TMI Blog2024 (2) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... debate i.e. whether the shareholder to mean registered and beneficial or beneficial alone. As in the case of CIT v. Ankitech (P.) Ltd [ 2011 (5) TMI 325 - DELHI HIGH COURT] has held that the term 'shareholder used in the section referred to both a registered and beneficial shareholder. In view of the above, having withdrawn the appeal by the assessee in the case of National Travel Service v. CIT 2021 (8) TMI 1380 - SC ORDER] as on date the binding judgement on the issue of the expression 'shareholder is that of CIT v. Ankitech (P.) Ltd (supra) as affirmed in the case of CIT v. Madhur Housing Development Co [ 2017 (10) TMI 1279 - SUPREME COURT] Thus, respectfully following the same, we hold that the shareholder referred to in section 2(22)(e) of Act implies registered and beneficial shareholder. Relevant date for determining the shareholding in order to examine the applicability of section 2(22)(e) - As we hold that the relevant date for determining the shareholding is the date of advancing of the loans. In the case of assessee companies, neither the assessee companies nor its shareholders are the shareholders of M/s. IG3 Infra Limited as on the date of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT v. Universal Medicare Private Limited [ 2010 (3) TMI 323 - BOMBAY HIGH COURT] has held that the deemed dividend under section 2(22)(e) of the Act is required to be taxed in the hands of the shareholder and not in the hands of the concern in which such shareholder has substantial interest which received the loan. We hold that the deemed dividend under section 2(22)(e) of the Act is required to be taxed only in the hands of the common registered shareholder in a case where a closely held company advances a loan to a company in which such common shareholder has substantial interest and the said deemed dividend is not taxable in the hands of the company which is in receipt of the loan. Accordingly, on this count as well, the loans advanced by M/s. IG3 Infra Limited cannot be taxed in the hands of the assessee companies since the assessee companies are not the shareholders in M/s. IG3 Infra Limited. We are of the opinion that the ld. CIT(A) has rightly deleted the additions made by the Assessing Officer under section 2(22)(e) of the Act in the hands of the assessee companies. Decided against revenue. - Shri V. Durga Rao, Judicial Member And Shri Manjunatha, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77;.714.01 crores as on 03.11.2020. On analysing the detailed reasons for the huge increase in CWIP, it was noticed that most of the said increase was due to the works said to have been undertaken by the assessee company and four other companies in the group. The details of works said to have been undertaken by them are as follows: Sl.No. Name Amount (Rs.) 01 MAC Quality Builders Private Limited 88,92,45,200 02 Mukunda Land Developers Private Limited 51,13,44,866 03 Mugilan Structurals Private Limited 36,85,89,045 04 Minal Contractors and Builders Private Limited 87,80,05,819 05 Meadows Infrastructure Private Limited 72,60,86,883 Total 337,32,71,813 5. Further, it was noticed that the assessee company received funds on various dates from M/s.IG3 Infra Limited towards the works said to have been underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epared in October, 2020, though they were dated as December 2019. The Assessing Officer has noted that the payments aggregating to ₹.88,91,90,240/- were made by M/s. IG3 Infra Limited to the assessee even without purchase orders or BoQ. The same is the case in respect of payments made to four other group companies. 8. In his sworn statement recorded under section 132(4) of the Act dated 05.11.2020, Shri Ramesh, Senior Accounts Executive of M/s.IG3 Infra Limited stated that entries were made by him as per the instructions of Smt Rukmini Thiagarajan and that such entries were made by him without proper vouchers or original bills or the Goods Receipt Note (GRN). Further, Shri Manoharan and Ms. Umamaheswari of the accounts team of M/s. IG3 Infra Limited have also accepted in their statements that the tally entries were made as per the instructions of Smt Rukmini Thiagarajan. Shri Hallins Raj Selvan, the Stores Officer of M/s. IG3 Infra Limited admitted in his sworn statement dated 05.11.2020 that there is no GRN for the bills from the assessee company since there is no actual delivery of goods. Thus, it is clear from the seized material and the statements of the accounts perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has identified that the appellant company and four other group companies, to whom M/s.IG3 Infra Limited has advanced loans as stated above are related to each other. The AO observed that the address, the Directors, the Shareholders, details of Incorporation of the Companies and details of Change in the name of the companies have revealed that the said companies are related to one another. The AO pointed out that the registered addresses of the assessee company at Plot No. 198, 13th Cross Street, Sri Sai Nagar, Thoraipakkam, Chennai and at Plot No.10, Sri Karapaga Vinayagar Street, Thoraipakkam, Chennai are being used as residence for the staff working in M/s.IG3 Infra Limited. As confirmed by Shri Senthilnathan and Shri Palash Bora in their statements u/s 132(4) of the Act. Thus, the Assessing Officer was of the opinion that the assessee company and four other group companies are related to each other and that the assessee is one of the group concerns of M/s.IG3 Infra Limited. 