TaxTMI 
TaxTMI 
2017 (3) TMI 523
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.... the concerned companies, if the relevant conditions were fulfilled. 3. That on facts and in law, the learned CIT (A) erred in upholding addition of Rs. 50,67,980/- to assessee's income on wrong assumption that the loan to firm in question was given to the appellant. 4. That the learned CIT (A) erred in holding that the provisions of Section 2(22) (e) and other provisions applied to the case of the appellant. 5. That in allowing the appeal of the appellant on the issue of quantum of accumulated profits the learned CIT (A) erred in not incorporating in his order the written submissions of the appellant that the amount standing in share premium account did not form part of accumulated profits and consequently passed a non-speaking order on this issue, and hence CIT appeals order on this issue needs to be modified/amended so as to explicitly ailow the appeal on this issue. 6. That the appellant craves leave to add/delete/amend any of the above grounds on or before hearing the appeal." 2. The assessee also filed additional ground of appeal as under: "1. That the learned Commissioner of Income Tax (Appeals) erred in not considering the contention of the appellant that ....
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....d dividend but directed the Assessing Officer to check the books of account of the company to find out the amount of accumulated profits available with the company at the beginning of the year or at the time of giving the said advance to the firm, M/s. Ess Ell Cables Co., and to restrict the disallowance u/s. 2(22)(e) of the Act to the extent of accumulated profits available with M/s. Alliance Cooper Concepts Pvt. Ltd. Again being aggrieved, the assessee is before the Tribunal in the appeal. 4. Before us, the learned counsel for the assessee supporting the application for admission of additional ground submitted that the additional ground raised is legal one, which needs no fresh facts to be investigated. He further submitted that in the written submission before the learned Commissioner of Income-tax (Appeals), the assessee contended that out of deemed dividend finally determined, only a proportionate share should be taxed in the hands of the assessee. The learned counsel in support of his claim relied on the decision of the Tribunal, Delhi Bench in the case of Sh. Puneet Bhagat Vs. Income Tax Officer, Ward-1(2), Delhi, in ITA No. 3025-3026/Del/2015. Since the shareholding of t....
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....d counsel for the assessee submitted that the Assessing Officer has not followed instruction contained in CBDT Circular No. 495, dated 29th September, 1987. According to the learned counsel, the CBDT Circular has specified that deemed dividend in cases where loans/advances were made to other concerns/firms would be taxed in the hands of such concern/firm and not in the hands of other partners who are registered share holders of the concerned company. The learned counsel submitted that according to the circular, the deemed dividend was taxable in the hands of the firm M/s. Ess Ell Cables Company Ltd. and not in the hands of the assessee. In support of his contention that the Circular issued by the CBDT was binding on the Income Tax Authorities, he relied on the following decisions. i. Paper Products Ltd. Vs. Commissioner of Central Excise, 247 ITR 128 (SC) ii. Collector of Central Excise Vs. Dhiren Chemical Industries Ltd., 254 ITR 554 (SC) iii. CIT Vs. Punalur Paper Millsts. Ltd., 170 ITR 37 (Kerala) iv. Mathew M. Thomas & Others, 236 ITR 691 (SC). 8.1 On the other hand, the learned Sr. Departmental Representative submitted that the issue in dispute has already been ....
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....ithout a right to participate in profits) holding not less than ten percent of the voting power, Second limb b) or to my 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) Third limb c) or any payment by any such company on behalf, or for the individual benefit, or any such shareholder, to the extent to which the company in either case possesses accumulated profits.‖ 23. It is rightly pointed out by the Bombay High Court in Universal Medicare (P) Ltd. (supra) that Section 2(22)(e) of the Act is not artistically worded. Be as it may, we may reiterate that as per this provision, the following conditions are to be satisfied: (1) The payer company must be a closely held company. (2) It applies 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 voting power in the payer company. (b) A company in which such shareholder has at least 20% of the voting power. (c) A concern (other than company) in which such shareholder has at least 20% in....
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....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 the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of ―deeming shareholderǁ, then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the Revenue would stand answered, once we look into the matter from this perspective. 26. In a case like this, the recipient would be a shareholder by way of deeming provision. It is not correct on the part of the Revenue to argue that if this position is taken, then the income ―is not taxed at the hands of the recipient‖. Such an argument based on the scheme of the Act as projected by the learned counsels for the Revenue on the basis of Sections 4, 5, 8, 14 and 56 of the Act would be of no avail. Simple answer to this argument is that such loan or advance, in the first pla....
