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TMI Blog2010 (7) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... see company as well as M/s YSPL & NFSPL was found by the AO that Mr. Nirad D. Mehta a shareholder in the assessee company was holding 17.34% of the total equity in NFSPL while another shareholder, namely, Friendly Financial Services of the assessee company was holding 27.5% in YSPL. The AO further noticed that these shareholders of the assessee company had a substantial interest in the assessee company while they had beneficial interest in the companies from which the assessee had received loan. The shares held by them were accompanied with equivalent voting rights. The shareholding summarized in CIT(A)'s order at page 5 is reproduced below:- Shareholder of the assessee company Share holding in the assessee company Yogesh Securities Pvt. Ltd. Niche Financial Services Pvt. Ltd. Nirad Mehta 52% NIL 17.345 Friendly Financial Services Ltd. 25% 27% NIL Reserves and Surplus ₹ 2,57,37,114 ₹ 23,36,59,955 4. The AO held that both shareholders of the assessee company were beneficial shareholders in YSPL and NFSPL respectively. Simultaneously, they were substantial interest in the assessee company. Therefore, he treated the loan amount as deemed dividend u/s 2(22)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while the revenue is in appeal where the CIT(A) has deleted the addition of ₹ 14,00,000/-. 6. The learned AR submitted that the amount received was on account of inter corporate deposit (ICD), therefore, the assessee was liable to pay interest on such ICD. The assessee is required to refund the tax deducted at source on the amount of interest as provided under Chapter XVII of IT Act. In support of the contention, the learned AR relied upon various provisions of the Companies Act and Audit Report under the Companies Act. The learned AR has also relied upon the following decisions:- 1. Bombay Oil Industries Ltd. Vs. DCIT, 28 SOT 383 (Mum.) 2. Durga Prasad Mandelia and Others V. Registrar of Companies, 61 Company Cases, 479. 3. Jhamu U. Sughand Vs. DCIT, 99 ITD 1 (Mum.) 4. CIT Vs. Nagindas M. Kapadia, 177 ITR 393 (Bom.) 5. Mrs. Rekha Modi Vs ITO, 13 SOT 512 (Delhi) 7. On the basis of above submissions, the learned AR submitted that these are not loans and advances, therefore, section 2(22)(e) of the Act, is not applicable. He further submitted that the amounts were given in the ordinary course of business, therefore, it falls under the exception to the section 2(22) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng pattern of M/s Hilltop Palace Hotels (P) Ltd. 1) Shri Roop Kumar Khurana 23.33% 2) Smt. Sarioj Khurana 4.67% 3) Vikas Khurana 22% 4) Deshbandhu Khurama 25% 5) Shri Rajiv Khurana 25% Likewise, it is also not in dispute, that at the relevant time constitution of the firm was as under:- Consti tution of M/s Hotel Hilltop 1) Shri Roop Kumar Khurana 45% 2) Shri Deshabandhu Khurana 55% 10. Under that circumstances, the Rajasthan High Court held that significant requirement of section 2(22)(e) is not shown to exist. The liabil ity of tax as deemed dividend could be attracted in the hands of the individual, being shareholders, and not in the hands of the firm. 11. The ITAT Special Bench in the case of ACIT Vs. Bhaumik Colour (P.) Ltd., 118 ITD 1(SB) has discussed similar controversy vide paras 24,25, & 26, which are reproduced below:- "24. The expression "shareholder being a person who is the benef icial owner of shares" referred to in the first limb of s. 2(22)(e) refers to both a registered shareholder and benef icial shareholder. If a person is a registered shareholder but not the benef icial then the provision of s. 2(22)(e) will not apply. Similarly if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any time during the previous year, be beneficially entitled to not less than twenty per cent of the income of such concern; and where the concern is a company he must be the owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power. (d) If the above conditions are satisfied then the payment by the company to the concern will be dividend." 12. The Hon'ble jurisdictional High court in the case of Universal Medicare, 190 Taxman 144 (Bom.)while confirming the order of ITAT special bench in the case of Bhaumik Colour (P) Ltd., has held as under:- "9. In order that the first part of clause (e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent of the voting power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial interest. The Tribunal in the present case has found that as a matter of fact no loan or advance was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taxed in the present case in respect of the amount of ₹ 32,00,000 is that there was a dividend under section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer. 10. For the aforesaid reasons, the first and second questions will not give rise to any substantial questions of law." 13. From the above discussion and after considering the judgment of jurisdictional High Court in the case of Universal Medicare cited supra, we find that the Hon'ble jurisdictional High court has clearly laid down that section 2(22)(e) is appl icable in the case of deemed dividend only in the hands of shareholders. In the case under consideration, admittedly the assessee company is not shareholder of YSPL and NFSPL, therefore, in the light of judgment of jurisdictional High Court, we are of the considered view that deemed dividend u/s 2(22)(e) cannot be taken in the hands of the assessee. The addition of ₹ 35,00,000/- sustained in the case of YSPL by the CIT(A) is, therefore, deleted. Since we have decided the issue following the jurisdictional High Court whether under the facts and circumstances section 2(22)(e) dividend is taxable in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The CIT(A) examined the expenditure and deleted the said addition by observing that V-SAT and lease line charges are reimbursement charges paid by the members of stock exchange in lieu of infrastructure and trading facilities provided by the stock exchange. V-SAT and lease line charges are not payments, which come within the domain of fees for technical services and they are also not for any work done by NSE for the member broker. The TDS is, therefore, not deductible on the same. The CIT(A) relying on the decision of ITAT, Mumbai in ITA No. 1955/Mum/08 for AY 05-06 in case of Kotak Securities Vs. Addl. CIT vide order dated 26.08.2008 and held that the assessee is not l iable to make tax deducted at source. 21. The learned representatives of the parties submitted that the issue is covered against the revenue by the following decisions:- 1. Kotak Securties Ltd. Addl. CIT, 25 SOT 440 2. CIT Vs. Bharati Cellular ltd., 319 ITR 139 (Delhi) 22. We have heard the learned representatives of the parties and perused the record. Since the issue is covered against the revenue by the said decisions, we confirm the order of CIT(A) on this count. 23. Ground No. 10 of revenue's appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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