TaxTMI 
TaxTMI 
2014 (5) TMI 234
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....h is raised in the appeal:- "(1) Whether the Income Tax Appellate Tribunal was justified in holding that the two lending companies who have advanced interest bearing loan to the appellant have done so not in the ordinary course of its business, by completely overlooking that the lending of money has been specifically mentioned in the Memorandum of Association of both the companies in the objects which are ancillary to carry out the main objects of the company." The assessee had taken an interest bearing loan from two companies in which the assessee holds more than 10% of the shares. The assessee received a loan of Rs.95,225/- from a company by the name of Kukki Color Photos Pvt. Ltd. and Rs.11,55,230/- from Kukki Color Prints Pvt. Ltd....
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....ngly, the addition made is deleted." The Tribunal has set aside the finding of the CIT(A) and has restored the addition which was made by the Assessing Officer. Section 2(22)(e) of the Income Tax Act, 1961 defines the expression "dividend" as follows:- "2(22)(e). any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being 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) holding not less than ten per cent of the voti....
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....he exclusion to apply, two conditions must be fulfilled. Firstly, the advance or loan must be made to a shareholder by a company in the ordinary course of its business. Secondly, the lending of money must be a substantial part of the business of a company. The Tribunal has held that the first ingredient of clause (ii) was not fulfilled because the advance or loan was made to the assessee, who was a shareholder, not in the ordinary course of business. In holding that the advance was not in the ordinary course of business, the sole consideration which weighed with the Tribunal was that the main object of the two companies was not to engage in money lending business, though the ancillary object was to invest and deal with the funds of the comp....
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....as to be determined as a matter of fact. The CIT(A) had adverted to the position of total assets of the companies and observed that the position was as follows:- Name of the Company Total Assets As on 31/03/07 Loans & Adv. As on 31/07/07 %age of Total Business Kukki Color Photos Pvt. Ltd. 1468596/- 1026110/- 69.87 Kukki Color Prints Pvt. Ltd. 5072899/- 1961593/- 38.67 Both the ingredients were considered by the CIT(A). On the first ingredient, the CIT(A) held that the lending of money was in the ordinary course of business having due regard to the objects contained in the Memorandum of Association. On the second ingredient, the CIT(A) held that one of the lending companies had advanced interest bearing....