TaxTMI 
TaxTMI 
2014 (4) TMI 303
X X X X Extracts X X X X
X X X X Extracts X X X X
....evendra Dhawan, Neeraj Dhawan and Suraj Dhawan, etc., are interested in M/s Shivalik Dairies Pvt. Ltd., the loans received by the assessee company are deemed income of the assessee as per the provisions of Section 2 (22) (e) of the Act, since loans received from a private limited company by a concern, whose partners are interested in the private limited company, are deemed to be the income of the receiver concern as per the provisions of Section 2 (22)(e) of the Act. By virtue of the impugned orders, the Ld. CIT (A) deleted the additions made by the Assessing Officer for both the years under consideration. 3. Challenging the impugned orders, the Ld. DR has contended that the Ld. CIT (A) has erred in deleting the additions correctly made by the Assessing Officer; that while doing so, the Ld. CIT (A) has failed to take into consideration the fact that as rightly observed by the Assessing Officer, Finance Act, 1987, has changed the definition of 'deemed dividend' u/s 2 (22) (e) of the Act and thereby, any sum by way of advance or loan to any concern in which a shareholder, being a person who is the beneficial owner of the share holding not less than 10% of the voting power of a compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany, a copy whereof has been placed on record, shows that there is 100% income from lending money and there is no other business activity from FY 2007-08 to FY 2010- 11. As per the Memorandum and Articles of Association of Shivalik Dairies, one of its main objects was to carry on the business to manufacturers, producers and processors of and dealers in milk and milk products and milk preparations of all kinds. The Minutes of the Meeting of the Board of Directors of Shivalik Dairies, held on 6.4.06 (APB Assessment Year 2008-09, pages 55-56) shows that the aforesaid main objects of the company could not be carried out despite land having been purchased for establishing a milk plant and installation of related machinery. Approvals from the concerned Government department could not be obtained and so, the project could not be started. The source of income of the company had been the sale of some agricultural produce. The land of the company came under compulsory acquisition by the Government of Delhi. Even the possession thereof was taken over. The company had neither any land, nor any fixed assets. Accordingly, the Memorandum of Association of the company was decided to be amended a....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., could not be treated as covered by the definition of the word 'dividend', as contained in Section 2 (22) (e) of the Act. 10. In 'MCC Marketing (P) Ltd.' (supra), the Hon'ble High Court of Delhi has followed 'CIT vs. Ankitech (P) Ltd.', 199 Taxmann 341 (Del), which has rightly been followed by the Ld. CIT (A) in favour of the assessee and wherein, it was held that the legal fiction created u/s 2 (22 ) (e) of the Act enlarges the definition of 'dividend' only, that the legal fiction is not to be extended further by broadening the concept of shareholders, that any company is supposed to distribute profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members, that the second category specified in Section 2 (22) (e) is a concern in which a shareholder of the payer company has at least 20% of voting power and loan or advance under this category is given admittedly not to a shareholder/member of the payer company and, therefore, it cannot be treated as shareholder/member receiving dividend and that where loans or advances are given in the normal course of the business and the transaction in question benefits both the payer and the payee c....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s Shivalik Dairies Pvt. Ltd. The provisions of section 2(22)( e) excludes such transactions from the purview of deemed dividend. The relevant portion of section 2(22)( e) is reproduced hereunder:- Section 2(22)(e) Any payment by a company, no being a company in which the public are substantially interested of any sum ....... but "dividend" does not include -- (i) . (i)(a) . (ii) any advance or loan made to a share holder (or the said concern) by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. The above provision clearly excludes the transactions of loans or advance by a company who is engaged in the business of lending money in the ordinary course of its business. Since the money advanced to the appellant company of Rs.32,00,000/- by M/s Shivalik Dairies Pvt. Ltd. was given on interest in the ordinary course of its business and for that interest of Rs.7,38,082/-has been charged from the appellant company. Therefore, the transaction of loan of Rs.32,00,000/- is not covered under section 2(22)(e) of the IT Act and same cannot be taxed as deemed dividend. Hence, the addition made by the Assessing....