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2010 (4) TMI 871 - ITAT HYDERABADTDS liability on deemed dividend - survey u/s 133A - survey under section 133A was conducted in the case of the assessee during the survey it was noticed that the assessee is a closely held company reporting substantial profits - majority of the shareholders in both the companies are common - AO held that the amount of loan extended by the assessee-company to MMPL constituted "Deemed Dividend" to the extent of accumulated profit available with the assessee-company in each of the earlier financial year - CIT(A) held that the payment made by assessee to MMPL would fall within the purview of section 2(22)(e) as such provisions of section 194 is applicable - revenue is having grievance on direction given by CIT(A) relating to consideration of depreciation as per Income-tax Act while computing the accumulated profits under section 2(22)(e). HELD THAT:- As per the facts on record the assessee-company is having no shareholding in the other group companies. It is well-settled principle that dividend income is only received by the shareholder. See BHAUMIK COLOUR (P) LIMITED. [2008 (11) TMI 273 - ITAT BOMBAY-E] The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word ‘dividend’ is extended to loans and advance to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word ‘dividend’ is altered. To this extent the definition of the term ‘dividend’ can be said to 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) to extend the legal fiction to a case of loan or advance to a non-shareholder cannot be taxed as deemed dividend in the hands of a non-shareholder.’ Under these circumstances, when payment is made to a non-shareholder, it is impossible for the payer company to ascertain whether it will attract the provisions of section 2(22)(e) of the Income-tax Act or not. Therefore, in this view of the matter, law does not expect the payer company to deduct TDS when payment is made to a non-shareholder. This is the reason, the law expressly provides for TDS requirements only when payment is made to shareholder. Thus, section 194 requires TDS only when payment is made to the shareholder. Payments to a shareholder will cover both as dividends normal divided as well as deemed dividend. Otherwise also, deemed dividend will be taxed in the hands of the shareholders and not in the hands of non-shareholders payee. Therefore, section 194 does not require TDS when payment is made to non-shareholders. Also, under section 206 of the Companies Act, 1956 the dividend can be paid a registered shareholder only. Therefore, section 194 of the Act is synchronized with the requirements of Companies Act, 1956 containing sections 150 and 206 of the Companies Act. Accordingly, in our opinion, the impugned amount cannot be as deemed income in the hands of recipient being so the provisions of section 194 is not applicable. Consequently, the provisions of sections 201 and 201(1A) cannot be applied. Now coming to the fact of computation of accumulated profit, since we have held that in the present case there is no question of application of provisions of section 2(22)(e), consequently, there is no question of computation of accumulated profit. In view of this, all the three Revenue appeals become infructuous.
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