TaxTMI 
TaxTMI 
2011 (5) TMI 582
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....could not be treated as deemed dividend in view of the fact that payment under consideration has not been assessed as deemed dividend in the hands of the recipients in the relevant assessment year. Such finding of the ld. CIT(A) is incorrect in law because assessment of income in the hands of recipient is not a pre condition to determine the liability of TDS. The liability to deduct tax, which is only a mode of collection arises once the nature of payments fulfills the conditions mentioned in the relevant section. (ii) Ignoring the section 194 makes the principal officer of a company responsible to deduct tax before making any payment of any dividend within the meaning of section 2(22)(e) of the I.T.Act which no where talks of assessment of such dividend in the case of recipient. (iii) Holding that payment to M/s ALM Infotech City (P) Ltd. and International Land Developers Ltd. could not be treated as deemed dividend on the ground that payment to above entities (ALM and Intl) is very much covered in the definition of dividend u/s 2(22)(e) of I.T.Act in view of language of that section "......... Or to any concern in which such shareholder is a member of a partner an....
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....rned CIT(A), the assessee stated that payment made to International Land Developers Ltd. is not covered under the provisions of Section 2(22)(e) of the Act inasmuch as the said recipient is not a shareholder of the assessee company. It was further submitted by the assessee before the learned CIT(A) that payment made to Shri Alimuddin is also not covered under the provisions of Section 2(22)(e) of the Act inasmuch as the payment was made purely for commercial consideration and for the commercial exigencies made in the regular course of assessee's business activities. In support of the aforesaid submissions, the learned counsel for the assessee relied upon various decisions. 10. After considering the assessee's submission, various decisions cited by the assessee and AO's order, the learned CIT(A) has taken a view that the payment made by the assessee to M/s ALM Infotech City (P) Ltd. and Shri Alimuddin is not covered by the provisions contained in Section 2(22)(e) of the Act. The operative portion of the learned CIT(A)'s consolidated order runs as under:- "5. I have considered the submissions made by the assessee, the order of the assessing officer as well as the rema....
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..../s 2(22)(e) as held by the Special Bench of the Tribunal in the case of ACIT vs. Bhowmick Color Pvt. Ltd. - 118 ITD 1(SB)(Mum) are not satisfied. In the case of Bhowmick Color Pvt. Ltd. (supra), it has been held by the Special Bench that following two conditions are precedent for invoking Section 2(22)(e) of the Act:- (i) The shareholder should be a registered shareholder, and (ii) The shareholder should also be a beneficial owner of the shares. 13. Since M/s ALM Infotech City (P) Ltd. is admittedly not a registered shareholder of the assessee company notwithstanding the fact that its shareholder Shri Alimuddin holds shares in M/s ALM Infotech City (P) Ltd., the provisions of Section 2(22)(e) cannot be applied to any payment made to M/s ALM Infotech City (P) Ltd. In this connection, reliance may be placed upon the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop - 313 ITR 116 where the Hon'ble High Court held that where the firm was not a shareholder in Hotel Hilltop and only its two partners were shareholders in Hotel Hilltop holding 23% and 25% shares, the advance paid to firm could not be assessed in the firm's hands as deemed....
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....ty (P) Ltd. has not been assessed as deemed dividend in its hands while completing the assessment u/s 143(3) of the Act and learned CIT(A) has taken this fact into account, and he set aside the order of the AO also in view of the fact that deemed dividend has not been assessed in the hands of M/s ALM Infotech City (P) Ltd. In the light of discussions made above, we, therefore, do not find any infirmity in the order of learned CIT(A) in vacating the demand of TDS with regard to payment made to M/s ALM Infotech City (P) Ltd. 15. With regard to payment made to Shri Alimuddin, the assessee submitted before the learned CIT(A) that the payment made to Shri Alimuddin was not in the nature of any loan or advance but was made in the regular course of assessee's business in terms of MoU for the acquisition of land on behalf of the assessee) and, therefore, the payment is not covered by Section 2(22)(e) of the Act. In support of the contention that the money advanced in the regular course of business cannot be treated as deemed dividend, number of decisions were cited by the learned counsel for the assessee before the learned CIT(A). 16. After considering the assessee's submis....
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.... has held that since the amount of Rs.30 lakhs which was given to the assessee was in the nature of imprest payment, the same could not be treated as deemed dividend u/s 2(22)(e) of the Act. In this case, a sum of Rs.30 lakhs was given to the assessee for the purpose of making advance in respect of certain land dealings which were proposed to be entered into by the company through the assessee and the Tribunal noted that no material was brought on record to suggest that whatever was explained by the assessee was incorrect. 20. In the case of CIT vs. Creative Dyeing and Printing (P) Ltd. - 184 Taxman 483, the Hon'ble High Court has held that the amount advanced for business transaction between the parties would not fall within the definition of deemed dividend u/s 2(22)(e) of the Act. In this case, the Hon'ble Delhi High Court has followed its own decision in the case of CIT vs. Raj Kumar - 181 Taxman 155 (Del). In the course of hearing of this appeal, the learned DR has not been able to controvert the fact that the payment was made by the assessee to Shri Alimuddin under MoU for the acquisition of land on behalf of the assessee nor this fact was disputed by the AO in his re....
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....e to payment of Rs.37,17,194/- made to ILD Trade Centres a business concern of M/s ALM Infotech City (P) Ltd. In this respect, the learned counsel for the assessee has invited our attention to the copy of agreement executed between the assessee and M/s ALM Infotech City (P) Ltd. dated 20.10.2006 placed at pages 161 to 202 of the paper book. This is a developer buyer agreement dated 20.10.2006 entered into by the assessee with M/s ALM Infotech City (P) Ltd. M/s ALM Infotech City (P) Ltd. was developing and constructing a retail cum commercial complex called "ILD Trade Centre". The assessee being allottee had agreed to purchase shop/office unit No.705 measuring 1133.74 sq.ft. for a total consideration of Rs.39,68,090/-, out of which, a sum of Rs.37,17,194/- was paid on 20.10.2006 and the balance sum of Rs.2,50,896/- was agreed to be paid on delivery of possession. Thus, it is a case of business/commercial transaction and is not covered by Section 2(22)(e) of the Act. 27. Now, we come to the payment of Rs.10 lakhs made to Shri Alimuddin. The nature of this payment has already been examined and decided by us in the AY 2005-06. The facts are identical in this year. Therefore, in....