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TMI Blog2015 (6) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... whether with or without a right to participate in profits, carrying not less than 20% of the voting power" as appearing in section 2(32) of the Act. Thus it is the ownership of the shareholder alone in the company to which the loan/advance is made by the company, and not his or her relative or family members, which is the determinative factor. Accordingly, inclusion/clubbing of beneficial ownership of family members with that of Shri Anand Prakash Srivastava is not mandated by the provisions of the Act and thus tantamount to reading a condition which is not there. We find that Ld. CIT(A) has also held that the loan/advance given by the assessee company cannot be termed as having been made for and on behalf or for the individual benefit of APS, as envisaged by the provisions of section 2(22)(e) of the I.T. Act. The intention behind enacting the 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 tax-able in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the above disallowance without providing the Assessing Officer any opportunity to rebut, as per the provision of Rule 46A, on the submission of the assessee that details were filed during the course of assessment. 3. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 4. That the grounds of appeal are without prejudice to each other. 5. That the appellant craves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of the hearing. 2. The brief facts of the case are that the assessee company was engaged in the business of manufacturing exporting and dealing in all kinds of ayurvedic and herbal preparations. The return of income for the AY 2009-10 was filed on 30.3.2010 declaring an income of ₹ 3,76,95,433/-. The same was processed u/s. 143(1) of the Act. Subsequently, the case was selected for scrutiny through CASS and statutory notice u/s. 143(2) dated 20.8.2010 was issued and served. The assessment was completed u/s. 143(3) vide order dated 29.12.2011 by the AO at the income of ₹ 5,33,76,472/-making the various additions. 3. Against the assessment order, assesse appeal before the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,81,039/- paid as loan/advance by the appellant company to as many as 4 person (3 companies and 1 charitable society). S. No. Company's name Opening balance Paid during the year Received during the year Closing balance Nature of payment made 1. Global Diamonds (P) Ltd. 55633463 6946039 12675000 49904502 Loan 2. Maharishi Vedic Construction Corpn. (P) Ltd. 868847 2350000 - 3218847 Advance 3. Golden Glades Ltd. 40626000 385000 - 41011000 Advance 4. SRM Foundation of India (Charitable) - 6000000 - 6000000 Loan Total (Rs.) 97128310 15681039 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said concern). Third limb:- (c) 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; 5.2 The provisions of section 2(22)(e) create a fiction bringing in amount paid otherwise than as dividend, into the net of dividends. Therefore, this clause must be given a strict interpretation as has been held by the Hon'ble Supreme Court in the case of CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170(SC)Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1 (SC) 6. It is seen that Shri Anand Prakash Srivastava is the beneficial owner and registered share holder, holding 99.9% of voting power of the assessee company; he is the substantial shareholder of the assessee company. 6.1 It now has to be seen whether loans and advances have been given to him as per clause (a), or to any concern in which Shri. Anand Prakash Srivastava is a member or a partner and in which he has a substantial interest as per clause (b), any person on behalf of or for the individual benefit of Shri. Anand Prakash Srivastava (c) 6.2 Loans or advance have not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.994% ( ii ) Anand Prakash Shrivastava 1,000 10,000 00.003% ( iii ) Others 1,070 10,700 00.003% Total 2,96,01,428 29,60,14,280 100.000% * Note : Shri Anand Prakash Shrivastava does not hold any equity shares in Maharishi Global Construction ltd. C. Golden - Global Glades Ltd. SI. No. Name of the Shareholder No. of equity share of ₹ 10 each Paid-up share capital % age of holding ( i ) Anand Prakash Shrivastava 19,746 1,97,460 4.562% ( ii ) Hima Srivastava 42,900 4,29,000 9.911 % ( iii ) Ram Srivastava 42,900 4,29,000 9.911% ( iv ) Nishi Srivasta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to hold whether a person has a substantial interest in a company or not, the holding of all the family members including of Shri Anand Prakash Srivastava is to be seen and clubbed together; and as such shareholding exceeds 20% in all the companies or concerns, therefore, provisions of section 2(22)(e) gets attracted. The percentage of shareholding 1 voting power/share in the income after clubbing of the share of the family members in the four companies/concern is as under: SI. No. Name of the company/concern % of share holding/Voting Rights/income ( i ) Global Diamonds (P) Ltd Above 20 % ( ii ) Maharishi Vedic Construction Corpn. (P) Ltd. .003% ( iii ) Golden Glades Ltd. Above 20% ( iv ) SRM Foundation of India Nil, being charitable society 7. The appellant in this regard has contended before me. Further, as regards the inclusion/clubbing of shareholding of family members, that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here demonstrated or established any nexus between the loans granted by the appellant company vis- -vis flow of funds to Sh. Anand Prakash Srivastava (shareholder of the appellant company). Therefore, the finding of the Ld. AO in this regard is merely based on assumption and presumption only and deserves to be quashed being based on no evidence ......... Whereas in the present case, there is no finding that loan/advances given by the appellant company to the three companies and one charitable society have reached the hands of APS (a shareholder controlling the appellant company) ....... 