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TMI Blog2010 (8) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... very outset submitted that issue in dispute is squarely covered in favour of the assessee by the special bench decision of the Tribunal rendered in the case of ACIT Vs. Bhaumik Colours Pvt. Ltd. reported in 27 SOT 270 (2009)118 ITD Page 1. He pointed out that assessee company had received an advance of ₹ 49,16,365/- from its sister concern M/s. MCC Imaging Pvt. Ltd.. The AO treated this receipt as a deemed dividend u/s 2 (22)(e) and brought it to the tax. The reasons for treating it as deemed dividend assigned by the Ld. AO are that Shri Ajay Mehta is the major common shareholder between the assessee and M/s. MCC Imaging Pvt. Ltd.. He was holding 90% shares of M/s. MCC Imaging Pvt. Ltd. and 50% shares of the assessee company. Thus it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were 5 in number and as such to invoke the provisions of sec. 2(22)(e), NNT must be both a registered shareholder and also beneficial shareholder, which was not the case. The AO did not agree with the contentions of the assessee and tax ₹ 9 lakhs in the hands of the assessee company as deemed dividend. On appeal, the CIT(A) deleted the addition made by the AO holding that NNT was not beneficial shareholder of shares in the assessee company or UPPL and therefore the provisions of sec. 2(22)(e) could not be invoked. 4. The special bench has upheld the order of the Ld. CIT(A). the relevant observation of the special bench from paragraph No. 34 to 41 read as under :- 34. We are of the view that the provisions of section 2(22)(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 2(22)(e) of the Act by the Finance Act, 1987 with effect from 1-4-1988 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 draw 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of section 2(22)(e) and in the absence of indication in section 2(22)(e) to extend the legal fiction to a case of loan or advance to a nonshareholder also, we are of the view that loan or advance to a nonshareholder cannot be taxed as deemed dividend in the hands of a nonshareholder. 38. The basic characteristic of dividend as held by the Apex Court in the case of Kantilal Manilal v. CIT [1961] 41 ITR 275 is a share of profits of the company given to its shareholders. Further section 206 of the Companies Act, 1956 prohibits payment of dividend to any person other than the registered shareholder. If one were to break ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Techno-logies (I) (P.) Ltd. (supra) reliance has been placed on Circular No. 495, dated 23-9-1987 which states as follows :- Further deemed dividend would be taxable in the hands of the concern, where all the following conditions are satisfied. . . . We are of the view that Circular of CBDT to the extent that they do not tone down the rigor of the provisions of the Act in the sense to the extent they are not benevolent are not binding. 40. Apart from the above, it is also noticed that section 2(22)(e)(iii) provides relief to a shareholder as follows :- Dividend does not include :- (i) (ii) ** ** ** (iii)any dividend paid by a company which is set off by the company against the whole or any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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