TaxTMI 
TaxTMI 
2006 (5) TMI 500
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....the loan can be said to be having paid in the ordinary course of the assessee's business. The Assessing Officer rejected both the contentions of the assessee. On a perusal of the details of share holding, he noticed that Shri Atul Indravadan Lekhadia is in fact commanding more than 20 per cent of the total share holding in his capacity as an individual as well as karta of HUF where again all the powers of taking decisions on behalf of HUF are squarely vested in him only. He also rejected the second contention of the assessee by referring to the Directors Report of all the three companies, wherein it is stated that in terms of Companies (Disclosure of Particulars of Board of Directors), Rules, 1988 since company was conducting trading activity which are temporarily suspended. He, further, noticed that paragraph 5(ix) on page 2 of the Auditors Report that in all the three cases, it has been stated that the company has not given loan or advances in the nature of loan to any party. Which according to him clearly shows that none of the companies are in fact dealing in the business of lending money and it was only because the actual trading activity of none of the three companies had beg....
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....es and holding not less than 10 per cent of the voting power in the company giving such loan or advance. Thus by virtue of provisions of section 2(22)(e) certain payments have been roped in as 'deemed dividend' for taxation purpose. However, the said provision does not talk about deemed shareholder'. Further in situation No (i) and (iii) it is clear as to who is to bear the burden of taxation. However, in situation No. (ii) which is applicable in the case of the appellant company the provision is silent as to who is to bear the burden of taxation. The Assessing Officer while relying on the provisions of section 2(22)(e) as seen above has stated that as per the provisions of section 2(22)(e) as seen above has stated that as per the provisions of section 2(22)(e) the payment is to be treated as the deemed dividend in the hands of the recipient concern. However, as seen above the provisions of section 2(22)(e) is silent about this aspect and there is no mention as to in whose hands the payment is to be treated as deemed dividend. Further as rightly pointed out by the Authorised Representative if the interpretation of the Assessing Officer about treating the payment as the deemed divid....
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....ssessee company. His share holding in the assessee company is 2050 shares out of total issued and paid up shares of 20020 which works out to 10.24 per cent. He further submitted that the Assessing Officer's view in adding the shareholding of Shri Atul Lekhadia with the shares of HUF of Shri Atul Lekhadia for applying the provisions of section 2(22)(e) not permissible under the Act. He placed reliance on the following decisions:- (i) ITO v. S.S.Barodawala (1983) 4 ITD 186 (Bom.) (ii) Minnie R. Cama v. ITO (1986) 17 ITD 139 (Ahd.) (SMC) (iii) Smt. Gunvanti R. Mehta v. ITO (1993) 45 ITD 382 (Bom.) (SMC). The ld. Counsel further submitted by relying on the decision of the Supreme Court in case of CIT v. P.K.N. Co. Ltd. (1966) 60 ITR 65 , that in any case the main business of the loan advancing companies was lending and their only source of income was interest income and therefore, exception (ii) to section 2(22) shall come into play and the loans given by those companies shall not be treated as dividend and consequently the same shall not be considered as dividend in the hands of the assessee. He stated that no dividend income can be taxed in the hands of ....
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...., at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern. This clause is as evident not applicable to a company and a person having substantial interest in relation to a company as defined in section 2(32) of the Act, to mean that 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. Skri Atul Lakhadia himself is not a beneficial owner of the shares of 20 per cent. His shareholding is only 10.24 per cent. If the shareholding of HUF is also considered then only it exceeds 20 per cent, but as per the plain language in section 2(32) of the Act, it is the beneficial ownership of a person that alone is to be considered. In that view of the matter neither Lakhadia himself nor in his capacity as HUF was holding shares of 20 per cent or more. In these circumstances, the provisions of section 2(22)(e) applying to a concern in which such shareholder is a member and in which he has substantial interest would not apply. Shri Atul Lakhadia is no doubt a member in ....