2021 (12) TMI 922 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - ICD given to the assessee-company in which the shareholders have substantial interest and thus, the ICD given by the JP Iscon was treated as deemed dividend in the hands of the assessee - HELD THAT - We find that the fact that the assessee is not a shareholder in the lender-company, which is first and foremost condition for application of section 2(22)(e) of the Act, has been duly considered. Further that, the transaction is not in the nature of advance or loan, but simply an ICD and the appellant had further provided for the interest expenditure on the said deposits borrowed, and the fact of deducting necessary TDS was considered. Factum of paying back of said ICD along with interest during the financial year 2008-09 by the assessee to the lender-company which was brought to the notice of the ld.CIT(A), has duly been considered. The judgment on this aspect passed by the Special Bench, ITAT Mumbai Benches in the case of ACIT Vs. Bhaumik Colours P.Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E and the judgment of jurisdictional High Court in the matter of CIT Vs. Daisy Packers P.Ltd. 2015 (7) TMI 253 - GUJARAT HIGH COURT as have been relied upon by the ld.AR before us, have also been duly considered by the ld.CIT(A). In fact, the judgment passed by the Hon ble Delhi High Court in the case of Anitech P.Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT was also taken into consideration while deleting the addition. On perused the judgments passed by different judicial forums as relied upon by the Ld. AR. The ratio laid down therein is that, in a case, in which an amount is received from a person, other than the shareholder, provision of section 2(22)(e) of the Act cannot indeed be invoked. In the instant case, the appellant company was not a registered shareholder of the lender-company viz. JP Iscon Ltd. from which the assessee-company has obtained ICD during the year under consideration, and therefore, the addition made by the Ld. AO by invoking provisions of section 2(22)(e) of the Act, has rightly been deleted by the ld.CIT(A) without any ambiguity so as to warrant interference. Hence, appeal preferred by the Revenue is found to be devoid of any merit and thus stands dismissed.

Summary

Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend.
2. Whether the inter-corporate deposit (ICD) provided by JP Iscon Ltd. to the assessee-company qualifies as deemed dividend under Section 2(22)(e).
3. Shareholding and beneficial ownership considerations in determining deemed dividend.
4. Relevance of judicial precedents in interpreting Section 2(22)(e).

Detailed Analysis:

1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961:
The primary issue revolves around whether the inter-corporate deposit (ICD) of ?3,53,01,765 provided by JP Iscon Ltd. to the assessee-company can be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer (AO) treated this ICD as deemed dividend, arguing that the shareholders had substantial interest in both companies.

2. Whether the ICD qualifies as deemed dividend:
The assessee contended that the ICD was given in the ordinary course of business with interest charged, and necessary TDS was deducted. The assessee also argued that it was not a shareholder in JP Iscon Ltd., and hence, the provisions of Section 2(22)(e) should not apply. The CIT(A) and the Tribunal found that the assessee was not a registered shareholder of JP Iscon Ltd., and therefore, the ICD could not be treated as deemed dividend.

3. Shareholding and beneficial ownership considerations:
The AO noted that the common shareholders, Shri Pravin Kotak and Shri Amit Gupta, held substantial shares in both companies. However, the Tribunal emphasized that for Section 2(22)(e) to apply, the assessee-company must be a shareholder in the lender company. Since the assessee was not a shareholder in JP Iscon Ltd., the provision of deemed dividend could not be invoked.

4. Relevance of judicial precedents:
The Tribunal and CIT(A) relied on various judicial precedents, including the Special Bench decision in ACIT vs. Bhaumik Colour (P) Ltd., and the Gujarat High Court decision in CIT vs. Daisy Packers (P) Ltd. These cases established that deemed dividend under Section 2(22)(e) can only be assessed in the hands of a shareholder of the lender company. The Tribunal also referred to its own decision in the assessee's case for the assessment year 2008-09, where a similar addition was deleted.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the ICD provided by JP Iscon Ltd. to the assessee-company could not be treated as deemed dividend under Section 2(22)(e) because the assessee was not a shareholder in the lender company. The appeal by the Revenue was dismissed, and the assessee's cross-objection was also dismissed for want of prosecution. The judgment reinforces the interpretation that deemed dividend provisions apply only to shareholders of the lender company and not to third parties.