TaxTMI 
TaxTMI 
2014 (3) TMI 397
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....action/account ? (iii) Whether in the facts and circumstances of the case, it is correct on the part of the Tribunal to draw unconstructive supposition against the financing business of the company when it is not the case of the revenue/department that financing was ultra vires the object of the lending company ? (iv) Whether in the absence of a finding that the company had accumulated profits, the impugned transaction could be treated as a deemed dividend ?" 3. The brief facts of the case are that the assessee has the income from the house property, share from firm and from trading of shares of companies. During the assessment year under consideration, the assessee has taken unsecured loan from M/s Krishna Bead Industries Private Limited Company (hereinafter known as 'Company') of Rs.37,28,059/-. The assessee is a Director and having a substantial interest in the company. The A.O. applied the provisions of Section 2(22)(e) of the Income Tax Act, 1961, pertaining to the advances of Rs.37,28,059/- and brought the same under the clutches of the deemed dividend. The same was upheld not only by the first appellate authority but also by the Tribunal. Still not being satisfied....
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....ial business. Various factors and circumstances would be required to be looked into while considering whether a part of the business of a company is its substantial business. Sometimes a portion while contributes a substantial part of the turnover, though it contributes a relatively small portion of the profit, would be a substantial part of the business. Similarly, a portion which is relatively small as compared to the total turnover, but generates a large portion, say more than 50 per cent of the total profit of the company would also be a substantial part of its business. Percentage of turnover in relation to the whole as also the percentage of the profit in relation to the whole and sometimes even percentage of manpower used for a particular part of the business in relation to the total manpower or working force of the company would be required to be taken into consideration. Employees of a company are now called its "human resources" and, therefore, the percentage of human resources used by the company for carrying on a particular division of business may also be required to be taken into consideration while considering whether a particular business forms a substantial part of....
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.... parties at length and gone through the material available on record. 10. In the instant case, it appears that neither the company nor the assessee having the license of money lending business. Further, as per the balance sheet of the company, total loans and advances are only Rs.47,90,339/- out of which loan to the extent of Rs.37,28,029/- was given to the assessee. Hence a substantial part of the loan has been taken by the assessee. In the circumstances, there is no chance to accumulate the profits pertaining to the available funds. Therefore, the question (iv) cannot be answered. 11. It also appears from the record that not a single rupee income has been shown from the money lending activity. The interest earned on FDRs no stretch imagination, can be said to have been earned from money lending business. What is now being claimed i.e. an interest of Rs.62,280/- from the appellant on the advances given. Thus, the explanation being offered by the assessee is contrary to the facts on record. Further, it is also evident that assessee did not take interest bearing loans, from advances or different parties. The auditor has claimed that the company has not granted but taken unsecured ....
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....idend would not affect the shareholder's liability to taxation in respect of the dividend. 15. A shareholder is liable to pay tax on his dividend income without any credit for the tax paid by the company on its own profits; and further, the company must deduct, under Section 194 (except as otherwise provided in that section), the shareholder's tax at source while paying the dividend. 16. For the purpose of this section, the shareholders must have 10% or more voting power in the closely held company. Therefore, for example if a closely held company gives a loan to its director who holds 10 % of the voting power of the company, then the amount received by the director from the company will be taxed in his hands. In the present case, this condition is fulfilled. 17. A 'dividend' is not capital but the produce of capital. Subject to well recognised limitations, 'dividend' is a word of general and indefinite meaning without any narrow, technical or rigid significance. As explained above, the term 'dividend' is applied to a distributive sum, share or percentage arising from some joint venture as profits of a corporation. In the second sense, it is propo....
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....r for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits." Thus, for a dividend to arise under this sub-clause, the following conditions should be fulfilled: (i) the company must be a company shares of which are closely held. (ii) money (not money's worth) should be paid by the company. (iii) the money must form a part of the assets of the company. (iv) it may be paid either by way of advance or loan or it may be "any payment". (v) (a) the payee must be a shareholder of the company having substantial interest in the company, or (b) the payee must be a person who is acting on behalf of or for the individual benefit of such shareholder. 21. The expression "person who has a substantial interest in the company" is defined in section 2(32), as meaning "a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty percent of the voting power." If these conditions are fulfilled, then a dividend would arise to the extent to which the company possesses accumulated profits. ....