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TMI Blog2015 (2) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has not chosen to challenge the same. In the light of law as declared by the Hon'ble High Court of Karnataka and in view of the fact that the CIT(A) has determined the ALV at a much higher figure than what is contemplated by the decision of Hon'ble High Court of Karnataka and in view of the fact that the assessee has not challenged the said determination of ALV by the CIT(A), we are of the view that the order of CIT(A) calls for no interference and should be confirmed - Decided in favour of assessee Disallowance of interest on borrowings made - CIT(A) allowed the claim - Held that:- The findings of the CIT(A) clearly show that assessee had borrowed loans for the purpose of acquiring the property. There is no material on record brought out by the Revenue to dislodge the findings of CIT(A). - Decided in favour of assessee Deemed dividend addition u/s. 2(22)(e) - Held that:- Since the Assessee in the present case is not a shareholder in the lender company, we are of the view that loan or advance to a non-shareholder cannot be taxed as Deemed Dividend in the hands of a non-shareholder - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... e would be ₹ 23,05,040 and accordingly he directed the AO re-compute income under the head 'income from house property. In this connection, he also observed that the doctrine of res judicata or estoppel does not apply as held by Hon'ble Supreme Court in New Jehangir Vakil Mills Co. Ltd. v. CIT (1963) 49 ITR 137 (SC). Thus, assessee was allowed a relief of ₹ 20,14,960 by the CIT(A). 7. Aggrieved by the order of CIT(A), the revenue has preferred the present appeal before the Tribunal. 8. We have heard the submissions of the ld. DR, who reiterated the stand of the AO. The ld. counsel for the assessee relied on the order of CIT(A). 9. We have considered the rival submissions. Perusal of the order of CIT(A) shows that annual value for the property in question has been determined by BBMP at ₹ 29,722 for the relevant financial year. The Hon'ble High Court of Karnataka in the case of Shri P. Balakrishnan v. CIT, ITRC No.59/1982 dated 26.2.1982 has taken the view that in the absence of any other details, the ALV fixed by the Corporation is the yardstick for determination of ALV u/s. 23 of the Act. If that yardstick is applied, then the actual rent received by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and remaining ₹ 3,48,62,400/- towards purchase of site No.407, 408 and 409. Further it is also observed that the outstanding loan as on 29/06/2084 was repaid after obtaining loan from M/s Tayana Consult Pvt. Ltd. of ₹ 5,61,81,550/- on 29/06/2004. Thus if at all interest to be charged on ₹ 3,48,62,408/- not on ₹ 5,19,00,000/-, since site No.445 was not subjected to lease agreement. Thus the total interest would comes at ₹ 20,91,744/- and six months interest would be ₹ 10,45,872/-. The Assessing Officer is therefore directed to consider interest of ₹ 10,45,872/- while computing income under the head 'Income from House Property.' Thus the appellant partly succeeds in this ground." 12. Aggrieved, the Revenue has raised the aforesaid issue before the Tribunal in the form of ground No.4. 13. We have heard the submissions of the ld. DR who relied on the order of AO and the ld. counsel for the assessee who relied on the findings of CIT(A). 14. We have considered the rival submissions. The findings of the CIT(A) clearly show that assessee had borrowed loans for the purpose of acquiring the property. There is no material on record brought out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting a part of the assets of the company or otherwise) made after the 31-5-1987, 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." 22. Explanation-3 to Section 2(22)(e) is as follows: "Explanation-3: For the purpose 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 percent of the income of such concern;" 23. Section 2(32) defines the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncern viz., when the concern is not a company, he must at any time during the previous year, be beneficially entitled to not less than twenty percent of the income of such concern; and where the concern is a company he must be the owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty percent of the voting power (d) If the above conditions are satisfied then the payment by the company to the concern will be dividend. 26. The Special Bench of ITAT, Mumbai, in the case of Bhaumik Color Labs ITA 5030/M/04, 118 ITD 1 (SB) (Mum), considered the question Whether deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961 can be assessed in the hands of a person other than a shareholder of the lender? The Special Bench held that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. The Special Bench on the above issue has observed as follows:- 30. At the outset it has to be mentioned that provisions of Sec.2(22)(e) which brought in a new category of payment which was to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 2(22)(e) is, that 'the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf or for the individual benefit of any such shareholder ……. " Thus, the substance of the requirement is that the payment should be made on behalf of or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is pad by the company, whether to the shareholder, or to the concerned firm. In which event, it would fall within the expression 'deemed dividend'. Obviously, income from dividend, is taxable as income from the other sources under section 56, and in the very nature of things the income has to be of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course, the two individuals being R and D. are the common persons, holding more than requisite amount of shareholding and are having requisite interest, in the firm, but then, thereby the deemed divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 intention of the legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern. 36. The basis of bringing in the amendment to Sec.2(22)(e) of the Act by the Finance Act, 1987 w.e.f 1- 4-88 is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can drawn the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore proper to construe those provisions as contemplating a charge to tax in the hands of the shareholder and not in the hands of a non-shareholder viz., concern. A loan or advance received by a concern is not in the nature of income. In other words there is a deemed accrual of income even u/s.5(1)(b) in the hands of the sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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