2019 (1) TMI 589 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessee obtained loan of ₹ 10 Lacs from one of its sister concern - both these entities had one common shareholder namely Mr. Dierdre Dcunha who held more than 20% shareholding in both these entities - Held that - No dispute that there are common shareholders both in the assessee-company and sister concern - Therefore, quite correctly, though, the advance received by the assessee company may have been for the benefit of the aforementioned registered shareholders, it could only be assessed in the hands of those registered shareholders and not in the hands of the assessee-company. Section 2(22)(e) does not extend the meaning of the term shareholders and that the loan so granted could not be taxed as dividend income in the hands of the recipient company who was not the shareholder of the lender company. On a plain reading of the provisions of Section 2 (22)(e) of the Act, no other conclusion can be reached to make the addition - decided in favour of assessee

Summary

Issues:
Appeal by revenue contesting order of Ld. Commissioner of Income Tax regarding additions under section 2(22)(e) for Assessment Year 2008-09.

Analysis:
1. The appeal by revenue contested the order of the Ld. Commissioner of Income Tax (Appeals) regarding certain additions under section 2(22)(e) for Assessment Year 2008-09. Ground Number-1 was dismissed as it was not pressed during the hearing.

2.1. The assessee, a resident corporate entity, was subjected to re-assessment proceedings for the impugned Assessment Year under section 143(3) read with Section 147. The income was determined at ?86.43 Lacs after the addition of deemed dividend for ?10 Lacs under section 2(22)(e).

2.2. The assessee obtained a loan of ?10 Lacs from a sister concern, Alpha Pneumatics Pvt. Ltd., which had a common shareholder holding more than 20% share in both entities. The Assessing Officer added the amount as deemed dividend under section 2(22)(e), a decision confirmed by the Ld. CIT based on a Supreme Court decision. The assessee appealed against this decision.

3. The Authorized Representative for the Assessee cited a Tribunal decision to argue that the Supreme Court decision was not applicable to the present case. The Revenue relied on lower authorities' stand.

4. After hearing both sides, it was found that the two corporate entities did not hold beneficial interest in each other, and the assessee did not hold any shareholding in the lender company. A previous Tribunal decision was cited to support the conclusion that the loan could not be taxed as dividend income.

5. The decision in Gopal and Sons HUF vs. CIT was considered, and a Madras High Court decision distinguished it, emphasizing that deemed dividend should be assessed in the hands of registered shareholders, not the recipient company. The Supreme Court's judgment in Gopal and Sons HUF case was found inapplicable to the present case due to different factual circumstances.

6. The Tribunal held that the addition could not be sustained as deemed dividend under section 2(22)(e), aligning with settled judicial propositions. The appeal was allowed based on the above analysis.

Conclusion:
The Tribunal allowed the appeal, holding that the impugned addition could not be sustained as deemed dividend under section 2(22)(e) for the Assessment Year 2008-09.