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TMI Blog2010 (9) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... not advanced by AMPL to the assessee during the relevant previous year and could, therefore, not be treated as the amount of loan or advance received by the assessee during the relevant previous year - The opening words “any payment” occurring in clause (e) of section 2(22) of the Act contemplates actual payment made by the company to the assessee for being treated as a dividend in computing income of the assessee - Since lending of money was a substantial part of the business of AMPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it has to be excluded from the definition of "dividend" by virtue of clause (ii) of section 2(22)(e) of the Act – Decided in the favour of the assessee - Income-tax Appeal No. 37 of 2002 - - - Dated:- 20-9-2010 - KARNIK D. G., REIS F. M. JJ Ms. Asha Dessai for the Appellant. H. Rai with Sudin Usgaonkar for the Respondent No.01. JUDGMENT The judgment of the court was delivered by D. G. Karnik J.- This appeal under section 260A of the Income-tax Act, 1961 (for short the Act ) is directed against the order dated October 1, 2001 of the Income-tax Appellate Tribunal, Panaji Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the finding of the Income-tax Appellate Tribunal that the amount of Rs.2,18,60,949 does not represent deemed dividend under section 2(22)(e) of the Income-tax Act, is correct ? 5. The facts giving rise to the aforesaid questions of law are briefly stated below : The assessee is a private limited company engaged in the business of manufacture of plastic caps for mineral water bottles. During the assessment year 1997-98, the assessee declared a total income of Rs. 1,36,558, the whole of which was claimed as a deduction under section 80-IA. The Assessing Officer noticed that the company had claimed deprecation of Rs.23,38,686 under the Companies Act, but had not claimed it as a deduction by way of depreciation under section 32 of the Act. According to the assessee, in view of the decision of this court in the case of CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443, as also in the case of CIT v. Kolhapur Oxygen Acetylene Pvt. Ltd. [1991] 190 ITR 574 (Bom), the Assessing Officer cannot, suo motu, allow depreciation where the assessee had not claimed it in his return. He claimed that the allowance of depreciation was a benefit available to the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded by a decision of the Full Bench of this court in the case of Plastiblends India Ltd. v. Addl. CIT [2009] 318 ITR 352. In that case, in the return for the assessment year 1997-98, the assessee therein had added back depreciation (as shown in its books) to the net business profit while computing his income for the purpose of income-tax. In short, the assessee computed its total income without claiming depreciation under section 32 of the Act. After making the deductions and additions allowable and disallowable under the Act, the assessee determined the gross total income on which it claimed 100 per cent. deduction under section 80-IA of the Act. The return was processed under section 143(1) and accepted without any adjustment. Subsequently the assessment was reopened by the Assessing Officer on the ground that deduction under section 80-IA of the Act was to be determined on the gross total income computed after deducting all allowable deductions under sections 30 to 43D of the Act, including the current depreciation allowable under section 32 of the Act, whereas the assessee had computed the gross total income without deducting depreciation allowable under the Act. After he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o participate in profits) holding not less than ten per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but dividend does not include-. . . (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; 9. In the light of this definition, we would have to consider whether the amount of Rs. 2,18,60,949 shown to have been received by the assessee by way of loan from AMPL could be treated as deemed dividend in its hands under section 2(22) of the Act. The admitted facts are that AMPL which is the lending company is a private limited company in which the public are not substantially interested. It is also not disputed that Shri Ramesh Chauhan, during the relevant period, held 53.33 per cent. of the share ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76,39,425 and a further loan of Rs. 11,68,135 advanced during the relevant financial year. This was merely an entry regarding the provision. No interest was actually received by AMPL. This amount which was not paid by AMPL to the assessee cannot be treated as a loan/advance paid by AMPL to the assessee during the relevant previous year. The opening words any payment occurring in clause (e) of section 2(22) of the Act contemplates actual payment made by the company to the assessee for being treated as a dividend in computing income of the assessee. Moreover making of a provision for an interest which the assessee would ultimately be required to pay to the lender on the money lent cannot be regarded as a payment made by the company to the assessee. As such, the amount of Rs.32,13,367 which represents only the provision made for interest which the assessee was liable to pay to AMPL by way of an interest on the out-standing amount could not be regarded as the payment made by AMPL within the meaning of clause (ii) of section 2(22)(e) of the Act. Only the amount of Rs. 11,68,135 which was actually received by the assessee as and by way of loan or advance from AMPL would fall within in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of AMPL. Consequently, the second condition for exclusion provided under clause (ii) of section 2(22)(e) of the Act was not satisfied. Ms. Dessai submitted that the objects clause of AMPL does not contain lending of money as one of the main objects. Though a copy of the memorandum of association has not been filed on record, it is not the case of the Revenue that the act of lending money was ultra vires the objects clause of AMPL-the lending company. It is not the case of the Revenue that AMPL had no power under the memorandum of association to lend any money or that the business of advancing and lending money could not be undertaken by AMPL at all. According to Ms. Dessai, lending of money was not the main object, though it may be another object under the memorandum of association of AMPL. Ms. Dessai further submitted that though lending or advancing of money in the usual course of business may be an activity permitted by the memorandum of association of AMPL, the actual business of lending money was not the substantial part of the business of AMPL. In order to consider the activity of money-lending as a substantial part of the business of the lending company (AMPL in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of lending, the Legislature could have specifically provided for that percentage while drafting clause (ii) of section 2(22)(e) of the Act. The Legislature had deliberately used the word substantial instead of using the word major and/or specifying any percentage of the business or profit to be coming from the lending business of the lending company for the purpose of clause (ii) of section 2(22)(e) of the Act. We would give an illustration to ascertain the meaning of the expression substantial business or substantial income of a company. In the modern days, a large number of companies do not restrict to one or two businesses. They carry on numerous activities and carry on numerous businesses and have numerous business divisions. Let us take a case of a first company which has 3 divisions of works consisting of three different types of business. The turnover as well as the profit of the first division is 40 per cent. ; turnover and the profit of the second division is 30 per cent. and the turnover and the profit of the third division of the business is 30 per cent. In the case of this company no part of the business has turnover exceeding 50 per cent. and no part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether a particular business forms a substantial part of its business. Undisputedly, the capital employed by a company for carrying on a particular division of its business as compared to the total capital employed by it would also be relevant while considering whether the part of the business of the company constitutes substantial part of the business of the company. 14. Applying these tests to the present case, we do not find that the Income-tax Appellate Tribunal has committed any error in coming to the conclusion that lending of money was a substantial part of the business of AMPL. The Income-tax Appellate Tribunal has noted that 42 per cent. of the total assets of AMPL as on March 31, 1996 and 39 per cent. of the total assets of AMPL as on March 31, 1997, were deployed by it by way of total loans and advances. By no means, the deployment of about 40 per cent. of the total assets into the business of lending could be regarded as an insignificant part of the business of AMPL. The Income-tax Appellate Tribunal has also held that the income AMPL had received by way of interest of Rs. 1,08,18,036 while its total profit was Rs. 67,56,335,. Excluding the income earned by AMPL ..... X X X X Extracts X X X X X X X X Extracts X X X X
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