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2018 (3) TMI 305 - AT - Income TaxDeemed dividend u/s 2(22)(e) - Held that - Since the Assessee in the present case is not a shareholder in the lender company, we are of the view that CIT Vs. Ankitech Pvt.Ltd. & others 2011 (5) TMI 325 - DELHI HIGH COURT is squarely applicable to the facts of the Assessee s case. - Decided against revenue.
Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961, regarding deemed dividend on a loan received by the assessee. Issue-wise Detailed Analysis: 1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961: The core issue in the appeal is whether the sum of ?2,08,97,808 received by the assessee as a loan from M/s. Shining Emotional Surplus (P) Ltd can be taxed as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. Factual Background: - The assessee was not a shareholder of M/s. Shining Emotional Surplus (P) Ltd. - A common shareholder and director, Mr. S.B. Renee Jhola, held 95% of the shares in both the assessee company and M/s. Shining Emotional Surplus (P) Ltd. - The Assessing Officer (AO) invoked Section 2(22)(e) and treated the loan as deemed dividend. CIT(A)'s Findings: - The CIT(A) deleted the addition made by the AO, reasoning that the assessee was not a shareholder in M/s. Shining Emotional Surplus (P) Ltd. - CIT(A) relied on the Special Bench of Mumbai ITAT in ACIT vs. Bhowmik Colours (P) Ltd. and the Bombay High Court in ACIT vs. Britto Amusement (P) Ltd., which held that Section 2(22)(e) applies only to shareholders with substantial interest in the lending company. - CIT(A) also noted that in the assessee’s own case, the Kolkata ITAT had provided relief on the same issue. Revenue's Appeal: - The revenue contested the CIT(A)'s decision, relying on the AO's order. Tribunal's Analysis: - The Tribunal examined the provisions of Section 2(22)(e), which states that any payment by a company to a shareholder holding not less than ten percent of the voting power, or to a concern in which such shareholder has a substantial interest, can be treated as deemed dividend. - The Tribunal noted that the provisions are applicable only to the shareholder of the lending company and not to non-shareholders. - The Tribunal referenced the Special Bench of ITAT, Mumbai, in Bhaumik Color Labs, which held that deemed dividend can only be assessed in the hands of a shareholder, not in the hands of a non-shareholder. - The Tribunal also cited the Rajasthan High Court in CIT vs. Hotel Hilltop, which supported the view that deemed dividend should be taxed in the hands of the shareholder, not the concern receiving the loan. - The Tribunal further supported its decision with judgments from the Bombay High Court in CIT vs. Universal Medicare Pvt. Ltd. and the Delhi High Court in CIT vs. Ankitech Pvt. Ltd., both of which were upheld by the Supreme Court in CIT vs. Madhur Housing and Development Company. Conclusion: - The Tribunal concluded that since the assessee was not a shareholder in the lender company, the provisions of Section 2(22)(e) were not applicable. - The order of the CIT(A) was upheld, and the appeal by the revenue was dismissed. Final Judgment: - The appeal by the revenue is dismissed. - The order was pronounced in the court on 01.03.2018.
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