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TMI Blog2013 (5) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... (22)(e) to extend the legal fiction to a case of loan or advance to a non-shareholder also, loan or advance to a non-shareholder cannot be taxed as deemed dividend in the hands of the a non shareholder - assessee’s appeal is allowed. - ITA No.:7697/M/2011 - - - Dated:- 3-5-2013 - Shri Sanjay Arora And Shri Sanjay Garg,JJ. For the Appellant : Mr. Manoj Kumar For the Respondent : Mr. Ajay R Singh ORDER Per Sanjay Garg, JM :- The present appeal has been preferred by the revenue against the order of the CIT(A) dated 25.08.2011 relevant to A.Y. 2005-06, against the deletion of the addition made by the AO on account of deemed dividend u/s. 2(22)(e) of the Act. The grounds of appeal are reproduced as under: "On the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies also had adequate accumulated profits so the provisions of section 2(22)(e) get attracted in. The case of the assessee was reopened after duly recording the reasons for the same. Notice u/s. 148 and assessment u/s. 143(3) r.w.s 147 was made. The AO observed that the reserves and surplus position of Alfa Distilleries Pvt. Ltd. as on 31.03.05 was Rs.1,00,14,497 and Vulcan Distilleries Pvt. Ltd. was Rs.71,75,13. The AO held that the funds received by the assessee company from the group companies during the relevant financial year upto the accumulated profits in the balance sheet of the companies are required to be added into the income of the assessee as deemed dividend u/s. 2(22)(e) of the Act. He thus made the following additions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term "dividend" according to its ordinary and natural meaning. The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of limited company. To the extent the meaning of the word "dividend" is extended to loans and advances to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word "dividend" is altered. To this extend the definition of the term "dividend" can be said to operate. If the definition of "dividend" is extended to a loan or advance to a non-shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view." 5. The decision of the Hon'ble Special Bench in the case of Bhaumik Colours Ltd. (supra) has been affirmed by the Hon'ble High Court of Bombay in the case of CIT vs. Universal Medicare (P) Ltd. 324 ITR 263 and the operative part of the said decision is as under:- However, even on the second aspect which has weighed with the Tribunal, we are of the view that the construction which has been placed on the provisions of Section 2(22)(e) is correct. Section 2(22)(e) defines the ambit of the expression 'dividend'. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in respect of the amount of Rs.32,00,000/- is that there was a dividend under Section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer. 6. In the present, case, nowhere it is a case of the A.O. that the assessee- company is a shareholder of M/s. Alfa Distilleries P. Ltd. or M/s. Vulcan Distilleries P. Ltd. and as the assessee is not the shareholder of those companies, no addition can be made in the hands of the assessee treating the advances/loans borrowed by the assessee company from those two companies. The Ld. CIT(A) tried to distinguish the case of the assessee with that of Bhaumik Colours P. Ltd. (supra). We may note here that judicial discipline require that all authorities below should follow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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