TaxTMI 
TaxTMI 
2023 (8) TMI 722
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.... : 2013-14 "1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 16,73,473/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income. 2. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961. b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 21,92,55,967/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961. 3. That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal." Assessment Year : 2014-15 1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 18,00,595/- u/s 14A read with Rule 8D over such disallowanc....
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.... appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal." Assessment Year : 2017-18 1. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961. b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 1,15,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the meaning of section 2(22)(e) of Income Tax Act, 1961. 2. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 1,40,266/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income. 3. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who proceeded on erroneous belief and misconception of law in disallowing interest on delayed deposit of TDS for Rs. 91,306/-. 4.....
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....notice that for the AY 2014-15, 2016-17 and 2017-18, almost identical additions/adjustments towards deemed dividend under section 2(22)(e) of the Act and disallowance under section 14A of the Act and minor other disallowances were made and the same can be deciphered from the following chart:- Issues AY 2013-14 AY 2014-15 AY 2016-17 AY 2017-18 Disallowance u/s 14A 16,73,473 18,00,595 65,23,307 1,40,266 Deemed Dividend u/s 2(22)(e) 21,92,55,967 47,07,00,000 5,15,00,000 1,15,00,000 PF and ESI u/s 2(24)(x) - 27,126 53,507 34,631 Disallowance of Interest on IT, ST & TDS - - 4,23,358 91,306 6. Aggrieved the assessee preferred appeal before the ld. CIT(A) but failed to succeed on the issues, which are in challenge before us. 7. So far as the main issue relating to deemed dividend under section 2(22)(e) of the Act is concerned, the ld. CIT(A), confirmed the view taken by the AO that second limb of section 2(22)(e) of the Act, is applicable, since there is a common substantial shareholder between the two parties. 8. Aggrieved the assessee is now in appeal before this Tribunal. 9. The first common issue fo....
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....accumulated reserve and surplus available for investment in the equity shares. For Assessment Year 2013-14, we notice that the accumulated interest free funds as on 31/03/2013 are to the tune of Rs. 37,41,34,279/-against which investments are only at Rs. 4,45,95,408/-. Similar is the situation for the remaining assessment years wherein also the interest free funds available with the assessee company in the form of shareholder funds is almost 9 to 10 times of the investments held by the assessee in the equity shares. It is an admitted fact that there is no finding of the revenue authorities at any stage indicating specifically that interest bearing funds have been applied for the purpose of making investments. In absence of any such finding, we find that the judgement of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra), are squarely applicable on the facts of the present case and, therefore, on account of sufficient availability of interest free funds, we find no merit in the finding of the ld. AO making interest disallowance under Rule 8D(2)(ii) of the Rules. Thus, the finding of the ld. CIT(A) is set aside and disallowance made under Rule 8D(2)(....
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....sessee before the ld. CIT(A), but assessee failed to get any relief and now the assessee is in appeal before this Tribunal for all the impugned assessment years challenging the common issue of addition for deemed dividend u/s 2(22)(e) of the Act. 15. The ld. Counsel for the assessee referring to the written submission placed before the lower authorities for all the impugned assessment years, further took us through the relevant provisions of Section 2(22)(e) of the Act and the three limbs provided therein and then stated that the Hon'ble Special Bench of ITAT in the case of ACIT vs. Bhaumik Colour Pvt. Ltd. [118 ITD 1 (MUM)], has been held that deemed dividend can be assessed only in the hands of the person who is a shareholder of the lender company and not in the hands of any other person. Based on this ratio laid down by the Hon'ble Special Bench of ITAT in the case of Bhaumik Colour Pvt. Ltd. (supra), the ld. Counsel for the assessee submitted that the assessee is not a shareholder in Apeejay Tea Ltd., and, therefore, addition under section 2(22)(e) of the Act is uncalled for in the hands of the assessee. Further reliance was placed on the following decisions:- •....
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....Income-tax Act, 1961 and was also embedded in section 2(6A)(e) of the Indian Income-tax Act, 1922. In nutshell, the concept envisages taxing certain payments made by closely held companies by way of loans or advances to certain shareholders of the company or to the concerns/companies in which they have substantial interest. Whenever any payment is made by way of loan or advance, the recipient of the loan or advance will be liable to be taxed on this amount as a dividend, to the extent to which the company has accumulated profits, under the deeming provisions of section 2(22). 9.1 However, w.e.f. from A.Y 2019-20, the company giving such loan or advances shall be liable to pay tax, that is, dividend distributed tax 30% and not the recipient. Although such loan or advance may have been given for genuine business purposes and even if the paying company may have received back the loan amount. Thus, the section deems certain payments as dividend income which is not income under ordinary commercial parlance. Therefore, the name Deemed dividend. 9.2 The concept of deeming certain payments or loans or advances to substantial shareholders as income was introduced with the ....