12. The AO observed that there was a change in the shareholders of the assessee company and four other group companies during the previous year relevant to the assessment year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate structure of M/s. IG3 Infra Limited, it is clear that the assessee company is a group concern of M/s. IG3 Infra Limited in which the family of Thiagarajan has substantial interest and the ultimate shareholders of the assessee company are Shri Shanmugam Thiagarajan, Smt Unnamalai Thiagarajan and Smt Rukmini Thiagarajan. The AO observed that the reserves and surplus of M/s. IG3 Infra Limited as on 31.03.2020 amounted to ₹.257,62,37,000/-. The AO also observed that these facts clearly establish that the fund transfers by way of loans to the tune of ₹.88,91,90,240/- to the assessee by M/s. IG3 Infra Limited is nothing but dividend payments by M/s. IG3 Infra Limited to the benefit of shareholders in terms of the provisions of section 2(22)(e) of the Act. The AO stated that the loan of ₹.88,91,90,240/- was received by the assessee on behalf of and for the benefit of the ultimate shareholders i.e., Shri Shanmugam Thiagarajan, Smt Unnamalai Thiagarajan and Smt Rukmini Thiagarajan. The AO stated that it is therefore clear that the payments were made on behalf of and for the individual benefit of Shri Shanmugam Thiagarajan, Smt Unnamalai Thiagarajan and Smt Rukmini T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee carried the matter in appeal before the ld. CIT(A). After considering the detailed written submissions of the assessee, the ld. CIT(A) has observed as under: 28. I have given careful consideration to the findings of the AO, the written submission of the appellant and the material available on record. In the assessment order, the AO treated the loan of Rs. 88,91,90,240/- advanced by M/s.IG3 Infra Limited to the appellant company on various dates during the period from 27.04.2020 to 25.06.2020 as income liable to tax in the hands of the appellant company by way of deemed dividend us 2(22)(e) of the Act. In the grounds of appeal, the appellant contended that the provisions of sec 2(22)(e) are not applicable to its case since neither the appellant company nor its present shareholders (shareholders at the time of receiving the loans) were holding any shares in the company which advanced loans to the appellant company. The appellant also contended that the AO has wrongly considered the previous shareholders for reckoning the applicability of the provisions of sec 2(22)(e)instead of considering the shareholders as on the dates of receiving the loan. 29. In the written su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of advancing the loan to the appellant company. 6) Though the AO asserted in the assessment order that Shri Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan and Smt. Rukmini Thiagarajan are the ultimate shareholders of MsIG3 Infra Limited as well as the appellant company, he has not substantiated the said assertion by any cogent material or reasoning. Further, the AO did not bring out any corroborative evidence to substantiate his finding that the ultimate shareholders have benefitted from the loan transactions even though they were not the shareholders in M/s. IG3 Infra Limited at the time of advancing the loan to the appellant company. 30. The contentions put forth by the appellant have been carefully examined in the light of the facts of the case and the provisions of sec 2(22)(e). The provisions of sec 2(22)(e) have laid down three situations where deemed dividend arises in the hands of the shareholders. The first situation is where loan is advanced by a closely held company to a shareholder who holds not less than 10% of the voting power in the said company. The second situation is where loan is advanced by a closely held company to a concern in which a share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power in the appellant company at the time of advancing the loan by M/s.IG3 Infra Limited to the appellant company in order to hold that the said conditions have been satisfied. 