2015 (5) TMI 1086 - AT - Income Tax

Tribunal upholds decision on loan treatment and company classification for assessment year 2010-11.

The ITO-4 (1) (1), Aaykar Bhavan, Mumbai Versus M/s. Crescent Finstock Ltd.

The Tribunal dismissed the Revenue's appeal for the assessment year 2010-11, affirming the decisions regarding the treatment of the loan from the ... Deemed divided u/s 2(22) - Held that:- The company in question not a Private Limited Company which is alone is attracted to the provisions of section 2(22)(e) of the Act. The said company is a Public company in which public are substantially interested. Considering the above distinction, the CIT (A) correctly granted relief to the assessee - Decided in favour of assessee Issues:1. Whether the loan obtained from a subsidiary company should be treated as deemed dividends under section 2(22)(e) of the Income Tax Act, 1961.2. Whether a company listed in the Vadodara Stock Exchange is considered a company in which the public are substantially interested under section 2(18)(b)(c) of the Act.Analysis:Issue 1:The appeal was filed by the Revenue against the order passed by Ld. CIT(A)-8 for the assessment year 2010-11. The Revenue contested the deletion of a loan obtained from a subsidiary company, Doubledot Finance Ltd. (DFL), amounting to Rs. 43,56,279, as deemed dividends under section 2(22)(e) of the Act. The AO added this loan to the income of the assessee based on the shareholding structure and accumulated profits of DFL. However, Ld. CIT(A) deleted this addition citing a similar decision for the assessment year 2008-09. The Ld. CIT(A) observed that the issue in the current year is identical to that raised in 2008-09, leading to the deletion of the impugned addition. The Revenue challenged this decision through the grounds of appeal.Issue 2:The second issue pertains to the classification of Doubledot Finance Ltd. as a company in which the public are substantially interested under section 2(18)(b)(c) of the Act. In the assessment year 2008-09, the Revenue had raised a similar grievance against the deletion of an addition under section 2(22)(e) by the Ld. CIT(A), which was dismissed by ITAT. The Tribunal noted that the company in question was a Public company and not a Private Limited Company, which is crucial for the application of section 2(22)(e). It was emphasized that more than 51% of the equity share capital of DFL was held by Crescent Finstock Limited, a listed company on the Vadodara Stock Exchange. The Tribunal referenced relevant legal provisions and precedents to support the conclusion that DFL qualifies as a company in which the public are substantially interested. Consequently, the Tribunal upheld the relief granted by the CIT(A) to the assessee, leading to the dismissal of the Revenue's appeal.In conclusion, the Tribunal dismissed the Revenue's appeal for the assessment year 2010-11, affirming the decisions regarding the treatment of the loan from the subsidiary company and the classification of Doubledot Finance Ltd. as a company in which the public are substantially interested.