2020 (7) TMI 275 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - assessee company has received the loans from a company in which the substantial shareholder(s) of the assessee company are holding substantial interest in the said concern - CIT-A deleted the addition - HELD THAT - A payment made by a company on behalf or for the individual benefit of any such shareholder is treated by cl. (e) to be included in the expression dividend . Consequently the effect of cl. (e) of s. 2(22) is to broaden the ambit of the expression dividend by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. As such the dividend within the meaning of cl. (e) of Sec. 2(22) can only be brought to tax in the hands of the shareholder. Our aforesaid view is fortified by the judgment in the case of CIT Vs. Universal Medicare (P) Ltd. 2010 (3) TMI 323 - BOMBAY HIGH COURT . Accept the view taken by the CIT(A) that as the assessee company is not a shareholder in either of the aforesaid lender companies viz. (i). M/s Vrisa Creations Pvt. Ltd.; and (ii). M/s Sesha-sai projects Pvt. Ltd. therefore the amount received from them could not have been brought to tax as deemed dividend within the meaning of Sec. 2(22)(e) in its hands. Accordingly finding no infirmity in the view taken by the CIT(A) we uphold the same. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Whether the amounts received from M/s Vrisa Creations Pvt. Ltd. and M/s Sesha-Sai Infraprojects Pvt. Ltd. should be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Deemed Dividend under Section 2(22)(e)
The primary issue in this case is whether the amounts received by the assessee company from M/s Vrisa Creations Pvt. Ltd. (?87,38,000) and M/s Sesha-Sai Infraprojects Pvt. Ltd. (?2,85,56,335) should be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer (A.O) observed that the assessee company received these amounts as loans from companies where substantial shareholders of the assessee company held significant interest. Consequently, the A.O assessed these amounts as deemed dividends under Section 2(22)(e).

The CIT(A) overturned the A.O's decision, noting that the assessee company was not a shareholder in either of the lending companies. The CIT(A) supported this view by referencing the judgments of the Hon’ble High Court of Bombay in CIT Vs. Impact Containers (P) Ltd. (2014) 367 ITR 346 (Bom) and ACIT Vs. Britto Amusement Pvt. Ltd. (2014) 360 ITR 544 (Bom), which established that deemed dividend can only be assessed in the hands of a shareholder of the lending company.

Upon appeal by the revenue, the Tribunal upheld the CIT(A)’s decision. The Tribunal reiterated that the assessee company was not a shareholder in the lending companies, and thus, the amounts received could not be taxed as deemed dividends under Section 2(22)(e). The Tribunal cited the precedent set by the Hon’ble High Court of Bombay in CIT Vs. Universal Medicare (P) Ltd. (2010) 324 ITR 263, which clarified that dividend must be taxed in the hands of the shareholder, not in the hands of a non-shareholder recipient.

Procedural Issue: Pronouncement of Order Beyond 90 Days
The Tribunal addressed the procedural issue of pronouncing the order beyond the 90-day period stipulated in Rule 34(5) of the Income-tax Appellate Tribunal Rules, 1962. The delay was attributed to the extraordinary circumstances caused by the nationwide lockdown due to the COVID-19 pandemic. The Tribunal referenced the Hon’ble Supreme Court and Hon’ble Bombay High Court’s orders, which extended the limitation periods due to the pandemic. The Tribunal concluded that the lockdown period should be excluded from the 90-day period for pronouncing orders, thus justifying the delayed pronouncement.

Conclusion:
The appeal filed by the revenue was dismissed, and the cross-objections filed by the assessee were also dismissed as infructuous. The Tribunal found no fault in the CIT(A)’s decision that the amounts received by the assessee company could not be taxed as deemed dividends under Section 2(22)(e) since the assessee was not a shareholder in the lending companies. The procedural delay in pronouncing the order was justified due to the exceptional circumstances of the COVID-19 lockdown.