AI Drafter 
TaxTMI 
TaxTMI 
2019 (11) TMI 1142
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.... of which, Mrs. Chitra, the petitioner herein, is a shareholder. On 10.01.2013, search and seizure operations were carried out in the residential and business premises of the petitioner, by the Income Tax Department under Section 132 of the Income Tax Act (hereinafter referred to as 'the Act'). During the course of the search, the Department seized cash to the extent of Rs. 35 lakhs from the residential premises of the petitioner. In pursuance to the search, the jurisdictional Assessing Officer issued a notice dated 30.09.2013 to the petitioner under Section 153A, r/w. Section 153 C of the Act, for the assessment years 2007-2008 to 2012-2013. The petitioner had responded to the said notices by filing the Returns of Income for each of these years on 28.02.2014. The petitioner had also filed the Returns of Income for the assessment years 2013-2014 under Section 139 of the Act on 30.09.2013. b) Pending the assessment of her income for the assessment years 2007-2008 to 2012-2013 under Section 153 C and for the assessment year 2013-2014 under Section 143 of the Act, the petitioner had made an application under Section 245 C of the Act for settlement of her cases. The pe....
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....f dividend under Section 2(22)(e) can be made in the hands of the shareholders, even then, dividend is not taxable as per the provisions of Section 10 (34). d. Since there were more than two shareholders in the assessment years 2012-2013 and 2013-2014 namely, the petitioner and M. Ramasamy, the provisions of Section 2(22)(e) cannot be applied for those years as the computation mechanism fails. e. Even assuming that the amount advanced for the first time by RSPL to RTPL is treated as deemed dividend, any transfer of money by RTPL to RSPL and subsequent repayment by RSPL to RTPL thereafter should not be taxed as deemed dividend. As such by adjusting such payments by RTPL to RSPL, deemed dividend ought to have been limited to Rs. 35,47,20,422/- as against Rs. 137,19,75, 000/-. f. No incriminating material was found during search in relation to the deemed dividend and thus the proceedings under Section 153 A r/w. 153 C are not valid. Though this argument was advanced before the Commission, the issue was not adjudicated. 5. In support of all the aforesaid contentions, the learned Senior counsel for the petitioner relied on various decisions, which I shall a....
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.... I shall deal with later. 8. I have given careful consideration to the submissions made by the respective counsels and have carefully perused all the materials placed before me. MAINTAINABILITY OF WRIT PETITION AGAINST ORDER OF SETTLEMENT COMMISSION 9. Before addressing the various submissions put forth by the petitioner, it would be necessary to address a preliminary objection raised by the learned Standing counsel for the respondent on the jurisdiction of this Court under Article 226 of the Constitution of India to deal with an order passed by the Settlement Commission under Section 245 D (4) of the Act. 10. By relying on the decisions of the Hon'ble Apex Court in the case of Jyotendrasinhji Versus S.I. Tripathi and others reported in (1993) 201 ITR 611 (SC); C.A. Abraham V. ACIT in 255 ITR 340; and Mathurbhai Bhimjbhai Rudani V. ITSC in 37 Taxman.com 333 Gujarat High Court, the learned Standing counsel submitted that the decision making process alone can be challenged and not the decision itself. Even otherwise, piecemeal acceptance of the Settlement Commission's order and a challenge to the remaining portion is impermissible. 11. The various arguments advanced by....
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....r the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant apart from ground of bias, fraud & malice which, of course, constitute a separate and independent category. Reference in this behalf may be had to the decision of this Court in Sri Ram Durga Prasad v. Settlement Commission 176 I.T.R. 169, which too was an appeal against the orders of the Settlement Commission. Sabyasachi Mukharji J., speaking for the Bench comprising himself and S.R. Pandian, J. observed that in such a case this Court is " concerned with the legality of procedure followed and not with the validity of the order.' The learned Judge added 'judicial review is concerned not with the decision but with the decision-making process." Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W. Police v. Evans, [1982] 1 W.L.R.1155. Thus, the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders' of the Settlement Commission. For all the above reasons, we are of the opinion that the only ground upon which this Court can interfere in thes....
