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TMI Blog2015 (11) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... sish Roy, JCIT, Sr.DR For The Respondent : Shri Ravi Tulsiyan, FCA ORDER Per Shri N.V.Vasudevan, JM This is an appeal by the Revenue against the order dated 12.10.2012 of CIT(A)-I, Kolkata, relating to AY 2009-10. 2. The Assessee is an individual. She is a director in a company by name M/S.Bright Advertising Pvt. Ltd., (BAPL). She holds 25.24% shares in BAPL. There were transactions between the Assessee and BAPL of giving money by the Assessee to BAPL as well by BAPL to the Assessee. The AO from the ledger Account of BAPL in the books of the Assessee, took note only of the transaction whereby BAPL gave money to the Assessee and was of the view that the same was Loan or Advance within the meaning of Sec.2(22)(e) of the Act by a company (BAPL) to a person who holds substantial interest in the company (BAPL) and had to be brought to tax as deemed dividend to the extent the company possesses accumulated profits. The provisions of Sec.2(22)(e) of the Act, reads as follows: Sec.2(22) dividend includes- (e) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accumulated profits in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Explanation 3.-For the purposes of this clause,- (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ; Section 2(32) defines the expression person who has a substantial interest in the company , in relation to a company, means a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account in the sense that it has the feature of mutuality which is not present in a loan account. An account is mutual when transactions on one side are independent of the transactions on the other side. When an account has a shifting balance that is favourable to one party at times and favourable to the other party at other times, the account is current and mutual. By way of an example, the Assessee explained that when A pays ₹ 1,000/- to B and on a subsequent date B repays ₹ 1,000/- to A, it is a loan account but if instead of repaying ₹ 1,000/- B pays ₹ 1,200/- to A, such an account cannot be said to be a loan account but it is a mutual or current account as the payments by A or Bare independent and not dependent or linked with the payments made by the other. The Assessee drew attention of the CIT(A) to the decision of the Hon'ble Supreme Court in the case of Kesari Chand Jaisukh Lal vs Shillong Banking Corporation Ltd. in which it has been held that to be mutual there must be transactions on each side creating independent obligations on the other and not merely transactions which create obligations on the one side, those on the other being merely co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and consequently the A.O. was not justified in treating the sum of ₹ 15,76,77,411/- as deemed dividend in the hand of the Assessee in terms of Sec.2(22)(e) of the I.T. Act. 8. The CIT(A) agreed with the contentions on behalf of the Assessee and deleted the addition made by the AO, observing as follows: I have gone through the submission of the A. R. and the judicial decisions referred to by him. It appears to me that the sum of ₹ 15,76,77,411/- paid by the company to the appellant cannot be considered as distribution of dividend in the form of loans which was the intention of the Legislature behind enacting Sec.2(22)(e) of the I.T. Act. Secondly, it is now well established that the deeming provision should be construed strictly and the meaning of the words loans or advances used in Sec.2(22)(e) cannot be extended to other transactions like ICD or mutual and current transactions. In the above circumstances, the sum of ₹ 15,76,77,411/- received by the appellant form the company cannot be treated as loan or advance and therefore assessed in her hand as deemed dividend in terms of Sec:2(22)(e) of the LT. Act. The addition of ₹ 3,10,83,635/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year the account is squared i.e., neither the Assessee owes BAPL nor BAPL owes Assessee any sum. The Assessee was beneficiary of the sums given by BAPL at some point of time during the previous year and BAPL was the beneficiary of the sums given by the Assessee at another point of time during the previous year. It was therefore a case of mutual running or current account which created independent obligations on the other and not merely transactions which created obligations on the other side, those on the other being merely complete or partial discharge of such obligations. There were reciprocal demands between the parties and the account was mutual. 13. This tribunal in the case of Mr.Purushottam Das Mimani (supra) on identical facts came to the conclusion that the account between the Assessee and a public limited company was a running mutual current account and thereafter following the decision of the Hon ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra) held as follows: 4. We have heard rival submissions and gone through facts and circumstances of the case. We have gone through the facts of the case and found from the perusal of ledger account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in a loan transaction. 5. Here in the present case, from the facts narrated above, it is clear that both the parties are beneficiary of the transaction being current account of the above transactions i.e. shifting balances. This issue has been answered by Hon ble Calcutta High Court in the case of Pradip Kumar Malhotra v. CIT 338 ITR 538 (Cal) wherein Hon ble High Court held as under: The phrase by way of advance or loan appearing in sub-clause (e) of section 2(22) of the Income-tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of 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 n profits) holding not less than ten per cent. of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further cons deration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend with n the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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