2014 (11) TMI 324 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - Applicability of the exclusionary clause - Lending of money includes hire purchase, transactions amounts to deemed dividend or not Held that - The Assessee states that there is no dispute about the applicability of the ingredients and the provision - the Tribunal held that the hire purchase transactions conducted by SFL are not in the nature of a loan but SFL owns the assets which are given on hire by it the Tribunal has not considered the nature of the transactions of the company before determining as to whether, within the meaning of exclusionary clause (ii) of Section 22(2)(e) of the Act, the lending of money is a substantial part of the business of the company - According to the assessee, the exclusionary clause would be attracted because the lending of money constitutes a substantial part of the business of the company - it would not be possible to decide the issue of the applicability of the exclusionary clause merely on an a priori basis and it would be appropriate to restore the proceedings back to the Tribunal for a decision afresh thus, the matter is remitted back to the Tribunal for fresh adjudication Decided in favour of assessee.

Summary

Issues:
1. Proper formulation of questions of law and amendment.
2. Declining permission to raise additional grounds.
3. Applicability of Section 2(22)(e) of the Income Tax Act.

Analysis:

1. Proper Formulation of Questions of Law and Amendment:
The appellant challenged the order of the Income Tax Appellate Tribunal regarding additional grounds raised during the appeal. The appellant sought to amend the questions of law, focusing on issues related to the Tribunal's obligations and the burden of proof regarding the service of jurisdictional notice under Section 143(2) of the Act. The Court allowed the amendment, and the questions were rephrased to address the concerns raised by the appellant.

2. Declining Permission to Raise Additional Grounds:
The Court was not convinced by the appellant's argument challenging the Tribunal's decision to decline permission to raise additional grounds. The appellant's claim that the notice under Section 143(2) was not served correctly was deemed an afterthought as it was raised for the first time during the appeal, five years after the initial filing. The Court rejected this submission, stating it lacked substance and was untimely.

3. Applicability of Section 2(22)(e) of the Income Tax Act:
The main issue revolved around the interpretation of Section 2(22)(e) concerning a loan received by the appellant from a company. The appellant argued that the loan was received in the ordinary course of business and fell under the exclusionary clause of the Act. The Tribunal's decision was based on the nature of transactions and balance sheet entries, concluding that the transactions were not loans but rather hire purchase agreements. The Court found that a proper assessment of whether the exclusionary clause applied was necessary and remanded the case back to the Tribunal for a fresh decision.

In conclusion, while no substantial questions of law arose regarding certain aspects of the case, the Court ordered a reevaluation by the Tribunal on the applicability of Section 2(22)(e) of the Act. The parties were granted the opportunity to present their arguments before the Tribunal, and the appeal was disposed of without costs.