TaxTMI 
TaxTMI 
2013 (10) TMI 476
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.... 2005- 06 for the sake of convenience. 4. Briefly the facts are, the assessee is a Private Ltd. company mainly engaged in the business of marketing and sale promotion besides various other activities. For the assessment year under dispute the assessee filed its return of income on 30/10/2005 declaring total income of Rs. 92,04,420/-. The return was processed u/s 143(1) of the Act. Subsequently, the Assessing Officer having reason to believe that income has escaped assessment on account of difference between the receipt admitted by the assessee and receipt shown in the TDS certificates, reopened the assessment by issuing a notice u/s 148 of the Act on 10/04/2007. During the reassessment proceeding the Assessing Officer noticed that the assessee was providing services to M/s Ushodaya Enterprises Ltd. For rendering services the assessee was receiving advances from Ushodaya Enterprises and the advances are subsequently adjusted against the bills raised for the services rendered. The Assessing Officer further noticed that Ch. Ramoji Rao (HUF) is holding 90% share or voting right in both the companies. Ushodaya Enterprises Ltd is also having accumulated profits. The Assessing Officer ....
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....me Court had traced out the assessee of this provision in the following manner: ―Any payment by a company, not being a company in which the public are substantially interest, of any sum (whether as representing a part of the assets of the company or otherwise) made after 31.05.19987 by way of advance or loan. First limb a) to a shareholder, being a person who is the beneficial 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, Second limb b) or to my 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) Third limb c) or any payment by any such company on behalf, or for the individual benefit, or any such shareholder, to the extent to which the company in either case possesses accumulated profits. 23. It is rightly pointed out by the Bombay High Court in Universal Medicare (P) Ltd.(supra)that Section 2(22)(e) of the Act is not artistically worded. Be as it may, we may reiterate that as per this provision, the following....
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....he conditions specified under Section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under Section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of "deeming shareholder", then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the Revenue would stand answered, once we look into the matter from this perspective. 26. In a case like this, the recipient would be a shareholder by way of deeming provision. It is not correct on the ....
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....sal Medicare (P) Ltd., (324 ITR 263). 9. The ITAT, Hyderabad Bench in case of MARC Manufacturers Pvt. Ltd. Vs. ACIT in ITA No. 555/Hyd/2008 dt. 31/08/2009 while considering identical issue of advancement of loan to one company, which is not a shareholder of the lender company following the decision of ITAT Mumbai Special Bench in case of Bhaumik Colour P. Ltd. (supra) and other decisions held as under: "5. It can be seen from the circular that the provisions of amended section 2(22)(e) are to be applied only to the payments made to the shareholders and not to any other person or concern other than the shareholders. The Allahabad High Court in the case of CIT vs. H.K. Mittal reported in 219 ITR 420 held that the chief ingredient of dividend as defined in sub clause (e) of clause (22) of section 2 of the I T Act is that the recipient should a shareholder on the day the loan was advanced. If that fact is not established, there cannot be a deemed dividend. Therefore, the provisions of sec. 2(22)(e) cannot be applied to MARC as it is not a shareholder in MTAR Technologies Pvt. Ltd. (Hereinafter called as MTAR). In this regard, the assessee relies on the declslon of the ITAT Mumbai....