2015 (6) TMI 1247

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....oner of Income Tax (Appeals) has erred in deleting the addition of Rs. 18,45,25,001/- which was added by the Assessing Officer with the aid of section 2(21)(e) of the Income Tax Act as deemed dividend. 3. The brief facts of the case are that assessee is an individual. He has filed his return of income electronically on 31st March, 2009 declaring a total income of Rs. 3,42,49,460/-. The case of the assessee was selected for scrutiny assessment and a notice u/s. 143(2) was issued and served upon the assessee. 4. On scrutiny of the accounts, it revealed to the Assessing Officer that asessee is a director in Laxmi Diamond Pvt. Ltd. He is also a partner in various firms which are engaged in re-assortment work of diamonds. According to the ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....bution made in accordance with sub-clause (c) or subclause (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 shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....he previous year in which such acquisition took place. Explanation 3. - For the purposes of this clause, - (a) "concern" means a Hindu undivided family , or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent, of the income of such concern; 5. The language of section 2(22) (e) is very clear and unambiguous. The Legislature has identified the three categories in which payments made by the company shall be treated as dividend: (1) Any payment by a company to a shareholder being a person....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... 14.3] Therefore following conditions must be satisfied before invoking section 2(22) (e) in any case 1. The company in question must be one in which the public are not substantially interested. 2. The borrower must be a shareholder at the date when the loan was advanced i.e. 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 the profits holding not less than 10 per cent of the voting power. 3. The third condition is that the loan is advanced to such shareholder by such a company during the year. 4. The company possessed accumulated profit at the date of the loan. 5. The loan must not ha....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....sit even when the person from whom money has been received ceases to be a director of the company. But the case is not same in case of a shareholder. However, a share-holder from whom company has received any money ceases to be member of the company, the exemption ceases and thus the amount received from him will be considered as a deposit within the meaning of section 58A of the company. Thus, according to the Assessing Officer, the money was received by M/s Laxmi Diamond from the director which is to be kept in a separate account and the loan given to the assessee was given in the capacity of a share-holder which is to be assumed a deemed dividend. The other conditions of section 2(22)(e) were not disputed. Accordingly, ld. Assessing Offi....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....lso an established fact that in two separate accounts, the assessee was the creditor of the company to the tune of Rs. 14,26,15,000/-. At the end of the year, this exactly is the amount which is in net the assessee withdrew from the company, may be in different accounts. The peak credit in different accounts never exceed Rs. 13.16 crore. Under the circumstances, the CIT (Appeals) as well as the Tribunal, both took an overall view of the accounts of the assessee and the said company to hold that section 2(22)(e) of the Act would not apply. As is well-know, section 2(22)(e) of the Act would not apply. As is well-know, section 2(22)(e) of the Act pertains to dividend, which would include several payments made by the Company. In particular clau....