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....e CBDT Circular (supra) and we uphold the order of the learned Commissioner of Income Tax (Appeals) that the said loan or advance is liable to be taxed as deemed dividend in the hands of the assessee. Accordingly, grounds no. 2 to 4 of the appeal are dismissed. 9. In ground no. 5, the assessee has raised the issue of exclusion of share premium from the accumulated profit for the purpose of deemed dividend. The learned counsel for the assessee contended that the amount standing in the share premium cannot form part of the accumulated profit and the learned Commissioner of Income Tax (Appeals) has not given any finding on this issue, which rendered the order non-speaking and accordingly he prayed that the learned Commissioner of Income Tax (Appeals) might be directed to allow the appeal of the assessee on this grounds. In support of the contention, the learned counsel relied on the following decisions: I. Deputy Commissioner of Income Tax Vs. Maipo India Ltd., (ITAT, Delhi), 24 SOT 42 II. Deputy Commissioner of Income Tax Vs. Radhe Sham Jain (ITAT, Chandigarh), ITA No. 728(CHD.) of 2011, dated September 28, 2012. 9.1 We have heard the rival submission and perused the rele....
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.... crores. Perusal of the copy of the capital account of the assessee in the proprietary concern at page 11 to 13 clearly shows that there was opening capital balance of Rs. 1,64,34,402/-. There are various transactions done in the capital account till 8.2.2008 and there was a credit balance of Rs. 1,59,39,810/- on that date. Against which payment of Rs. 1.50 crores was made by the proprietorship concern to the assessee i.e. Shri Radhe Sham Jain on 8.2.2008. This cheque was not encashed and shown as liability in the balance sheet. Because of the conversion of proprietary concern into a Private Limited company the cheque could not be encashed later on and the same was returned to the Private Limited Company which has been credited by the company to the assessee's account on 15.3.2008. Thus it is clear that this amount belonged to the assessee on account of capital in the proprietorship concern and because the cheque could not be encashed, therefore, the money belonged to the assessee which has credited by the company. The so called cheque on account of loan or advance which have been issued by the Company have been issued only after 15.3.2008. The AO has mainly stressed on the fac....
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....um account, except for purposes authorized by sub-section (2) will be treated as reduction of share capital attracting the provisions of the Companies Act in relation thereto - The expression "whether capitalized or not" can have application only where the profits are capable of being capitalized and not where the receipt in question forms part of the share capital of the company under the provisions of the Companies Act - In view of the provisions of the Companies Act, share premium cannot be stated to be commercial profits -Amount of Rs. 1,85,821/- alone out of the amount of Rs. 25,42,772/- can be assessed as deemed dividend u/s 2(22)(e)." The above view has been taken particularly following the decision of Hon'ble Supreme Court in case of P.K. Badiani V CIT, 105 ITR 642. In that decision it was clearly observed that accumulated profits would mean profit in the commercial sense and not assessable taxable profits. In that case development rebate reserve created by the company by charging profit and loss account was held to be accumulated profits though the same was liable to be deducted as rebate. Following this ratio it is clear that share premium account would not partake....
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....Tax Officer (supra) also the two persons satisfied the above two conditions and accordingly the deemed dividend was confirmed by the Tribunal in their hands in the ratio of their share of profit in firm. The relevant finding is extracted as under: "8. I have considered the submissions of both the parties and perused the record of the case. The short point for consideration is whether the computation of Rs. 5 lacs each treated as deemed dividend in the hands of the two directors, is as per law or not. There is no dispute that cumulative reserves of M/s Aesthete Exim Pvt. Ltd. as on 31-3-2007 were Rs. 14,51,212/- and, therefore, the amount of Rs. 10 lacs given as loan to M/s International Ltd. was taxable as deemed dividend in the hands of two directors as both the directors were common shareholders in the two companies holding more than 20% shares of these companies. The contention of ld. counsel is that had the loan was given to one shareholder, the same could be computed as per law but when the loan is given to a concern in which such shareholder is a partner or member, then for allocation of loan between the shareholders no mechanism is provided in the Act. In first blush the ....