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....was made in the application that the petitioner is a shareholder, holding more than 20% of equity share capital in both the Companies and that RSPL had advanced the money in the ordinary course of its business as corporate loans to RTPL. It is nobody's case that the petitioner claimed a portion of the sum of Rs. 35 lakhs offered as income, to be taxable. Hence the contention of the learned Standing counsel for the Department that a piecemeal challenge to the Settlement Commission's order is not maintainable, cannot be sustained. As such, this Court is of the view that the challenge to the impugned order of the Settlement Commission by invoking Article 226 of the Constitution of India in this Writ Petition, is maintainable. 15. I shall now address the various grounds raised and deliberated by the respective counsels. RELEVANCE AND VALIDITY OF CDBT CIRCULARS: 16. The learned Senior counsel for the petitioner, would place reliance on two Circulars issued by the Central Board of Direct Taxes (CBDT). While Circular No. 19 of 2017 directs that advances in nature of commercial transaction would not fall within the ambit of Section 2(22)(e) and that no appeals be filed by the D....
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....it the interest on such debts to that account provided the Income-tax Officer is satisfied that recovery is practically improbable." This circular was in force till 20th of June, 1978 when the Central Board of Direct Taxes issued a circular dated 20th of June, 1978 withdrawing with immediate effect the earlier circular of 6th of October, 1952. The reason for the withdrawal of the circular of 1952 is set out in the circular of 20th of June, 1978. The reason is stated thus: "the Board has been advised that where accounts are kept on mercantile basis, interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The Kerala High Court has also expressed the same view in the case of State Bank of Travancore v. Commissioner of Incometax, Kerala [110 ITR 336]. The amount of such interest is, therefore, includible in the taxable income." The withdrawal of the circular of 6th of October, 1952 which had been in force for thirty six years was on account of the decision of the Kerala High Court in State Bank of Travancore v. Commissioner of Income-tax, Kerala (Supra). The Central Board of Direct Taxes, howeve....
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....with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions". Under sub-section (2) of Section 119, without prejudice to the generality of the Board's power set out in sub-section (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under Section 119 of the Income-tax Act which are binding on the authorities in the administration of the Act. Under Section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields ....
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....Income- Tax, 'D' Range, Bombay (1965 (1) SCR 909), the legal effect of such circulars is, inter alia, considered by a Bench of five judges of this Court. Section 2(6A)(e) and Section 12(1B) were introduced in the Income-tax Act by the Finance Act 15 of 1955 which came into force on 1st of April, 1955. The Government, however, realised that the operation of Section 12(1B) would lead to extreme hardship because it would have covered the aggregate of all outstanding loans of past years and would impose an unreasonably high liability on the shareholders to whom the loans might have been advanced. The Minister, therefore, gave an assurance in Parliament that outstanding loans and advances which are otherwise liable to be taxed as dividends in the assessment years 1955-56 will not be subjected to tax if it is shown that they had been genuinely refunded to the respective companies before 30th of June, 1955. Accordingly, a circular was issued by the Central Board of Revenue on 10th of May, 1955 pointing out to all income tax officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the id....
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....hat the Act itself, on a true interpretation, envisages. The task of interpretation of the laws is the exclusive domain of the courts. However, the Board has the statutory power under Section 119 to tone down the rigour of the law for the benefit of the assessee by issuing circulars to ensure a proper administration of the fiscal statute and such circulars would be binding on the authorities administering the Act. In the case of C.B. Gautam v. Union of India and Ors. (1993 (199) ITR 530 at page 546) a Bench of five judges of this Court considered as enforceable, Instruction No.1A88 issued by the Central Board of Direct Taxes relating to the enforcement of the provisions of Chapter XX-C of the Income-tax Act. The Central Board pointed out in the said instruction that in administering the provisions of the said Chapter, it has to be ensured that no harassment is caused to bona fide and honest purchasers or sellers of immovable property and that the power of preemptive purchase has to be exercised by the appropriate authority only when it has good reason to believe that the property has been sold at an undervalue and there is payment of black money in the transaction. The ins....
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....s of the Act. These were in the nature of concessions which could always be prospectively withdrawn. The Court also observed that the circulars cannot detract from the Act. The decision of the Constitution Bench of this Court in Navnitlal C. Javeri v. K.K. Sen (Supra), or the subsequent decision in K.P. Varghese v. Income Tax Officer (supra) also do not appear to have been pointed out to the Court. Since the later circular of 9.10.1984 was not pointed out to the Court, the Court naturally proceeded on the assumption that the benefit granted under the earlier circular was no longer available to the assessee and those circulars could not be resorted to for the purpose of overcoming the provisions of the Act. Interestingly, the concurring judgment of the second judge has not dealt with this question at all but has decided the matter on the basis of other provisions of law. The said circulars under Section 119 of the Income- tax Act were not placed before the Court in the correct perspective because the later circular continuing certain benefits to the assessees was overlooked and the withdrawn circular was looked upon as in conflict with law. Such circulars,....