34. In this connection, it is important to understand the meaning of the expression shareholder, being a person who is the beneficial owner of shares used in sec 2(22)(e). The interpretation of the said expression has been the subject matter of the decisions of Hon'ble Delhi High Court in the case of CIT vs. Ankitech Private Limited (2012) 340 ITR 14 (Delhi) and the Hon'ble Supreme Court in the case of CIT vs Madhur Housing and Development Co. (2018) 401 ITR 152 (SC), In the case of CIT vs Ankitech Private Limited (Supra), the Hon'ble Delhi High Court held that the expression shareholder has to be construed to mean a 'registered shareholder' in view of the decisions of the Hon'ble Supreme Court in the cases of CIT vs. CP Sarathy Mudaliar (1972) 83 ITR 170 (SC) and CIT vs. Rameshwarlal Sanwarmal (1980) 22 ITR 1 (SC), The Hon'ble High Court observed that the word shareholder followed by the expression being a person who is the beneficial owner of shares does not in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UF being only the beneficial shareholder and not a registered shareholder would not fall within the purview of Section 2(6A)(e) of the 1922 Act. The apex Court observed as follows: .....What Section 2(6A)(e) is designed to strike at is advance or loan to a 'shareholder' and the word 'shareholder' can mean only a registered shareholder. It is difficult to see how a beneficial owner of shares whose name does not appear in the register of shareholders of the company can be said to be a 'shareholder'. He may be beneficially entitled to the share but he is certainly not a 'shareholder'. It is only the person whose name is entered in the register of the shareholders of the company as the holder of the shares who can be said to be a shareholder qua the company and not the person beneficially entitled to the shares. lt is the former who is a 'shareholder' within the matrix and scheme of the company law and not the latter. We are, therefore, of the view that it is only where a loan is advanced by the company to a registered shareholder and the other conditions set out in Section 2(6A)(e) are satisfied that the amount of the loan would be liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition that the shareholder has also to be beneficial owner 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 per cent of the voting poser. It is not possible to accept the contention of the learned Departmental Representative that under the 1961 Act there is no requirement of a shareholder being a registered holder and that even a beneficial ownership of shares would be sufficient. 24. The expression shareholder being a person who is the beneficial owner of shares referred to in the first limb of Section 2(22)(e) refers to both a registered shareholder and beneficial shareholder If a person is a registered shareholder but not the beneficial then the provision of Section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of Section 2(22)(e) will not apply. 35. The abovementioned decision of the Hon'ble Delhi High Court has been affirmed by the Hon'ble Supreme Court in the case of CIT Vs Madhur Housing and Development Co. (Supra). The Hon'ble Supreme Court held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. The shareholders of the appellant company upto 23.04.2020 were M/s. Southern Project Management Private Limited holding 99.80% of the voting power, Smt. Unnamalai Thiagarajan holding 0.1% of the voting power and Smt. Rukmini Thiagarajan holding 0.1% of the holding power. The said shareholders are hereinafter referred to as the previous shareholders'. The shareholders of the appellant company after 23.04.2020 are Shri. Sikandar Mohammed Rafi holding 99.90% of the voting power and Ms. Anu Abraham holding 0.1% of the voting power. The said shareholders are hereinafter referred to as the 'present shareholders'. 39. The existence of a common registered and beneficial shareholder between M/s.IG3 Infra Limited and the appellant company has to be seen at the time of release of various tranches of the loan to the appellant company during the period from 27.04.2020 to 25.06.2020. During the said period, the appellant company has new shareholders as mentioned in the preceding paragraph. On comparing the registered shareholders of M/s.IG3 Infra Limited and the appellant company during the period of advancing the loans, it is noticed that there is no common regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny (shareholders prior to 23.04.2020) is legally permissible for the purpose of the second limb of sec 2(22)(e) and it is only the shareholders at the time of advancing the loans who need to be considered for the said purpose. This proposition has been laid down by the Hon'ble Allahabad High Court in the case of CIT vs HK Mittal (1996) 219 ITR 420. The Hon'ble High Court held in the said case that the chief ingredient of sec 2(22)(e) is that one should be a shareholder on the date the loan was advanced. 