TaxTMI 
TaxTMI 
2026 (8) TMI 52
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act was issued to the petitioner on 06.04.2021 requesting to file the return of income within 30 days. On filing of such return, the petitioner was supplied the reasons for reopening of assessment. The reason which was assigned by the respondent for reopening is premised on the provision of Section 2(22)(e) of the Act. It was alleged that, during the scrutiny of audited financial statements and computation of income of M/s. Checkmate Services Private Limited, it was observed that it has given loans and advances to the petitioner amounting to Rs. 8,85,97,971/- and the same is recorded under the head 'Trade Payables'. The Assessing Officer treated the loan and advances as Dividend under Section 2(22)(e) of the Act and alleged that the petitioner has not offered the same to tax. 4. The petitioner filed a detailed reply on 25.05.2022 pointing out that the provision of Section 2(22)(e) of the Act will only apply, in the case, if the advanced of any sum by a company to another concern, in which a person is holding at least 10% voting rights in the company and also holds a substantial interest in the concern, whereas, in the present case, the petitioner-Trust is not a shareholder in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., though the Civil Appeals have been subsequently withdrawn, the order would still survive. 9. While referring to the merits of the matter, it is submitted that on the scrutiny of the balance sheet, profit and loss account and annual reports of the petitioner, it transpired that the assessee (petitioner) had manipulatively evaded income chargeable under Section 2(24)(ii) read with Section 2(22)(e) of the Act to the tune of Rs. 8,85,97,971/-, which was received by the petitioner from M/s. Checkmate Services Private Limited as advances and loans, and contrarily depicted in its books of account as 'trade payables'. He has further submitted that Shri Vikram P. Mahurkar is the Managing Trustee of the present petitioner - Trust and the amount of advance has been received from the Company -M/s. Checkmate Services Private Limited, in which Shri Mahurkar is a Director and having shareholding of 50%. Thus, it is submitted that the provision of Section 2(22)(e) of the Act is attracted. 10. In support of his submission, Mr. Patel has placed reliance on the decision of the Supreme Court of India in the case of Gopal and Sons (HUF) vs. Commissioner of Income Tax, Kolkata, reported in [2017....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny, not being a company in which the public are substantially interest, of any sum (whether as representing a part of the assets of the company or otherwise) made after 31.05.19987 by way of advance or loan. First limb a) to a shareholder, being a person who is the beneficial 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 percent of the voting power, Second limb b) or to my 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 individual benefit, or any such shareholder, to the extent to which the company in either case possesses accumulated profits." 23. It is rightly pointed out by the Bombay High Court in Universal Medicare (P) Ltd. (supra) that Section 2(22)(e) of the Act is not artistically worded. Be as it may, we may reiterate that as per this provision, the following conditions are to be satisfied: "(1) The payer company must ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd to 'shareholder'. When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under Section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under Section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the Revenue would stand answered, once we look into the matter from this perspecti....