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TMI Blog2017 (3) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the assessee company as on the date of loan or advance to the concerned firm. Since the learned Commissioner of Income Tax (Appeals) has already directed the Assessing Officer to restrict the deemed dividend to the extent of accumulated profit, we feel it appropriate to direct the Assessing Officer to compute the accumulated profit keeping in view our finding above. Needless to mention that the assessee shall be afforded sufficient opportunity of hearing. Accordingly, the ground is allowed for statistical purposes - ITA No. 1187/Del/2014 - - - Dated:- 15-2-2017 - SH. S.K. YADAV, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant by Sh. M.L. Dua, Adv. For The Respondent by Sh. F.R. Meena, Sr.DR ORDER PER O.P. KANT, A.M.: This appeal by the legal heir of the assessee is directed against order dated 31/12/2013 of the learned Commissioner of Income-tax (Appeals)-XXIII, New Delhi for assessment year 2009-10, raising following grounds: 1. That the learned CIT (appeals) erred in holding that reassessment under Section 147 and within jurisdiction of the ITO. 2. That learned CIT (A) erred in holding that the ITO was not boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate loan of ₹ 50,67,980/- to the aforesaid firm. The assessee was having substantial interest of 20% in the firm. The assessee was also having 33.33% shareholding in company M/s Alliance copper concept private limited, who had given loan to the above firm. In view of the Assessing Officer, the loan advanced by the company to the firm, was deemed dividend under section 2(22)(e) of the Act in the hands of the assessee. The Assessing Officer recorded the reasons on 27/02/2012 and reopened the assessment by way of issuing notice under section 148 of the Act. Subsequently, notice under section 143(2) of the Act was issued and complied with. Before the Assessing Officer, the assessee contended that provision of section 2(22)(e) of the Act were not applicable due to the reason that the said firm did not have a investment in this company under reference and hence being neither a shareholder nor a beneficial holder of the shares and no individual benefit was derived by any of the shareholders of the company. The Assessing Officer, however, was of the view that assessee fulfilled all the conditions of section 2(22)(e) of the Act, and relying on the decision of the Tribunal, Mumbai Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee before the Tribunal, therefore, the additional grounds cannot be admitted at the stage of the Tribunal. 6. We have heard the rival submissions on the issue of admissibility of additional ground of appeal raised by the assessee. The Ld. counsel submitted that the ground raised is purely legal in nature which needs no fresh facts to be investigated. The learned counsel submitted that the assessee was having 20% share of profit in the concerned firm and, therefore, out of the deemed dividend finally determined only 20% share should be taxed in the hands of the assessee. It is settled law that adjudication of legal ground, if no fresh facts are to be investigated , may be admitted as additional ground in appellate proceedings at any stage as held by the Hon ble Supreme Court in NTPC vs CIT 229 ITR 383. In our opinion the issue raised in additional ground before us is legal in nature. We also find that the learned Sr. Departmental Representative has not disputed that investigation of fresh facts is not required. In view of the above discussion, we admit the additional ground. 7. In ground no. 1, the assessee has raised the issue of legality of reassessment proceedings und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Ors. (supra), the Hon ble Jurisdictional High Court after discussing the decisions of the Special Bench of the Tribunal, Mumbai in the case of Asstt. Commissioner of Income Tax Vs. Bhaumik Colour (P) Ltd. (2009), 120 TTJ (Mumbai) (SB) 865, which has been approved by the Hon ble Bombay High Court in the case of CIT Vs. Universal Medicare (P) Ltd., (2011) 237 CTR (Bom) 147, held that where a loan or advance has been given by the company to the concern, addition for deemed dividend can be made in the case of shareholders only who satisfy the conditions of Section 2(22)(e) of the Act and not in the case of concern, who is not share holder of the closely held company, who has given loan. The relevant finding of the Hon ble High Court is reproduced as under: 22. Insofar as the provisions of Section 2(22)(e) are concerned, we have already extracted this provision and taken note of the conditions/requisites which are to be established for making provision applicable. In Commissioner of Income Tax Vs. C.P. Sarathy Mudaliar [1972] 83 ITR 170, the Supreme Court had traced out the assessee of this provision in the following manner: ―Any payment by a company, not being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is treated as dividend. The intention behind the provisions of Section 2(22)(e) of the Act is to tax dividend in the hands of shareholders. 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 loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. 25. Further, it is an admitted case that under normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under Section 2(22)(e) of the Act. We have to keep in mind that this legal provision relates to ―dividendǁ. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to ―shareholderǁ. When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under Section 2(22)(e) of the Act would also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar would be of no avail. 