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TMI Blog2014 (4) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany as the holder of the shares who can be said to be a shareholder qua Company and not the person beneficially entitled to the shares - it is only where a loan is advanced by the Company to the registered shareholder and the other conditions set out in Section 2(22)(e) of the Act are satisfied, that amount of loan would be liable to be regarded as deemed dividend – thus, there was no reason to interfere in the decision of the Tribunal – Decided against Revenue. - IT Appeal Nos. 322 to 324 of 2012 - - - Dated:- 8-1-2014 - DILIP B. BHOSALE AND B. Manohar, JJ. For the Appellant : Sri. E.R. Indrakumar Senior Counsel for E.I. Sanmathi For the Respondent : Sri. A. Shankar and Sri. M. Lava, Advs. JUDGMENT Dilip B. Bhosale, J. These income tax appeals preferred by the revenue are against the order dated 13th April 2012 passed by the Income Tax Appellate Tribunal, 'A' Bench, Bangalore (for short Tribunal ) in ITA Nos.762-764/Bang/2011 pertaining to assessment years 2006-07 to 2008-09. Tribunal vide order dated 13th April 2012 dismissed the appeals answering the questions formulated therein in favour of the assessee. The questions formulated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which it was revealed that the respondent assessee had taken an unsecured loan from Ittina of Rs.9,56,48,107/-. He accordingly treated that as a deemed dividend under Section 2(22)(e) and directed the respondent-assessee to pay tax of Rs.4,66,16,860/- including interest. The order of the Assessing Officer was carried by the respondent-assessee in appeal before the Appellate Authority. The Appellate Authority reversed the order passed by the Assessing Officer holding that the respondent-assessee is not a shareholder of M/s. Ittina Properties Private Limited and in view thereof, not liable to pay taxes under Section 2(22)(e) of the Act. The order of the appellate authority has been confirmed by the Tribunal vide the order, impugned in the present appeals. 4. We have heard learned counsel for the parties and with their consent the appeals were taken up for final disposal at the stage of admission, on the substantial questions of law formulated by us with the assistance of learned counsel for the parties. 5. Though the revenue has formulated the substantial questions of law in the memorandum of the appeal, learned counsel for the parties have agreed that the substantial questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 144, the judgment of Delhi High Court in CIT v. MCC Marketing (P.) Ltd. [2012] 343 ITR 350/204 Taxman 56 (Mag.)/[2011] 16 taxmann.com 411 and in CIT v. Ankitech (P.) Ltd. [2012] 340 ITR 14/[2011] 199 Taxman 341/11 taxmann.com 100 (Delhi) to contend that since the respondent-assessee was and is not a shareholder? of M/s. Ittina from which it has received monies, which are in the nature of loan or advances, are not covered by the definition of the word dividend as contained in Section 2(22)(e) of the Act. 9. There does not appear to be any dispute that the amounts, as aforementioned, were advanced by M/s.Ittina to the respondent-assessee during the relevant assessment years. Admittedly, the respondent-assessee was not a shareholder of M/s. Ittina at any point of time. It is true that the Directors and shareholders of both the companies, are members of one and the same family and they have substantial holding in M/s. Ittina and respondent-company. Whether that by itself, is sufficient to treat the amounts advanced as deemed dividend within the meaning of Section 2(22)(e) of the Act is the question that falls for our consideration. 10. The Bombay High Court in Universal Medica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee. We may in concluding note that the basis on which the assessee is sought to be taxed in the present case 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. (Emphasis supplied) 11. The Delhi High Court in MCC Marketing (P.) Ltd. (supra) also considered almost similar questions and in the light of the judgment of the Division Bench of the very High Court in Ankitech (P.) Ltd. (supra) held that the Assessing Officer erred in invoking the provisions of Section 2(22)(e) of the Act mainly because the Director of the Company was holding m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified under section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsel for the Revenue would stand answered, once we look into the matter from this perspective. (Emphasis supplied) 11.1 Further, we would like to quote the following observations made in paragraphs 27 and 28 from the Judgment of the Delhi High Court in Ankitech P. Ltd. (supra), which read thus: .The courts have held that if the amounts advanced are for business transactions between the parties, such payment would not fall within the deeming dividend under Section 2(22)(e) of the Act. In so far as reliance upon Circular No.495, dated September 22, 1987, issued by the Central Board of Direct Taxes is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shareholder, the said partner shall be the 'shareholder' in the records of the company but not the beneficial owner as 'beneficial owner' is the partnership firm. This would mean that the loan or advance given by the company would never be treated as deemed dividend either in the hands of the partners or in the hands of partnership firm. In this way the very purpose for which this provision was enacted would get defeated. The object behind this provision is succinctly stated in the Circular No.495 of 22nd September, 1987 particularly in the Explanatory Notes to Finance Act, 1987 when this provision was amended. 12.1 The question that the Delhi High Court was considering in the said judgment read thus: '(1) To attract the first limb of Section 2(22)(e) of the Act, is it necessary that the person who has received the advance or loan is a shareholder and also beneficial owner. To put it otherwise, whether both the conditions are required to be satisfied will depend upon the interpretation to be given to the words being a person who is a beneficial owner of shares... which was inserted by amendment in the aforesaid provision carried out by the Finance Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend , Clause (e) of Section 2(22) of the Act brings within its purview attempts which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression dividend by providing an inclusive definition. 16. In the present case, we are concerned with the second limb of Section 2(22)(e) of the Act namely, to any concern, like the respondent assessee, in which such shareholder is a member or a partner and in which he has a substantial interest. The respondent assessee is admittedly not a shareholder of M/s. Ittina. It is not even the case of the assessee that it is a shareholder of M/s. Ittina, though, shareholders of the respondent-assessee and M/s. Ittina are common and/or members of the same family. In this backdrop when we look at the provisions contained in Section 2(22)(e) of the Act, the intendment of the Legislature is clear, which means to tax dividend in the hands of shareholders. The deeming provisions, as observed by Delhi High Court, as it applies to the case of loans/advances by a Company to a concern in which its shareholders have substantial interest, is based on the presumption that the loans or advances would ultimately ..... X X X X Extracts X X X X X X X X Extracts X X X X
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