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TMI Blog2013 (10) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect of clause (e) of sub section (22) of Sec. 2 would apply only when the payment is made to shareholder - Wherever, the tax is to be deducted at source from a dividend or deemed dividend and the consequential effect of giving effect to such deduction of tax at source, etc., reference was made only to the payments to the shareholder. This would indicate clearly that clause (e) would apply only in case of payments to the shareholder and not to others. In the present case, assessee is not a shareholder of the lender company - Hence, ICDs and the advances to the assessee cannot be treated as deemed dividend at the hands of the assessee – Decided against the Revenue. - ITA No. 1721/Hyd/2012 - - - Dated:- 30-9-2013 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Appellant : Shri R. Laxman For the Respondent : Shri Chh. Muralikrishna Murthy Shri P. Satyanarayana Murthy ORDER Per Saktijit Dey, J.M. This appeal preferred by the Revenue is directed against the order of CIT(A)-II, Hyderabad, dated 26/09/2012, for the assessment year 2006-07. 2. In the grounds raised the Department has challenged the order of the CIT(A) deleting the addition made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order passed. In course of hearing of appeal before the CIT(A) the assessee took the same stand as was taken before the Assessing Officer and relied upon various decisions of High Courts and Tribunal in support. 6. The CIT(A) after considering the submissions of the assessee in the light of various judicial precedents cited before her more particularly the decision of ITAT, Mumbai Bench in case of Bombay Oil Industries Ltd. Vs. DCIT, ITA No. 2985/Mum/2005, dated 22/01/2009, held that ICDs received by the assessee cannot be considered along with loans and advances for the purpose of application of the provisions of section 2(22)(e) of the Act. So far as the advance received from M/s Excel Rubber Pvt. Ltd. is concerned, the CIT(A) following the decision of Hon'ble Delhi High Court in case of CIT Vs. Ankitech P. Ltd. Others (340 ITR 14) and decision of the ITAT, Hyderabad Bench in case of MTAR Technologies Pvt. Ltd. Vs. ACIT (39 SOT 465) held that the amounts received by the assessee from M/s Excel Rubber Pvt. Ltd. cannot be treated as deemed dividend u/s 2(22)(e) of the Act and accordingly deleted the addition made by the Assessing Officer. The finding of the CIT(A) in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of such shareholders. Since, the assessee is not a shareholder in M/s Exel Rubber Pvt. Ltd., the loan and advance received by the assessee cannot be treated as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee. The Hon'ble Delhi High Court in case of CIT Vs. Ankitech P. Ltd. (supra) while considering identical issue approved the decision of the ITAT, Mumbai Special Bench in case of Bhaumic Colours (P) Ltd., 313 ITR (AT) 146 and held as under: "22. Insofar as the provisions of Section 2(22)(e) are concerned, we have already extracted this provision and taken note of the conditions/requisites which are to be established for making provision applicable. In Commissioner of Income Tax Vs. C.P. Sarathy Mudaliar[1972] 83 ITR 170, the Supreme Court had traced out the assessee of this provision in the following manner: ―Any payment by a company, not being a company in which the public are substantially interest, of any sum (whether as representing a part of the assets of the company or otherwise) made after 31.05.19987 by way of advance or loan. First limb a) to a shareholder, being a person who is the beneficial of shares (not being shares entitled to a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholder has substantial interest, is based on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. 25. Further, it is an admitted case that under normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under Section 2(22)(e) of the Act. We have to keep in mind that this legal provision relates to 'dividend'. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to 'shareholder'. When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under Section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under Section 2(22)(e) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged by any fiction. 30. Before we part with, some comments are to be necessarily made by us. As pointed out above, it is not in dispute that the conditions stipulated in Section 2(22)(e) of the Act treating the loan and advance as deemed dividend are established in these cases. Therefore, it would always be open to the Revenue to take corrective measure by treating this dividend income at the hands of the shareholders and tax them accordingly. As otherwise, it would amount to escapement of income at the hands of those shareholders." 9. The same view has also been expressed by the Hon'ble Delhi High Court again in case of CIT Vs. Navyug Promoters P. Ltd. (203 Taxman 618) and Hon'ble Bombay High Court in case of CIT Vs. Universal Medicare (P) Ltd., (324 ITR 263). 10. The ITAT, Hyderabad Bench in case of MARC Manufacturers Pvt. Ltd. Vs. ACIT in ITA No. 555/Hyd/2008 dt. 31/08/2009 while considering identical issue of advancement of loan to one company, which is not a shareholder of the lender company following the decision of ITAT Mumbai Special Bench in case of Bhaumik Colour P. Ltd. (supra) and other decisions held as under: "5. It can be seen from the circular that the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source and adjustment of tax is only in respect of the payments to the' shareholder would clearly indicate that even after the amendment, the effect of clause (e) of sub section (22) of Sec. 2 would apply only when the payment is made to shareholder. Wherever, the tax is to be deducted at source from a dividend or deemed dividend and the consequential effect of giving effect to such deduction of tax at source, etc., reference was made only to the payments to the shareholder. This would indicate clearly that clause (e) would apply only in case of payments to the shareholder and not to others." 11. In the appeal before us admittedly the assessee is not a shareholder of the lender company. Hence, considered in the light of the ratio laid down in the judicial precedents referred to above the ICDs of Rs. 2,91,50,000/- and the advances to the assessee amounting to Rs. 1,44,86,549/- cannot be treated as deemed dividend at the hands of the assessee. Therefore, there is absolutely no reason to interfere with the order passed by the CIT(A) which is accordingly upheld. 12. In the result, Department's appeal is dismissed. Pronounced in the open court on 30/09/2013. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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