TaxTMI 
TaxTMI 
2005 (10) TMI 225
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.... Trichur, which was a closely held domestic company. The assessee was issued notice under section 148 and the assessee filed the return disclosing income at Rs. 2,46,330. During the course of re-assessment proceedings, the Assessing Officer noted that the assessee was a director in M/s. Seethal Apartments Pvt. Ltd. holding 20 per cent of the share capital at Rs. 1,00,000 and the total share of the company was Rs. 5 lakhs. It was further noted by the Assessing Officer that in the balance-sheet of the company for the year 1996-97 the company had a surplus to the tune of Rs. 9,02,892. It was further seen by the Assessing Officer that the said company had advanced loans and advances to the assessee amounting to Rs. 53,93,192. The Assessing Officer invoked the provisions of section 2(22)(e) of the IT Act and to the extent of the accumulated reserves and surplus shown in the company's balance-sheet of Rs. 9,02,892, he made addition in the income of the assessee as deemed dividend. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal to the CIT (Appeals). 4. It was the case of the assessee before the CIT(A) that the assessee had not received any mone....
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....s contended that any advance in the nature of construction expenditure made to a shareholder would not be a deemed dividend in the case of a construction company. It was further contended that there was no accumulated profit in the earlier year when the relevant construction was made. The CIT (Appeals) accepted the contentions of the assessee and deleted the addition of Rs. 9,02,892 and held that there was no accumulated profit of the earlier years and no cash flow to the assessee. Hence, it cannot be said that there is payment of deemed dividend to the assessee. Being aggrieved by the said deletion, the revenue is in appeal before the Tribunal. 5. The ld. departmental representative submitted that there was a serious error made by the CIT (Appeals) in holding that for attracting the provisions of section 2(22)(e), there must be cash transfer from the company to the assessee. She submitted that as per the provisions of section 2(22)(e) of the IT Act, 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) made by way of advance or loans has to be brought t....
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.... money to the assessee from the company. Section 2(22)(e) is a deeming provision and it should be strictly interpreted. He further contended that in the case of the assessee there was no transfer of any money to the assessee but there was only journal entry that an amount of Rs. 53,93,192 was due by the assessee to the company in the previous year relevant to the assessment year under appeal. In support of his contention, the ld. representative relied on the following decisions: (i) CIT v. Mrs. Maya B. Ramchand [1986] 162 ITR 460 (Bom.) (ii) M.D. Jindal's case (iii) G.R. Govindarajulu Naidu v. CIT [1973] 90 ITR 13 (Mad.) (iv) CIT v. Smt. Savithri Sam [1998] 144 CTR (Mad.) 17. 7. We have carefully considered the rival submissions and the facts of this case as per records before us. It is not disputed that the assessee was a director in M/s. Seethal Apartments (P.) Ltd. which was a closely held company in which the assessee was holding 20 per cent of the share capital. We will have to examine the provisions of section 2(22)(e) of the IT Act which defines the term "dividend", the operative part of section 2(22)(e) is as under: Sectio....
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....he Assessing Officer has invoked the provisions of section 2(22)(e) and has made the addition of Rs. 9,02,892. As per the facts of the case, the construction of the commercial-cum-residential complex was entrusted to the company as per the agreement between the parties. As per the terms of the contract, the assessee retained the basement floor, ground floor, first floor, and the constructions which had been completed before 1-4-1995. The assessee let out the ground floor of the building and offered the rental income for taxation from the assessment year 1996-97 onwards. To attract the provisions of section 2(22)(e), the following four conditions are sine qua non: (i) The assessee should be the shareholder of the company. (ii) The said company should be a closely held company in which the public are not substantially interested. (iii) There must be advance or loans by the company to the shareholder or any payment by any such company on behalf of or for the individual benefits of the shareholders. (iv) There must be accumulated profits in the hands of the company up to the date of payment referred to in clause (e). As per the facts of this case,....
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.... company and it was held that the said agreement was a device to circumvent the provisions of section 2(22)(e) and hence, it was held that the value of the iron materials supplied by the company to the assessee was dividend within the meaning of section 2(22)(e) of the IT Act. Moreover, another aspect of the fact was that the company was also dealing in iron materials. In the case of T. Sundaram Chettiar, the issue before the Madras High Court was whether the dividend received from the foreign company is assessable as dividend. The assessee was a merchant in Colombo and he held some shares in the company called Panchanayaki Ltd., which has its registered office in Colombo. During the previous year relevant to the assessment year 1954-55, the assessee received some dividend and the said amount received by him was in the taxable territory. It was the contention of the assessee before the Income-tax Officer that the said amount was exempt because it was paid out of the capital profits of the company. In the case of Mrs. Maya B. Ramchand, the issue before the Bombay High Court was whether the net amount of debit after setting off credit amount on the same day on which debit occurred co....