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TMI Blog2021 (1) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for ascertaining whether assessee is a substantial shareholder. If shares were excluded from the total shares issued by the company, the assessee s interest would exceed 20%, but if such shares are included, his interest would fall below 20%. In CIT Vs C.P. Sarathy Mudaliar [ 1971 (10) TMI 8 - SUPREME COURT] while considering the (corresponding section 2(6A)(e) of Indian Income tax Act 1922) held that the section speaks of shareholder , it refers to the registered shareholder and not to the beneficial owner. Also in Minnie Cama Vs ITO [ 1984 (11) TMI 77 - ITAT AHMEDABAD] held that it is well settled that a deeming provision like section 2(22)(e) must be strictly construed. For determination of question as to whether the assessee had substantial interest in company, shares held by trust in which assessee was trustee, or held in joint names or held in name of minor children of the assessee could not be considered as shares held by the assessee. If so considered, it could be seen from the list of shareholders, that the assessee was not holding shares carrying not less than twenty per cent of the voting power and, therefore, she could not be treated to be a person who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 13,97,50,223/- made u/s 2(22)(e) of the IT Act in the case of the assessee ignoring the fact that the minor's income is being assessed in the hands of guardian father and minor son has no independent source of income, and the alleged shares acquired by minor on behalf of guardian is a colourable device used by the father of minor. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of ₹ 13,97,50,223/- made u/s 2(22)(e) of the IT Act in the case of the assessee ignoring the fact that the voting right in respect of shares held in the name of minor children is exercisable by his guardian father and so considering the combined reading of provisions of section 2(32) read with section 2(22)(e) of the IT Act, the shareholding of Shri Kamal Shah was more than the prescribed limit of 20% in M/s Vapi Care Pharma Ltd. (loan giver) . 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of ₹ 13,97,50,223/- made u/s 2(22)(e) of the IT Act in the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer on perusal of books of accounts and documents found in search took his view that assessee s group company Vapi Care Pharma Private Limited, had given loans to sister concern Veritas Biovention Private Limited and Veritas Pharma Private Limited. The assessee was having of stake of more than the prescribed limit in all three entities. On the basis of aforesaid observation, the assessing officer took further his view that the provisions of section 2(22)e is attracted on the transaction of loan. The assessing officer issued show cause notice to the assessee as to why such loan be not treated as deemed dividend. In reply to the show cause notice, the assessee submitted that loan given as a interoperate deposit and cannot be added as a deemed dividend. The assessee further provided the shareholding details as well as shareholding details of his minor son in Vapi Care Pharma, Veritas Biovention and Veritas Pharma and explained that during year cumulative condition of section 2(22)(e) read with section 2(32) are not attracted as individually, he is not holding more than 10% of voting power in Vapi Care and more than 20% shares in Veritas Pharma and/or in Veritas Biovention. And thus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholding of assessee, as father and his minor cannot be added for the purpose of section 2(22(e) read with section 2(32) of the Act. None of the shareholders holding more than 10% of voting power in Vapi Care had more than 20% shares in Varieties Pharma and /or in Veritas Biovention. The source of shareholding of Master Yes Shah is independent and he is entitled to the benefit of ownership. The assessee does not have any beneficial interest in the Shares held by Minor son Master Yes Shah. The learned Commissioner (Appeals) also held that the issue for consideration was whether the share held on behalf of Minor child, who could not exercise voting power, should be excluded from the total share holding for ascertaining whether assessee is a substantial shareholder. If shares were excluded from the total shares issued by the company, the assessee s interest would exceed 20%, but if such shares are included, his interest would fall below 20%. The assessing officer excluded the share held in the name of Minor Son as Minor Son has no voting rights in considering, the question whether the assessee has substantial interest in the company, from the total number of shares issued by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer in making the addition on account of deemed dividend in case of assessee was justified and the decision of learned Commissioner (Appeals) to delete the addition on relying of judicial decision, the ratio of which is not applicable, is not acceptable, especially in view of the fact that Minor son legally cannot enter into contract with the company for purchase of share and the father of minor has entered to contract with the company as guardian and the assessee is the beneficial owner of the alleged share being the legal and beneficial owner of the said share. It was further submitted that income of minor is clubbed with the parent while assessing income of the father and since son is minor and does not have any more voting right, as per section 2(22)(e) read with section 2(32), the share held by Minor should be considered in the hand of Guardian or parent of such Minor and the fiction created by the provision of section 2(22) (e) read with section 2(32) can be extended to the term shareholder and therefore the minor are cannot be regarded as the beneficial owner of the shares. The learned DR for the revenue sprayed for reversing the order of learned Commissioner (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd natural guardian of Master Yes Shah on 12th October 2010, payment of which was made by cheques drawn on Axis Bank account of Minor Yash Shah and thereafter on 17th October 2010 i.e. in year 2010-11 and Minor Yash Kamal Shah was allotted equity share of Veritas Biovention. On the basis of aforesaid submission, the learned AR of the assessee submits that during the year under consideration, the assessee was not having more than 10% or 20% shareholding in Vapi Care Pharma and therefore, the provision of section 2(22(e) read with section 2(32) is not applicable. The provision of section 2(22(e) are deeming provision which must be construed strictly. 10. An alternative and without prejudice submission the learned AR for the assessee submits that the deposit of Vapi Care Pharma with Veritas Pharma and Veritas Biovention, the intercorporate deposits, cannot be treated as deemed dividend as held by Bombay Tribunal in Bombay Oil Industries Versus DCIT in ITA No. 2895 /Mum/2005, IFB Agro Industries Ltd versus ACIT in ITA No.1721 /Kol/2012 dated 12th March 2013. 11. In third alternative argument the learned AR for the assessee submits that additions made in the unabated search assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee has substantial interest in the company, from the total number of shares issued by the company. The ld Commissioner (Appeals) also relied on the following decisions; CIT Vs C.P. Sarathy Mudaliar (1986) 83 ITR 170 SC, Minnie R. Cama Vs ITO (1986) 17 ITD 139 (Ahd Trib), ITO Vs S.S. Barodawala (1983) 4 ITD 186 (Bom), ACIT Vs Sanjay Mehra (2005) 149 Taxman 40 (Amritsar) 14. The Hon ble Apex Court in CIT Vs C.P. Sarathy Mudaliar (supra) while considering the (corresponding section 2(6A)(e) of Indian Income tax Act 1922) held that the section speaks of shareholder , it refers to the registered shareholder and not to the beneficial owner. 15. The coordinate bench of Ahmedabad Tribunal in Minnie Cama Vs ITO (supra) held that it is well settled that a deeming provision like section 2(22)(e) must be strictly construed. For determination of question as to whether the assessee had substantial interest in company, shares held by trust in which assessee was trustee, or held in joint names or held in name of minor children of the assessee could not be considered as shares held by the assessee. If so considered, it could be seen from the list of shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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