TaxTMI 
TaxTMI 
2015 (11) TMI 1009
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....y possesses accumulated profits. The provisions of Sec.2(22)(e) of the Act, reads as follows: Sec.2(22) "dividend" includes- "(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 31-5-1987, 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 voting power, or to any 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) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits." but "dividend" does not include- (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of l....
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....e previous year, beneficially entitled to not less than twenty per cent of the income of such concern ; Section 2(32) defines the expression "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 percent of the voting power. 3. The provisions of Sec.2(22)(e) treats "loan or advance" given by a company in which public are not substantially interest as distribution of dividend by the company to its shareholders and chargeable to tax. It is being done to bring within the tax net monies paid by the closely held companies to their shareholders who have substantial interest in the company, payment by way of loan or advance presuming that the accumulated profits which the company has are being given as loan or advance instead of dividend to avoid tax if such sums are given as Dividend. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholder in avoiding the payment of taxes b....
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....e mutual there must be transactions on each side creating independent obligations on the other and not merely transactions which create obligations on the one side, those on the other being merely complete or partial discharge of such obligations.......... There were shifting balances, on many occasions the balance was in favour of the appellant and on many other occasions, the balance was in favour of the respondent. There were reciprocal demands between the parties and the account was mutual". 6. The Assessee filed before CIT(A) a copy of the Ledger Account of the Assessee as appearing in the Books of Accounts of BAPL. The balance as on 31.03.2009 was nil. It was pointed out that in almost every month of the Fin. Year 2008-09, there were about 5 to 10 transactions involving payments by both the Assessee and BAPL to each other. Referring to the transactions in the Ledger Account, the Assessee pleaded that during the first few months of the Fin. Year 2008-09, the outstanding balances were in favour of BAPL and it was, therefore, advantageous to BAPL. However in subsequent months the position reversed and the balances after each transaction were in favour of the Assessee. It was ar....
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....mpany cannot be treated as loan or advance and therefore assessed in her hand as deemed dividend in terms of Sec:2(22)(e) of the LT. Act. The addition of Rs. 3,10,83,635/- as made by the A.O. is, therefore, deleted. Since the addition made by the A.O. in the hand of the appellant has been deleted by me, the dispute relating to correct computation of accumulated profit of the company as raised by the appellant in her ground No.3 has become infractuous." 9. Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal raising the following grounds: "1. That the facts and circumstances of the case CIT(A) erred both in law and facts in deleting addition of Rs. 3,10,83,635/.- made by the A.O. u/s 2(22)(e) of the I.T.Act, 1961. 2. that the Appellant craves leave to add, amend, modify & alter any grounds of appeal during course of hearing of the case." 10. The learned DR relied on the order of the AO. The learned counsel for the Assessee reiterated submissions made before the CIT(A) and relied on the decision of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra Vs. CIT 338 ITR 538(Cal). Further reliance was also placed on the decision of the ITA....
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....nd gone through facts and circumstances of the case. We have gone through the facts of the case and found from the perusal of ledger account of assessee in the books of account of Ganesh Wheat Products (P) Ltd., the lender company, it is seen that as on the first day of the relevant accounting year 2005- 06 (A.Y. 2006-07) opening balance is at Rs. 28,07,584/-. Thereafter, on several dates during the entire financial year there were several transactions through cheques and some in cash by either parties, i.e. the assessee and the loan giving company, resulting in shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was in favour of Ganesh Wheat Products (P) Ltd. The ledger of the assessee further reveals that no payment by loan creditor is followed by a repayment by the loan debtor and, in fact, the payments by the assessee and Ganesh Wheat Products (P) Ltd. are independent of one another. No interest was charged by either side for advancing money on mutuality inasmuch as the loan account was a current account in nature. It is thus evident that there were reciprocal demands between the parties and thus mutual in chara....
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....ividend withín the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder." From the above facts and legal proposition decided by Hon'ble jurisdictional High Court, it is clear that section 2(22)(e) of the Act was inserted to bring within the purview of taxation those amounts which are actually a distribution of profits but are disbursed as a loan so that tax thereon can be avoided. It is pertinent to note here that when dividends are declared by a company, it is solely the shareholders who benefit from the transaction. No benefits accrue to the company by way of dividend distribution. Thus, section 2(22)(e) of the Act covers only such situations, where the shareholder alone benefits from the loan transaction, because if the company also benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. In the case of the assessee, by giving and taking financial assistance from each other, bo....