TaxTMI 
TaxTMI 
2017 (1) TMI 243
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....has dismissed the appeal of the department and cross objections were allowed for statistical purposes. 3. The facts of the case are that TDS verification was conducted on 27.02.2008 and it was noticed that the assessee has made payments under various heads but TDS was not deducted as per provisions of Income tax Act 1916. A show cause notice u/s 201(1)/201(1A) was issued to the assessee deductor on 05.03.2008. In response to this notice, Sh. S.C. Bapna FCA attended from time to time as per order sheet entry. The assessee deductor filed requisite information which include copy of various accounts. During the verification, it was noticed that the assessee deductor has made payments to its share holders having share holding more than 10% of....
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....mpany 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 31st day of May, 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 com....
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.... us at the instance of the assessee is answered in the affirmative and against the assessee." 7. He also relied upon the judgment of the Gujarat High Court in Ravindra D. Amin vs. Commissioner of Income Tax reported in (1994) 208 ITR 815 (Guj.) holding as under:- "It is also difficult to appreciate how the Tribunal after coming to the conclusion that "we have to proceed on the basis that payments are deemed dividend within the meaning of s. 2(22)(e) and s. 194", could have taken the view that the company cannot be said to have committed a default contemplated by s. 194 and, was therefore, not liable to pay interest. We fail to appreciate how merely because payment of Rs. 6 lacs by the company was an integral part of the arrangem....
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....ly in those cases where the company gives loan or advance to its shareholder at the instance of the shareholder. It is also not possible to agree with the reasoning given by the other member of the Tribunal. In our opinion, the situations pointed out by the Tribunal for deducting amount of tax when advance or loan is made by the company to a shareholder in the middle of the year, are more imaginary than real. If payment which is made by the company to a shareholder is in the nature of the advance or loan or if the payment is made to a third party on behalf of a shareholder or for his benefit, then there should not be any difficulty in treating that payment as dividend in the hands of the shareholder and deducting tax therefrom. If at the en....
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.... controlling group refused to distribute accumulated profits as dividends to the shareholders but adopted the device of advancing the said profits by way of loan to one of its shareholders so as to avoid payment of tax on accumulated profits. This was the main reason for enacting Section 2(22)(e) of the Act." 10. Counsel for the respondent contended that Section 194 is charging section which reads as under:- "Section 194: The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or ....
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....obvious, viz., loan or advance given under the conditions specified under Section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under Section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If t....