2008 (3) TMI 310

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....issioner of Income-tax (Appeals) deleting the addition of Rs. 10 lakhs as deemed dividend under section 2(22)(e) of the Income-tax Act ? 2. Whether the assessee-firm whose partners hold 100% share in M/s. Hilltop Palace Hotels (P.) Ltd., had received the payment of Rs. 10 lakhs by way of security and not as an advance is perverse?" 2. The necessary facts are that a return was filed by the assessee (firm) M/s. Hotel Hilltop, 5, Ambavgarh, Udaipur, declaring income of Rs. 72,000 on January 3, 1992. The case was taken under scrutiny and notices were issued. It appeared that the assessee had shown liability of Rs. 12,46,058 under the head "other liabilities" out of which a liability to the extent of Rs. 10,87,747 pertained to M/s. Hilltop....

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.... of the company the amount of Rs. 10 lakhs cannot be assessed to tax under section 2(22) (e) and thus it was deleted. 5. Against this order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the learned Tribunal and the Tribunal found that the provisions under section 2(22) (e) are deeming provisions and are aimed at including the obvious or what is uncertain or to impose for the purpose of a statute an artificial construction of a word or phrase that would not otherwise prevail. Then the definition, as given in section 2(22)(e) was also considered and found that since the firm is not a share holder of the company the amount of Rs. 10 lakhs could not be assessed to tax under section 2(22)(e). It was also foun....

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....ent to which the company in either case possesses accumulated profits ;" 8. From a reading of the above provision, it is clear that it comprehends manifold requirements, the first being the payment should be made by way of loan or advance to the concern. Of course on this aspect, the conclusion has been recorded by the Tribunal against the Revenue but then on a bare reading of the agreement and considering the totality of circumstances including the very nature of the term "security" and the fact that substantial portion of this Rs. 10 lakhs of amount, say more than Rs. 9 lakhs, have been advanced only during January 7, 1991, to March 22, 1991, it is difficult to accept it as a security in the sense of the term as comprehended in the agr....