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2018 (10) TMI 922 - AT - Income TaxDeemed Dividend u/s 2(22)(e) - beneficial or the registered shareholder of the company - Held that - Under Article 141 of the Constitution, ratio of decision of the Hon ble Supreme Court and principle underlying decision is binding. It is most crucial to note that in that case matter was referred to reconsider the earlier decision with their observation that for applying deemed dividend provision it is sufficient if the shareholder is beneficial shareholder. It need not be necessary that shareholder must be registered shareholder. Because as per earlier decision for applying deemed dividend shareholder must satisfy both character of shareholder i.e. Registered as well as beneficial shareholder. Shareholder needs to be beneficial Shareholder. If the shareholder is not a beneficial shareholder then as per this observation also provisions of deemed dividend will not apply. Hence, all the decision supports the contention of assessee that deemed divided cannot be apply in assessee s hand as it is neither registered nor beneficial shareholder of EIPL. We can safely conclude that since assessee was neither the beneficial nor the registered shareholder of the company, the amount so received is not liable to be taxed as deemed dividend. Moreover, the transaction between two group concerns were in the nature of current account and inter banking account containing both types of entries i.e., receipts and payments, the same cannot be brought in the purview of loans and advances so as to attract Section 2(22)(e). - Decided in favour of assessee.
Issues Involved:
1. Deemed Dividend under Section 2(22)(e) of the Income Tax Act, 1961. 2. Applicability of interest under Sections 234B and 234C of the Income Tax Act, 1961. 3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. Detailed Analysis: 1. Deemed Dividend under Section 2(22)(e) of the Income Tax Act, 1961: The primary issue revolves around whether the amount of ?10,82,10,904/- received by the assessee from M/s Equator Investments Pvt. Ltd. (EIPL) qualifies as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. - Assessee's Argument: The assessee argued that the amount received from EIPL was in the ordinary course of business, as EIPL is an investment company, and hence, does not fall under the definition of dividend. Additionally, the assessee contended that it is not a shareholder of EIPL, and therefore, Section 2(22)(e) cannot be applied. - Revenue's Argument: The Revenue contended that EIPL is not a lending concern and that the voting power of common shareholders in both companies exceeds 10%, making Section 2(22)(e) applicable. - Tribunal's Findings: - Shareholding Analysis: The Tribunal observed that the assessee (NHBPL) does not hold any shares in EIPL. The shareholding pattern of both companies indicated that the assessee is neither a registered nor beneficial shareholder of EIPL. - Judicial Precedents: The Tribunal referred to several judicial pronouncements, including the Supreme Court's decision in the case of Ankitech Pvt. Ltd., which clarified that deemed dividend provisions apply only if the recipient is a registered shareholder. Similar views were upheld by the Bombay High Court in the case of Impact Containers Ltd., and the Karnataka High Court in the case of Sarva Equity (P) Ltd. - Nature of Transactions: The Tribunal noted that the transactions between the group companies were in the nature of current and inter-banking accounts, containing both receipts and payments. Such transactions cannot be regarded as loans and advances for the purpose of deemed dividend under Section 2(22)(e). Based on these findings, the Tribunal concluded that since the assessee is neither a registered nor a beneficial shareholder of EIPL, the provisions of Section 2(22)(e) do not apply. Consequently, the addition made by the Assessing Officer (AO) was deleted. 2. Applicability of interest under Sections 234B and 234C of the Income Tax Act, 1961: The assessee challenged the charging of interest under Sections 234B and 234C. - Tribunal's Findings: Since the primary addition under Section 2(22)(e) was deleted, the consequential interest charged under Sections 234B and 234C was also not sustainable. Therefore, the Tribunal held that the interest charged under these sections should be deleted. 3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961: The assessee also contested the initiation of penalty proceedings under Section 271(1)(c). - Tribunal's Findings: Given that the primary addition under Section 2(22)(e) was deleted, the basis for initiating penalty proceedings under Section 271(1)(c) no longer existed. Hence, the Tribunal held that the initiation of penalty proceedings was not justified. Conclusion: The Tribunal allowed the appeal of the assessee, concluding that the amount received from EIPL does not constitute deemed dividend under Section 2(22)(e) since the assessee is neither a registered nor beneficial shareholder of EIPL. Consequently, the interest charged under Sections 234B and 234C and the initiation of penalty proceedings under Section 271(1)(c) were also not justified. The appeal was decided in favor of the assessee.
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