2014 (9) TMI 318 - HC - Income Tax

Deemed dividend u/s 2(22)(e) Loan or advance received Held that - Following the decision in Assistant Commissioner of Income Tax V/s. Bhaumik Colour (P)Ltd. 2010 (3) TMI 323 - BOMBAY HIGH COURT - the Tribunal had found that as a matter of fact no loan or advance was granted to the assessee, since the amount had actually been defalcated and was not reflected in the book of account of the assessee - The fact that there was defalcation had been accepted since this amount was allowed as business loss - Even assuming that it was a dividend, it would have to be taxed not in the hand of the assessee but in the hands of the shareholder Decided against revenue.

Summary

Issues involved:
1. Challenge to the order passed by the Income Tax Appellate Tribunal, Mumbai regarding a loan received by the respondent-assessee.
2. Interpretation of section 2(22) clause (e) of the Income Tax Act regarding the treatment of a loan or advance as a dividend.
3. Consideration of the Tribunal's decision in light of previous judgments by the Special Bench and the Division Bench of the High Court.
4. Relevance of a previous judgment in the case of Commissioner of Income Tax V/s. Universal Medicare Pvt. Ltd.
5. Request for reconsideration of the Universal Medicare Pvt. Ltd. judgment by a larger bench.

Analysis:

1. The appeal by the revenue contested the Tribunal's order concerning a loan received by the respondent-assessee from Sunjewels India Pvt. Ltd. The revenue argued that since the shareholding of SIPL was connected to the assessee, the loan should be treated as a dividend under section 2(22) clause (e) of the Income Tax Act for the assessment year 2006-07.

2. The Tribunal, however, rejected the revenue's claim by considering the admitted facts that while there was a beneficial ownership connection between the shareholding entities, the assessee itself was not a shareholder in SIPL. The Tribunal relied on a previous order by its Special Bench in a similar case involving Bhaumik Colour (P) Ltd.

3. The correctness of the Special Bench's decision was brought before the High Court, citing the Division Bench judgment in Commissioner of Income Tax V/s. Universal Medicare Pvt. Ltd. which upheld the Special Bench's view on the matter.

4. The High Court, in a subsequent batch of appeals, reaffirmed the decision in Universal Medicare Pvt. Ltd., stating that there was no need to reconsider the judgment by a larger bench. The parties in the present appeal acknowledged that the issue raised was adequately addressed by the previous decisions of the Court.

5. Consequently, based on the admitted facts and the precedents set by the Court, the High Court ruled against the revenue's contentions, affirming that the question raised in the appeal was resolved by previous judgments. The appeal was thus disposed of with no costs incurred.