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....re treated as dividend for the purpose of levy of Income-tax . In CIT v. Martin Burn Ltd., (1982)136 ITR 805(cal) the Calcutta High court held that Under section 2(22) certain amounts which are actually not distributed are also brought within the net of dividends. Therefore, that section must receive a strict interpretation. Section 2(22)(e) has been held to be constitutionally valid in Navnitlal C. Javeri v. K.K.Sen, AAC [1965]56 ITR 198 (SC). Section 2(22) starts with the words" Dividend includes " Thus, the definition of dividend is inclusive and not exhaustive. 9.5 Section 2(22)(e) reads as any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of 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....
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....se arrangements the provisions of section 2(22)(e), as per two of its limbs, will get attracted in the following situation: - (i) If the company "A" extends loan to "C" then "C" being the direct beneficial shareholder, the provisions of section 2(22)(e) will get attracted by virtue of first limb of the section. (ii) Also, if the company "A" extend loan to "B" than "B" being the concern in which "C" is having substantial interest, even then the provisions of section 2(22)(e) attracted by virtue of second limb of the section. 9.8 Now if we simply replace the hypothetically presumed companies namely "A", "B" and "C" by the companies namely "Appejay Tea Ltd.", "Appejay Pvt. Ltd." and "KathuerSteel Works Ltd.", then the situation will turn identical to the situation discussed above under para no. 9.7*. 9.9 Hence, it is clear that if the company namely "Appejay Tea Ltd." extends loan to "Appejay Pvt. Ltd." then "Appejay Pvt. Ltd." being the concern in which "Kathua Steel Works Ltd.", is having substantial interest, then the provisions of section 2(22)(e) will get attracted by virtue of second limb of the section. 9.10. The appellant has filed ....
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....bstantial shareholder. Now whether this action of the revenue authorities is justified or not needs to be considered. 20. Since section 2(22)(e) of the Act has a direct bearing on the facts of this case the same is extracted for ready reference:- "Section 2(22)(e) "dividend includes - (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of 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 Explanation-3 to Section 2(22)(e) is as ....
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...., has been brought into the Act. 23. Further on going through Section 2(22)(e) of the Act, we find that there are three limbs and if the case of the assessee falls under any of the three limbs and the company giving loan/advance has accumulated profits for distribution then subject to that sum, the addition for deemed dividend can be made and these three limbs, read as follows:- "Any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31-5-1987, by way of advance or loan First limb (a) 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, Second limb (b) 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) Third limb (c) or any payment by any such company on behalf, or for the in....
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.... "34. We are of the view that the provisions of section 2(22)(e) does not spell out as to whether the income has to be taxed in the hands of the shareholder or the concern (non-shareholder). The provisions are ambiguous. It is therefore necessary to examine the intention behind enacting the provisions of section 2(22)(e) of the Act. 35. The intention behind enacting provisions of section 2(22)(e) are that closely held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would became taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the han....
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.... ordinary and natural meaning of the word "Dividend" is altered. To this extent the definition of the term "Dividend" can be said to operate. If the definition of "Dividend" is extended to a loan or advance to a non-shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of section 2(22)(e) and in the absence of indication in section 2(22)(e) to extend the legal fiction to a case of loan or advance to a non-shareholder also, we are of the view that loan or advance to a non-shareholder cannot be taxed as deemed dividend in the hands of a non-shareholder. 26.1. The aforesaid view has since been approved in several decisions rendered by Hon'ble High Court of Bombay and Delhi in the case of CIT Vs. Universal Medicare Pvt. Ltd., 324 ITR 263 (Bom) and CIT Vs. Ankitech Pvt. Ltd. & others 340 ITR 14 (Del.). The Hon'ble Supreme Court in CIT Vs. Madhur Housing and Development company in Civil Appeal No.3961 of 2013 judgement dated 5.10.2017, wherein the Hon'ble Supreme Court confirmed the view taken by the Hon'ble Delhi High Court in the case of CIT Vs. Ankitech Pvt. Ltd. & others 340 ITR 14 (Del)....