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....sued are consistent with the provisions of Section 145 and are meant to ensure that assessees of the kind specified who have to account for all such amounts of interest on doubtful loans are uniformly given the benefit under the circular and such interest amounts are not included in the income of the assessee until actually received if the conditions of the circular are satisfied. The circular of 9.10.1984 also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to the suspense account is, in fact, arising in respect of a doubtful or "sticky" loan. This is done by providing that non-receipt of interest for the first three years will not be treated as interest on a doubtful loan. But if after three years the payment of interest is not received, from the fourth year onwards it will be treated as interest on a doubtful loan and will be added to the income only when it is actually received. We do not see any inconsistency or contradiction between the circular so issued and Section 145 of the Income-tax Act. In fact, the circular clarifies the way in which these amounts are to be t....
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....of the Act and observed that there is no doubt that the instructions given by the CBDT are binding on the authorities under the Act but when the Hon'ble Supreme Court or the High Court has declared a law on question arising for consideration, it will not be open to a Court to direct that the Circulars should be given effect to and not the view expressed in a decision of the Hon'ble Supreme Court of the High Court. The ratio that the instructions given by the CBDT are binding on the authorities had been reiterated in Hindustan Aeronautics Ltd (supra). What has been clarified in the said case is that such instructions cannot supersede the law declared by the Hon'ble Supreme Court of the High Court. It is in this background that reference was made to the decisions in Navnit Lal C. Javeri and KP Verghese (supra) and a perusal of the observations made in this regard may not be considered of having been distinguished from the position laid down in Hindustan Aeronautics Ltd. Similar findings were rendered in Rattan Melting and Wire Industries. 22. The observations made in Hindustan Aeronautics Ltd are as follows: "However, the learned counsel for the appellant reli....
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....ssions of learned counsel for the assessee are accepted, it would mean that there is no scope for filing an appeal. In that case, there is no question of a decision of this Court on the point being rendered. Obviously, the assessee will not file an appeal questioning the view expressed vis-`-vis the circular. It has to be the revenue authority who has to question that. To lay content with the circular would mean that the valuable right of challenge would be denied to him and there would be no scope for adjudication by the High Court or the Supreme Court. That would be against very concept of majesty of law declared by this Court and the binding effect in terms of Article 141 of the Constitution." 24. Useful reference could be made to the decision of a Division Bench of the Bombay High Court in the case of Commissioner of Income Tax V. Income Tax Settlement Commission and another [(2014) 364 ITR 410 (Bom)] wherein most of the decisions discussed above were considered and ultimately held that the Circulars of the CBDT have a binding force. 25. Now that, it is found that the Circulars of the CBDT are binding in nature, the consequent issue as to whether the contents of the circu....
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....ik Singh, P & H, High Court). iii) A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22)(e) of the Act. (CIT, Agra V. Atul Engineering Udyog, Allahabad High Court). 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word 'advance' in Section 2 (22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon. 4. The above may be brought to the notice of all concerned. 5. Hindi version....
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....e all the following conditions are satisfied: i) where the company makes the payment by way of loans or advances to a concern; ii) where a member or a partner of the concern holds 10 per cent of the voting power in the company; and iii) where the member or partner of the concern is also beneficially entitled to 20 per cent of the income of such concern. With a view to avoid the hardship in cases where advances or loans have already been given, the new provisions have been made applicable only in cases where loans or advances are given after 31st May, 1987. These amendments will apply in relation to assessment year 1988-89 and subsequent years. ..." 26. Circular No. 19 of 2017 directs that advances in the nature of commercial transaction would not fall within the ambit of Section 2 (22)(e) of the Act. Accordingly, it was directed therein that appeals may not be filed on this ground by officers of the Department and those appeals already filed may be withdrawn or not pressed. If the directions of the Circular is pressed into service, the transaction between RSPL and RTPL, being in the nature of commercial transaction, would not fall wit....
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....the Bombay High Court in the case of C.I.T. Vs. Nagin Das M. Kapadia 177 ITR 393 (Bom) in which it was held that business transactions are outside the purview of Section 2(22)(e) of the Act. In the said case, the company in which Kapadia was having substantial interest had paid various amount to Kapadia. The Tribunal had ITA 250/2009 Page 6 found that Kapadia had business transactions with the company and on verification of the accounts, the Tribunal deleted the amounts which were relating to the business transactions and which finding was upheld by the High Court. 9. In the present case the Tribunal on considering decisions in various cases held as under: " From the ratio laid down in above cases and on the basis of judicial interpretation of words, "Loans" or "Advances", it can be held that section 2(22)(e) can be applied to "Loans" or "Advances" simplicitor and not to those transactions carried out in course of business as such. In the course of carrying on business transaction between a company and a stockholder, the company may be required to give advance in mutual interest. There is no legal bar in having such transaction. What is to be ascertained is what i....
