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TMI Blog2007 (1) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer by issuing notice under section 148 on 27-3-2001 and in reply to the said notice, a letter was filed by the assessee stating that her return of income filed originally may be treated as filed in response to the said notice. During the course of reassessment proceedings, it was brought to the notice of the assessee by the Assessing Officer that a sum of Rs. 6 lakhs received by her as loan from M/s. Avanti Overseas Pvt. Ltd. is proposed to be treated as deemed dividend under section 2(22)(e ) and an opportunity was given to her to explain as to why the same should not be added to her total income. In reply, it was submitted by the assessee that the lending of money was a substantial part of the business of M/s. Avanti Overseas Pvt. Ltd. and since the advance made by the said company to her was in the ordinary course of the said business, the amount so advanced could not be treated as deemed dividend as per the provisions of sub-clause (ii) of clause (e) of sub-section (22) of section 2. From the perusal of memorandum and articles of association of M/s. Avanti Overseas Pvt. Ltd., it was, however, noted by the Assessing Officer that the main object of the said company was not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer to the total income of the assessee on account of deemed dividend under section 2(22)( e) for the following reasons given in paragraph Nos. 2.3 to 2.5 of his impugned order :- "2.3 I have heard the learned AR and also carefully examined the written submissions filed by him in the course of appeal proceedings. I have also perused the assessment order and other material placed on record. As per the provisions contained in section 2(22)( e) of the Act, dividend includes, inter alia, any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares, holding not less than 10 per cent of the voting power, to the extent to which the company possesses accumulated profits. Perusal of facts on record show that M/s. Avanti Overseas Pvt. Ltd. was a private limited company in which public were not substantially interested. The appellant was a shareholder in the said company, holding 8,000 equity shares out of total 40,000 equity shares of the company. The appellant was, thus, owner of the shares holding more than 10 per cent of the voting power in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Agricultural Income : 27,540 Dividend : 26,073 Interest : 10,43,321 Quality claims : 8,25,120 written back Other : 35,518 Total : 5,41,27,254 2.5 From the above, it can be seen that out of total turnover/gross receipts of Rs. 5,41,27,254, export turnover (including export incentives) was to the tune of Rs. 5,18,74,925 which constituted 95.8 per cent of the total turnover/gross receipts of the business of the company. Thus, it is evident that the export business was a substantial part of the business of the company. The gross receipts on account of interest was Rs. 10,43,321 which constituted only 1.92 per cent of the total turnover/receipts of the business amounting to Rs. 5,41,27,254. Even assuming that the entire gross receipt of interest was attributable to the alleged money-lending business, it cannot be said that such money-lending business was the substantial part of the business of the company. As the alleged business of money-lending was not the substantial part of the business of the company, the exception provided in clause (ii) of section 2(22)(e) will, therefore, not be applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -lending for the immediately preceding ten years is taken into consideration vis-a-vis the total net profit, it comes to 23.05 per cent of the total net profit which again shows that the money-lending business was a substantial part of the business of the said company. He contended that even though the expression "a substantial part of the business" used in clause (ii) below sub-section 2(22)(e ) has not been defined in the statute, a similar expression "a substantial interest" used in clause (e) of section 2(22) has been defined in Explanation 3(b) as a person who is beneficially entitled to not less than 20 per cent of the income of such concern at any time during the previous year. According to him, if this basis given in Explanation 3(b) to work out the substantial interest in a concern is also adopted to ascertain "a substantial part of the business" as contemplated in sub-clause (ii) of clause (e) of section 2(22 ), the income of M/s. Avanti Overseas Pvt. Ltd. being more than 20 per cent of its total income, the same would form a substantial part of its business. 6. Relying on the decision of Hon'ble Supreme Court in the case of CWT v. Kripashankar Dayashankar Worah [1971] 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ratio of more than 15 per cent. He also pointed out that dividend was regularly declared and paid by M/s. Avanti Overseas Pvt. Ltd. to its shareholders including the assessee during the relevant period involving assessment years 1988-89 to 2005-06. He contended that if the facts and figures of the said company for the period comprising of immediately preceding ten years are taken into consideration, it would be clear that the lending of money was a substantial part of the business of the said company and the amount of Rs. 6 lakhs in question having been advanced by the said company to the assessee in the ordinary course of the said business, the amount so advanced could not be treated as deemed dividend as per the exception given in sub-clause (ii) of clause (e) of section 2(22). 8. The learned DR, on the other hand, submitted that each year is a separate year and facts and figures of the relevant year wherein the amount is actually advanced has to be seen to ascertain whether the conditions specified in sub-clause (ii) of clause (e) of section 2(22) were satisfied. He contended the contention of the learned counsel for the assessee that the position of ten immediately preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igures of four years to determine whether the lending of money constituted substantial business of the said company and therefore, the learned DR cannot be heard of saying that only the relevant year under consideration has to be seen for this purpose. He also submitted that the leasing being one form of financing business of the said company is very much a part of money-lending/finance activity and there is no manipulation of any figures given by the assessee on page No. 60 of his paper book as alleged by the learned DR. 10. We have considered the rival submissions and also perused the relevant material on record. As per the submissions made by the learned counsel for the assessee before us, even though all the other conditions stipulated in section 2(22)( e) are satisfied to treat the amount in question received by the assessee as loan from M/s. Avanti Overseas Pvt. Ltd. to be a deemed dividend, the same being covered by the exception provided in sub-clause (ii), cannot be brought to tax in the hands of the assessee by invoking the said deeming provisions. The stand of the Revenue, on the other hand, is that the conditions stipulated in the said sub-clause are not satisfied in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld reasonably be taken into consideration to ascertain the exact position for this purpose. In this regard, he has invited our attention to such figures for the ten years given at page No. 60 of his paper book in support of his stand whereas the learned DR, without prejudice to his main contention that only the facts and figures of the relevant year are to be taken to decide the issue in dispute, has pointed out many discrepancies in the figures of ten years so given by the assessee. Be that as it may, the main issue which has to be decided by us in this context is whether for ascertaining as to whether the lending of money is a substantial part of the business of the concerned company, the figures of four years have to be taken into consideration as done by the Assessing Officer or only the figures of the relevant year are to be taken into consideration as done by the learned CIT(A) and supported by the learned DR before us or the figures of at least ten years should be taken into consideration as contended by the learned counsel for the assessee having regard to the facts and circumstances of the case. 12. There is no dispute about the fact that the expression "substantial part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome amounting to Rs. 22,52,329 and as per the details thereof given at page No. 251 of the paper book, interest income was only to the extent of Rs. 10,43,321 whereas the income from lease rent was to the extent of Rs. 1,78,635. Even if the lease rental income is treated as part of the money-lending activity of the said company, the gross income of the said company from interest and lease rental aggregating to Rs. 12,21,956 was only 2.26 per cent of its total gross receipts/turnover for the year under consideration. Although the net income of the assessee from money-lending or finance business is not separately given, even if the said income is taken at a gross figure of Rs. 12,21,956 for comparison with the total net profit of the assessee-company amounting to Rs. 75,15,165, it constitutes only 16.25 per cent of such net profit. Similarly, even if the figures reflected in the balance sheet of the assessee-company as on 31-3-1998 as given on page No. 242 of the paper book are taken for comparison, it shows that the total funds available with the assessee-company as on 31-3-1998 were to the tune of Rs. 2,61,99,934 out of which an amount of Rs. 42,68,640 only was given as loans as re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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