TaxTMI 
TaxTMI 
TaxTMI 
2011 (6) TMI 1013
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....as received loans and advances amounting to ₹ 1,25,85,758/- from Inder Hotel Pvt. Ltd. and Shri Tahilram Parimal Awtani and Shri Prataprai Lachhjmandas Awtani who are the common directors in both the companies, i.e. Inder Hotels Pvt. Ltd. and Seasons Hotel Pvt. Ltd., having substantial interest within the meaning of the provisions of sec. 2(22)(e) of the I.T. Act., 1961. The AO, vide his letter dated 16.11.2009, asked the assessee to show cause as to why dividend income of ₹ 66,27,226/- should not be added in its total income. In response to this, the assessee, vide his reply dated 27.11.2009, stated as under: 1) Inder Hotels Pvt. Ltd. has given Inter corporate loans and has also made substantial investment as shareholder in Seasons Hotels Pvt. Ltd., Apart from Hotel business, Inder Hotels P. Ltd. is also engaged in lending of loans/Investments. 2) During 2003-04 a sum of ₹ 12492000/- was given by Inder Hotels P. Ltd. to Seasons Hotels P. Ltd. on which interest of ₹ 117934/- was credited by Seasons Hotels Pvt. Ltd. and ₹ 24176/- TDS was deducted. Hence closing balance as on 31-3-04 comes to ₹ 12585758. 3) Since it is inter corporate depos....
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....ot be added in our total income as per provisions of sec. 2(22)(e) of the I.T. Act. The assesse has also submitted account of Inder Hotels P. Ltd., in the books of M/s. Seasons Hotels Pvt. Ltd for the period 1-4-2003 to 31-3-2004, which are incorporated in the body of asst. order. 3.1 The AO has not accepted the aforesaid submissions and added an amount of ₹ 66,27,226/- as deemed dividend income of the assessee under section 2(22)(e) of the I.T. Act, 1961. 4. On appeal before the ld. CIT(A), the assessee contended that lender companies were having surplus funds with them. In order to earn interest on the surplus fund, the lender companies have given Inter Corporate Deposit to the assessee. The assessee had paid interest on the Inter Corporate Deposit taken from the lender companies on which tax deducted at source have been deducted at source. Since the amount received is Inter Corporate Deposit, it cannot be termed as dividend under section 2(22)(e) of the I.T. Act. In support of this, reliance was placed on the decision of Bombay Oil Industries Ltd. -vs- DCIT (2009) 28 SOT 383 (Mum.), wherein it has been held that "Inter Corporate Deposits (ICDs) are different from loa....
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....nder company and therefore the addition made in the hands of the company is bad in law. In this regard the assessee relied on the following judgment: - CIT Vs Bhaumik Colour P. Ltd (2009) 118 ITD 1 (Mum.) (SB), wherein finally it has been concluded as under:- 41. In the light of the above discussion, the questions referred to the Special Bench are answered as follows: On the first question : Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. On the second question:- The expression 'shareholder' referred to in s. 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provisions of s. 2(22)(e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the provisions of s. 2(22)(e) will not apply. CIT -vs- Hotel Hilltip (2009) 313 ITR 116 (Raj) "Amount received from a company as security by assessee firm. Assessee firm is not registered shareholder, hence amount received as security not assessable as de....
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.... -vs- Abhinash Gupta reported in 327 ITR 619 and Bombay High Court in the case of CIT-vs- Madhukar K. Inaamdar (HUF) reported in 318 ITR 149, wherein it has been held that "Circular issued by the CBDT would be applicable to the cases pending before the Court either for admission or for final disposal and the said circular is binding on the Revenue." 8.1 Without prejudice to above, the Counsel of the assessee produced details of holding of shares in the case of Inder Hotels Pvt. Ltd. From this, he pointed out that the assessee is not a registered share-holder of Inder Hotel Pvt. Ltd. (lender company) and therefore, as per the decision of the ITAT, Special Bench, Mumbai in the case of CIT-vs- Bhaumik Colour P. Ltd. reported in 118 ITD 1 (Mum.) (supra), the view taken by the ld. CIT(A), in this regard, be upheld. 8.2 Without prejudice to above, the Counsel of the assessee pointed out that the transactions of the assessee with the lender company are in the nature of Inter- Corporate Deposits (ICDs) and these were extended by the lender to the assessee for business expediency and therefore, within the purview of section 2(22)(e) of the I.T.Act, 1961. On this ground also, the ld. CIT(A....