43. Notwithstanding the legal infirmity in the comparison made by the AO between the shareholders of M/s.IG3 Infra Limited and the previous shareholders of the appellant company as stated in the preceding paragraphs, it is found that the finding rendered by the AO based on the said comparison is also without factual basis. It is seen that the AO did not furnish any reasons or data or documentary evidence in support of his finding that the ultimate shareholders of both the companies are Shri Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan and Smt. Rukmini Thiagarajan. Consequently, the said finding which is unsubstantiated on facts cannot be taken into consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions listed at S. Nos.2 3 above, it is pertinent to state that the shareholder (holding not less than 10% of the voting power) of the company on whose behalf or for whose individual benefit the payment is made by the company is required to be a registered and beneficial shareholder as per the ratio laid down by the Hon'ble Delhi High Court in the case of CIT vs Ankitech Private Limited (Supra) and the Hon'ble Supreme Court in the case of CII Vs Madhur Housing and Development Co. (Supra), as already discussed earlier in this order. 48. In the Assessment Order, the AO rendered a factual finding that the ultimate shareholders of both M/s.IG3 Infra Limited and the appellant company are Shri. Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan and Smt. Rukmini Thiagarajan and that the funds transferred by way of loans by M/s.IG3 Infra Limited to the appellant company are for the individual benefit of the said ultimate shareholders and that the appellant received the said funds on behalf of the ultimate shareholders. In this regard. it is seen that the AO did not furnish any reasons or data backed by evidence in support of his finding that the ultimate shareholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent evidences, the above mentioned finding of the AO is held to be unsubstantiated and untenable. 51. In the light of the discussion above, it is evident that the mandatory conditions for invoking the provisions of the third limb of sec 2(22)(e) are not satisfied in the facts of the appellant's case, in as much as the payment made by M/s.IG3 Infra Limited to the appellant company by way of loans cannot be regarded as a payment made on behalf or for the individual benefit of a registered and beneficial shareholder of M/s.IG3 Infra Limited holding not less than 10% of the voting power. Hence, it is required to be held that the third limb of sec 2(22)(e) cannot be invoked in the case of the appellant for the purpose of treating the amount received from M/s.IG3 Infra Limited as deemed dividend in its hands. Person in whose hands deemed dividend, if any, is taxable 52. Notwithstanding the findings rendered above that the conditions prescribed in sec 2(22)(e) are not satisfied in the facts of the appellant's case in order to hold that the provisions of deemed dividend are attracted, another issue which needs consideration is whether the deemed dividend, if any, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression 'dividend' by providing an inclusive definition. 9. In order that the first part of clause (e) of Section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent of the voting power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial interest. The Tribunal in the present case has found that as a matter of fact no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the books of account of the assessee. The fact that there was a defalcation seems to have been accepted since this amount was allowed as a business loss during the course of assessment year 2006- 2007. Consequently, according to the Tribunal the first requirement of there being an advance or loan was not fulfilled. In our view, the finding that there was no advance or loan is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt aspect, being the requirement of Section 2(22)(e) is, that the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholder.. Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm. In which event, it would fall within the expression deemed dividend Obviously, income from dividend, is taxable as income from other sources, under Section 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Roop Kumar and Devendra Kumar, are the common persons, holding more than requisite amount of share holding, and are having requisite interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not extend 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional High Court) has also held in the case of Pr. CIT vs Ennore Cargo Terminal P Ltd (2018) 406 ITR 477 (Mad) that the deemed dividend can only be assessed in the hands of the registered shareholder for whose benefit the money was advanced. The relevant