2016 (12) TMI 411 - HC - Income Tax

Application of provisions of section 2(22)(e) - ITAT deleted the addition on deemed dividend - Held that - Question (i) as framed by the Revenue stands concluded against the Revenue and in favour of the respondent assessee by the decision of this Court in Commissioner of Income Tax Vs. Universal Medicare Pvt. Ltd 2010 (3) TMI 323 - BOMBAY HIGH COURT and Commissioner of Income Tax Vs. Impact Containers (P) Ltd. (2014 (9) TMI 88 - BOMBAY HIGH COURT) wherein held no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the book of account of the assessee. 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 In view of the fact that the share holding of Mr. Sunil Mantri in respondent assessee is of no consequence in view of the decision of this Court in Impact Containers Pvt. Ltd. (supra). This is so as it is undisputed that respondent assessee is not a registered shareholder in the lending company viz. M/s. Sunil Mantri Reality Ltd.

Summary

Issues:
1. Interpretation of section 2(22)(e) of the Income Tax Act, 1961 in the context of deemed dividend taxation.
2. Determination of shareholding relevance in closely held companies for loan transactions.

Analysis:

Issue 1: Interpretation of section 2(22)(e) of the Income Tax Act, 1961
The first issue raised in the appeal questions the Tribunal's decision on the applicability of section 2(22)(e) of the Income Tax Act, 1961 to the assessee company. The appellant contested the Tribunal's confirmation of the CIT(A)'s order, arguing that the provisions of section 2(22)(e) should apply to the case due to deemed dividend taxation on advances or loans to a concern where a common shareholder with substantial interest is involved. However, the Revenue's counsel, Mr. Suresh Kumar, conceded that this issue had been settled against the Revenue in previous court decisions, specifically citing Commissioner of Income Tax Vs. Universal Medicare Pvt. Ltd. and Commissioner of Income Tax Vs. Impact Containers (P) Ltd. The court, therefore, concluded that question (i) did not raise any substantial legal issue and dismissed it accordingly.

Issue 2: Determination of shareholding relevance in closely held companies
The second issue pertains to the shareholding status of Mr. Sunil Mantri in M/s. Sunil Mantri Trinity Projects P. Ltd. concerning loans advanced from Sunil Mantri Realty Ltd. The appellant raised concerns regarding the shareholding discrepancy, pointing out that the paid-up capital of M/s. Sunil Mantri Trinity Projects P. Ltd. was below the minimum requirement for closely held companies. However, the court referenced a previous decision in Impact Containers Pvt. Ltd., emphasizing that Mr. Sunil Mantri's shareholding in the respondent assessee was irrelevant since the assessee was not a registered shareholder in the lending company, M/s. Sunil Mantri Reality Ltd. Consequently, the court deemed question (ii) as academic and lacking any substantial legal issue, leading to its dismissal.

In conclusion, the High Court dismissed the appeal under Section 260A of the Income Tax Act, 1961, challenging the Tribunal's order for Assessment Year 2008-09. The court upheld the decisions of the CIT(A) and the Tribunal, citing precedents and legal interpretations to support its rulings. The appellant's arguments regarding the application of section 2(22)(e) and shareholding discrepancies were carefully considered and ultimately rejected based on established legal principles and prior court judgments. The appeal was dismissed with no costs awarded.