2018 (8) TMI 437 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - whether the loans and advances received by the HUF could be treated as deemed dividend within the meaning of Sec. 2(22)(e) - Held that - The assessee-recipient of money is neither the registered nor the beneficial shareholder of the payer company, i. e. Portescap. Ostensibly, the common registered as well as beneficial shareholder of assessee-company and Portescap is Kollmorgen and not the assessee-company. Assessee has correctly placed reliance on the judgment of the Hon'ble Madras High Court in the case of M/s. Ennore Cargo Container Terminal P. Ltd. (2017 (4) TMI 615 - MADRAS HIGH COURT), which has been rendered in a somewhat identical situation. - Decided against the revenue.

Issues Involved:
1. Deletion of addition as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
2. Applicability of the Supreme Court decision in the case of Gopal and Sons (HUF) vs CIT Kolkata.
3. Classification of Intercorporate Deposit (ICD) as a loan or deposit.
4. Obligation of proper inquiry by the Assessing Officer and CIT(A).

Issue-wise Detailed Analysis:

1. Deletion of Addition as Deemed Dividend under Section 2(22)(e):
The primary issue in this case revolves around the deletion of an addition of ?90 crores made by the Assessing Officer (AO) treating the sum as 'deemed dividend' under Section 2(22)(e) of the Income Tax Act, 1961. The appellant, a company engaged in the manufacture and sale of petrol dispensers, received ?90 crores from Portescap India Pvt. Ltd., a company with a common shareholder, Kollmorgen India Investment Company, Mauritius. The AO argued that the amount should be taxed as deemed dividend since it was a loan or advance. However, the assessee contended that the amount was an Inter Corporate Deposit (ICD) and not a loan or advance, and even if it were considered a loan, it was for a specific purpose (acquisition of Petrol Dispensing Pumps and Systems Division of Larsen & Toubro Ltd.). The CIT(A) accepted the assessee's argument and deleted the addition, stating that the deemed dividend could not be assessed in the hands of the assessee-company as it was not a shareholder in Portescap.

2. Applicability of the Supreme Court Decision in Gopal and Sons (HUF) vs CIT Kolkata:
The Revenue argued that the Supreme Court's decision in Gopal and Sons (HUF) vs CIT Kolkata should be applied, where it was held that the amount received by a concern is taxable in the hands of the concern. However, the Tribunal found this decision inapplicable as the fact-situation differed. In Gopal and Sons, the issue was whether loans and advances received by a HUF could be treated as deemed dividend, with the shares held by the Karta of the HUF. In the present case, the assessee-recipient was neither the registered nor the beneficial shareholder of the payer company (Portescap), and the common shareholder was Kollmorgen. The Tribunal upheld the CIT(A)'s decision, supported by various judicial pronouncements, including those from the Bombay High Court, which stated that deemed dividend can only be assessed in the hands of the registered shareholder.

3. Classification of Intercorporate Deposit (ICD) as a Loan or Deposit:
The AO treated the ICD as a loan or advance, arguing that every kind of lending falls under the expression 'loan' or 'advance' for the purposes of Section 2(22)(e). The assessee, however, maintained that the ICD was not a loan or advance but a deposit for a specific purpose. The CIT(A) accepted the assessee's classification, noting that the ICD was received before the shareholding transfer to Kollmorgen, thus negating the common shareholding requirement at the time of the transaction.

4. Obligation of Proper Inquiry by the Assessing Officer and CIT(A):
The Revenue contended that the AO did not properly scrutinize whether the ICD was a loan or deposit and that this obligation should shift to the CIT(A). The Tribunal, however, found no justifiable ground to interfere with the CIT(A)'s conclusion, as the deletion of the addition was well-supported by judicial precedents and the assessee's arguments.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of ?90 crores as deemed dividend. The Tribunal concluded that the deemed dividend could not be assessed in the hands of the assessee-company as it was not a shareholder in Portescap, and the Supreme Court's decision in Gopal and Sons (HUF) was inapplicable to the facts of the present case. The Tribunal also upheld the classification of the ICD as a deposit and not a loan or advance.

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