29. No doubt, the legal fiction/deemed provision created by the Legislature has to be taken to ‗logical conclusion' as held in Andaleeb Sehgal (supra). The Revenue wants the deeming provision to be extended which is illogical and attempt is to create a real legal fiction, which is not created by the Legislature. We say at the cost of repetition that the definition of shareholder is not enlarged by any fiction. 30. Before we part with, some comments are to be necessarily made by us. As pointed out above, it is not in dispute that the conditions stipulated in Section 2(22)(e) of the Act treating the loan and advance as deemed dividend are established in these cases. Therefore, it would always be open to the Revenue to take corrective measure by treating this dividend income at the hands of the shareholders and tax them accordingly. As otherwise, it would amount to escapement of income at the hands of those shareholders. 8.3 We find that the Hon ble High court has already taken into consideration the Circular (supra) issued by the CBDT and the Hon ble High court has held that as per the correct legal position, the loan or advance ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed 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. The plain reading of above provision clearly shows that the payment by the company in which public is not substantially interested by way of advance or loan to a shareholder who is holding shares not less than 10%, is to be treated as deemed dividend. It is further noted that such deemed dividend can be there only to the extent of accumulated profits. 9 In case before us, there is no doubt that M/s Radhe Sham Jain Diamond Jewellers (P) Ltd is a company in which public is not substantially interested and the assessee i.e. Shri Radhe Sham Jain is holding more than 10% shares. However, the question is whether the said company has given any advance or loan to the assessee or not? The company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 11,75,569/- on 29.3.2008 in the name of the assessee in the books of the Private Limited company. However, he has correctly restricted the addition to ₹ 34,858/- i.e. to the extent of accumulated profits. There is no force in the ground of the Revenue that accumulated profits are ₹ 11,17,80,000/-. Schedule 'A' at page 17 of the paper book very clearly show that this amount is on account of share premium account and net profit is only ₹ 34,858/-. Delhi Bench of the Tribunal in case of DCIT V. MAIPO INDIA LTD. 116 TTJ (Del) 791 has clearly observed that share premium account could not be taken into consideration as part of the accumulated profits. Head note reads as under:- Dividend - Deemed dividend u/s 2(22)(e) - Accumulated Profits - Assessee company received a sum of ₹ 25,42,772/- in the nature of loans and advances from company GCPL, in which assesseecompany held 40 per cent shares - Assessee repaid a sum of ₹ 14,31,000/- towards the end of the year and the balance of ₹ 11,11,772/- was treated by AO as deemed dividend - CIT(A) on appeal, found that out of reserves and surplus account of GCPL, ₹ 1.90 crores represented sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount appearing in the financial statement of the assessee cannot be included while computing the accumulated profit of the assessee company as on the date of loan or advance to the concerned firm. Since the learned Commissioner of Income Tax (Appeals) has already directed the Assessing Officer to restrict the deemed dividend to the extent of accumulated profit, we feel it appropriate to direct the Assessing Officer to compute the accumulated profit keeping in view our finding above. Needless to mention that the assessee shall be afforded sufficient opportunity of hearing. Accordingly, the ground no. 5 is allowed for statistical purposes. Additional ground : 7. We have heard the rival contention of the parties on the issue of additional ground raised, reproduced above. 7.1 On perusal of section 2(22)(e) of the Act, we find that where a loan/advance has been given by a closely held company to a firm, the deemed dividend has to be taxed in the hands of person who satisfies the following two conditions: (i) he is beneficial owners of shares holding not less than 10% of the voting power; (ii) he is partner of the firm and having substantial interest i.e. benefici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which such shareholder is a member or a partner and in which he has a substantial interest (herein 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. 10. The ingredients of the section are as under:- I. Payment to individual shareholder:- (A) The payment should be by a company (not being company in which public is substantially interested). (B) The payment can be in cash or representing a part of the assets of the company. (C) The payment should be in the nature of avance or loan to a shareholder who is holding at lest 10% shares beneficially. (D) The above payment to the extent of accumulated profits of the lender company would be treated as deemed dividend in the hands of shareholder qualifying the criteria of holding 10% beneficial holding of shares. II. Payment to concerns: In this case all the conditions of payments in case of individual shareholder noted above have to be fulfilled. Thus, even if payment is made to a concern still the payment to co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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