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TMI Blog2018 (11) TMI 1802X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue by: Ms. D. Rohini, JCIT Assessee by: Shri. Vishal Kalra, Advocate ORDER S. Jayaraman, The Revenue filed this appeal against the order of Commissioner of Income Tax (Appeals)-1, Chennai in ITA No. 52/CIT(A)-1/16-17 dated 29.11.2017 for assessment year 2013-14. 2. M/s. Checkpoint Apparel Labelling Solutions India Pvt. Ltd., the assessee, is engaged in the business of Manufacture of Garment Accessories like Labels, Hangtags, Stickers, etc. While making the assessment under section 143(3) for assessment year 2013-14, the A O found , inter alia, that during the year the assessee company had received a loan from M/s. OAT System Software India Private Limited to the extent of ₹ 4.25 Crores. It had also paid interest on the said loan. The Assessing Officer noted that the ultimate parent company of the assessee, Checkpoint Systems Inc., was also the ultimate parent company of M/s. OAT System Software India Private Limited. As Checkpoint Systems Inc. held the entire share capital of the assessee as well as the lending company, the Assessing Officer concluded that the loan received by the assessee from M/s. OAT System Software India Private Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 42,500,000 should be assessed as deemed dividend in the hands of assessee. 2.2 It is submitted that as per the provisions of section 2(22)(e) of the Act, any loan or advance given by a closely held company (i.e. a company in which public are not substantially interested) can be deemed as dividend if any of the following conditions are satisfied: i. Loan or advance is given to a shareholder of the company being a beneficial owner of at least 10% of the voting rights; or ii. Loan or advance is given to any concern in which such shareholder is a member or a partner and holds substantial interest; or iii. Any payment is made by the company on behalf of or for the benefit of such shareholder of the company. It is evident from the above that in order to hold any payment of loan or advance to be taxable as deemed dividend, the payment should be made to a shareholder or to a concern in which such shareholder is member or for the benefit of such shareholder. 2.3 In the facts of the instant case, the shareholder of Oat Systems India (the lender) is Oat Systems Inc., USA and shareholder of the Assessee is ADS Worldwide Limited, United Kingdom. The shareholding structure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations are reproduced below - 28. After considering the submissions it is noticed that an identical issue having similarfacts was a subject matter of the assessees appeal in ITA No. 4095/Del/2010 for the assessment year 2006-07 wherein vide order dated 28.11.2013, the issue has been decided in favour of the assessee and the relevant findings have been given in para 35 which read as under35. Ground No. 2.2 to 2.4. deals with the issue of deemed dividend u/s2(22)(e) of the Act. The assessee received a loan of Ps. 21.74 crores from M/s Cargill Global Trading India Pvt. Ltd. (CGTIPL) which is a group company of the assessee company. In fact both the assessee company as well as lender company are subsidiaries of Cargill Inc. USA through its separate subsidiary companies Cargill Asia Pacific Ltd. (CAPL) and Cargill International Trading me Ltd. Singapore and the group structure of the companies can be explained as under: It was contended that CGTIPL i.e. lender company was a subsidiary of Cargilllnt. Trading Pte Ltd. Singapore with 99% shareholding and none of the shares of lender company were held by assessee company and therefore provisions of section 2(22)(e) were not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs National Travel Services [2018] 401 ITR 154 (SC), has merely referred only one aspect of Ankitech (supra) judgement, ie, whether the shareholder in the hands of whom the deemed dividend could be taxed should be both registered and the beneficial shareholder, to a larger Bench, as was amended by Finance Act, 1987, wef 1.4.1988. The observations made therein are reasons that their lordships have stated for making such reference. This does not ipso facto mean that the judgment of the Hon ble Supreme Court in Madhur Housing and Development Company (supra) stands reversed. The judgment of the Supreme Court in the case of MadhurHousing (supra) upholding Delhi High Court in Ankitech (P) Ltd (supra) is still the correct legal position. 2.12 Even for the sake of argument if it is considered that the legal position as enunciated by Supreme Court in Madhur Housing (supra) has been diluted by National Travel Services (supra), it is only one of the two aspects of taxability of deemed dividend has been discussed and referred for larger Bench. The position that the deemed dividend can be taxed only in the hands of shareholder, has not been diluted as held by Madhur Housing (supra) and Car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect construction of deemed dividend under the Act. 2.11 Further, it is pertinent to note that the order of the Hon ble Supreme Court in the case of CIT vs National Travel Services [2018] 401 ITR 154 (SC), has merely referred only one aspect of Ankitech (supra) judgement, ie, whether the shareholder in the hands of whom the deemed dividend could be taxed should be both registered and the beneficial shareholder, to a larger Bench, as was amended by Finance Act, 1987, wef 1.4.1988. The observations made therein are reasons that their lordships have stated for making such reference. This does not ipso facto mean that the judgment of the Hon ble Supreme Court in Madhur Housing and Development Company (supra) stands reversed. The judgment of the Supreme Court in the case of MadhurHousing (supra) upholding Delhi High Court in Ankitech (P) Ltd (supra) is still the correct legal position. 2.12 Even for the sake of argument if it is considered that the legal position as enunciated by Supreme Court in Madhur Housing (supra) has been diluted by National Travel Services (supra), it is only one of the two aspects of taxability of deemed dividend has been discussed and referred for larger ..... X X X X Extracts X X X X X X X X Extracts X X X X
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