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TMI Blog2014 (7) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ushodaya Enterprises Ltd. For rendering services the assessee was receiving advances from Ushodaya Enterprises and the advances are subsequently adjusted against the bills raised for the services rendered. The Assessing Officer further noticed that Ch. Ramoji Rao (HUF) is holding 90% share or voting right in both the companies. Ushodaya Enterprises Ltd is also having accumulated profits. The Assessing Officer therefore was of the view that the excess advances received against the services to be rendered comes under the purview of deemed dividend u/s 2(22)(e) of the Act. Though it was submitted by the assessee that the advances are not in the nature of loans but were trade credits against which bills were raised and services were rendered, the Assessing Officer however rejecting such contention held that advances received fell within the purview of deemed dividend u/s 2(22)(e) of the Act and accordingly treated the amount of Rs. 1,89,60,138/- as income of the assessee for the assessment year under dispute. 4. The assessee challenged the assessment order so passed by preferring an appeal before the CIT(A). The CIT(A) following his finding in assessee's appeal for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power, Second limb b) or to my 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) Third limb c) or any payment by any such company on behalf, or for the individual benefit, or any such shareholder, to the extent to which the company in either case possesses accumulated profits. 23. It is rightly pointed out by the Bombay High Court in Universal Medicare (P) Ltd.(supra)that Section 2(22)(e) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 counsels for the Revenue would stand answered, once we look into the matter from this perspective. 26. In a case like this, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (203 Taxman 618) and Hon'ble Bombay High Court in case of CIT Vs. Universal Medicare (P) Ltd., (324 ITR 263). 9. 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 provisions of amended section 2(22)(e) are to be applied only to the payments made to the shareholders and not to any other person or concern other than the shareholders. The Allahabad High Court in the case of CIT vs. H.K. Mittal reported in 219 ITR 420 held that the chief ingredient of dividend as defined in sub clause (e) of clause (22) of section 2 of the I T Act is that the recipient should a shareholder on the day the loan was advanced. If that fact is not established, there cannot be a deemed dividend. Therefore, the provisions of sec. 2(22)(e) cannot be applied to MARC as it is not a shareholder in MTAR Technologies Pvt. Ltd. (Hereinafter called as MTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid the advances cannot be treated as deemed dividend coming within the ambit of section 2(22)(e) of the Act. 10. Even otherwise also the amounts received by the assessee from M/s Ushodaya Enterprises P. Ltd. cannot be treated as deemed dividend under section 2(22)(e) of the Act. On a perusal of the order passed by the CIT(A) for the assessment year 2006-07, which is also in appeal before us, it is very much evident that the CIT(A) has elaborately and exhaustively dealt with the issue by examining all the relevant facts and materials and thereafter has come to the conclusion that the amounts received by the assessee from M/s Ushodaya Enterprises is in regular course of trade, hence, outside the purview of section 2(22)(e) of the Act. On the contrary, the Assessing Officer neither in course of the assessment proceeding nor in his remand report has brought any materials to establish the fact that the amount received was not in regular course of trade but in the nature of loan and advance as envisaged u/s 2(22)(e) of the Act. In aforesaid view of the matter, we find no reason to interfere with the order passed by the CIT(A) in all the assessment years under consideration and up ..... 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