TaxTMI 
TaxTMI 
2017 (5) TMI 1508
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....law and on facts by deleting the addition of Rs. 12.35 crores towards deemed dividend u/s.2(22)(e) despite the fact that IRM Trust had substantial interest in the lender company [Cadila Pharmaceuticals Ltd.] as well as the recipient (assessee company). Such a loan is required to be treated as deemed dividend in the hands of the assessee as per the provisions of section 2(22)(e) of the Act. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. 3. Briefly stated, the assessee is engaged in the business of manufacturing and trading of hospital and orthopedic produc....
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....premise that recipient of the loan/advance, i.e. assessee is not the shareholder of the lender company. It was observed by the CIT(A) that deemed dividend under s.2(22)(e) cannot be taxed in the hands of the concern who is not the shareholder of the lender-company notwithstanding the fact that it has received loans/advances from the lender-company. For this proposition, the CIT(A) relied upon various judicial precedents. The relevant para of the order of the CIT(A) are reproduced hereunder: "I have considered the submissions made by the A. R. of the appellant and the observations of the assessing officer in the assessment order. Appellant company received loan of Rs. 12.35 crores from Cadila Pharmaceuticals Ltd. M/s IRM Trust is 80....
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....er". When we keep in mind this aspect, the conclusion would be 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 ....
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....liberty to take appropriate action in the case of M/s IRM Trust (in whose hands deemed dividend may be assessable) in accordance with law." 5. Aggrieved by the order of the CIT(A), the Revenue is in appeal against the order of the CIT(A). 6. The short controversy in the present case is whether the assesseecompany can be taxed towards the loans/advances received from the lender by virtue of deeming fiction under s.2(22)(e) of the Act where the assessee-company itself is not a shareholder of the lending company, notwithstanding the fact that both the companies (lender-company and assessee-company) had common shareholders having substantial interest in both the companies. 6.1 As observed by the Hon'ble Supreme Court in the case of Gop....