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TMI Blog2018 (1) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... TA had granted relief to the assessee by placing reliance on the co-ordinate bench decision of this tribunal in Tanuj Holdings Pvt Ltd (2016 (2) TMI 426 - ITAT KOLKATA) and by relying on the decision of the Hon’ble Bombay High Court in the case of Parle Plastics Ltd [2010 (9) TMI 726 - BOMBAY HIGH COURT]. Hence we do not find any justifiable reason to interfere with the order of the ld CITA. Accordingly, the grounds raised by the revenue are dismissed. - I.T.A No. 1149/Kol/2016 - - - Dated:- 7-7-2017 - Sri A.T.Varkey, JM And Shri M.Balaganesh, AM For The Appellant : Shri A.K.Sinha, Addl. CIT For The Respondent : Shri Akkal Dudhwewala, ACA ORDER Per M.Balaganesh, AM 1. This appeal of the revenue arises out of the order of the Learned CIT(A)-16, Kolkata in Appeal No. 491/CIT(A)-16/Kol/2014-15/C-4(2) dated 29.03.2016 against the order of assessment framed for the Asst Year 2010-11 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The only issue to be decided in this appeal of the revenue is as to whether the ld CITA was justified in deleting the addition made in the sum of ₹ 59,50,000/- u/s 2(22)(e) of the Act i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eover the income from interest on loans was ₹ 1,66,21,291/- whereas the income from profit on sale of investments was ₹ 2,87,74,981/- . b) Similarly he observed from the balance sheet as at 31.3.2009 of Offshore India Ltd that the income from interest on loans was ₹ 60,21,372/- whereas the income from profit on sale of investments was ₹ 4,42,83,442/- . 4.1. Based on these facts, he concluded that the principal or main source of income of M/s Off Shore India Ltd is only deriving income from profit on sale of investments and from funds deployed as at 31.3.2010 in investment in shares, he concluded that the substantial part of the business is only making investment in shares and not granting of loans and advances. Hence the assessee s case does not fall under the exception provided in section 2(22)(e) of the Act. Accordingly, he made an addition of ₹ 59,50,000/- towards deemed dividend in the assessment. 5. Before the ld CITA, the assessee pleaded that the ld AO erred in holding that the substantial part of business of the lending company was not granting of loans and advances. As per the audited accounts of lending company as on 31.3.2010, the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 196 Taxman 62 (Bom). In the said case, it was the contention of the revenue, that to constitute as a substantial part of the business of the lending company, the business of money lending must constitute more than 50% of the business. The Hon ble Bombay High Court discussed as to what constituted substantial part of the business and held that: The expression used under sub-clause (ii ) of section 2(22) is substantial part of the business . The expression substantial part does not connote an idea of being the major part or the part that constitutes majority of the whole. If the Legislature really intended that more than 50 per cent of the business of the lending company must come from the business of lending, nothing prevented the Legislature from using the expression majority of business . If the Legislature at all intended that a particular minimum percentage of the business of a lending company should come from the business of lending, the Legislature could have specifically provided for that percentage while drafting sub-clause (ii) of section 2(22). The Legislature had deliberately used the word substantial instead of using the word major and/or specifying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the income that AMPL had received by way of interest was ₹ 1,08,18,036, while its total profit was ₹ 67,56,335. Excluding the income earned by AMPL by way of interest, the other business had resulted in net loss. The Tribunal had taken into consideration the relevant factors and had applied the correct tests to come to the conclusion that lending of money was substantial part of the business of AMPL. Since lending of money was a substantial part of the business of AMPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it had to be excluded from the definition of dividend by virtue of sub-clause (ii ) of section 2(22). [Para 12] 6. The ld CITA deleted the addition made in the sum of ₹ 59,50,000/- towards deemed dividend by making the following observations :- 5 I have carefully considered the impugned order and submissions made on behalf of the appellant. I have also carefully gone through the decision of Hon'ble Bombay High Court as well as the decisions of the co-ordinate Benches of the Kolkata Tribunal on which the reliance was placed. The moot question in the present case to be decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e peripheral or insignificant business. Rather it should form significant or material part of the business of the money lending company. In the case of CIT vs. Parle Plastic Ltd (Supra), the assessee had received loan from AMPL; a company in which public were not substantially interested and the assessee had held more than 10% of the shares therein. The assessee claimed exemption from application of Sec 2(22)(e) of the Act on the ground that granting of loans was substantial part of AMPL's business. The Revenue rejected the assessee's plea on the ground that granting of loans did not form major or principal business activity of AMPL . In this context the High Court interpreted clause (ii) of Sec 2(22) of the Act so as to ascertain whether granting of loans formed substantial part of AMPL's business. The High Court held that any business of a company which cannot be regarded as small, trivial or inconsequential as compared to the whole of the business constituted substantial business. The High Court found that 42% and 39% of the total assets of the company were invested in two years; in money lending activities by way of loans and advances. In the opinion of the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the revenue is in appeal before us on the following grounds:- 1. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 59,50,000/- which was treated as deemed dividend within the meaning of Section 2(22)(e) of the Income Tax Act. 2. That the appellant craves for leave to add, or modify any of the grounds of appeal before or at the time of hearing. 8. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute that the assessee company is a shareholder having more than 10% voting rights in the lending company. It is not in dispute that the lending company has accumulated profits in excess of ₹ 59,50,000/- drawn by the assessee company. The only short point that arises for our consideration is as to whether the lending company, being a NBFC duly registered with RBI, has its substantial part of business as lending activity, so as to be outside the ambit of provisions of section 2(22)(e) of the Act. It is well settled that the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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