TaxTMI 
TaxTMI 
2019 (6) TMI 694
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.... companies. i. Shreem Design & Infrastructure Pvt. Ltd. amounting to Rs. 2,50,80,923/- and ii. Aatrey Infrastructure Pvt. Ltd. amounting to Rs. 76, 53,711/-. 1.1 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) of the Act ignoring exemption in sub clause (ii) of S. 2(22)(e). 1.2 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) ignoring the fact that lending of money is substantial part of business of both the companies, and advances are in ordinary course of their business. 1.3 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) ignoring transactions in the nature of current accounts. 1.4 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition....
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....iness it was not stated that the object of incidental or ancillary to the main object that the money lending business is also object incidental to the main business but simply stated that investment in any surplus money of the company not immediately required for purpose of main business of construction. Nor the assessee has obtained license, which is necessary to carry out money lending business. Therefore, the AO was of the view that companies are not engaged in the business of money lending for the year under consideration and hence assessee's case is not covered by the exemption provided under sub-clause (ii) of sec. 2(22)(e) of the Act. Since the assessee has received the loan from lending company SDIPL of Rs. 6,76,65,000/- during the year under consideration and the accumulated profit of lending company was at Rs. 2,50,80,923/-,therefore, the amount of Rs. 2,50,80,923/- to the extent of accumulated profit was treated a deemed dividend u/s. 2(22)(e) of the Act and the same was added to the total income of the assessee.Similarly, The assessee has received loans and advances of Rs. 4,13,32,960 loans received during the year from AIPL who had reserve and surplus of Rs. 76,53,711/....
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....ing is 20% or more of the total income of closely held company and the turnover of the loan to total fund of the company is about 20% than any loan or advance made by said companies to its shareholders cannot be deemed to dividend. The reliance was also placed on the following case laws:- "a)M/s. RekhaModi vs. ITO(2007) (13SOT512) b) CIT vs. Parle Plastics ltd. (2011) 332 ITR 63(Bom.) c) CIT vs. Venkateshwara Hatcheries (237 ITR 174) d) CIT vs. Shree Balaji Glass Manufacturing (P) Ltd. High Court of Calcutta e) Ravi Agrawal vs. ACIT High Court of Allahabad f) ITO vs. Krishnonics Ltd. ITAT, Ahmedabad 'C' Bench g) CIT vs. Jayant H. Modi High Court of Bombay (3) when interest is paid by shareholder, provision of sec. 2(2)(e) is not applicable: We rely on following case laws wherein it is held that when interest is paid by shareholder, Provision of sec. 2(22)(e) is not applicable. (a) Pradip Kumar Malhotra vs. CIT Act, West Bengal- V I.T.A. No. 219 of 2003 (b) Zenon(India) Pvt. Ltd., Kolkata vs. Department of Income Tax on 29 June, 2015 I.T.A. No.1124/Kol/2012 A.Y. 2006-07 (c) Sangita Jain, Kolkata vs. Assessee on 11 March, 2016 I.T.A. No. 1817/Kol/2....
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.... which is a substantial part of its business. The ratio of loan and advance given by SDIPL to unsecured loan taken by the SDIPL is 105.25%, percentage of loan and advances to total fund available to company comes to 79.37% and percentage ratio of loan and advances to total assets comes to 69.71%.Similarly, the ratio of loan and advance given by AIPL to unsecured loan taken by the AIPL is 56.29%, percentage of loan and advances to total fund available to company comes to 35.66% and percentage ratio of loan and advances to total assets comes to 32.45%. The learned counsel for the assessee has contended that the term substantive part of its business is defined in clause (b) of Explanation-3 to sec. 2(22)(e) to which not less than 20% of the income of such concerned would be deemed to substantial interest in a concern. Similarly, as per, definition provide u/s. 2(32) of the Act, a person who has a substantial interest in the company in relation to a company means a person who is the beneficial owner of shares not being share entitled to a fix rate of dividend where with or without a right to participate in profit carrying not less than 20% of the voting power. The Ld. Counsel further r....
