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of <h1>Court rules no deemed dividend on loan from non-shareholder company under Income Tax Act; supports deletion of income and interest addition.</h1> <h3>Commissioner of Income Tax Ayakar Bhawan City Centre, Gwalior Versus Prem Motors Kanwal Complex AG Office Road, Gwalior</h3> Commissioner of Income Tax Ayakar Bhawan City Centre, Gwalior Versus Prem Motors Kanwal Complex AG Office Road, Gwalior - TMI Issues:1. Deemed dividend under Section 2(22)(e) of Income Tax Act, 1961.2. Addition of income from house property under Sections 22 and 23 of the Act.3. Addition of interest under Section 40A(2)(b) of the Act.Deemed Dividend (Section 2(22)(e)):The case involved the interpretation of Section 2(22)(e) of the Income Tax Act, 1961, specifically regarding deemed dividend. The court referred to the decision in 'CIT Vs. M/s Ankitech Pvt. Ltd' to establish that the provision applies to closely-held companies distributing profits as loans or advances to shareholders or related concerns. The court clarified that the legal fiction of deeming such payments as dividends does not extend to non-shareholders. The judgment emphasized that the definition of shareholders is not expanded by legal fiction, and loans or advances to non-shareholders cannot be treated as deemed dividends. The court dismissed the appeal, affirming that the loan/advance received by the assessee from a non-shareholder company did not constitute deemed dividend under Section 2(22)(e).Addition of Income from House Property:Regarding the addition of income from house property under Sections 22 and 23 of the Act, the Assessing Officer made additions based on discrepancies in rental income calculations. The Commissioner, Income Tax (Appeals), deleted the addition, citing differences in rental terms and conditions between tenants. The Tribunal upheld the deletion, emphasizing that the fair rental value should align with municipal valuation. The court found no illegality in the decision, as it was based on factual analysis and supported by relevant case laws. The court concluded that no substantial question of law arose in this regard.Addition of Interest under Section 40A(2)(b):The Assessing Officer added interest under Section 40A(2)(b) of the Act, alleging payments above fair market rates. The CIT (Appeals) deleted the addition, stating that the interest rate paid was reasonable and not excessive compared to market rates. The Tribunal affirmed this decision, highlighting that unless proven excessive, payments should not be disallowed. The court found no grounds for disallowance and concluded that no substantial question of law arose. The appeal was dismissed, and the findings were upheld.In summary, the judgment addressed issues related to deemed dividend, income from house property, and interest addition under specific sections of the Income Tax Act, 1961. The court's detailed analysis and interpretation of relevant provisions led to the dismissal of the appeal in favor of the assessee, based on factual assessments and legal principles.
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