TaxTMI 
TaxTMI 
2000 (11) TMI 291
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.... the Act) on5-11-1997. Thereafter, the case of the assessee was selected for scrutiny. In the course of assessment proceedings it was found that the assessee had reflected receipt of share application money pending allotment amounting to Rs. 4,48,00,000 from four companies. This includes an amount of Rs. 26,00,000 received from Hoovar Services Pvt. Ltd. (hereinafter called HSPL). It was revealed that HSPL was closely-held company. The money was received in three unequal instalments of Rs. 10,00,000, Rs. 4,00,000 and Rs. 12,00,000 on29-9-1995,25-10-1995and30-10-1995. The assessee was required to show that why the amount of Rs. 26,00,000 received from HSPL, be not treated as deemed dividend under the provision of section 2(22)(e) of the Act. It was explained that the amount was received as share application money. It was not loan or advance. The Assessing Officer did not accept this explanation. He made an addition of Rs. 26,00,000 by resorting to the provisions of section 2(22)(e) of the Act. Being aggrieved the assessee preferred appeal there against, before the Commissioner of Income-tax (Appeals). The appeal of the assessee was dismissed by the CIT (Appeals). Against that orde....
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....ing allotment of shares'. As the allotment did not take place upto31st March, 1996, the amount was reflected in the amount was reflected in the balance sheet. The Assessing Officer took the share application money received from HSPL as loan to the assessee-company in terms of section 2(22)(e) of the Act and considered the same as deemed dividend. 6. From the perusal of the balance sheet of the assessee-company the Assessing Officer found a balance of Rs. 13,02,000 in the account out of the total share application money received from HSPL. It was explained that against the total payment of Rs. 1,26,00,000, the assessee had allotted shares! worth Rs. 1,12,98,000 to HSPL on25-4-1996. The balance of Rs. 13,02,000 was also adjusted subsequently. A sum of Rs. 10,00,000 was treated as share application money for buying the shares. The balance amount of Rs. 3,02,000 the shares were allotted to M/s. HSPL on1-4-1998. Thus, the entire payment stood adjusted. 7. M/s. HSPL made three Applications for acquiring the shares and paid a sum of Rs. 26,00,000 during the year ended31-3-1996. The balance sheet was perfectly in accordance with the norms set out under the Companies Act, 1956. These ....
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....to its shareholder. The Assessing Officer was, therefore, not correct in treating the said sum as deemed dividend as per the prescription of section 2(22)(e) of the Act. 11. Reference was also made to the decision of theApex Courtrendered in the case of CIT v. N.S. Getti Chettiar [1971] 82 ITR 599. In this case the Hon'ble Supreme Court has held that the words in a section of a statute are not to be interpreted by having those words in one hand and the dictionary the other. In a spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose they are intended to serve. 12. The learned counsel also invited our attention on the provisions of section 2(b)(ii) of the Companies (Acceptance of deposit) Rules, 1975. As per prescription of this rule deposit means any deposit of money which includes any amount borrowed by a company, but does not include... "(b)(ii) any amount received by way of subscription to any shares, stock/ bonds and debentures....' 13. Alternatively it was argued that only the payment and advances to the extent of accumulated profits could only be treated as loans or advances, with....
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....sessee-company kept the money and derived benefit out of that. If an offer is not accepted before a reasonable time it lapses. Reference was made to the Anson's Law of Contract wherein it is laid down that an offer is to an acceptance what a lighted match is to a train of gun powder. 17. Apropos the interpretation of section 2(22)(e). Reliance was placed on the decision of the Apex Court rendered in the case of State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 (SC) wherein it was held that in interpreting a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. In that view of the matter, the court should not adopt construction which would upset or even impair the purpose in introducing a particular provision in the statute. 18. Reference was made to the decision of the Hon'ble Delhi High Court rendered in the case of Baidya Nath Plastic Industries (P.) Ltd. v. K.L. Anand ITO [1998] 230 ITR 522 at page 527-528 : 'The word 'deposit' ....
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....n. By this fiction dividend includes any payment by a closely held company by way of advance or loan to a shareholder, being a person, who is the beneficial owner of the shares holding not less than 10 per cent of the voting power, or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which a company in either case possesses accumulated profits. Applying the parameters laid down in the definition, loan can be deemed to be dividend, to the extent that the company has at the date of the payment accumulated profits'. The companies to which section 2(22)(e) of the Act applies includes, inter alia, companies in which majority of the voting power lies in the hands of the persons, other than the public. These companies are controlled by group of persons allied together and having the same interest. It is for this group to determine whether the profits made by the company should be distributed as dividends or not. When the Legislature realised that though money was reasonably available with the company in the form of profits, those in-charge of the company deliberately refused to distribute it as dividends to the shareholders....
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....ctness thereof. There is absolutely nothing on record to indicate that the purpose of the assessee in accepting the share application money was to defraud the Revenue. There cannot be any presumption without any basis. Section 2(b)(ii) of the Companies (Acceptance of Deposit) Rules, 1975 prescribes that deposit means any deposit of money which includes any amount borrowed by a company, but does not include any amount received by way of subscription to any shares, stock/bonds and debentures. 23. In the case of Baidya Nath Plastic Industries (P.) Ltd. , Hon'ble High Court stressed on the aspect of user. How the amount was used. What was the purpose of giving the amount. It is nowhere said that the amount received on share application money can be considered as loan. Department considered the amount as loan, not because it was found to be contained the character of loan, but because of the relation (closely held company) of the assessee with the applicant. It was deemed as loan. Here the mistake was committed. It is to be ascertained as loan only then it can be deemed as dividend. Deeming provision cannot be applied while ascertaining the true nature of the transaction. But when th....