TaxTMI 
TaxTMI 
2012 (10) TMI 604
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.... assessing year 2007-08, claiming following substantial question of law:- "Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal confirming the deletion of addition by the Commissioner of Income (A) is correct by ignoring that the firm alongwith its partners possessed more than 10% (Shri Balbir Kumar, Partner - 6.64% + Shri Harsh Kumar, partner - 6.00% + the assessee i.e. M/s Octave Apparels 1.07% = 13.71%) to the voting power in the company thus making it liable to attract the provisions of Section 2(22) (e)?" 2. Briefly, the facts as narrated in the appeal may be noticed. The respondent-assessee is a firm deriving income from manufacturing and trading of garments and clothes. It filed its r....
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.... as deemed dividend. 4. The Tribunal noticed that the assessee was holding 1.07% shares of sister concern whereas the partners of the assessee firm Shri Balbir Kumar and Shri Harsh Kumar were holding 6.64% and 6% shareholding respectively. It was, thus, concluded that the assessee firm was holding less than 10% shareholding of the voting power and any amount advanced by closely held company to the assessee firm was not to be treated as deemed dividend under the provisions of section 2(22) (e) of the Act. 5. In order to adjudicate the controversy raised herein, it would be advantageous to quote the provision of Section 2 (22) (e) of the Act, which reads thus:- "2(22)(e). any payment by a company, not being a company in which the pub....
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....ayment." 7. Interpreting Section 2(22) (e) of the Act, the Bombay High Court in CIT v. Universal Medicare (P) Limited, (2010) 324 ITR 263 noted as under:- "Clause (e) of Section 2(22) is not artistically worded. For facility of exposition, the contents can be broken down for analysis: (i) Clause (e) applies to any payment by a company not being a company in which the public is substantially interested of any sum, whether as representing a part of the assets of the company or otherwise made after the 31 May 1987; (ii) Clause (e) covers a payment made by way of a loan or advance to- (a) a shareholder, being a beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to par....
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....a defalcation seems to have been accepted since this amount was allowed as a business loss during the course of assessment year 2006 2007. Consequently, according to the Tribunal the first requirement of there being an advance or loan was not fulfilled. In our view, the finding that there was no advance or loan is a pure finding of fact which does not give rise to any substantial question of law. However, even on the second aspect which has weighed with the Tribunal, we are of the view that the construction which has been placed on the provisions of Section 2(22)(e) is correct. Section 2 (22)(e) defines the ambit of the expression 'dividend'. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend name....