portion of the decision of the Hon'ble High Court is extracted as under: 4. Insofar as Question Nos.3 and 4 are concerned, the following brief facts are required to be noticed: 4.1. The assessee-company, evidently, received a capital advance in a sum of Rs. 1,09,50,000/- from an entity by the name of Indev Logistics Pvt. Ltd. The assessee-company as well as the said entity, i.e. Indev Logistics Pvt. Ltd., admittedly have common shareholders. The shares in the assessee company to the extent of 50% are held by Mr. Xavier Britto, while the balance shares are held by Smt. Vimalarani Britto. In so far as Indev Logistics Pvt. Ltd. is concerned, shares are held likewise by the said individuals, though in a different ratio. Mr. Xavier Britto holds 60% of the shares in Indev Logistics Pvt. Ltd., while Smt. Vimalarani Britto holds the balance 40% shares in the said entity. 4.2. The Revenue seeks to assess as income the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, in our view, the judgement of the Supreme Court does not rule on the issue which has come up for consideration in the instant matter. 6. Accordingly, in so far as questions Nos. 3 and 4 are concerned, we find that no interference is called for with the view taken by the Tribunal via the impugned order. In these circumstances, the Revenue's appeal, i.e. T.C. (A) No. 105 of 2017, pertaining to AY 2007-08, with regard to the said questions, is dismissed. 57. It is also pertinent to state that the Hon'ble ITAT Chennai (the Jurisdictional Tribunal) has also considered the issue in the case of Pallava Resorts Private Limited Vs ITO (2022) 143 taxmann.com 08 (Chennai-Trib) and held that the amount of loan received by the assessee company from its holding company is not taxable as deemed dividend u/s 2(22)(e) in the hands of the assessee company and the same is taxable in the hands of the common registered shareholders only. The relevant portion of the decision of the Hon'ble Tribunal is extracted as under: 7. We have heard the rival contentions and had gone through the facts and circumstances of the case. We note that the Assessee does not hold any shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder in a company from which loan was received, hence loan cannot be assessed as deemed dividend. (c) The decision of the Mumbai High Court in the case of CIT v. Jignesh P Shah [2015) 54 tamann.com 293/229 Taxman 302/372 ITR 392 wherein it has held that the provision of 'section 2(22) (e) of the Act cannot be invoked unless the Assessee itself is a shareholder of the company who was lending money to him. (d) The decision of the Coordinate Bench of this Tribunal, Mumbai Benches in the case of the Bombay Oil Industries Ltd. v Dy CIT (2009] 28 SOT 383, wherein it is held that section 2(22) (e) of the Act enacts a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the Section. Such a deeming fiction would not be given a wider meaning that what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking section 2(22) (e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the assessee companies are part of group companies of M/s. IG3 Infra Limited and materials relating to M/s. IG3 Infra Limited and the assessee companies are seized during the course of search. 15.1 The ld. DR has drawn our attention to the assessment order where Balance Sheet of M/s. IG3 Infra Limited as on 31.03.2020 and 03.11.2020 as seized is extracted by the Assessing Officer. Referring to the Balance Sheet, the ld. DR submitted that there was a huge increase in the Capital Work in Progress of M/s. IG3 Infra Limited between 31.03.2020 and 03.11.2020. It was submitted that Capital Work in Progress as on 31.03.2020 was ₹.366,83,51,830/- whereas the same was ₹.714,01,89,265/- as on 03.11.2020. Thus, there was an increase of ₹.347,18,37,435/- between 31.03.2020 and 03.11.2020. The ld. DR submitted that the increase in Capital Work in Progress was attributable to the payments made to the following assessee companies: S.No Name of the companies Amount (Rs.) 1 MAC Quality Builders Private Limited 88,92,45,200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G3 Infra Limited submitted that M/s. IG3 Infra Limited has made the payments to the assessee companies on the instructions of Ms. Rukmini Thiagarajan. The ld. DR further submitted that M/s. IG3 Infra Limited is situated in SEZ and all the movement of goods in and out of the premises of M/s. IG33 Infra Limited are to be entered in register maintained by the nodal officer of SEZ. It is submitted that the registers seized during the course of search proved that no goods were actually delivered by the assessee companies in respect of payments received from M/s. IG3 Infra Limited. 