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TMI Blog2016 (5) TMI 1513X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account of the company." 3. The assessee is an individual filed its return of income on 23.07.2009 for income of Rs. 539793/-. During the course of the assessment proceeding assessee was asked to furnish details of share holding in various companies. It was found that the assessee has 97% of share holding of one company namely Ocean King Shipping Services Pvt. Ltd. During the year total amount received by the assessee from that company was Rs. 2377000/-. The ld Assessing Officer asked the assessee that why it should not be treated as deemed dividend under the provision of section 2(22)(e) of the Income Tax Act. Assessee submitted that the amount is paid as a security deposit of Rs. 15 lacs against the tenancy rights, against the property let out to the company. The ld Assessing Officer rejected the contention of the assessee and treated Rs. 2377000/- as deemed dividend. Assessee preferred appeal before the ld CIT(A), who in turn reduced the addition to Rs. 1123551/- up to the accumulated profit of the lender company. Therefore, the assessee is in appeal before us. 4. The ld AR of the appellant submitted that in the Board Meeting 1st August 2008., the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute. It is not also in dispute the resolution of the company dated 1st August 2008 was with respect to the renting of the above property from the assessee and simultaneously paying security deposit of Rs. 15 lakhs to the assessee. The only reason given by the ld CIT(A) is that security deposit can be given only for recovery of unpaid rent, influence the quantum of the rent and to recover the damages caused to the property. All these three reasons have been negated by ld CIT(A) holding that as assessee is 97% share holder and the security deposit is paid later on it is not acceptable as the objective of security deposit are irrelevant in this case. We failed to understand such a finding by the ld CIT(A) when assessee as well as the lender company is two different distinct entities in the eye of law. It is also common practice to ask for security deposit when the rent is on lower side to compensate the lender. This is what is argued by the assessee and it was not controverted by the lower authorities. In view of this, the terms and condition of the rent pursuant to which security deposit is paid cannot be brushed aside. Further, on looking at the account of the lender comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the parties and the account was mutual. 13. This tribunal in the case of Mr.Purushottam Das Mimani (supra) on identical facts came to the conclusion that the account between the Assessee and a public limited company was a running mutual current account and thereafter following the decision of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra) held as follows: "4. We have heard rival submissions and gone through facts and circumstances of the case. We have gone through the facts of the case and found from the perusal of ledger account of assessee in the books of account of Ganesh Wheat Products (P) Ltd., the lender company, it is seen that as on the first day of the relevant accounting year 2005- 06 (A.Y. 2006-07) opening balance is at Rs. 28,07,584/-. Thereafter, on several dates during the entire financial year there were several transactions through cheques and some in cash by either parties, i.e. the assessee and the loan giving company, resulting in shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was in favour of Ganesh Wheat Products (P) Ltd. The ledger of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder enjoys simply on account of 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 ín profits) holding not less than ten per cent. of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consíderation which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend withín the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder." From the above facts and legal proposition decided by Hon'ble jurisdictional High Court, it is clear that section 2(22)(e) of the Act was inserted to bring within the purview of taxation those amounts which are actually a distribution of profits but are disbursed as a loan so that tax thereon can be avoided. It is pertinent to note here that when dividends are declared by a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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