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....on 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 Section 2(22)(e)(ii) is basically in the nature of an explanation. That cannot however, have bearing on interpretation of the main provision of Section 2(22)(e) and once it is held that ITA 250/2009 Page 8 the business transactions does not fall within Section 2(22)(e), we need not to go further to Section 2(22)(e)(ii). The provision of Section 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 Section 2(22)(e). We feel that this interpretation of ours is in accordance with the legislative intention of introducing Section 2(22)(e) and which has been extensively dealt with by this Court in the judgment in Raj Kumar"s case(supra). This Court in Raj Kumar"s case (supra) extensively referred to the report of the Taxation Enquiry Commission and the speech of the Finance Minister in the Bud....
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....oor Sabha AIR 1960 SC 610." 12. Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee company and M/s. Pee Empro Exports Pvt. Ltd. was not such to fall within the definition of deemed dividend under Section 2(22)(e). The present appeal is therefore dismissed." The aforesaid decision in Creative Dyeing and Printing Private Limited was upheld by the Hon'ble Supreme Court in an order dated 22.09.2009 in a special leave to appeal. 29. In CIT V. C. Subba Reddy, (2017) 77 Taxmann. com 320 (Madras High Court), a Hon'ble Division Bench of this Court held thus: "3. The decision of the Calcutta High Court in the case of M.D.Jindal vs. Commissioner of Income Tax (164 ITR 28) was relied upon to counter the objection of the Assessee to the effect that the credit arose out of a business transaction to which the provisions of section 2(22)(e) would not stand attracted. The officer pressed into service clause (ii) of the exclusion to section 2(22)(e) of the Act to 3 state that only ordinary business transactions carried on by companies engaged substantially in the busi....
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....ear does not amount to deemed dividend under Section 2(22)(e)of the Act?' 6. We have heard the submissions of Mr.T.Ravikumar, learned counsel appearing for the Revenue and Mr.S.Sri Mr.S.Sridhar, learned 5 counsel appearing for the Assessee. 7. The provisions of Section 2(22)(e) impose a deeming fiction and the conditions imposed therein call for strict and concurrent satisfaction being - (i) payment by closely held company, (ii) of the nature of an advance or loan, (iii) to a share holder or beneficial owners of shares, (iv) with more than 10% voting power, (v) for his individual benefit. 8. In the present case, the credit arises by virtue of a contractual obligation and a business transaction and has been settled the very next year. There is no individual benefit derived by the Assessee. Moreover, the credit does not satisfy the definition of 'advance' or 'loan'. The fiction thus fails on several counts. The Revenue relies upon the judgment of the Supreme Court in the case of Miss P.Sarada vs. Commissioner of Income Tax (229 ITR 444) and the decision of the Calcutta High Court in M.D.Jindal vs. Commissioner of Income Tax (164 ITR 28). 9. In the ....
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.... between a shareholder and a company in which the public are not substantially interested and the former has substantial stake, create mutual benefits and obligations, then the provision of treating any sum received by the shareholder out of accumulated profits as deemed dividend would not apply. The company in the instant case fits the description conceived in the aforesaid provision to come within the ambit of Section 2(22)(e) of the Act. The controversy which falls for determination is whether the sum received by the assessee formed part of running current account giving rise to mutual obligations or the payment formed one-way traffic, assuming the character of laon or advance out of accumulated profit. A Co-ordinate Bench of this Court in the case of Pradip Kumar Malhotra V. CIT 2001 (338) ITR 538 (Cal) has laid down the factors for testing the transactions between a company and its shareholder in the light of the aforesaid provision (page 545 of 338 ITR): " ... We are of the opinion that the phrase by way of advance or loan' appearing in sub-clause (e) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of be....