15.4 The Ld. DR also submitted that Ms. Rukmini Thiagarajan vide letter dated 03.02.2021 admitted that the funds transferred by M/s. IG3 Infra Limited to the assessee companies are loans which were inadvertently recorded as Capital Work in Progress in the books of account. The ld. DR argued that had there been no search, loan payments would have been accounted as Capital Work in Progress to escape from the applicability of deemed dividend provisions. It is the submission of the Ld. DR that all the assessee companies are related to each other and connected with M/s. IG3 Infra Limited and operating under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the assessee companies under section 2(22)(e) of the Act is to be confirmed and accordingly prayed for the reversal of the order passed by the ld. CIT(A). 16. On the other hand, the ld. Counsel for the assessee companies vehemently supported the order of the ld. CIT(A). The ld. Counsel submitted that the impugned issue is taxability of loans received by the assessee companies from M/s. IG3 Infra Limited, whether such loans can be taxed as deemed dividends in the hands of the assessee companies or not. The ld. Counsel referring to the provisions of section 2(22)(e) of the Act submitted that the foremost condition to attract the applicability of section 2(22)(e) of the Act is the recipient or benefitted shareholder should hold not less than 10% of the voting power in both lender and payee company implying only equity share holders are covered since voting power comes only with the holding of equity shares. The ld. Counsel invited our attention to the shareholding pattern of M/s. IG3 Infra Limited as follows: S.No. Name of the shareholder Percentage of equity share holding (%) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namalai Thiagarajan (1 share) Unnamalai Thiagarajan (1 share) Rukmini Thiagarajan (1 share) Rukmini Thiagarajan (1 share) Rukmini Thiagarajan (1 share) Rukmini Thiagarajan (1 share) Rukmini Thiagarajan (1 share) New Shareholders Sikandar Mohammed Rafi (999 shares) Anu Abraham (999 shares) S. Mohanraj (999 shares) S. Mohanraj (999 shares) K. Sasikumar (999 shares) Anu Abraham (1 share) Sikandar Mohammed Rafi (1 share) K. Sasikumar (1 share) K. Sasikumar (1 share) S. Mohanraj (1 share) It is the submission of the ld. Counsel that none of the family members of Shri Thiagarajan own equity shares either in M/s. IG3 Infra Limited or in the assessee companies, either before or after change in the shareholding pattern. The ld. Counsel submitted that M/s. ETL Power Services Limited is the only shareholder owns more than 10% of the voting power in M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Bench of this Tribunal in Neha Home Builders (P,) Ltd v. DCIT [2018] 98 taxmann.com 465 (Mum-Trib) has submitted that the Hon ble Supreme Court in the case of National Travel Services v. CIT has neither rendered any decision nor granted any stay on the applicability of decision of the Hon ble Supreme Court in the case of CIT v. Ankitech (P.) Ltd. In that case matter was only referred to larger bench for reconsideration and nothing has been decided yet. It is the submission of the Ld. Counsel that since the larger bench has not decided the issue, earlier law that shareholder should be both registered and beneficial shareholder as affirmed by the Hon ble Supreme Court is binding on all the authorities which the Ld. CIT(A) has rightly followed. 16.4 The Ld. Counsel invited our attention to the fact that the assessee in the case of National Travel Services v. CIT (supra) has withdrawn the appeal referred by the Hon ble Supreme Court to the Hon ble Chief Justice of India for constitution of a larger bench by opting under Direct Tax Vivad se Vishwas Act, 2020. In this regard, the Ld. Counsel furnished the copy of order dated 10.08.2021 passed by the Hon ble Supreme Court in Interloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 2(22)(e) of the Act, alternatively held that the provisions of deemed dividend cannot be invoked in the hands of the assessee companies since the assessee companies are not the shareholders of M/s. IG3 Infra Limited. It is submitted that the Ld. CIT(A) has taken this view relying on the following judicial precedents: CIT v. Universal Medicare Private Limited (2010) 324 ITR 263 (Bom) CIT v. Hotel Hilltop (2008) 217 CTR (Raj) 527 CIT v. Ankitech Private Limited (2012) 340 ITR 14 (Del) CIT v. Ennore Cargo Terminal P Ltd (2018) 406 ITR 477 (Mad) Pallava Resorts Private Limited v. ITO (2022) 143 taxmann.com 208 (Chennai- Trib) 16.9 The Ld. Counsel concluded his argument by submitting that the Ld. CIT(A) has passed a detailed order considering the facts at length and placing reliance on various judicial pronouncements and rightly held that no addition towards deemed dividend is warranted in the hands of the assessee companies. The Ld. Counsel thus prayed for upholding the order passed by the Ld. CIT(A). 17. