TaxTMI 
TaxTMI 
TaxTMI 
2013 (6) TMI 793
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....rts Private Limited namely Sampad Kr. Bubna who held 13.54% shares in M/s Rajrani Exports Private Limited and 17.68% shares in the Respondent Assessee Company, Sashi Kant Bubna who held 13.54% shares in M/s Rajrani Exports Private Limited and 18.66% shares in the Respondent Assessee Company, Santosh Kr. Bubna who held 13.54% shares in M/s Rajrani Exports Private Limited and 18.66% shares in the Respondent Assessee Company and Surendra Kr. Bubna who held 13.54% shares in M/s Rajrani Exports Private Limited and 18.66% shares in the Respondent Assessee Company. On or about 28th October, 2005, the Respondent Assessee Company filed its Income Tax Return for the Assessment Year 2005-2006 corresponding to the previous year 2004-2005 showing income of Rs. 19,62,958/- in the said Assessment Year. By an order of assessment, dated 31st December, 2007, the income of the assessee for the Assessment Year 2005-06 was assessed at Rs. 1,80,59,340/- as against returned income of Rs. 19,62,958/-. An appeal being appeal No.287/CIT(A)-XIII/8(1)/08-09 was filed against the aforesaid order of assessment. However on or about 30th April, 2009, notice was issued to the Respondent Assessee Company under S....
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....pany in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is set off; [(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1965 (1 of 1956); (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).]" Explanation 1. - The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2. - The expression "accumulated profits" in subclauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, a....
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....ssion dated 10.12.2010 the said advances received from Rajrani Exports P Ltd. also falls within the ambit of the said exclusion clause......." ........ 2.5. ...... the main business of assessee is not lending or advancing of money. Hence, the provisions of section 2(22)(e) of Income Tax Act, 1961 are squarely applicable in the assessee's case and accordingly, in view of observations made above, a sum of Rs. 1,50,00,000/- is treated as deemed dividend income in the hand of the assessee." Being aggrieved, the Respondent Assessee Company appealed to the Commissioner of Income Tax (Appeals) VIII Kolkata being Appeal No.321/CIT (A) - VIII/Kol/10-11. By an order dated 4th August, 2011 the Commissioner of Income Tax allowed the appeal in part, inter alia, holding as follows:- "Section 2(22)(e) of the Act had created legal fiction to treat loan or advances given to shareholders or to a concern as dividend. The fiction stops here and cannot be extended further for broadening concept of shareholders by way of legal fiction. A company is supposed to distribute the profit in the form of dividend to members/shareholders and it cannot be given to non-member. In the instant case the advance/....
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....een placed on the provisions of section 2(22)(e) is correct. Section 2(22)(e) defines the ambit of the expression "dividend". All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder." In Commissioner of Income Tax Vs. Ankitech P. Ltd. reported in [2012] 340 ITR 14 (Delhi) also cited by Mr. Khaitan, a Division Bench of Delhi High Court considered the provisions of Section 2(22)(e) of the Income Tax Act, 1961, relied upon Universal Medicare Private Limited (supra), and reiterated that to attract Section 2(22)(e) of the Income Tax Act, 1961, the following conditions had to be satisfied:- (i) the payer company must be a closely held company; (ii) Section 2(22)(e) would apply to any sum paid by way of loan or advance during the year to the following persons:- (a) a shareholder holding at least 10 of the voting power in the payer company; (b) a company in which such shareholder had at least 20 percent of the voting power; (c) a concern (other than company) in which such shareholder had at least 20 percent interest. (iii) the payer company had accumulated profits on the date of any such payment and the payment was ou....