TaxTMI 
TaxTMI 
2013 (7) TMI 316
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....) erred in holding that the amount of Rs.1,88,83,665 advanced by M/s. Agarwal Galvanising Pvt. Ltd. cannot be treated as dividend under section.2(22)(e) of the I.T. Act inspite of the fact that persons having share holding exceeding 10% if the voting power in assessee company also have substantial interest in the lending company M/s. Agarwal Galvanising Pvt. Ltd. 2. Facts in brief are that, during the course of assessment proceedings, the assessing Officer noted that the assessee has received an unsecured loan of Rs 2 crores from M/s. Agarwal Galvanising Pvt. Ltd. and that the shareholders of the assessee company as well as Agrawal Galvanising Pvt. Ltd. were having substantial interest in each of the company. The Assessing Officer required....
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....IT(A) assessee made a very detailed submission with regard to the each and every objections and observation of the AO which has been dealt by the CIT(A), from pages 3 to 9 of the appellate order. The other main argument of the assessee was that assessee's is not a shareholder in M/s. Agrawal Galvanising Pvt. Ltd., therefore, the provisions of 2(22)(e) will not be applicable In support of this contention, assessee relied upon the decision of Special Bench of ITAT, Mumbai in the case of Bhaumik Colours Pvt. Ltd., reported in (2009) 120 TTJ 865 and also High Court Judgment in the case of CIT v. Hotel Hill top, reported in (2009) 313 ITR 116. The learned CIT(A) deleted the said addition on account of deemed dividend after observing and holding ....
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....Galvanising Pvt. Ltd. which has advanced loan of Rs. 1,88,83,665 to the assessee. To bring this loan into the ambit of deemed dividend under section 2(22)(e), it has to be established first that the same was given to a shareholder out of accumulated profits. The provisions of section 2(22)(e) creates a fiction which brings in any payment by way of advance or loan to a shareholder into the ambit of dividend, therefore, clause (e) of section 2(22) must be given strict interpretation. If the assessee company which has received the loan is not a shareholder then fiction cannot be extended on the ground that the directors were common and having more than 10% of voting rights. This aspect of the matter has been analysed in detail by the Hon'ble S....
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....to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the Legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern. 36. The basis of bringing in the amendment to section 2(22)(e) of the Act by the Finance Act, 1987 with effect from 1-4-1988 is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can draw the same from the concern instead of the company directly ma....
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.... the hands of a shareholder the ordinary and natural meaning of the word "Dividend" is altered. To this extent the definition of the term "Dividend" can be said to operate. It the definition of "Dividend" is extended to a loan or advance to a non-shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of section 2(22)(e) and in the absence of indiction in section 2(22)(e) to extend the legal fiction to a case of loan or advance to a non- shareholder also, we are of the view that loan or advance to a non- shareholder cannot be taxed as deemed dividend in the hands of a non-shareholder." 7. This issue has been considered by the Hon'ble Jurisdictional High Court also....