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....ssee's income was to be deleted. 9. The Ld. Counsel as an alternate argument submitted that the loan taken from the SDIPL and AIPL were compensated by way of interest paid by the assessee on loan, therefore, the assessee in real sense did not derive any benefit of the company so as to the provisions (ii) of sec. 2(22)(2) of the Act. The learned counsel for the assessee relied in the case of ACIT vs. M/s. Zenon (India) Pvt. Ltd. ITA No. 1124/Kol/2012 (Paper Book 38 to 43 and Smt. Sangita Jain vs. ITO ITA No. 1817/Kol/2009 (Paper Book 44 to 51) in respect of its contention. The learned counsel for the assessee placed reliance in the case of Shri Pradip Kumar Malhotra v. CIT [I.T.A.No. 219 of 2013 dated 02.08.2011 of Hon'ble Calcutta High Court] [PB-24-37]. It was held by the Honourable Calcutta High Court that phrase " by way of advance or loan" appearing in section 2(22)(e) must be construed to mean those advances or loans, which is shareholder enjoys for simply on account of being a Partner, who is the beneficial owner of shares, but if such loan or advance is given to such shareholder as a consequence of any further consideration, which is beneficial to the Company, received fro....
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.... It was held that where the lender company was compensated by the of interest paid by the assessee on loans, the assessee in real sense, did not derive any benefit from the funds of the company so as to attract the provisions of section 2(22)(e) of the Act. Further, the ld. Sr. D.R. has not given any proposition against the decision of Tribunal and Hon,ble High Courts relied by the assessee. 12. We have heard the rival submissions and perused the material available on record. We find that the AO has made addition on account of loans and advances taken from M/s. SDIPL and M/s. AIPL being Rs. 2,50,80,923 and Rs. 76,53,711 respectively being accumulated profit as the conditions laid down u/s. 2(22)(e) are satisfied. The claim of the assessee that the loans and advances were obtained in ordinary course of business of money lending on which interest was paid at market rate @9% and Moneylender Company's substantial part of money lending business was not accepted on the ground that the main object of the lender companies was not carrying on money lending business.The perusal audit report for assessment year 2014-15 shows that SDIPL has done moneylending business which constitutes substa....
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....antial" would mean where the assessee company has carried on money lending business of more than 20% or more of the total income of closely held company and turnover of loans funds to total fund of the company is above 20% , then any loan or advances made by the said company to its shareholders cannot be deemed dividend asper exclusion clause (ii) to section 2(22)(e) of the Act. The learned counsel for the assessee supported his view by placing reliance on the decision of Hon'ble Supreme Court in the case K. N. Guruswamy vs. State of Mysore AIR 1954 SC 592 (PP1-7) and contended that the word appearing in the section and rules must be given the same meaning unless there is nothing to indicate the contrary. Since, SDIPL has carried out money lending business in the percentage ratio of loan and advances to total funds available comes to 79.37% and percentage of loan and advances and M/s. AIPL has carried out its money lending business in thepercentage ratio of 35.65% of loans and advances of total available, which is more than twenty percent as mentioned in Explain (b) to section 2(22)(e) and section 2(32) of the Act. Further, the Hon'ble Bombay High Court in the case of CIT v. Parley....
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....the assessee has received loans and advances. The learned counsel for the assessee has relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Bharat Hotels Ltd. [2019] 103 taxmann.com 295 (Delhi) wherein it was held that where assessee received loan from two companies which were substantially involved in money lending business, Tribunal rightly concluded that proviso (ii) to section 2(22)(e) would apply to assessee1s case and addition of deemed dividend made to assessee's income was to be deleted. Since lending of money was a substantial part of the business of SDIPL and AIPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it has to be excluded from the definition of "dividend" by virtue of clause (ii ) of Section 2(22) of the Act. We therefore, hold accordingly. 14. We further find that the loan taken from the SDIPL and AIPL were compensated by way of interest @9% being market rate paid by the assessee on loan, therefore, the assessee in real sense did not derive any benefit of the company so as to the provisions (ii) of sec. 2(22)(2) of the Act. The learned counsel for the assessee relied in the case of ....