2019 (6) TMI 1263 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - loans given to the assessee by company wherein assessee holds 22.3% share holdings - HELD THAT - In the case of Schutz Dishman Bio-Tech Private Limited 2016 (1) TMI 84 - GUJARAT HIGH COURT held that the amounts were not in the nature of Inter Corporate Deposits and were, therefore, not to be treated as loans or advances as contemplated in Section 2(22)(e) of the Act. The Revenue is pressing for admission of this Tax Appeal only with regard to the transaction with B.R. Laboratories Private Limited. Therefore, we are not inclined to entertain this Appeal so far as the transaction with Schutz Dishman Bio-Tech Private Limited is concerned. We re-frame the question no.1 as - Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of ₹ 16,03,933 00 made on account of the deemed dividend under Section 2(22)(e) of the Act for the Assessment Year 2005-06 in so far as the transaction with B.R. Laboratories Private Limited is concerned ?

Summary

Issues Involved:
1. Deletion of addition of deemed dividend under Section 2(22)(e) for A.Y. 2005-06.
2. Appreciation of findings regarding nature of transactions - loan or business transactions.

Analysis:

Issue 1: Deletion of addition of deemed dividend under Section 2(22)(e) for A.Y. 2005-06:
The Revenue proposed questions regarding the deletion of the addition of ?2.41 crore as deemed dividend under Section 2(22)(e) for the Assessment Year 2005-06. This related to loans given to the assessee by M/s. Schutz Dishman Biotech Ltd. and B.R. Laboratories Private Limited. The Assessing Officer treated these loans as deemed dividends and made an addition of ?2,41,03,933 under Section 2(22)(e) of the Act in the re-assessment order. The CIT(A) allowed the appeal filed by the assessee, and the Appellate Tribunal affirmed this decision, dismissing the Revenue's appeal. The High Court upheld the findings that the transactions were not in the nature of loans and advances, leading to the dismissal of the Tax Appeal.

Issue 2: Appreciation of findings regarding nature of transactions - loan or business transactions:
In a related case involving Schutz Dishman Bio-Tech Private Limited, a similar issue arose where advances made by the assessee were considered deemed dividends under Section 2(22)(e) of the Income Tax Act. The Commissioner (Appeals) and the Tribunal held that the transactions were not in the nature of Inter Corporate Deposits and were not to be treated as loans or advances as per Section 2(22)(e) of the Act. The High Court upheld these findings, emphasizing that the transactions were adjustments and not loans or deposits. Consequently, the Court dismissed the appeal, affirming that no question of law arose in this context.

In conclusion, the High Court admitted the Tax Appeal concerning the transaction with B.R. Laboratories Private Limited, reframing the substantial question of law. The Court decided to hear this Tax Appeal along with another related case.