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2006 (5) TMI 500 - AT - Income TaxAddition u/s 2(22)(e) - deemed dividend - money by way of loan or advances - HELD THAT:- As per Explanation 3(b) to section 2(22), a person is 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. This clause is as evident not applicable to a company and a person having substantial interest in relation to a company as defined in section 2(32) of the Act, to mean that 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, carrying not less than twenty per cent of the voting power. Skri Atul Lakhadia himself is not a beneficial owner of the shares of 20 per cent. His shareholding is only 10.24 per cent. If the shareholding of HUF is also considered then only it exceeds 20 per cent, but as per the plain language in section 2(32) of the Act, it is the beneficial ownership of a person that alone is to be considered. In that view of the matter neither Lakhadia himself nor in his capacity as HUF was holding shares of 20 per cent or more. In these circumstances, the provisions of section 2(22)(e) applying to a concern in which such shareholder is a member and in which he has substantial interest would not apply. Shri Atul Lakhadia is no doubt a member in the assessee-company. M/s Kunal Organics Pvt. Ltd., but he has not holding a substantial interest in that concern and therefore, this provision would not be applicable. Here, the shares are allotted to the HUF and certificate to this extent has been filed heing Register Folio Certificate for the holding of 1700 shares by the HUF. His individual shares are 2050, which is only 10.24 per cent. This view finds support from the decisions of the Supreme Court in the case of Rameshwarlal Sanwarmal v. CIT [1979 (12) TMI 1 - SUPREME COURT] and CIT v. C.P. Sarathy Mudaliar [1971 (10) TMI 8 - SUPREME COURT]. Hence, the alternate contentions of the assessee that the amounts have been advanced in the ordinary course of business need not be discussed, except to mention that when the Assessing Officer relies upon the Directors Report that no loans and advances have been given by the company, he cannot thereafter say that these were loans to the assessee-company. Thus, we do not find any infirmity in the order of the ld. CIT(A), the same is upheld - In the result, the revenue’s appeal is dismissed.
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