TaxTMI 
TaxTMI 
2018 (9) TMI 1747
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....d is directed against the action of the AO in making addition of Rs.2,42,00,000/- u/s. 2(22)(e) of the Act. this matte is discussed from para 4 to para 4.3 of the assessment order which is not repeated here again for the purpose of avoiding prolixity. However, during the appellate proceeding, the AR of the appellant apprised me of the fact that the same issue had been adjudicated upon by my predecessor CIT(A)-4, Kolkata exercising jurisdiction over the case vide order dated 31.03.2015 in Appeal No.241 of 2014-15 for the AY 2010-11 wherein the CIT(A) had deleted the addition made on identical sets of facts. Copy of the said order which is submitted has been perused and found correct. It was further informed that there was no second appeal in this regard preferred by the Department. Under the facts and circumstances and following the principles of consistency on the impugned matter at hand, I do not find any premise to support the decision of the AO on the issue and resultantly the decision of the erstwhile CIT(A) stands endorsed at this end for this year as well. In this respect, the detailed submission of the AR of the appellant along with a plethora of judicial decisions in the si....
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....ect Report. Thus the Loan was but part of a Loan Consortium. Thus therefore the Loan being for capital requirement, it was but business and commercial requirement. The Loan is directly linked to the setting up of the 2nd manufacturing unit. There is no conceivable way for diversion for the personal benefit of Mr. Arnab Basu. 4.4.1.3 It is a Loan with interest being charged at arm's length rate. During the year the interest paid is at Rs.53,94,250/-. Thus, it is a commercial Loan. 4.4.1.4 The Loan commercially benefitted both the parties - the appellant is setting up the 2nd manufacturing unit, and SFPL in getting steady and increase supply of the products as also interest on the loan. 4.4.1.5 In later year, in AY 2012-13 part of the outstanding Loan was converted into Equity. 4.4.1.6 Thus, on facts itself, the Loan is a purely commercial loan, and, for business requirements. There is direct quid-pro-quo and future business growth to both the parties. 4.4.2. On legal perspective: 4.4.2.1 Having held that the Loan is a purely a commercial loan directly linked to the setting-up of the second manufacturing unit, i.e. not conceivable....
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....hould the ambiguity in the 2nd limb of section 2(22)(e). Such provision would stifle business growth. There is just no logic or rationale. So, to just on the literal words in the section would be being goaded to trod with blinkers put upon. 4.4.2.6 As here we are discussing on the legal aspect of section 2(22)(e), and applied to the entire gamut of the facts and circumstances of this case I would also go to say that the exception in item (ii): 'any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company', is applicable. The section after all is a deeming fiction section, so jolly-well it can be calibrated to the facts of this case on the following logic: * 'in the ordinary course of its business': it is in connection with the business of both the lender and the borrower that the sum had been advanced. There will be mutual benefit and progress. * 'the lending of money is a substantial part of the business of the company': The sum at Rs.7.63 Crore is no mean sum by any standard. It is a substantial part of ....
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....essee company payable by PE Ltd. in the subsequent years. The contention that since PE Ltd. is not into the business of lending of money, the payments made by it to the assessee company would be covered by s. 2(22)(e) (ii) and consequently payments even for business transactions would be a deemed dividend is not acceptable. The provision of s. 2(22)(e)(ii) is basically in the nature of an Explanation. That cannot however, have bearing on interpretation of the main provision of s. 2(22)(e) and once it is held that the business transactions do not fall within s. 2(22)(e)(ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that's all. The same cannot be expanded further to take away the basic meaning, intent and purport of the main part of s. 2(22)(e). This interpretation is in accordance with the legislative intention of introducing s 2(22)(e). Therefore the Tribunal was correct in holding that the amounts advanced for business transactions between the parties, namely, the assessee company and PE Ltd., was not such to fall within the definition of deemed dividend under s. 2(22)(e) - CIT vs. Raj Kumar (2009) 23 DTR (D....
