TMI Blog2014 (3) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... that having a common Director in two companies would make Section 2(22)(e) applicable – Thus, Section 2(22)(e) is not applicable in respect of the loan advanced to the assessee – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue. - ITA No.1370/Hyd/13 - - - Dated:- 17-2-2014 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Shri B. Yadagiri For the Respondent : Shri Ch. G. Muralikrishna Murthy Shri P. Satyanarayana Murthy ORDER Per Chandra Poojari, Accountant Member: This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals) II, Hyderabad dated 12.7.2013 for the assessment year 2010-11. 2. Effective grounds of the Revenue in this appeal read as follows- "1. The order of the learned CIT(A) is erroneous in law and on facts of the case. 2. The learned CIT(A) erred in holding that holding ICDs received from Excel Rubber Ltd., cannot be considered alongwith loans and advances for the purpose of application of provisions of section 2(22)(e)of the I.T. Act. 3. The learned CIT(A) erred in holding that the provisions u/s. 2(22)(e) can be invoked only in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Bombay Oil Industries V/s. DCIT(28 SOT 383), duly extracting relevant portion of the said decision, concluded that inter corporate deposits cannot be taxed as deemed dividend. The CIT(A) consequently deleted the addition of Rs.1,95,00,000 made by the Assessing Officer in the hands of the assessee, observing however, that the Assessing Officer can examine the applicability of S.2(22)(e) of the Act in the hands of Shri G.R. Reddy, who has more than 10% shareholding in both the companies, viz. M/s. Excel Rubber Ltd. and M/s. Ace Tyres Ltd. 5. Aggrieved by the relief granteed by the CIT(A), Revenue is in appeal before us. 6. We heard both sides and perused the impugned orers of Revenue authorities and other material available on record. The only issue involved in this appeal relates to applicability of provisions of S.2(22)(e) of the Act to the inter-corporate deposits received by the assessee. As noted above, impugned order of the CIT(A) on this issue is based on the order of the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries (supra). Further, as noted by the Assessing Officer himself, in the impugned order, corresponding addition in terms of S.2(22)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had traced out the assessee of this provision in the following manner: -Any payment by a company, 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 sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 perspective. 26. In a case like this, the recipient would be a shareholder by way of deeming provision. It is not correct on the part of the Revenue to argue that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The ITAT, Hyderabad Bench in case of MARC Manufacturers Pvt. Ltd. Vs. ACIT in ITA No. 555/Hyd/2008 dt. 31/08/2009 while considering identical issue of advancement of loan to one company, which is not a shareholder of the lender company following the decision of ITAT Mumbai Special Bench in case of Bhaumik Colour P. Ltd. (supra) and other decisions held as under: "5. It can be seen from the circular that the provisions of amended section 2(22)(e) are to be applied only to the payments made to the shareholders and not to any other person or concern other than the shareholders. The Allahabad High Court in the case of CIT vs. H.K. Mittal reported in 219 ITR 420 held that the chief ingredient of dividend as defined in sub clause (e) of clause (22) of section 2 of the I T Act is that the recipient should a shareholder on the day the loan was advanced. If that fact is not established, there cannot be a deemed dividend. Therefore, the provisions of sec. 2(22)(e) cannot be applied to MARC as it is not a shareholder in MTAR Technologies Pvt. Ltd. (Hereinafter called as MTAR). In this regard, the assessee relies on the declslon of the ITAT Mumbai Bench "G" in the case of Seamist Propert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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