TaxTMI 
TaxTMI 
2016 (10) TMI 2
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....ataka Industries (P) Ltd., holding 12.93% and 20% paid up share capital respectively in the aforesaid two companies and therefore the provisions of Sec.2(22)( e) of the Act would be attracted. The AO ultimately passed an order treating the loan in question as a deemed dividend in the hands of the Assessee. 4. On appeal by the Assessee the CIT(A) deleted the addition made by the AO following the order of the Tribunal in Assessee's own case in the earlier year on identical issue. The following were the relevant observations of the CIT(A) in this regard: "5. The Ld. AR has submitted that the provisions of section 2(22)(e) was not attracted as the assessee was not a shareholder in M/s. Pataka Industries (P)Ltd from which loan was received. He had further submitted that the issue was covered by the order of jurisdictional ITAT for the assessment year 2006-07. For in that year, similar addition was made by the AO in his assessment order u/s 263/143(3) in consequence to an order u/s 263 passed by the Ld. CIT, Central-I, Kolkata. But then, the said order u/s 263 was quashed by the Hon'ble ITAT vide its order dated 29-02-2012 in ITA No.533/Kol/2011 read with its order dated 31-07-2012 in....
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....Hon'ble High Court of Calcutta, in G.A.No.3188 of 2013 dated 11.11.2014 wherein the Hon'ble High Court dismissed the appeal preferred by the Revenue against the order of the Tribunal in ITA No.1803/Kol/2012 dated 16.5.2013 based on which the CIT(A) allowed relief to the Assessee in AY 2009-10. 7. We have heard the submissions of the learned counsel for the Assessee. The provisions of Sec.2(22)(e) of the Act, reads as follows: "(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 ....
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....l 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. This is because of the expression "Such Shareholder" found in the relevant provision. This expression only refers to the shareholder referred to in the earlier part of Sec.2(22)(e) viz., a registered and a beneficial holder of shares holding 10% voting power. (c)The very same person referred to in (b) above must also be a member or a partner in the concern holding substantial interest in the concern viz., when the concern is not a company, he must at any time during the previous year, be beneficially entitled to not less than twenty percent of the income of such concern; and where the concern is a company he must be the 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 (d) If the above conditions are satisfied then the payment by the company to the concern will be dividend. 7.4. The Special Bench of ITAT, Mumbai, in the case of Bhaumik Color Labs ITA 503....
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....older of the company the assessment as deemed dividend in the hands of the firm was not correct. The order of the CIT(A) was confirmed by the Tribunal. On Revenue's appeal before the Hon'ble High Court, the following question of law was framed for consideration:- "Whether on the facts and in the circumstances of the case and in law the learned Tribunal was justified in upholding the order of learned CIT(A) deleting the addition of Rs. 10 lacs as deemed dividend under Section 2(22)(e) of the IT Act? " The Hon'ble Court held as follows:- " The important aspect, being the requirement of section 2(22)(e) is, that 'the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf or for the individual benefit of any such shareholder ....... " Thus, the substance of the requirement is that the payment should be made on behalf of or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is pad by the company, whether to the s....
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....ributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders 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 it's 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. The intention of the legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern. 36. The basis of bringing in the amendment to Sec.2(22)(e) of the Act by the Finance Act, 1987 w.e.f 1-4-88 is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the con....