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2013 (5) TMI 714 - AT - Income TaxDeemed dividend u/s 2(22)(e) - Held that - As decided in assessee s own case 2013 (5) TMI 148 - ITAT MUMBAI that nowhere it is a case of the A.O. that the assessee-company is a shareholder of M/s. Alfa Distilleries P. Ltd. or M/s. Vulcan Distilleries P. Ltd. from whom the assessee took the lain and as the assessee is not the shareholder of those companies, no addition can be made in the hands of the assessee treating the advances / loans borrowed by the assessee company from those two companies as relying on Bhaumik Colours P. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E wherein held that in the light of the intention behind the provisions of section 2(22)(e) to extend the legal fiction to a case of loan or advance to a non-shareholder also, loan or advance to a non-shareholder cannot be taxed as deemed dividend in the hands of the a non shareholder - assessee s appeal is allowed.
Issues:
1. Deletion of addition made by AO on account of deemed dividend u/s. 2(22)(e) of the Act. 2. Interpretation of provisions of section 2(22)(e) regarding loans and advances from related companies. 3. Application of judicial precedents in determining tax liability on deemed dividends. 4. Reopening of case for assessment u/s. 147 based on accumulated profits of lending companies. Issue 1: Deletion of Addition on Account of Deemed Dividend: The appeal was filed by the revenue against the CIT(A)'s order deleting the addition made by the AO on account of deemed dividend u/s. 2(22)(e) of the Act for the A.Y. 2005-06. The AO had added funds received by the assessee company from related companies, Alfa Distilleries Pvt. Ltd. and Vulcan Distilleries Pvt. Ltd., as deemed dividends. The CIT(A) deleted the addition based on a similar decision in the assessee's own case for A.Y. 2006-07, where the Tribunal had deleted the additions. The Tribunal held that since the assessee was not a shareholder of the lending companies, no addition could be made in the hands of the assessee. The Tribunal emphasized the need for judicial discipline in following higher court decisions and principles, leading to the deletion of the addition. Issue 2: Interpretation of Section 2(22)(e) Provisions: The Tribunal referred to the decision in the case of Bhaumik Colours P. Ltd., where it was held that the definition of dividend under section 2(22)(e) is an inclusive definition, extending the meaning of the term "dividend" to cover loans and advances to shareholders or related concerns. However, the Tribunal clarified that such loans or advances should be taxed in the hands of the shareholder, not the borrower. The Tribunal reiterated that the legal fiction of deeming loans as dividends does not alter the requirement for dividends to be taxed in the hands of shareholders. The Tribunal upheld the decision that loans to non-shareholders cannot be taxed as deemed dividends in the hands of the non-shareholder. Issue 3: Application of Judicial Precedents: The Tribunal relied on the decision in the case of Bhaumik Colours P. Ltd. and subsequent affirmation by the High Court of Bombay in the case of CIT vs. Universal Medicare (P) Ltd. to support its interpretation of section 2(22)(e). The Tribunal emphasized that payments deemed as dividends should be taxed in the hands of the recipient shareholder, not the borrower. The Tribunal concluded that the payment in question, even if deemed a dividend, should be taxed in the hands of the shareholder, not the assessee. Issue 4: Reopening of Case for Assessment u/s. 147: The AO reopened the case for assessment u/s. 147 based on the accumulated profits of the lending companies, Alfa Distilleries Pvt. Ltd. and Vulcan Distilleries Pvt. Ltd. The AO added the funds received by the assessee from these companies as deemed dividends u/s. 2(22)(e). However, the Tribunal, following the decision in the assessee's own case for A.Y. 2006-07, found no merit in the appeal of the revenue and dismissed it, as the assessee was not a shareholder of the lending companies, and therefore, no addition could be made in the hands of the assessee. This detailed analysis of the legal judgment covers the issues involved comprehensively, providing an in-depth understanding of the Tribunal's decision and the application of relevant legal provisions and precedents.
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