TaxTMI 
TaxTMI 
2011 (1) TMI 1419
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....; 22,80,40,000 made by the Assessing Officer on account of deemed dividend u/s.2(22)(e) of the Income tax Act, 1961 holding that the transactions between the assessee company and M/s. Gujarat Insecticides Ltd (GIL) (a subsidiary of the assessee company wherein the assessee company holds 66.66% of shares) were normal business transactions not covered by the provisions of section 2(22)(e) of the Income tax Act, 1961. 2. While deleting the said addition, the ld CIT (A) failed to appreciate that lending of money being not the business of M/s. GIL, the said transactions are not covered by the exclusions provided in section 2(22)(e) of the Income tax Act, 1961. 3. The ld CIT (A) further failed to appreciate that advance for the purpose of sec....
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....lso explained that no loans or advance had been availed from M/s GIL and the amount shown at ₹ 31,53,86,000 is on account of regular trade transactions. The AO rejected the above submissions, inter alia, holding that all the conditions as mentioned in section 2(22)(e) are satisfied as the assessee is not a company in which public are substantially interest that the assessee posses accumulated profits to the extent of these transactions, and that as thee is always a huge credit balance, these transactions are not ordinary business transactions. Accordingly, the AO brought to tax the outstanding shown as due and payable as deemed dividend under section 2(22)(e) of the Act. Aggrieved, the assessee carried the matter in appeal before the ....
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....tantially interested ; (ii) money should be paid by the company to a shareholder holding not less than ten per cent. of the voting power of the company. It would make no difference if the payment was out of the assets of the company or otherwise ; (iii) the money should be paid either by way of an advance or loan or it may be "any payment" which the company may make on behalf of or for the individual benefit of any shareholder or also to concern in which such shareholder is a member or a partner and in which he is substantially interested ; and (iv) the limiting factor being that these payments must be to the extent of accumulated profits, possessed by such a company. The immediate precursor to section 2(22)(e) is found in section....
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....uld be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term "advance". The rule of construction which answers this conundrum is noscitur a socis. The rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63 by observing "it is legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them" and the Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610. The principles with regard to the applicability of the rule of construction are briefly as follow....
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....ent was obtained through C. For this purpose, C would pass on the advance received from its customers to the assessee to execute the job work entrusted to the assessee. The Assessing Officer was of the opinion that the money received by the assessee was in the nature of a loan given by C to the assessee who admittedly held more than 10 per cent. of the shares in C. The Assessing Officer concluded that the money received by the assessee was deemed dividend within the meaning of the provisions of section 2(22)(e). The Commissioner (Appeals) reversed the order of the Assessing Officer. The Tribunal sustained the decision of the Commissioner (Appeals). On appeal : Held, that the trade advances given to the assessee by C could not be treated as ....