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TMI Blog2020 (1) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 for the Opponent(s) No. 1 ORAL ORDER (PER : MR. BHARGAV D. KARIA) 1. This tax appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act, 1961 ) is at the instance of the Revenue and is directed against the order dated 12th April, 2019 passed by the Income Tax Appellate Tribunal, Bench A , Ahmedabad ( for short the Tribunal ) in the ITA No.29/Ahd/2019 for the A.Y.2015-16. 2. The Revenue has proposed the following questions as the substantial questions of law; (A) Whether on facts of the case and in law, the Appellate Tribunal is correct to hold that assessee has received the sum of ₹ 2,50,80,923/- from M/s.Shreem Design Infrastructure Pvt. Ltd and ₹ 76,53,711/- from M/s. Aatrey Infrastructure Pvt. Ltd in the ordinary course of business of creditor companies? (B) Whether on facts of the case and in law, the Appellate Tribunal is correct to hold that provision of section 2(22)(e) of the Act are not attracted in this case? (C) Whether on facts of the case and in law, the Appellate Tribunal is correct to hold that the creditor companies in this case i.e. M/s. Shreem Design Infrastructure Pvt. Ltd and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accumulated profit as the conditions laid down u/s. 2(22)(e) are satisfied. The claim of the assessee that the loans and advances were obtained in ordinary course of business of money lending on which interest was paid at market rate @9% and Moneylender Company's substantial part of money lending business was not accepted on the ground that the main object of the lender companies was not carrying on money lending business. The perusal audit report for assessment year 2014-15 shows that SDIPL has done money lending business which constitutes substantial part of its business as the percentage ratio of loan and advances to total funds available comes to 79.37% and percentage of loan and advances to total assets of the company comes to 69.71%. The ratio of loans and advances given to unsecured loan was at 105.25%. Similarly, AIPL percentage ratio of loan and advances to total funds available comes to 35.66% and percentage of loan and advances to total assets of the company comes to 32.45%. The ratio of loans and advances given to unsecured loan was at 56.29%.We further observe that though the memorandum of article of the Association of the company does not authorized money le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd rules must be given the same meaning unless there is nothing to indicate the contrary. Since, SDIPL has carried out money lending business in the percentage ratio of loan and advances to total funds available comes to 79.37% and percentage of loan and advances and M/s. AIPL has carried out its money lending business in the percentage ratio of 35.65% of loans and advances of total available, which is more than twenty percent as mentioned in Explain (b) to section 2(22)(e) and section 2(32) of the Act. Further, the Hon`ble Bombay High Court in the case of CIT v. Parley Plastics Ltd. [2011] 332 ITR 63 (Bombay) held as follows: 12. Applying these tests to the present case, we do not find that the ITAT has committed any error in coming to the conclusion that lending of money was a substantial part of the business of AMPL. The ITAT has noted that 42% of the total assets of AMPL as on 31.3.1996 and 39% of the total assets of AMPL as on 31.3.1997 were deployed by it by way of total loans and advances. By no means, the deployment of about 40% of the total assets into the business of lending could be regarded as an insignificant part of the business of AMPL. The ITAT has also held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of SDIPL and AIPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it has to be excluded from the definition of dividend by virtue of clause (ii ) of Section 2(22) of the Act. We therefore, hold accordingly. 14. We further find that the loan taken from the SDIPL and AIPL were compensated by way of interest @9% being market rate paid by the assessee on loan, therefore, the assessee in real sense did not derive any benefit of the company so as to the provisions (ii) of sec. 2(22)(2) of the Act. The learned counsel for the assessee relied in the case of ACIT vs. M/s. Zenon (India) Pvt. Ltd. ITA No. 1124/Kol/2012 (Paper Book 38 to 43 and Smt. Sangita Jain vs. ITO ITA No. 1817/Kol/2009 (Paper Book 44 to 51) which supports his contentions. The learned counsel for the assessee placed reliance in the case of Shri Pradip Kumar Malhotra v. CIT [I.T.A.No. 219 of 2013 dated 02.08.2011 of Hon`ble Calcutta High Court] [PB- 24-37]. Wherein it was held by the Honourable Calcutta High Court that phrase by way of advance or loan appearing in section 2(22)(e) must be construed to mean those advances or loans, which is shareholder e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradip Kumar Malhotra v. CIT, [I.T.A.No. 219 of 2013 dated 02.08.2011, which was relied upon by the assessee, wherein it has been held that the phrase by way of advance or loan appearing in section 2(22)(e) must be construed to mean those advances or loans, which shareholder enjoys for simply on account of being a Partner, who is the beneficial owner of shares, but if such loan or advance is given to such shareholder as a consequence of any further consideration, which is beneficial to the Company, received from such shareholder, in such a case, such advance or loan cannot be said to be deemed dividend within the meaning of Section 2(22)(e) the Act. 7. It would be, therefore, germane to refer to the provisions of Section 2922)(e) of the Act, 1961, which reads thus; 2(22)(e):- any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987 , by way of advance or loan to a shareholder, 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 ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch such acquisition took place]. Explanation 3.- For the purposes of this clause,- (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern;] 8. On perusal of the above provision, it is clear that as the assessee was holding more than 10% of the shares in both the companies, the provisions of Section 2(22)(e) of the Act would come into play. However, the section further provides that the dividend does not include any advances or loan made to a share holder by the Company in the ordinary course of business where lending of money is a substantial part of the business of the Company.. In the case on hand, it is not in dispute that both the companies were having money lending as the substantial part of their business. Therefore, the Tribunal has rightly hold that no addition can be made by way of deemed dividend in the case of the assessee. 9. In view of the above, no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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