9911796707
TMI Blog1993 (2) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... e) of the Income-tax Act, 1961. 2. The facts are that the assessee is a director in M/s. Suraj Diamond Industries Pvt. Ltd. She held 100 shares out of 14,700 shares of the company. Her husband and son both held 2,600 shares each. The total holding of the family was 5,300 equity shares. The ITO noticed that in assessee's accounts, the company had shown an advance of loan of Rs. 66,931 at the end of the year. He also noticed that the company had a reserve and surplus of Rs. 1,17,700. The assessee being a director of the company and the reserves and surplus being more than the amount advanced to the company, the ITO applied the provisions of section 2(22)(e) of the Act and treated the amount of Rs. 66,931 as deemed dividend received by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of Explanation ' 3 ' to section 2(22). The addition of Rs. 66,930 is, therefore, considered to be legally tenable. The same is upheld." 4. The learned counsel for the assessee, Sri D. G. Thakkar and the learned Departmental Representative, Sri N.A. Kazi were heard and their rival submissions considered. Section 2(22)(e) deems the following as dividend : " 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) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf, or for the individual benefit, of any such share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a director has no relevance for the purpose of this section. The DCIT(A) upholds the applicability of this section because the assessee, along with her husband and son, own 5,300 equity shares which, in his opinion, is sufficient to treat her as a person having substantial interest. The total share holding of the three (5,300) being more than 20 per cent of the entire equity of the company (14,700). Here again, I find that there is nothing in section 2(22)(e) of the Act or section 2(32) of the Act to suggest that the holding or ownership of voting rights of the shares held by the family can be taken into consideration for determining the question as to whether a person is substantially interested in the company or not. The words are " s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only 100 out of 14700 shares of the company could not be a person having not less than twenty per cent voting right so as to invoke the provisions of section 2(22)(e) of the Act. This provision, in my opinion, is not applicable in the present case and the addition made therefor requires deletion. As the section itself is not applicable, I need not go into the other aspects of the matter as to whether the amount of Rs. 66,931 was a loan or advance to the assessee, or whether only the net amount of Rs. 20,085, after setting off the credit balance of the assessee alone, could be added as the income of the assessee under section 2(22)(e) of the Act. 6. The other ground regarding levy of interest under section 217 of the Act is stated to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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