2015 (10) TMI 1900

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....d company. According to the Assessing Officer, the said company having accumulated profit, the amount of ICD received by the assessee from the said company was liable to be added to its total income as deemed dividend under S.2(22)(e). In this regard, the submissions made by the assessee that the transaction involving receipt of ICD being regular business transaction and it being not a share holder in M/s. Excel Rubber Pvt. Ltd., the amount of ICD was not liable to be treated as deemed dividend in its hands, was not accepted by the Assessing Officer and relying on the assessment order passed by him in assessee's own case for assessment year 2006-07 treating a similar amount of ICD received from M/s. Excel Rubber P. Ltd. as deemed dividend, he added the amount of Rs. 7.50 cores to the total income of the assessee as deemed dividend under S.2(22)(e). 3. The addition made by the Assessing Officer on account of deemed dividend under S.2(22)(e) was challenged by the assessee in the appeal filed before the learned CIT(A), and following the decision of the Tribunal rendered in assessee's own case for assessment year 2006-07 deleting the similar addition made by the Assessing Officer un....

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....., 313 ITR (AT) 146 and held as under: "22. Insofar as the provisions of Section 2(22)(e) are concerned, we have already extracted this provision and taken note of the conditions/requisites which are to be established for making provision applicable. In Commissioner of Income Tax Vs. C.P. Sarathy Mudaliar [1972] 83 ITR 170, the Supreme Court had traced out the assessee of this provision in the following manner: ? Any payment by a company, not being a company in which the public are substantially interest, of any sum (whether as representing a part of the assets of the company or otherwise) made after 31.05.19987 by way of advance or loan. First limb a) to a shareholder, being a person who is the beneficial 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 percent of the voting power, Second limb b) or to my concern in which, such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) Third limb c) or any payment by any such company on behalf, or for the individual benefit, or a....

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....ion 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 Section 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 nonmembers. 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 ....

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....me at the hands of the shareholders and tax them accordingly. As otherwise, it would amount to escapement of income at the hands of those shareholders." 9. The same view has also been expressed by the Hon'ble Delhi High Court again in case of CIT Vs. Navyug Promoters P. Ltd. (203 Taxman 618) and Hon'ble Bombay High Court in case of CIT Vs. Universal Medicare (P) Ltd., (324 ITR 263). 10. The ITAT, Hyderabad Bench in case of MARC Manufacturers Pvt. Ltd. Vs. ACIT in ITA No. 555/Hyd/2008 dt. 31/08/2009 while considering identical issue of advancement of loan to one company, which is not a shareholder of the lender company following the decision of ITAT Mumbai Special Bench in case of Bhaumik Colour P. Ltd. (supra) and other decisions held as under: "5. It can be seen from the circular that the provisions of amended section 2(22)(e) are to be applied only to the payments made to the shareholders and not to any other person or concern other than the shareholders. The Allahabad High Court in the case of CIT vs. H.K. Mittal reported in 219 ITR 420 held that the chief ingredient of dividend as defined in sub clause (e) of clause (22) of section 2 of the I T Act is that the ....