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....sent available funds. M/s Pee Empro agreed then to make available funds to the extent of 50 per cent cost because it was not only in the interest of M/s Pee Empro Exports but also on account of fact that M/s Pee Empro itself owns 50 per cent shares in the assessee company. The rest of the 50 per cent project cost was to be made available by the directors Mr P.S. Uppel and Mr. P.M.S. Uppal. 3. The AO for this amount paid to the assessee company by M/s Pee Empro Exports (P) Ltd. made an addition of Rs. 3,60,18,885 in terms of s 2(22)(e) of the Act as deemed dividend for the reason that the two directors of the assessee company, namely, MR. P.S. Uppal and Mr. P.M.S. Uppal having more than 20 per cent share in the assessee company and who also held 27.42 per cent and 29.71 per cent share respectively in M/s Pee Empro Exports i.e. two directors have interest in the company from whom the amount has been received. 4. The relevant part of s 2(22)(e) is extracted as under" '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....
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....use the ultimate beneficiary of the proposed expansion of plant and machinery is M/s Pee Empro Exports itself. M/s Pee Empro Exports has not made the payment to the appellant company for the individual benefit of Mr. R.S. Upal and Mr. P.M.S.Uppal and on the contrary these two directors have also provided funds to the appellantcompany as owners of the company as also made by M/s Pee Empro Exports. The assessee undertook expansion of its capacity, which was in mutual interest of assessee as well Pee Empro Exports. If the assessee has not undertaken such expansion, no advance could have been made to it or that Pee Empro Exports would not have distributed as dividend to its shareholders. This but for the advances, the amount of advances could not have reached assessee at all. We therefore delete the additions as made by the AO as the amount received by assessee is not deemed dividend within the meaning of s 2(22)(e) of the Act.' The counsel for the Revenue has also further stated that it is not in dispute that the monies which have been advanced to the assessee company by M/s Pee Empro Exports (P) Ltd. have not to be repaid but have to be adjusted against the dues pay....
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....ied on the shareholders on the basis that the accumulated profits will be deemed to have been distributed against the Similarly 12 (1B) provides that if a controlled company adopts the device of making a loan or advance to one of its shareholders such shareholders will be deemed to have received the said amount out of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It is clear that, when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately, decided to adopt the device of making a loan or advance. Such an arrangement is intended to evade the application of s 23A. The loan may carry interest and the said interest may be received by the company, but the main object underlying the loan is to avoid payment of tax.' 8. The Tribunal has also referred to the judgment of the Bombay High Court in the case of cit vs. Nagindas M Kapadia (1989) 75 CTR (Bom) 161: (1989) 177 ITR 393 (Bom) in which it was held that business transactions are outside the purview of s. 2(22)(e) of the At. In the said case, the company in which Kapadia was having substanti....
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....ts (P) Ltd in the subsequent years. 11. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this Court in Raj Kumar's case (supra) deals with the part of the definition of deemed dividend under s. 2(22)(e) which states that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [s.2(22)(e) (ii)] i.e., there is no deemed dividend only if the lending of moneys is by a company which is engaged in the business of moneylending. Dilating further the counsel of the appellant contended that since M/s Pee Empro Exports (P)) Ltd. Is not into the business of lending of money, the payments made by it to the assessee company would therefore be covered by s.2(22)(e)(ii) and consequently payments even for business transactions would be a deemed dividend. We do not agree. The Tribunal has dealt with this aspect as reproduced in para (9) above. The provision of s.2(22)(e)(ii) is basically in the nature of an Explanation. That cannot however, have bearing on interpretation of the main provisi....
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....de the obligation of repayment. If it does not then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term 'advance'. The rule of construction to our minds which answers this conundrum is nosciture a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson vs. George Day (1879) 5 AC 63 by observing it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them and our Supreme Court in the case of Rohit Pulp & Papear Mills Ltd. vs. CCE AIR 1991 SC 754 and State of Bombay vs. Hospital Mazdoor Sabha AIR 1960 SC 610.' 12. Therefore, we hold that the Tribunal was correct in holding that the mounts advanced for business transaction between the parties, namely, the assessee company and M/s Pee Empro Exports (P) Ltd. was not such to fall within the definition of deemed dividend under s. 2(22)(e). The present appeal is therefore dismissed. ******** (c) Wolters Kluwer (India) Pvt Ltd. The Revenue had filed SLP before the Hon'ble Supreme Court against this judgment, which has been Dismisse....