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TMI Blog2013 (5) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... advance and as such the provisions have been wrongly invoked and upheld which is illegal, arbitrary and unjustified. 4.That the learned CIT(A) has further failed to appreciate the fact that the provisions of s. 2(22)(e) are also not attracted in as much as the assessee appellant is not the shareholder in M/s Shalimar Estates (P) Ltd. and as such the provisions have been wrongly invoked and upheld which is illegal, arbitrary and unjustified. 3. After hearing both the parties, we find that during assessment proceedings, the AO noticed that assessee has debited a sum of Rs. 13,69,527 towards financial expenses. Out of this sum of Rs. 13,69,527, an amount of Rs. 13,63,428 is on account of interest on O.D. account, therefore, assessee was asked to justify the claim of this interest expenses. In response, the assessee replied as under : "The assessee had applied for a plot in IT park, Panchkula developed by HSIDC. As per the prescribed requirements an application money of Rs. 90,00,000 was paid along with application. There was further requirement to prove financial health to pay the price when allotted the plot. For this an FDR of Rs. 5 crores was not made from the bank (procured thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against which interest has been earned by the assessee. In this regard, he referred to the computation of income and pointed out that interest on FDR amounting of Rs. 15,39,228 was declared by the assessee in the return of income, therefore, this interest should have been netted off with the interest income. Further, the plot was not allotted to the said assessee and no capital asset came into existence, therefore, interest has to be allowed as business expenditure. 7. On the other hand, the learned Departmental Representative submitted that application for allotment of plot cannot be called the business purpose. At best, it can be construed as explanation of the business and in that case after amendment to s. 36(l)(iii) by way of proviso, such interest is not allowable. 8. We have considered the rival submissions carefully. It has not been disputed before us that assessee borrowed a sum of Rs. 6 crores from its sister concern M/s Shalimar Estates (P) Ltd. and made an FDR of Rs. 5 crores in the bank against which OD was obtained and sum was utilized in repayment of the loan and the balance outstanding of M/s Shalimar Estates (P) Ltd. remained only Rs. 1,93,94,909. The basic purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh plot or purchase agricultural land and subject it to change of land use for infotech purposes and not to be used for personal purpose of any shareholder or any officer of the company whether as loan or otherwise. (iv) That as mutually decided between the two companies during the year Rs. 6 crores was transferred as purchase imprest from M/s Shalimar Estates (P) Ltd. to M/s Shalimar Infonet (P) Ltd. (v) That Shalimar Infonet (P) Ltd. made an FDR of Rs. 5 crores out of this money in order to comply with one of the conditions of application. (vi) Against this FDR, Shalimar Infonet (P) Ltd. took overdraft from Canara Bank and repaid Rs. 4.21 crores to Shalimar Estates (P) Ltd. Balance amount of Rs. 1.93 crores was in the nature of purchase imprest (1/3rd share). Copy of resolution of M/s Shalimar Estates (P) Ltd. is enclosed herewith as Annex. III." 10. It was further stated that in the light of above facts, the said amount should not be treated as loan or advance because the same was in the nature of "purchase imprest" and, therefore, cannot be treated as deemed dividend. Reliance was also placed on the decision of CIT v. Ambassador Travels (P.) Ltd. [2009] 318 ITR 376/[20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince assessee company did not have sufficient funds, it entered into an understanding with its sister concern whereby M/s Shalimar Estate (P) Ltd. was to give the initial money. The money was mainly required because there was a condition of possession of liquid assets by the applicant. The assessee company borrowed a sum of Rs. 6 crores and made an FDR for Rs. 5 crores with the bank to show the same as liquid funds available for allotment of plot. On the basis of this FDR, an OD limit was sanctioned and that amount was paid to M/s Shalimar Estate (P) Ltd. and by the end of the year only a sum of Rs. 1,93,94,909 remained outstanding. He particularly referred to the Board's resolution passed by M/s Shalimar Estate (P) Ltd. whereby it was clearly resolved that M/s Shalimar Estate (P) Ltd. would provide funds to the assessee for making an application to HSIDC for allotment of a plot and M/s Shalimar Estate (P) Ltd. would become owner of l/3rd of the plot on successful allotment. In case no allotment was made then some portion of the money will remain with the assessee as purchase imprest with the understanding that the same has been given for specific purpose to apply for fresh plo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholder, to the extent to which the company in either case possesses accumulated profits." 16. The plain reading of the above provisions would show that for attracting the same, following requirements are necessary : (i) There should be payment by the company. (ii) Such company should not be a company in which the public are substantially interested. (iii) Payment must be by way of advance or loan. (iv) Such loan should be given either to a shareholder holding not less than 10 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. (v) The amount of loan or advance can be treated as dividend only to the extent the giver company has accumulated profit. In case before us, first two conditions are clearly met because M/s Shalimar Estate (P) Ltd. in which public are not substantially interested and has made a payment to the assessee company. Now the question arises whether payment made by M/s Shalimar Estate (P) Ltd. could be construed as loan or advance. Loan according to Black's Law Dictionary means 'a lending; delivery by one party to and receipt by another party of sum of money upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alimar Infonet (P) Ltd. which shall be used to apply and further comply with the prescribed condition of application. One-third costs shall be borne by Shalimar Estates (P) Ltd. whereas 2/3rd shall be borne by Shalimar Infonet (P) Ltd. through suitable bank arrangements. On successful allotment M/s Shalimar Estates (P) Ltd. shall be l/3rd owner of the property [since 51 per cent as per the terms of allotment will always have to be held by Shalimar Infonet (P) Ltd.]. If the plot is not allotted this time then such portion of money may remain as 'purchase imprest' with Shalimar Infonet (P) Ltd. with an understanding that it has been given with a 'specific purpose' to apply for fresh plot or purchase agricultural land and apply for change of land use. Also to mention that there are two proposals of agricultural land in the vicinity of IT complex which can be considered if HSIDC does not allot one plot. A detailed agreement on the lines of above understanding with respect to detailed use and possession sharing shall be entered within seven days of intimation of allotment. Further, it may be put on record that the purchase imprest is being given for a 'specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king any payment. Therefore, the payment made by M/s Shalimar Estates (P) Ltd. cannot be called loan or advance. 18. Similar situation arose before the Hon'ble Delhi High Court in the case of Ambassador Travels (P) Ltd. (supra). In that case, the assessee had entered into certain business transaction with M/s Holiday Resort (P) Ltd. and M/s Ambassador Tours (I) (P) Ltd. As a result of this business transaction, there was some financial transactions which were held to be deemed dividend by the AO. This view was upheld by the CIT(A). On further appeal, the Tribunal was of the view that there was nothing on record to show that the amounts considered by the AO were in any manner advances or loans in the account of the assessee. It was observed that assessee being a travel agency had regular business dealings with two concerns and therefore, the same was in the normal course of business. In these circumstances, it was held by the Hon'ble High Court as under : "Held, dismissing the appeal, that the assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance or loan. The word 'advance' has to be read in conjunction with the word 'loan' Usually attributes of a loan are that it involves the positive act of lending coupled with acceptance by the other side of the money as loan : it generally carries interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance' may or may not include lending. The word 'advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligation of repayment. If it does, then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term 'advance'. The rule of construction which answers this conundrum is noscitur a sociis. The rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day (1879) 5 AC 63 by observing 'it is legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them' and the Supreme Court in the cases of Rohit Pulp & Paper Mills Ltd. v. CCE AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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