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....sion of the Delhi High Court in the case of Ankitech Private Limited [(2012) 340 ITR 14 (Delhi)] was relied on and held that deemed dividend is taxable in the hands of shareholder, while in the case of Gopal and sons (HUF) [391 ITR 1], it was held that deemed dividend is taxable in the hands of the concern. When the issue came up for consideration in National Travel Services (Appeal No. 837), the Hon'ble Apex Court had referred the matter to a larger Bench to have a relook into the controversy. 33. While the petitioner contends that deemed dividend is not taxable in the hands of shareholders, the learned Standing counsel for the Department would contend that it is taxable in the hands of the shareholder. To substantiate such a submission, the learned counsel for the Department would attempt to justify that Circular No. 495 of 1987 runs contrary to the provisions. The learned Counsel also submitted that the reference to a larger Bench in the case of National Travel Services (supra) will not have any inference on this case. It will not be out of place to point out that in National Travel Services one of the learned Judges in the quorum had held that the decision in the case of Ank....
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....dividend' referred to in Section 115-O also includes 'deemed dividend' as defined in Section 2 (22) (e) of the Act. The "explanation" to Section 115Q reads thus: 115Q. If any principal officer of domestic company and the company does not pay tax on distributed profits in accordance with the provisions of section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this act for the collection and recovery of income tax shall apply. Explanation - For the purposes of this chapter, the expression "dividends" shall have the same meaning as is given to "dividend" in clause (22) of section 2 but shall not include sub-clause (e) thereof. 37. The phrase "for the purposes of this Chapter" in the explanation above refers to the term 'dividend' mentioned in Section 115-O which also falls under Chapter XII-D. The explanation to Section 115-Q was not required if 'deemed dividend' under Section 2 (22) (e) was not referred to in Chapter XII-D. The provision makes a specific reference to unpaid distribution tax by a Company. The explanation to Section 115-Q w....
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.... the case of PCIT V. Smt. Kayan Jamshid Pandole reported in (2018) 100 Taxmann.com 284 had held as follows: "2. Following questions are presented for our consideration: "(a) Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income-tax Appellate Tribunal was justified in holding that the amount of Rs. 2,78,46,000/- received by the assessee from Spirax Marshall (P) Ltd on sale of its shares to the said company under the Scheme of Arrangement, which is treated as deemed dividend under section 2(22)(d) of the Act, is exempt under Section 10(34) of the Act? (b) Whether on the facts and in the circumstances of the case and in law, in this peculiar case, the assessee can claim exemption under section 10(34) of the Act when the company Priya Soparkar 2 7 itxa 387-16-o M/s Spirax Marshall (P) Ltd has not paid additional income-tax under section 115-O of the Act?" 6. On the other hand, learned counsel Mr.Porus Kaka appearing for the assessee submitted that the income generated by way of buy back of shares by the company was in the nature of capital gain. Assessee had offered the same to tax accordingly. If the Revenue co....
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....ributed profits in accordance with the provisions of Section 115- O then he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of the Act for collection and recovery of the income tax shall apply. This provision thus makes a specific reference to unpaid distribution tax by a company. An explanation to Section 115-Q which existed at the relevant time but which was omitted by the Finance Act, 2018 and provided that for the purposes of the said Chapter (Chapter XIID) which contains Section 115- O and 115-Q, the expression "dividend" shall have the same meaning as it given to dividend under Sub-Section (22) of Section 2, but shall not include sub-clause (e) thereof. 11. The plain effect of the explanation, therefore, would be that even the deemed dividend under Section 2(22)(d) of the Act would be covered from the purpose of Chapter XIID. In turn, therefore, such deemed dividend would be one which is referred to Section 115-O of the Act. Inescapable conclusion, therefore, Priya Soparkar 8 7 itxa 387-16-o would be that such dividend also would be exempt from tax in the hands of the receiver in terms of ....
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....isions of Section 2(22)(e) cannot be applied for those years as the computation mechanism fails. The Department had accepted that no addition can be made under Section 2(22)(e) in the case of the other shareholder namely, Mr. M.Ramasamy under Section 153A. 45. During the assessment years 2012-13 and 2013-14, Mr. Ramasamy held more than 20% shareholding in RSPL and RTPL. A specific contention was raised by the petitioner before the Settlement Commission that since there are more than two shareholders in the assessment years 2012-13 and 2013-14, the provisions of Section 2(22)(e) cannot be applied for those years as the computation mechanism fails. The Settlement Commission, had simply rejected this contention stating that Mr. M.Ramasamy was not an applicant before the Commission. The learned Standing counsel for the Department reiterated this finding of the Commission and further stated the argument of the petitioner that the computation mechanism would fail, is hypothetical. 46. It is not in dispute that during the assessment years 2012- 13 and 2013-14, there were more than one shareholder holding substantial interest in RSPL and RTPL. The Settlement Commission was also appra....
