TaxTMI 
TaxTMI 
2018 (10) TMI 250
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....appeals are almost identical, and therefore, are being disposed of by this common Order and Judgment. Considering that the facts are almost identical, for the sake of convenience, we shall refer to the facts in Income Tax Appeal No. 722 of 2015. 2. The appellant - assessee is a shareholder in a company known as M/s Medley Laboratories Pvt. Ltd. (for short "M/s MLPL") and M/s Oryx Fisheries Pvt. Ltd. (for short "M/s OFPL"). The appellant holds 15% equity shares in M/s MLPL and 45% equity shares in M/s OFPL. During the A.Y. 2007-08, M/s MLPL (lender) had given a loan / advance of Rs. 91,85,874/- to its sister concern M/s OFPL (borrower). The appellant filed his return of income for A.Y. 2007-08 on 31.07.2007 declaring a total income of Rs. 20,24,512/-. Considering that the appellant was a registered as well as a beneficial shareholder of both M/s MLPL and M/s OFPL, relying on the decision of the ITAT in the case of ACIT Vs Bhaumik Colours Pvt. Ltd. (313 ITR 146) the A.O. treated this loan (along with interest) of Rs. 99,86,874/- as a deemed dividend under Section 2(22)(e) of the I. T. Act, 1961 in the hands of the appellant on a protective basis. The reason why the same was done on ....
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....e of the appellant - assessee before the ITAT that the addition, if any, under Section 2(22)(e) of the I. T. Act, 1961 should be proportionate to the shareholding of the assessee in the borrowing company (M/s OFPL). After hearing the revenue and the assessee, the ITAT, relying upon the decision of this Court in the case of CIT Vs Universal Medicare Pvt. Ltd. (324 ITR 263) allowed the appeal filed by the revenue. The ITAT also held that under the provisions of Section 2(22)(e) of the I. T. Act, 1961, two conditions were required to be fulfilled, namely, that the assessee would have to have not less than 10 % of the voting power in the lending company and a substantial interest in the borrowing company. Since, both these conditions were satisfied, in absence of any provision for proportionate addition, nothing could be read into to the unambiguous language of Section 2(22)(e) of the I. T. Act, 1961. It is being aggrieved by this order of the ITAT that the appellant - assessee is before us under Section 260A of the I.T.Act, 1961. 5. We must mention that as far as Income Tax Appeal No. 724 of 2015 is concerned, the facts are almost identical except that that the appellant in this appe....
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.... different shareholders with respect to their proportionate interest, therefore the entire charge fails." 7. Ms Jagtiani submitted that the ITAT erred in converting the protective assessment into a substantive assessment by confirming the entire addition of deemed dividend in the hands of the assessee. She submitted that the ITAT ought to have remanded the protective assessment (in part) to the A.O. for the purposes of adjudicating whether and as to what extent the addition needs to be confirmed in the hands of the appellant - assessee, as the shareholder was not the recipient of any loan or advance. 8. Her further submission was that, in any event, the addition, if any, under Section 2(22)(e) of the I.T. Act, 1961, could be restricted only to the extent of the appellant - assessee's proportionate shareholding in the borrowing company (M/s OFPL). She submitted that other than the appellant - assessee there were also other shareholders of M/s OFPL, and therefore, it was highly unfair if the entire addition was made in the hands of the appellant - assessee. She submitted that if there is no specific provision or a just mechanism to tax different shareholders with respect to the....
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....g more than 10% in M/s MLPL but also having a substantial interest in M/s OFPL as well as M/s SHCPL. The appellant in Income Tax Appeal No. 722 of 2015 admittedly holds 45% of the shareholding in M/s OFPL and the appellant in Income Tax Appeal No.724 of 2015 admittedly holds 99% of the shareholding in M/s SHCPL. It, therefore, can hardly be disputed that both the appellants have a substantial interest in the borrowing companies. These facts are not disputed. It is, in these facts, that the ITAT, after examining the definition of the word 'dividend' in Section 2(22)(e) of the I. T. Act, 1961 as well as the ratio of this Court in the case of Universal Medicare Pvt. Ltd. (supra) came to a finding that since the assessees were shareholders holding more than 10% of the equity shares of the lending company (M/s. MLPL) and also having a substantial interest in the borrowing companies (45% in OFPL and 99% in SHCPL), the conditions as prescribed under Section 2(22)(e) of the I. T. Act, 1961 were satisfied to include the appellants within the ambit of deemed dividend to be taxed in the hands of the appellant - assessee. We do not find that this issue decided by the Tribunal gives ri....
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.... that was laid down in Universal Medicare Pvt. Ltd. This judgement therefore does not assist the appellant in manner whatsoever. 14. We find that even the decision of the Supreme Court in the case of National Travel Services Vs Commissioner of Income Tax, Delhi VIII (supra) would have no application to the facts of the present case. The facts before the Supreme Court reveal that the appellant - assessee was a partnership firm consisting of three partners, namely, Mr. Naresh Goyal, Mr. Surinder Goyal and M/s Jet Enterprises Pvt. Ltd. having a profit sharing ratio of 35%, 15% and 50% respectively. The assessee firm had taken a loan of Rs. 28.52 Crores from M/s. Jetair Pvt. Ltd. In this company, the assessee subscribed to its equity capital in the name of two of its partners, namely, Mr. Naresh Goyal and Mr. Surinder Goyal totaling to 48.19% of the total shareholding. Thus Mr. Naresh Goyal and Mr. Surinder Goyal were shareholders in the company's register as members of the company. They held the aforesaid shares for and on behalf of the firm, which happens to be the beneficial shareholder. The question that arose before the Supreme Court was whether Section 2(22)(e) of the I.T.Ac....