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TMI Blog2014 (10) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as deemed dividend u/s 2(22)(e) of the IT Act – Decided in favour of asssessee. - ITA No. 1798/Del./2013, CO No. 147/Del/2013 - - - Dated:- 22-8-2014 - Shri B. C. Meena And Shri Aby T. Varkey,JJ. For the Petitioner : Shri S.R. Wadhwa, AR For the Respondent : Shri Gunjan Prashad, CIT DR ORDER Per B. C. Meena, Accountant Member : The appeal filed by the revenue and cross objection filed by the assessee emanate from the order of CIT (Appeals)-VIII, New Delhi dated 07.01.2013 for the assessment year 2009-10. 2. The assessee is a private limited company incorporated with the object for making investment in shares/securities of listed companies. During the year under consideration, the assessee did not carry out any activities as mentioned in the objects of the company. However, assessee has earned dividend of ₹ 4,88,353/- and misc. income of ₹ 33/- only. The Assessing Officer found that M/s. Morgan Credits Pvt. Ltd. has discharged the liability of the assessee company by repayment of loan to HDFC Ltd. on behalf of the assessee company. Ms. Rakhi Kapoor is a common shareholder in both the companies, viz., assessee company and M/s. Morgan Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan or an advance cannot be treated as covered by the definition of the word dividend as containing in section 2.(22)(e) of the IT Act. The Hon'ble High Court has held as under:- 24. The intention behind enacting provisions of s. 2(22) (e) is that closelyheld 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 a the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loans or advances to shareholders or to concerns in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is treated as dividend. The intention behind the provisions of s. 2 (22) (e) of the Act is to tax dividend in the hands of shareholders. The deeming provision as it applies to the case of loans or advances by a company to a concern in which its shareholder has substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the East India Impex (Delhi) Private Limited had common shareholders, cannot be a ground to invoke Section 2(22)(e) of the Act, if the assessee did not have the prescribed voting rights. The tribunal also examined the merits of the case and held that the transactions between the assessee and the East India Impex (Delhi) Private Limited were. business transactions and cannot be treated as loans or advance. 7. We need not examine the second aspect on merits. The first aspect, i.e., whether or not the respondent assessee had the requisite voting rights and shareholding of common shareholders can be taken into consideration for applying Section 2(22)(e) of the Act stands decided by this Court in CIT versus Ankitech Private Limited (2011) 242 CTR 129 (Delhi) = (2011- TIOL-290-HC-DEL-IT). In the said decision, it has been held that to attract. the provisions of Section 2(22)(e) of the Act, payment must be made to the person, who is' a registered holder 'of shares and the shareholder alone. Even after the amendment with effect from 1988 and introduction of the words a person who is the beneficial owner of shares cannot be construed to in a way alter the position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(22)(e) of the Act is to tax dividend in the hands of shareholders. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the Ld. CIT(A) erred in deleting the addition of ₹ 27.75 cr which the Ao had treated as deemed dividend u/s 2(22)(e) by holding that the assessee company is not a shareholder in the company which advanced the loans while ignoring the fact that one of the shareholder had more than 10% shareholding in both the companies? 2. That the order of the Id. CIT(A) is erroneous and is not tenable on facts and in law. 3. The appellant craves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of the hearing. 4. At the outset of the hearing, ld. AR submitted that this issue is covered by the decision of Hon'ble Delhi High Court in the case of DCIT vs. M/s. GP Co. (P) Ltd. reported in 2012-TIOL-341-ITAT-DEL. Ld. DR was also not having any different view. 5. After hearing both the sides and considering the submissions made and also gone through the case laws relied upon, we find no merits in the appeal of the revenue and the same is dismissed. 6. In the cross objection, the grounds taken by the assessee read as under:- 1. That on the facts and in the circumstances of the case, the amount of ₹ 27.75 crores p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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