TaxTMI 
TaxTMI 
2020 (1) TMI 1139
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....r on facts of the case and in law, the Appellate Tribunal is correct to hold that provision of section 2(22)(e) of the Act are not attracted in this case? (C) Whether on facts of the case and in law, the Appellate Tribunal is correct to hold that the creditor companies in this case i.e. M/s. Shreem Design Infrastructure Pvt. Ltd and M/s. Aatrey Infrastructure Pvt. Ltd are also into the business of money lending?" 3. The Assessing Officer made a disallowance as deemed dividend under Section 2(22)(e) of the Act, 1961 as the assessee was having 11.61% of share holding in M/s. Shreem Design & Infrastructure Pvt. Ltd. (for short SDIPL") and 22.81% share holding in M/s. Aatrey Infrastrucutre Pvt. Ltd. (for short "AIPL").,the companies in which public are not substantially interested. The Assessing Officer, therefore, held that the provisions of Section 2(22)(e) of the Act, 1961 are applicable in the case of the present assessee as the assessee has obtained loan and advances from the aforesaid companies. 4. In response to the same, the assessee filed its reply in writing stating that SDIPL and AIPL are covered by the specific exemption given in sub-clause (ii) of Section 2(22)(e) of t....
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....tal funds available comes to 35.66% and percentage of loan and advances to total assets of the company comes to 32.45%. The ratio of loans and advances given to unsecured loan was at 56.29%.We further observe that though the memorandum of article of the Association of the company does not authorized money lending business as main object, but page 2 paragraphs 6 and at page 4 para 20 authorized the lending of surplus money by these companies. The perusal of sub clause (ii) of section 2 (22) (e) shows that it does not envisaged such a condition of authorization. In order to appreciate that there is no requirement of main object as of money lending business, it would be relevant to reproduced the sub clause (ii) of section 2(22)(e) which read as under:- "Any advance or loan made to shareholder (or the said concern) by a company in the ordinary course of its business, where the lending of money is substantial part of business of the company." (bold letter emphasized by us ). Thus, the provision makes it clear that there is no specific requirement that MOA of company specifically mention in main object as money lending business and it is not necessary for license. Now coming to term s....
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....on 31.3.1996 and 39% of the total assets of AMPL as on 31.3.1997 were deployed by it by way of total loans and advances. By no means, the deployment of about 40% of the total assets into the business of lending could be regarded as an insignificant part of the business of AMPL. The ITAT has also held that the income AMPL had received by way of interest of Rs. 1,08,18,036/- while it's total profit was Rs. 67,56,335. Excluding the income earned by AMPL by way of interest, the other business had resulted into net loss. In our view, the ITAT has taken into consideration the relevant factors and has applied the correct tests to come to the conclusion that lending of money was substantial part of the business of the AMPL. Since lending of money was a substantial part of the business of AMPL, 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. Hence, question No.2 is answered in favour of the assessee and against the Revenue." 13. In the present case, we observe that 69.71% of the total assets of SDPL as on 31.3.2015 and 32....
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.... of 2013 dated 02.08.2011 of Hon`ble Calcutta High Court] [PB- 24-37]. Wherein 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 from such shareholder, in such a case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. It was held that gratuitous loan or advance given by a company to those classes of shareholders thus, would come within the purview of section 2(22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. Since, the assessee has paid interest on loans and advances taken from SDIPL and AIPL, hence, he has compensated and no benefit has been derived. Therefore, applying the ratio of Hon`ble Calcutta High Court as quoted above, and Coordinate Bench decisions ACIT vs. M/s. Zenon (India) P....
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.... the company or otherwise) made after the 31st day of May, 1987 , by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but" dividend" does not include-- (i) a distribution made in accordance with sub- clause (c) or sub- clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ia) a distribution made in accordance with sub- clause (c) or sub- clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareh....