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TMI Blog2017 (5) TMI 1508X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purpose, the legislature deemed such a loan/advance as of ‘dividend’ and made it taxable at the hands of the said shareholder. It is therefore ostensible that such a provision which is a deeming provision and fictionally creates certain kind of receipts as dividends is to be given strict interpretation. It follows that unless all the conditions contained in the said provision are fulfilled the receipt cannot be deemed as dividend. It is an undisputed fact that the assessee-company is not a shareholder per se in the lender company of the Act. We note that the CIT(A) has decided the issue in favour of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that IRM Trust had substantial interest in the lender company [Cadila Pharmaceuticals Ltd.] as well as the recipient (assessee company). Such a loan is required to be treated as deemed dividend in the hands of the assessee as per the provisions of section 2(22)(e) of the Act. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. 3. Briefly stated, the assessee is engaged in the business of manufacturing and trading of hospital and orthopedic products. The assessee filed return of income for AY 2006-07. The return was subjected to scrutiny assessment and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s observed by the CIT(A) that deemed dividend under s.2(22)(e) cannot be taxed in the hands of the concern who is not the shareholder of the lender-company notwithstanding the fact that it has received loans/advances from the lender-company. For this proposition, the CIT(A) relied upon various judicial precedents. The relevant para of the order of the CIT(A) are reproduced hereunder: I have considered the submissions made by the A. R. of the appellant and the observations of the assessing officer in the assessment order. Appellant company received loan of ₹ 12.35 crores from Cadila Pharmaceuticals Ltd. M/s IRM Trust is 80.2% share holder of Cadila Pharmaceuticals Ltd. and 29% share holder of the appellant company. The accumulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions specified under section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in accordance with law. 5. Aggrieved by the order of the CIT(A), the Revenue is in appeal against the order of the CIT(A). 6. The short controversy in the present case is whether the assesseecompany can be taxed towards the loans/advances received from the lender by virtue of deeming fiction under s.2(22)(e) of the Act where the assessee-company itself is not a shareholder of the lending company, notwithstanding the fact that both the companies (lender-company and assessee-company) had common shareholders having substantial interest in both the companies. 6.1 As observed by the Hon ble Supreme Court in the case of Gopal And Sons (HUF) vs. CIT (Supreme Court) in Civil Appeal No. 12274 of 2016 arising out of SLP (C) No. 22059 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial interest in both the companies. For this proposition, the CIT(A) relied upon certain judicial precedents as noted in the operative para quoted above. 6.3. We find that the legal fiction in section 2(22)(e) enlarges the definition of dividend but does not extend to or broaden the concept of a shareholder . As the assessee is not a shareholder of the lendercompany, the receipt is not susceptible to tax under s.2(22)(e) in its hands in view of long line of judicial precedents including Baumik Colour Pvt.Ltd. 313 ITR 146 (Bom)[SB] approved in Universal of Medicare 324 363 (Bom) and CIT vs. Impact Containers (P) Ltd. (2014) 367 ITR 346 (Bom). In view of the judicial precedents governing the issue, we find no reason to interfere with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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