TaxTMI 
TaxTMI 
2010 (2) TMI 980
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.... grievance he pleaded that the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of Rs. 14,165 and Rs. 21,133 out of repair, maintenance and depreciation of vehicles. The Revenue in its appeal has pleaded that the learned Commissioner of Income-tax (Appeals) has erred in excluding the sum of Rs. 13,00,000 taken by the assessee from M/s. National Capital Region Electronics Pvt. Ltd. from the ambit of deemed dividend considered by the Assessing Officer under section 2(22)(e) of the Act. Thus the first fold of grievance raised by the assessee is interconnected with the solitary ground of the Revenue. First we take this issue involved in both the appeals. The brief facts of the case are that the assessee derives income from the business of the property broker as commission from two proprietary concerns, namely, M/s. Chopra Realtors and M/s. Estate Agents. He has also income from other sources, interest, etc. He filed his return of income on October 31, 2005 declaring a total income of Rs. 15,33,270. On scrutiny of the accounts the learned Assessing Officer found that the assessee has taken advances/ loans from various companies where he is holdi....
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.... the facts in this connection and arrived at a conclusion that these transactions had taken place in the financial years 2003-04 and 2000-01. The amounts cannot be considered as deemed dividend in the present assessment year. He accordingly deleted both these additions. The Revenue has accepted this deletion made by the learned Commissioner of Income-tax (Appeals) and did not challenge it in its appeal. With regard to the amount of Rs. 16,00,000 taken by M/s. M. S. Softpro Pvt. Ltd. from M/s. Fitwell Fashion Fabrics Pvt. Ltd. is concerned it was contended by the assessee that this transaction had happened in the financial year 2001-02 and the amount of share application received by M/s. M.S. Softpro Pvt. Ltd. was only Rs. 1,60,000 and not Rs. 16,00,000 considered by the Assessing Officer. The learned Commissioner of Income-tax (Appeals) has accepted the contention of the assessee and deleted the addition. It is noticed by the learned Commissioner of Income tax (Appeals) that amount of Rs. 1,60,000 was received vide cheque No. 0628352 in the bank amount on June 15, 2001. The Revenue did not challenge this issue also in its appeal. With regard to the amount of Rs. 27,90,125 all....
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.... squarely covered in favour of the assessee by the order of the Income-tax Appellate Tribunal relied upon by the learned Commissioner of Income-tax (Appeals). Learned counsel for the assessee while impugning the action of the learned Commissioner of Income-tax (Appeals) for treating the sums of Rs.10,20,000, Rs. 15,40,000, Rs. 20,70,000, alleged to have been received as loan/advance from M/s. Sisbro Promoters Pvt. Ltd., M/s. Fitwell Fashion Fabrics Pvt. Ltd. and M/s. National Capital Region Electronics Pvt. Ltd. respectively, as deemed dividend within the meaning of section 2(22)(e) of the Act submitted that the assessee does not dispute with regard to the different conditions enumerated in section 2(22)(e) for its application. The alleged amounts are taken from the companies where public are not substantially interested. The assessee is holding more than 10 percent of voting power. The payments were received out of the accumulated profit of these companies. The only area of dispute between the assessee and the Department is the exemption provided in sub-clause (ii) of section 2(22)(e) of the Act. This sub-clause provides that any advance or loan made to a shareholder by a compa....
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....rsy in hand therefore it is salutary to take note of this section along with clause (ii) of the Act. "(22) 'dividend' includes (e) 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 after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but 'dividend' does not include (ii) any advance or loan made to a shareholder (or the said concern) by a company in the ordinary course of its business, where the lending of money is a substantial part of t....
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....July 28, 2000 to the assesseecompany. The assessee-company in turn vide its letter dated September 30, 2000 informed M/s. Pee Empro Exports that for increasing such capacity as desired by M/s. Pee Empro Exports a huge investment is required and showed its inability to invest such large amount out of the present available funds. M/s. Pee Empro agreed then to make available funds to the extent of 50 percent cost because it was not only in the interest of M/s. Pee Empro Exports but also on account of the fact that M/s. Pee Empro itself owns 50 percent shares in the assessee-company. The rest of the 50 percent project cost was to be made available by the directors Mr. P. S. Uppal and Mr. P. M. S. Uppal. The Assessing Officer had treated the amount passed by M/s. Pee Empro Exports as deemed dividend and made the addition. The hon'ble High Court has held that the amounts advanced for business transaction between the parties would not fall within the definition deemed dividend under section 2(22)(e) of the Act. The discussion made by the hon'ble High Court in paragraphs 11 and 12 read as under ((page 482 of 318 ITR): "11. The counsel for the appellant has very strenuously urged that....
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....olders in the guise of loans and advances to avoid payment of tax. 10.4 Therefore, if the said background is kept in mind, it is clear that sub-clause (e) of section 2(22) of the Act, which is in parimateria with sub-clause (e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. 10.5 If this purpose is kept in mind then, in our view, the word 'advance' has to be read in conjunction with the word 'loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance' may or may not include lending. The word 'a....
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.... The assessee right from the very beginning is contending that he is in the business of brokering of real estate. The companies whenever had any surplus fund they advance it to the assessee for making investment in the real estate. Neither the assessee nor the companies are disputing this conduct. Before the learned Commissioner of Income-tax (Appeals) it was pointed out that for M/s. National Capital Region even agreement to purchase was executed. The learned Commissioner of Income-tax (Appeals) has disbelieved this claim of the assessee on the ground that agreement was not registered. Hence it is only projected as a colourable device to avoid the mischief of section 2(22)(e) of the Act. The assessee is claiming these advances as advance for investment in his books of account. This aspect has not been disputed by the Assessing Officer. The learned Commissioner of Income-tax (Appeals) also was of the opinion that argument of business advance for taking away the amount from the ambit of deemed dividend can be considered only when advancing company is in the money lending business. The nature of the assessee's business is such that he is earning income from brokerage of real estate. ....