TaxTMI 
TaxTMI 
2009 (10) TMI 72
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....under: M/s Golden Strands (P) Ltd. (1) Shri Ranjeet Bhatia 50% shareholder (2) Smt. Nenu Bhatia 50% shareholder The shareholding pattern of the assessee company is as under: (1) M/s. Golden Strands (P) Ltd. 26.67% (2) Shri Ranjeet Bhatia 16.67% (3) Smt. Neenu Bhatia 16.66% (4) Ms. Tania Bhatia 20.00% (5) Ms. Radhika Bhatia 20.00% ------- Total 100.00% &nbs....
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.... was done and their accounts are audited. The transactions carried out during the year have been carried on in the normal course of business and as such there was no advance of money to invoke provisions of deemed dividend. Even assuming provisions of s. 2(22)(e) are applicable, the opening balance of Rs. 2,04,28,462 and job work charges receivable for Rs. 1,96,20,076 (totalling to Rs. 4,00,48,538 as on 31st March, 2006) should be excluded. Shri Ranjeet Bhatia and Smt. Neenu Bhatia who are holding 50 per cent of shares each do not have substantial interest in the concern i.e., assessee company. 5. Learned CIT(A) held: "I have gone through the assessment order, the detailed written submissions of the Authorised Representative and the various details made available by the Authorised Representative. The following details of job work and payment/receipt are available: During the year, the assessee's turnover is- Job work Rs. 1,98,66,179 Exports Rs. 39,90,478 Out of total job work of Rs. 1,98,66,179 the assessee has carried out job works of Rs. 1,96,20,076 for Golden Strands (P....
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....ork is separate account of Golden Strands (P) Ltd. have been carried out in the normal course of business of fabrication, embroidery etc. between the assessee and Golden Strands (P) Ltd., its sister concern. I have gone through the ledger account maintained in the name of M/s. Golden Strands (P) Ltd. These transactions reveal that they have taken place in the course of its business and they are in the nature of trading transactions. The AO has not proved that outstanding balance as on31st March, 2006in favour of M/s Golden Strands (P) Ltd. represented advance or loan. After careful analysis of the transactions between the assessee and payer company i.e., M/s Golden Strands (P) Ltd., though they are related, the transactions are trading transactions. These facts are borne out of the records which are not disputed by the AO. In the light of decisions of Hon'ble Tribunal in the cases of Sunil Sethi vs. Dy. CIT (2008) 26 SOT 95 (Del) and Bombay Oil Industries Ltd. vs. Dy. CIT (2009) 28 SOT 883 (Mumbai), the transactions between the assessee and payer company are outside the scope of loan/advance. I am also in agreement with the contentions of the Authorised Representative that opening ....
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....any in either case possesses accumulated profits. 14. From the perusal of the relevant s. 2(22)(e), it is evident that the conditions/requisitions prescribed for invoking the provisions of s. 2(22)(e) are, namely- (1) The payer company must be a closely-held company. (2) It applies to any sum paid by way of loan or advance during the year to the following persons- (a) A shareholder holding at least 10 per cent of voting power in the payer company. (b) A company in which such shareholder has at least 20 per cent of the voting power. (e) A concern (other than company) in which such shareholder has at least 20 per cent interest. (3) The payer company has accumulated profits on the date of any such payment and the payment is out of accumulated profits. (4) The payment of loan or advance is not in course of ordinary business activities. l5. The intention behind enacting provisions of s. 2(22)(e) are that closely-held companies (i.e., companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the di....
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.... expansion of plant and machinery is M/s Pee Empro Exports itself. M/s Pee Empro Exports has not made the payment to the assessee-company for the individual benefit of Mr. R.S. Uppal and Mr. P.M.S. Uppal and on the contrary these two directors have also provided funds to the assessee-company as owners of the company as also made by M/s Pee Empro Exports.The assessee undertook expansion of its capacity, which was in mutual interest of assessee as well Pee Empro Exports. If the assessee has not undertaken such expansion, no advance could have been made to it or that Pee Empro Exports would not have distributed as dividend to its shareholders. Thus, but for the advances, the amount of advances could not have reached assessee at all. We, therefore, delete the additions as made by the AO as the amount received by assessee is not deemed dividend within the meaning of s. 2(22)(e) of the Act." The Revenue challenged aforesaid order of Tribunal before Hon'ble Delhi High Court in IT Appeal No. 250 of 2009 [reported at CIT vs. Creative Dyeing & Printing (P) Ltd. (2009) 30 DTR (Del) 143-Ed.]. Hon'ble Delhi High Court upholding the order of Tribunal in order dt.22nd Sept., 2009held: "7. W....
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....dvance to one of its shareholders, such shareholders will be deemed to have received the said amount out of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It is clear that, when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately, decided to adopt the device of making a loan or advance. Such an arrangement is intended to evade the application of s. 23A. The loan may carry interest and the said interest may be received by the company; but the main object underlying the loan is to avoid payment of tax.' 8. The Tribunal has also referred to the judgment of the Bombay High Court in the case of CIT vs. Nagindas M. Kapadia (1989) 75 CTR (Bom) 161 : (1989) 177 ITR 393 (Bom) in which it was held that business transactions are outside the purview of s. 2(22)(e) of the Act. In the said case, the company in which Kapadia was having substantial interest had paid various amount to Kapadia, The Tribunal had found that Kapadia had business transactions with the company and on verification of the accounts, the Tribunal deleted the amounts which were relati....
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....he Tribunal nor the judgment of this Court in Raj Kumar's case deals with that part of the definition of deemed dividend under s. 2(22)(e) which slates that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [s. 2(22)(e)(ii)] i.e., there is no deemed dividend only if the lending of moneys is by a company which is engaged in the business of moneylending. Dilating further the counsel for each assessee contended that since M/s Pee Empro Exports (P) Ltd. is not into the business of lending of money, the payments made by it to the assessee company would therefore be covered by s. 2(22)(e)(ii) and consequently payments even for business transactions would be a deemed dividend. We do not agree. The Tribunal has dealt with this aspect as reproduced in para (9) above. The provision of s. 2(22)(e)(ii) is basically in the nature of an Explanation. That cannot however, have bearing on interpretation of the main provision of s. 2(22)(e) and once it is held that the business transactions does not fall within s. 2(22)(e), we need not to go furt....
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....the conundrum as to what meaning one would attribute to the term 'advance'. The rule of construction to or minds which answers this conundrum is nosciture a sociis. The said rule has been explained both by the Privy Council in the of Angus Robertson vs. George Day (1879) 5 AC 83 by observing 'it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them' and our Supreme Court in the case of Rohit Pulp & Paper Mills Ltd. vs. CCE AIR 1991 SC 754 and State of Bombay vs. Hospital Mazdoor Sabha AIR 1960 SC 610.' 12. Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee company and M/s Pee Empro Exports (P) Ltd. was not such to fall within the definition of deemed dividend under s. 2(22)(e). The present appeal is therefore dismissed." Hon'ble Bombay High Court in the case of CIT vs. Nagindas M. Kapadia (1989) 75 CTR (Bom) 161 : (1989) 177 ITR 393 (Bom) held that the advance given in the normal course of business towards the purchases to be made cannot be treated as deemed dividend under s. 2(22)(e) of ....