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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 ..... t, 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 - the advances cannot be treated as deemed dividend coming within the ambit of section 2(22)(e) of the Act. CIT(A) has come to the conclusion that the amounts received by the assessee from M/s Ushodaya Enterprises is in regular course of trade is outside the purview of section 2(22)(e) of the Act - AO 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 – there was no reason to interfere with the order passed by the CIT(A) in all the AYs - the order of the CIT(A) is upheld in deleting the addition made by the AO towards deemed dividend u/s 2(22)(e) of the IT Act – Decided against Revenue. - I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is not a shareholder of M/s Ushodaya Enterprises Ltd. He further held that the advances made by Ushodaya Enterprises Ltd are in the form of a running account of commercial trade, hence do not come within the purview of deemed dividend as per section 2(22)(e) of the Act. The CIT(A) accordingly deleted the addition made by the Assessing Officer. 5. Being aggrieved of the aforesaid assessment order of the CIT(A), the Revenue is in appeal before us. 6. Before us, the learned counsel for the assessee has canvassed that the issue in dispute is squarely covered in favour of the assessee by the decision of the coordinate bench of ITAT, Hyderabad in assessee s own case for AY 2005-06, 2006-07, 2007-08 and 2008-09 in ITA Nos. 689, 690 1234/Hyd/2010 1849/Hyd/2011(order dated 30th September, 2013) and ITA No. 364/Hyd/2013 for AY 2009-10(order dated 08/10/2013) wherein the coordinate bench upheld the orders of the CIT(A) dismissing the appeals filed by the Revenue. 7. The learned DR, on the other hand, has not controverted the submissions of the learned counsel nor brought any contrary decision in this regard. 8. After considering the rival submissions and perusing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to be satisfied: (1) The payer company must be a closely held company. (2) It applies to any sum paid by way of loan or advance during the year to the following persons: (a) A shareholder holding at least 10 of voting power in the payer company. (b) A company in which such shareholder has at least 20% of the voting power. (c) A concern (other than company) in which such shareholder has at least 20% interest. (3) The payer company has accumulated profits on the date of any such payment and the payment is out of accumulated profits. (4) The payment of loan or advance is not in course of ordinary business activities. 24. The intention behind enacting provisions of Section 2(22)(e) is that closely held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue to argue that if this position is taken, then the income is not taxed at the hands of the recipient . Such an argument based on the scheme of the Act as projected by the learned counsels for the Revenue on the basis of Sections 4, 5, 8, 14 and 56 of the Act would be of no avail. Simple answer to this argument is that such loan or advance, in the first place, is not an income. Such a loan or advance has to be returned by the recipient to the company, which has given the loan or advance. 27. Precisely, for this very reason, 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. 28. Insofar as reliance upon Circular No. 495 dated 22.09.1997 issued by Central Board of Direct Taxes is concerned, we are inclined to agree with the observations of the Mumbai Bench decision in Bhaumik Colour (P) Ltd. (supra)that such observations are not binding on the Courts. Once it is found that such loan or advance cannot be treated as deemed dividend at the hands of such a concern which is not a shareholder, and that according to us is the correct legal pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Seamist Properties Pvt. Ltd. vs. ITO reported in (2005) 1 SOT page 142. The assessee further submits that the provisions of sec. 2(22)( e) mention as under: Any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) (made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner 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 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 6. The intention of the legislature is clarified in circular issued by the CBIT as at the time of amendment of clause (e) of sub section (22) of sec. 2 is further fortified by the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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