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The brief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that the shareholding as on the date of advancing of loans is to be considered. Thus, submitted before the Assessing Officer that the previous shareholders have no relevance on the date of advancing of loans by M/s. IG3 Infra Limited to the assessee companies. The assessee further submitted before the Assessing Officer that the previous shareholders do not own equity shares in M/s. IG3 Infra Limited as they were holding only Redeemable Optionally Convertible Cumulative Preference Shares (ROCCPS). Thus, the assessee companies requested the Assessing Officer to drop the additions proposed under section 2(22)(e) of the Act. However, the Assessing Officer rejected the contention of the assessee companies and made an addition under section 2(22)(e) of the Act in the hands of the assessee companies holding that the loans advanced by M/s. IG3 Infra Limited were for the ultimate benefit of family members of Thiagarajan who are the promoters of M/s. IG3 Infra Limited. 17.2 The assessee companies preferred appeals before the Ld. CIT(A) against the orders of the Assessing Officer making an addition u/s. 2(22)(e) of the Act. Before the Ld. CIT(A), the assessee reiterated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 17.5 The Ld. CIT(A) having deleted the additions holding non applicability of second and third limbs of section 2(22)(e) of the Act, also held alternatively that no addition towards deemed dividend can be made in the hands of the assessee companies since the assessee companies are not the shareholders of M/s. IG3 Infra Limited. Thus, the Ld. CIT(A) deleted the additions made by the Assessing Officer in the hands of the assessee companies invoking the provisions of section 2(22)(e) of the Act. 18. The only issue to be adjudicated in the instant case is whether the loans advanced by M/s. IG3 Infra Limited to the assessee companies can be brought to tax in the hands of the assessee companies as deemed dividend u/s. 2(22)(e) of the Act. Before going in to the case, we rely on the following undisputed facts which were not controverted by the Ld. DR during the course of arguments: i. Neither the assessee companies nor its shareholders are the shareholders of M/s. IG3 Infra Limited; ii. No common registered and beneficial shareholders between M/s. IG3 Infra Limited and the assessee companies; iii. None of the family members of Shri Thiagarajan are registered and benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income tax Act, 1961 came up for consideration. In the said case, members of HUF acquired shares in a company with the fund of the family. Loans were granted to HUF and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act, 1922. The Apex Court held that only loans advanced to shareholders could be deemed to be dividends under section 2(6A)(e) of the Act; the HUF could not be considered to be a 'shareholder' under section 2(6A)(e) of the Act and hence, loans given to the HUF will not be considered as loans advanced to shareholder of the company and could not, therefore, be deemed to be its income. The Apex Court further held that when the Act speaks of shareholder it refers to the registered shareholder. 21. The aforesaid decision of the Apex Court in the case of C.P. Sarathy Mudaliar (supra) has been followed by the Apex Court in the case of Rameshwarlal Sanwarmal v. CIT (supra). In this case, the company advanced the loans to the assessee HUF who was the beneficial owners of the shares in the company, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression shareholder found in the 1961 Act has to be therefore construed as applying only to registered shareholder. It is a principle of interpretation of statutes that where once certain words in an Act have received a judicial construction in one of the superior Courts, and the Legislature has repeated them in a subsequent statute, the Legislature must be taken to have used them according to the meaning which a Court of competent jurisdiction has given them. 23. In the 1961 Act, the word shareholder is followed by the following words being a person who is the beneficial owner of shares . This expression used in section 2(22)(e), both in the 1961 Act and in the amended provisions with effect from 1st April, 1988 only qualifies the word shareholder and does not in any way alter the position that the shareholder has to be a registered shareholder. These provisions also do not substitute the aforesaid requirement to a requirement of merely holding a beneficial interest in the shares without being a registered holder of shares. The expression being is a present participle. A participle is a word which is partly a verb and partly an adjective. In section 2(22)(e), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see preferred further appeal before the Hon ble Supreme Court. The Hon ble Supreme Court in National Travel Services v. CIT (supra) has referred the matter to the Hon ble Chief Justice of India in order to constitute a larger bench for reconsideration of the issue. 