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....having noticed that one A was holding more than 20 per cent shares in both MIPL and assessee-company invoked provisions of section 2(22)(e) and made addition of aforesaid amount to income of assessee Whether in view of judgment of Delhi High Court rendered in case of CIT v. Ankitech (P) Ltd. [2011] 199 Taxman 341 / 11 taxmann.com 100, provisions of section 2(22)(e) were not attracted in instant case Held, yes - Whether, therefore, impugned addition made by Assessing Officer under section 2(22)(e) was not justified - Held, yes. Punjab & Haryana High Court. CIT VS Sharman Woolen Mills Ltd [204 Taxman 82 (P & H HC11 Where assessee-company was not shareholder of lending company, loan advanced by lending company could not be treated as deemed dividend under section 2(22)(e) in hands of assessee- company on ground that shareholders of both companies were same. Section 2(22) of the Income-tax Act, 1961 Deemed dividend Company 'A' advanced unsecured loan to assessee-company Assessing Officer added amount of loan in assessee's income as deemed dividend under section 2(22)(e) on ground that shareholders of lending company and that of assessee w....
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....here conditions stipulated in section 2(22)(e) treating loan and advance as deemed dividend are established, revenue can treat dividend income at hands of shareholders and tax them accordingly - Held, yes Whether where loans and advances are given in normal course of business and transaction in question benefits both payer and payee companies, provisions of section 2(22)(e) cannot be invoked - Held, yes. Circulars and Notifications: CBDT Circular No. 495, dated 22-09-1997. Mumbai High Court. CIT Vs Narmina Trade Investments Pvt Ltd [2017] 81 Tacmxnn.com 129. Section 2(22) of the Income-tax Act, 1961 Deemed dividend (Loans or advances to share-holders) - Assessment year 2007-08 - Where assessee was not shareholder of company advancing loan to it, amount of loan could not be treated as deemed dividend in its hands. Rajasthan High Court CIT VS Hotel Hiltop [ 313 ITR 116 (Raj-HC)] Where assessee-firm had received an advance from a company and it was assessee's partners who were shareholders in said company and not assessee-firm, such an advance could not be taxed as deemed dividend in hands of assessee-firm. ....
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....at the issued raised in this decision verbatim similar to the one raised in the instant appeal and the loans was received by a concern which was not a shareholder in the lender company but there was a common shareholder having substantial interest in both the lender company as well as the receiver company and, the Co-ordinate Bench after considering the settled judicial precedents held that the addition for deemed dividend u/s 2(22)(e) of the Act can be made only in the hands of the shareholder. The finding of the Tribunal reads as follows:- "10. We have considered this aspect of the matter as also the provisions of Sec. 2(22)(e) of the Act. Shorn of other details, Sec. 2(22)(e) of the Act covers within its sweep three categories of payments. Firstly, the payment by way of loan or advance to a shareholder; secondly, payment to any concern in which such shareholder is a member or a partner; and, thirdly, any payment made on behalf of or for the individual benefit of any such shareholder. Ostensibly, assessee-recipient is not a shareholder in the payer company, i.e. Portescap and, therefore, it is not covered by the first category of payment. In fact, it is the second catego....
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.... following discussion in the judgment of the Hon'ble Madras High Court, which is reproduced hereinafter, would show that in the present circumstances before us, the ratio of the decision of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is not attracted :- "4.2 The Revenue seeks to assess as income the capital advance received by the assessee-company from Indev Logistics Pvt. Ltd. on the ground that it is deemed dividend received by the assessee-company for the benefit of the registered shareholder. For this purpose, the provisions of Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act') is sought to be relied upon. The Tribunal has rejected the said contention of the Revenue, principally, on the ground that deemed dividend can only be assessed in the hands of the registered shareholder for whose benefit the money was advanced. 4.3 As indicated above, there is no dispute that the assessee did receive capital advance from Indev Logistics Pvt. Ltd. There is also no dispute that there are common shareholders both in the assessee-company and Indev Logistics Pvt. Ltd. Therefore, quite correctly, as noted by the Tribuna....
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....limbs provided under section 2(22)(e) of the Act, and the same cannot be invoked in the hands of the assessee. We, thus setaside the finding of the ld. CIT(A) and delete the addition of Rs. 21,92,55,967/- for AY 2013-14, Rs. 47,07,00,000/- for AY 2014-15, Rs. 5,15,00,000/- for AY 2016-17 and Rs. 1,15,00,000/- for AY 2017-18 made under section 2(22)(e) of the Act and allow these common grounds of appeal raised by the assessee against the addition made u/s 2(22)(e) of the Act. 31. The next common issue for our consideration is disallowance u/s 2(24)(x) of the Act at Rs. 27,126/- and at Rs. 53,507/- for Assessment Years 2014-15 & 2016-17 respectively; 32. It is an admitted fact that the disallowance u/s 2(24)(x) of the Act was made on account of delayed deposit of employees' contribution to PF/ESI i.e. after the due date as provided under the respective welfare enactments. This issue is no more res integra in view of the judgment of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) dated 12.10.2022 wherein it has been held that "deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees' contributio....