TaxTMI 
TaxTMI 
2012 (12) TMI 871
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....see in the present case is an individual who filed his return of income for the year under consideration on 31-10-2006 declaring total income of Rs.3,25,94,140/- which was comprising of income from business, short term capital gain and income from other sources. In the said return, dividend income of Rs.6,50,986/- received by the assessee during the year under consideration was claimed to be exempt from tax. No disallowance on account of expenses incurred in relation to earning of the said income, however, was made by the assessee as required by the provision of section 14A. The AO, therefore, worked out such expenses incurred by the assessee in relation to earning of exempt dividend income at Rs.25,37,548/- by applying Rule 8D of the Incom....
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.... appeal relates to the addition of Rs.3,38,85,459/- made by the AO and confirmed by the learned CIT(Appeals) on account of loans taken from M/s JMC Securities Pvt. Ltd. treating the same as deemed dividend u/s 2(22)(e) of the Act. 7. During the year under consideration, the assessee had received loan amount of Rs.551.45 lakhs from M/s JMC Securities Pvt. Ltd. wherein he was holding 1.53,025 equity shares out of total 3 lakhs equity shares issued. The assessee thus was beneficial owner of shares in the said company holding more than 10% shares and since the said company, namely, M/s JMC Securities Pvt. Ltd. had accumulated profits of Rs.3,38,85,459/- as on 31-3-2006, the AO required the assessee to explain why the loan amount to the exten....
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....of Rs.420.65 lakhs i.e. 91.05% of the balance sheet total. He also noted that the gain earned by the said company on sale of investment was 92.68% of the total receipt whereas interest income earned was only 4.38% of the total receipts. He held that the analysis of application of funds as well as the income composition was sufficient to show that making investment in shares was a substantial part of the business of M/s JMC Securities Pvt. Ltd. and the contention of the assessee that lending of money was a substantial part of the business of the said company was not acceptable. He, therefore, rejected the contention of the assessee that exclusion clause (ii) of section 2(22)(e) was applicable in its case and added a sum of Rs.3,38,85,459/- t....
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.... the assessee, the learned CIT(Appeals) held that the same were distinguishable on facts inasmuch as money lending was the main business activity of the lending companies in the said cases. Accordingly, the addition made by the AO u/s 2(22)(e) by treating the loan amount received by the assessee from JMC Securities Pvt. Ltd. to the extent of accumulated profits as deemed dividend was confirmed by the learned CIT(Appeals). 9. At the time of hearing before us, the learned counsel for the assessee mainly reiterated the submissions made on behalf of the assessee before the authorities below on this issue. He also prepared and furnished details of composition of total income of M/s JMC Securities Pvt. Ltd. for the year under consideration as ....
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....r not. As provided in the said clause, any advance or loan made by a company to a shareholder or concern in which the shareholder has a substantial interest would not be regarded as a deemed dividend u/s 2(22)(e) if lending of money is a substantial part of the business of the lending company and the loan or advance is made by the lending company in the ordinary course of its business. The expression used in clause (ii) of section 2(22)(e) is "substantial part of the business" and the same has been interpreted by the Hon'ble Bombay High Court in the case of Parle Plastics Ltd. (supra) cited by the learned counsel for the assessee. As held by the Hon'ble Bombay High Court, the said expression does not connote an idea of being the "major part....
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....r that lending of money was a substantial part of a business of M/s JMC Securities Pvt. Ltd. and the loan in question to the assessee was made by the said company in the ordinary course of its business. It, therefore, follows that the conditions stipulated in clause (ii) of section 2(22)(e) were duly satisfied and the amount of loan advanced by M/s JMC Securities Pvt. Ltd. to the assessee could not be regarded as a deemed dividend. Before us, the learned counsel for the assessee has also filed a copy of the assessment order passed u/s 143(3) of the Act in the case of M/s JMC Securities Pvt. Ltd. for the year under consideration i.e. assessment year 2006-07 wherein the nature of the business of the said company was clearly indicated as "fina....