TaxTMI 
TaxTMI 
2015 (6) TMI 397
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....fficer in the assessment order, and that benefit could be accrued direct or indirect. 2. Whether in the facts and circumstances of the case, the Ld. CIT(A) deleted the above disallowance without providing the Assessing Officer any opportunity to rebut, as per the provision of Rule 46A, on the submission of the assessee that details were filed during the course of assessment. 3. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 4. That the grounds of appeal are without prejudice to each other. 5. That the appellant craves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of the hearing." 2. The brief facts of the case are that the assessee company was engaged in the business of manufacturing exporting and dealing in all kinds of ayurvedic and herbal preparations. The return of income for the AY 2009-10 was filed on 30.3.2010 declaring an income of Rs. 3,76,95,433/-. The same was processed u/s. 143(1) of the Act. Subsequently, the case was selected for scrutiny through CASS and statutory notice u/s. 143(2) dated 20.8.2010 was issued and served. The assessment was complete....
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....f of the appellant, Sh. Deepak Jain, CA appeared and made written and oral submissions. The only issue involved is the addition under section 2(22)(e) for the sums aggregating Rs. 1,56,81,039/- paid as loan/advance by the appellant company to as many as 4 person (3 companies and 1 charitable society). S. No. Company's name Opening balance Paid during the year Received during the year Closing balance Nature of payment made 1. Global Diamonds (P) Ltd. 55633463 6946039 12675000 49904502 Loan 2. Maharishi Vedic Construction Corpn. (P) Ltd. 868847 2350000 - 3218847 Advance 3. Golden Glades Ltd. 40626000 385000 - 41011000 Advance 4. SRM Foundation of India (Charitable) - 6000000 - 6000000 Loan Total (Rs.) 97128310 15681039 1267500 0 100134349 4. The AO has made the said addition as more than 90% beneficial and registered share holding in the companies to whom loan has been given by the assessee company is with the family members of Shri Anand Prakash Srivastava, therefore, the AO held that the loan or advance so made, are liabl....
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.... dividends. Therefore, this clause must be given a strict interpretation as has been held by the Hon'ble Supreme Court in the case of CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170(SC)Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1 (SC) 6. It is seen that Shri Anand Prakash Srivastava is the beneficial owner and registered share holder, holding 99.9% of voting power of the assessee company; he is the substantial shareholder of the assessee company. 6.1 It now has to be seen whether * loans and advances have been given to him as per clause (a), * or to any concern in which Shri. Anand Prakash Srivastava is a member or a partner and in which he has a substantial interest as per clause (b), * any person on behalf of or for the individual benefit of Shri. Anand Prakash Srivastava (c) 6.2 Loans or advance have not been made by the appellant company to Shri Anand Prakash Shrivastava therefore, condition No. (a) is not attracted in the present case. 6.3 The shareholding pattern of three companies to whom loans and advances have been given, on account of which addition under section 2(22)(e) has been made is as under: A. Global Diamonds Pvt. Ltd. SI. No. N....
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....ial interest" has to be understood. It has been defined in section 2(32) of the Act, to mean a person beneficially owning at least 20% of its voting power. Section 2(32) reads as under: "2(32) "person who has a substantial interest in the company", in relation to a company, means 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 per cent of the voting power;" 6.5 When the aforesaid situation is applied to the facts of the present case, it is evident that Shri. Anand Prakash Srivastava (who holds 99.9% shares in the appellant company) holds following shareholding/voting power in the three companies and one society in relation to which section 2(22)(e) has been invoked: Sl. No. Name of the company/concern % of Voting Rights/Income (i) Global Diamonds (P) Ltd 19.66% (ii) Maharishi Vedic Construction Corpn. (P) Ltd. only 0.003% (iii) Golden Glades Ltd. 4.562% (iv) SRM Foundation of India Nil, being charitable society 6.6 It is here that the controversy has arisen. The Assessing ....
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..... e. the income which has arisen, accrued or received or deemed to have arisen accrued or received by him and the income is being computed as per provisions of the Act. Wife, son, daughter and other family members of an assessee are different assessees, independent and distinct persons and entities under the Act and unless the lw prescribes the transactions made by them to be clubbed together while computing the income of the assessee, no cognizance of the shareholding or other transactions thereof could be taken into consideration while computing the income of the assessee. Therefore, the provisions of said section 2(22)(e) are not applicable to the facts of the present case. It is submitted that the loans loans/advances given by the appellant company cannot be termed as having been made for and on behalf of or for the individual benefit of Shri. Anand Prakash Srivastava as envisaged by the provisions of section 2(22)(e) On a perusal of assessment order the AO has nowhere demonstrated or established any nexus between the loans granted by the appellant company vis-à-vis flow of funds to Sh. Anand Prakash Srivastava (shareholder of the appellant company). Therefore, the....
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....xed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power. (d) If the above conditions are satisfied then the payment by the company to the concern will be dividend. The intention behind enacting the provisions of section 2(22)(e) is that closely held companies (i.e., companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become tax-able in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholder or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a ....
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....s. 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 per cent of the voting power" as appearing in section 2(32) of the Act. It is the ownership of the shareholder alone, to whom the loan/advance is made by the company, and not his or her relative or family member which is the determinative factor. Income-tax is a personal tax and is levied on a person in respect of his total income, i.e., the income which has arisen, accrued or received or deemed to have arisen, accrued or received by him and the amount is the computation as per the provisions of the Act Husband and son of the assessee are different assessee, independent and distinct persons and entitles under the Act and unless the law prescribes the transactions to be looked into together while computing the income of the assessee, no cognizance of the shareholdings or other transactions thereof could be taken into consideration while computing the income of the assessee. No provision has been brought to my notice which authorises the revenue authorities to consider the share holding or ownership of the husband or son as the holding or o....
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.... member or a partner and in which he has a substantial interest" as appearing in section 2(22)(e) of the Act and "a person who is the beneficial owner of the 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 20% of the voting power" as appearing in section 2(32) of the Act. Thus it is the ownership of the shareholder alone in the company to which the loan/advance is made by the company, and not his or her relative or family members, which is the determinative factor. Accordingly, inclusion/clubbing of beneficial ownership of family members with that of Shri Anand Prakash Srivastava is not mandated by the provisions of the Act and thus tantamount to reading a condition which is not there. 7.2 We find that Ld. CIT(A) has also held that the loan/advance given by the assessee company cannot be termed as having been made for and on behalf or for the individual benefit of APS, as envisaged by the provisions of section 2(22)(e) of the I.T. Act. 7.3 We find that the Ld. CIT(A) has rightly referred the Special Bench of the ITAT in the case of Asstt. CIT v. Bhaumik Colour (P.) Ltd [2009] 313 I....
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....distribute such profit as dividend because if so distributed the dividend income would become tax-able in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholder or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. 7.5 We note that the Hon'ble Apex Court while considering what can come within the artificial definition of dividend under section 2(22) in the case of CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC) described the scope of the definition of dividend thus "The definition i....