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TMI Blog2012 (10) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... in treating the expenses incurred on purchase of computer software as capital in nature and allowing depreciation thereon @ 60%, as against the claim of the assessee that the entire expenditure should be treated as revenue expenditure. 3. On the above issue, it is no doubt true that the CIT(A) has not considered the actual nature of the software and the role it plays in the business of the assessee. Nevertheless, considering the quantum of the amount in dispute, we are of the view that that the order of the CIT(A) is to be upheld without going into the nature of software and the role it plays in the business of the assessee. Ground No.2 is therefore dismissed. 4. Ground No.3 raised by the assessee reads as follows:- 3. The author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the lender company. Apart from the above, the assessee also submitted that the amounts given by Karnataka Automats Pvt. Ltd. to the assessee was neither a loan nor an advance and it was a transaction on current account basis between the two companies. The CIT(A) did not adjudicate on the first argument, but confirmed the order of the AO on the basis of second argument raised by the assessee. The findings of the CIT(A) in this regard were as follows:- 9. I have gone through the rival submission. I find the A.R. argues that - (i) The company M/s. Karnataka Automats Pvt. Ltd., in short KAP not a shareholder in the appellant company. and (ii) Secondly the amount given by the appellant to M/s.KAP, cannot be characterized as loan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Colour (P.) Ltd. 118 ITD 1 (Mum) (SB) has taken a view that addition on account of deemed dividend cannot be made in the hands of a person, who is not a shareholder of the lender company. The aforesaid view has since been confirmed by the Hon ble Delhi High Court in the case of CIT v. Ankitech (P) Ltd. 199 Taxmann 341 (Del) and the Hon ble Bombay High Court in the case of CIT v. Universal Medicare (P) Ltd. 324 ITR 263 (Bom). 8. The ld. DR however submitted before us that the Hon ble Delhi High Court in the case of CIT v. National Travels Services, 202 Taxmann 327 (Del) has taken a contrary view. The facts in the case of National Travels Services (supra) were that the assessee was a partnership firm consisting of three partners. The fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm. This would mean that the loan or advance given by the company would never be treated as deemed dividend either in the hands of the partners or in the hands of partnership firm. In this way the very purpose for which this provision was enacted would get defeated. The object behind this provision is succinctly stated in the Circular No. 495 of 22nd Sept., 1987 particularly in the Explanatory Notes to Finance Act, 1987 when this provision was amended-Rameshwarlal Sanwarmal vs. CIT (1980) 14 CTR (SC) 372 : (1980) 122 ITR 1 (SC) and CIT vs. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC) relied on. (Paras 18 19) No doubt, when s. 2(22)(e) enacts a deeming provision, it has to be strictly construed. At the same time, it is also trite tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh its partners, though not registered shareholder, being beneficial owner, is to be treated as shareholder for purpose of s. 2(22)(e). 9. The ld. DR submitted before us that the provisions of section 2(22)(e) of the Act can be easily circumvented by an assessee by taking a plea that it was not a shareholder in the lender company, but in reality the common directors would be controlling the affairs of both the companies and frustrating the intent and spirit of the provisions of section 2(22)(e) of the Act. 10. The ld. counsel, on the other hand, submitted before us that the lender in the present case is a company and therefore the factual situation as it prevailed in the case decided by the Hon ble Delhi High court viz., National Trav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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