUF - Held that - There is no dispute that the assessee did receive capital advance from Indev Logistics Pvt. Ltd. There is also no dispute that there are common shareholders both in the assessee-company and Indev Logistics Pvt. Ltd. Therefore, quite correctly, as noted by the Tribunal, though, the advance received by the assessee company may have been for the benefit of the aforementioned registered shareholders, it could only be assessed in the hands of those registered shareholders and not in the hands of the assseeee-company. In our view, on a plain reading of the provisions of Section 2 (22) (e) of the Act, no other conclusion can be reached. The question of law considered in the case of Gopal and Sons (2017 (1) TMI 331 - SUPREME COURT ) was different from the issue which arises in the present matter. The question of law which the Supreme Court was called upon to consider was whether loans and advances received by a HUF could be deemed as a dividend within the meaning of Section 2(22)(e) of the Act. The assessee in that case was the HUF and the payment in question was made to the HUF. The shares were held by the Karta of the HUF. It is in this context that the Supreme Court came to the conclusion that HUF was the beneficial shareholder. In the instant case, however, both the registered and beneficial shareholders are two individuals and not the assessee-company. Therefore, in our view, the judgment of the Supreme Court does not rule on the issue which has come up for consideration in the instant matter. - Decided in favour of assessee.

Summary

Issues involved:
1. Allowance of deduction under section 80IA(4) for Container Freight Station.
2. Assessment of deemed dividend in the hands of registered shareholders.
3. Interpretation of Section 2(22)(e) of the Income-tax Act, 1961.

Analysis:

Issue 1: Allowance of deduction under section 80IA(4) for Container Freight Station:
The Revenue appealed against the Tribunal's decision allowing deduction under section 80IA(4) for a Container Freight Station. The key question was whether the Tribunal erred in allowing the deduction post an amendment that omitted certain words. The Court noted that previous judgments supported the Tribunal's decision, following the view taken by the Delhi High Court. The Court found no grounds for admission of the Revenue's appeal on this issue.

Issue 2: Assessment of deemed dividend in the hands of registered shareholders:
The case involved a capital advance received by the assessee-company from another entity, with common shareholders. The Revenue sought to assess this advance as deemed dividend under Section 2(22)(e) of the Act. However, the Tribunal rejected this claim, stating that deemed dividend should be assessed in the hands of the registered shareholders for whose benefit the advance was made. The Court agreed with the Tribunal's interpretation, citing a similar conclusion reached in a previous case.

Issue 3: Interpretation of Section 2(22)(e) of the Income-tax Act, 1961:
The Revenue's appeal on the assessment of deemed dividend was based on a Supreme Court judgment regarding loans and advances received by a Hindu Undivided Family (HUF). The Court distinguished this case from the present matter, where both registered and beneficial shareholders were individuals, not the assessee-company. Consequently, the Court upheld the Tribunal's decision on this issue, dismissing the Revenue's appeal.

In conclusion, the Court dismissed the Tax Case Appeals, upholding the Tribunal's decisions on both issues. The judgments cited and the interpretations of relevant sections of the Income-tax Act played a crucial role in determining the outcomes of the appeals.