8. The Special Bench of the Hon'ble ITAT in the case of Assistant Commissioner of Income Tax v. Bhaumik Colour P. Ltd [2009] 313 ITR (A.T.) 0146 (Mum) (SB) has taken a very strict interpretation of Section 2(22)(e) and has stated as under :- Section 2(22) of the Act artificially extends the scope of dividend from being more than only a distribution of profits to cover certain other types disbursements such as loans paid, etc. ........ The new category of payment which was considered as dividend introduced by the Finance Act, 1987, with effect from April 1, 1988, by the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. 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 loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. ....... The Apex Court while considering what can come within the artificial definition of dividend under section 2(22) in the case of CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC) described the scope of the definition of dividend thus The definition is, it is true, an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view. 8.1 In this case the ratio laid down, in brief, was that the deemed dividend can be assessed only in hands of a person who is a shareholder of lender company and not in hands of a person other than a shareholder . Also expression 'shareholder' referred to in section 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the income of the assessee. No provision has been brought to my notice which authorises the revenue authorities to consider the share holding or ownership of the husband or son as the holding or ownership of the assessee or to include the same for determining the assessee's interest in the company. 10. Following this case, the aforementioned case has correctly brought out that the other relatives of Sh. Anand Prakash Shrivastava are different, distinct and independent assessee under the Act and unless the law prescribes that the transactions/holdings of these persons can be clubbed with that of the majority shareholder, it cannot be done. Accordingly, it is held that in the case at hand that the aforesaid condition No. (b) given in para 5.2 above is not attracted. 11. The AO has not brought out any facts to show that the third limb (c) given in para 5.2 of Section is attracted. Loans/advances given by the appellant company cannot be termed as having been made for an on behalf of or for the individual benefit of Sh. Anand Prakash Srivastava as envisaged by the provisions of section 2(22)(e) unless some transactions to prove this are brought out. The individual benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 2(22)(e) of the I.T. Act. 7.3 We find that the Ld. CIT(A) has rightly referred the Special Bench of the ITAT in the case of Asstt. CIT v. Bhaumik Colour (P.) Ltd [2009] 313 ITR (A.T.) 0146 (Mum) (SB) has taken a very strict interpretation of Section 2(22)(e) and has stated as under :- Section 2(22) of the Act artificially extends the scope of dividend from being more than only a distribution of profits to cover certain other types disbursements such as loans paid, etc. ...... The new category of payment which was considered as dividend introduced by the Finance Act, 1987, with effect from April 1, 1988, by the second limb of section 2(22)(e) is payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest . It is this category of payment with which we are concerned in this reference. The following conditions are required to be satisfied for application of the above category of payment to be regarded as dividend. They are: (a) There must be a payment to a concern by a company. (c) A person must be a shareholder of the company being a registered holder and beneficial owner of shares (n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificial definition of dividend under section 2(22) in the case of CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC) described the scope of the definition of dividend thus The definition is, it is true, an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view. 7.6 We also find that the Ld. CIT(A) has relied upon the ITAT case in Smt. Gunvanti R. Mehta v. ITO [1993] 45 ITD 382 (Bom.) wherein the Tribunal commented on the issue the shares held by the family can be taken into consideration in determining the substantial interest in the company held as under:- 'I find that there is nothing in section 2(22)(e) of the Act or section 2(32) of the Act to suggest that the holding or ownership of voting rights of the shares held by the family can be taken into consideration for determining the question as to whether a person is substantially interested in the company or not. The words are shareholder, being a person who has a substantial interest in the company as appearing in section 2 (22)(e) of the Act and a person who is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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