2014 (10) TMI 609

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.... assessee company and M/s. Morgan Credits Pvt. Ltd., having shareholding of 96% and 45.5% respectively. Assessing Officer held that she was a major shareholder in both the companies and both the companies were closely held companies and the Directors of both the companies are common. The loan amount of Rs. 27,75,00,000/- was treated as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961 in the assessee's company hand and the addition was made. The CIT (A) deleted the addition by holding as under :- " I have considered the submissions of the appellant findings of the AO and the facts on record. Section 2(22) (e) of the Act reads as under: "dividend" includes-------- (a) to (d) ------------------- (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 31 st 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 cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a su....

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....eholder has substantial interest, is based on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. 25. Further, it is an admitted case that under normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under s. 2(22) (e) of the Act. We have to keep in mind that this legal provision relates to "dividend". Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to "shareholder". When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under s. 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 s. 2(22)(e) of the Act, viz., a c....

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.... position that the shareholder has to be the registered shareholder. The amendment imposes an additional condition that the registered shareholder must also be the beneficial shareholder of the company that has furnished loan/advance. The fact that the shareholders of the assessee company were also shareholders of the company which had given "loan/advances" is not suffice and does not meet the requirement of Section 2 (22)(e). The voting rights of the shareholder, i.e., the assessee can and should be taken into consideration. . 8. When we apply the aforesaid legal position to the admitted facts as elucidated and stated above, the question of law has to be answered in negative, i.e., in favour of the assessee and against the Revenue. The Hon'ble Delhi High Court in the case of M/s. Navyug Promoters (P) Ltd. vs. CIT 2011- TIOL-806-HC-DEL-IT has held as under:- "4. The revenue is in appeal raising the questions extracted above. The controversy is now concluded by the judgment of a division bench of this court in the case of CIT v Ankitech Pvt Ltd (ITA No.462/2009) = (2011- TIOL-290-HC-DEL-IT) and connected appeals on 11th May, 2011. A copy of the judgment has been filed before u....

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....o 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." 5. In the present case, it is an admitted fact that the assessee-company is not a shareholder holding the required percentage of shares in any of the two companies. Therefore, the judgment of this Court in Ankitech Pvt. Ltd. (supra) fully applies to the present case. We accordingly hold, following the said judgment, that no substantial question of law arises from the order of the Tr....