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....at all it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging Section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income." 48. It is the contention of the Department that the argument raised by the petitioner of failure of computation mechanism is hypothetical situation since Mr.Ramasamy is not taxed on the same income. Such a contention of the Department came to be diluted when the petitioner had produced a copy of the reassessment order under Section 147 of the Act , whereby the deemed dividend was taxed in the hands of Mr. Ramasamy also. As seen in the facts of the instant case, the whole amount was already taxed in the hands of the petitioner and the present reassessment order of Mr.Ramasamy amounted to double taxation. What was claimed to be a hypothetical situation has now been disproved in view ....
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.... the petitioner that if loans advanced first by RSPL to RTPL is considered as dividend, any payment made by RTPL to RSPL ought to be considered as loan by RTPL to RSPL. The Settlement Commission had not considered such a contention put forth before it but had relied upon the decisions in Tarulata Shyam and P Sarada (supra). The decisions may not be relevant since it is not the argument of the petitioner that tax closing balance of loan outstanding at the year end as deemed dividend, but that the amount repaid by the shareholder to the Company should be construed as a loan since the shareholder never repaid the dividend back to the Company. 52. The Settlement Commission was of the view that even if the advance of loan is subsequently repaid in its entirety during the relevant previous year, still deemed dividend is applicable, for which purpose reliance was placed on Tarulata Shyam and P. Sarada (supra). It is not the case of the petitioner that the tax closing balance of loan outstanding at the year-end should be the deemed dividend for that particular year and so on for the subsequent years. On the other hand, it is a submission that if loans advanced first by RSPL to RTPL is c....
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....the aforesaid appeal was taken to the Supreme Court, has observed as follows : "The tax is attracted at the point of time when the said loan is borrowed by the members." We have, therefore, no hesitation in holding that the liability to be taxed attaches to any amount taken as a loan by a shareholder from the company at the moment the loan is borrowed and it is immaterial whether the loan is repaid before the end of the accounting year or not. The answer to the question referred must, therefore, be in the affirmative and in favour of the department. 16. The Supreme Court in the case of Smt. Tarulata Shyam & Ors. Vs - Commissioner of Income Tax, West Bengal (1977 (108) ITR 345 (SC)), which appeal is a product of the above referred to decision from the Calcutta High Court, has culled out the situation in which the payments made to a shareholder are to be treated as taxable dividend, wherein five conditions have been laid down for the purpose of determination of the head on which the amount is to be taxed. For better clarity, the said portion of the order is extracted hereinbelow :- From the above discussion it emerges clear that the fiction created....
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....into the facts of the present case would disclose that there is no dispute that the company is a controlled (private limited) company in which the public are not substantially interested. Further, the assessee is admittedly a shareholder and Director of KIPL. It is also beyond controversy that at all material times, the company possessed "accumulated profits" in excess of the amount which the assesseeshareholder was paid during the previous year. The Income-tax Officer found that surplus reserve of the company for the year ending 31.3.09 stood at Rs. 10,26,62,126/=. The assessee drew money for the purpose of making payments, which were personal in nature, aggregating Rs. 76,86,829/=, which amount was shown as loan or advance in the books of accounts of KIPL. The company's business is not money-lending and it could not be said that the loans had been advanced by the company in the ordinary course of its business. In such circumstances, in the instant case, all the amounts advanced to the assessee/appellant under the head loans and advances fall squarely within the ambit of Section 2 (22) (e) of the Income Tax Act. 18. The object of the Legislature in enacting s....
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....r may not be a loan. The AO is, therefore, directed to verify each debit entry on the aforesaid line and treat only the excess amount as deemed dividend u/s 2 (22) (e) of the Act. We find such a direction issued by the CIT (Appeals), as upheld by the Tribunal is in consonance with the provision of Section 2 (22) (e) of the Act, and only those amounts, which reflect in the debit side of the books of accounts of the company falling under the definition of loans and advances, with regard to the shareholder, in the relevant year will be entitled to be taken as deemed dividend. 21. For the foregoing reasons, it is ordered as follows :- i) On the question of law raised, we are of the view that the Tribunal was justified in dismissing the appeal filed by the assessee/appellant and, consequently, the order of the Tribunal dated 25.6.2013 stands confirmed. ii) Consequently, the issue as framed by this Court is answered in favour of the Revenue and against the assessee." 54. The final point raised by the learned Senior counsel for the petitioner is that no incriminating material was found during search in relation to the deemed dividend and thus, the pr....