18.5 In the case of National Travel Service v, CIT (supra), neither any decision was rendered nor was any stay on applicability of judgement of the Hon ble Supreme Court in the case of CIT v. Ankitech (P.) Ltd. (supra). Thus, there is no binding judgement arises in the case of National Travel Service v. CIT (supra). In this context, reliance is placed on the decision of the Mumbai Benches of the ITAT in the case of Neha Home Builders (P,) Ltd v. DCIT [2018] 98 taxmann.com 465 (Mum-Trib), wherein the Tribunal has held as follows: 24. National Travel case neither any decision was rendered nor was any stay on applicability of decision of Hon'ble Supreme Court in case of CIT v. Ankitech P. Ltd. in Civil Appeal No.3961 of 2013 (Sic.) given. In that case matter was only referred to larger bench for reconsideration and nothing has been decided yet. Hence, till date Larger Bench not decided the case,' the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder. Thus, as per observation of this decision also shareholder needs to be beneficial Shareholder. If the shareholder is not a beneficial shareholder then as per this observation also provisions of deemed dividend will not apply. Hence, all the decision supports the contention of assessee that deemed divided cannot be apply in assessee's hand as it is neither registered nor beneficial shareholder of EIPL. 18.6 When the matter of National Travel Service v. CIT (supra) came up before the Larger Bench of the Supreme Court, it was dismissed as withdrawn as the assessee had settled the dispute under the Vivad se Vishwas scheme. The order of the Hon ble Supreme Court is extracted below: Interlocutory Application No.46492 of 2021 is an application for withdrawal of the appeals in light of the Direct Tax Vivad se Vishwas Act, 2020. Application is allowed. Consequently, Appeals stand dismissed as withdrawn. 18.7 The Ahmedabad Bench of the ITAT in the case of DCIT v. Aaryavart Infrastructure P. Ltd in ITA No.2105/Ahd/2015 has taken note of the above fact and observed as follows: When the matter came up before the Larger Bench of the Supreme Court, it was dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. Quite clearly, the stand is not tenable because, factually speaking, on the dates when the monies have been given by Portescap to GVR, assessee was not holding any shares in GVR. Therefore, in such a situation, the judgement of the Hon ble Allahabad High Court in the case of H.K. Mittal (supra) clearly militates against the Revenue because the relevant date to examine the shareholding pattern is the date on which the amount has been advanced. Insofar as the CIT(A) is concerned, he affirmed the approach adopted by the Assessing Officer by noticing that even prior to assessee becoming the shareholder of GVR, assessee was holding 100% shares of Videojet, who in turn was holding 300% shares of GVR and, therefore, at the relevant point of time when the impugned sums were given by Portescap to GVR, assessee was a beneficial shareholder in GVR. In our considered opinion, the conditions prescribed in Sec. 2(22)(e) of the Act in order to treat an amount as 'deemed dividend are to be strictly interpreted and in that light the approach of the CIT(A) is quite untenable. Apart from making a bland assertion, the CIT(A) does not justify as to how assessee became a beneficial shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mugam Thiagarajan and Smt Rukmini Thiagarajan are not the registered shareholders of M/s. IG3 Infra Limited and consequently, both of them cannot be regarded as a registered and beneficial shareholder . Smt Unnamalai Thiagarajan though is a registered shareholder of M/s. IG3 Infra Limited, her shareholding in the company amounted to 0.002% which is less than the prescribed voting power of 10% to attract the provisions of third limb of section 2(22)(e) of the Act. Thus, none of the three persons of Thiagarajan family satisfy the legal requirements of being a shareholder in M/s. IG3 Infra Limited in order to attract third limb of section 2(22)(e) of the Act. Whether the Thiagarajan family benefitted from the loans advanced by M/s. IG3 Infra Limited or not is immaterial when they do not fall within the conditions laid down in section 2(22)(e) of the Act. In view of this, we are of the opinion that even third limb of section 2(22)(e) of the Act is also not applicable to the facts of the case and accordingly no addition under section 2(22)(e) of the Act is warranted in the hands of the respondent companies. 22. Notwithstanding to our adjudication above on the ground that no addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial owner holding not less than ten per cent of the voting power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial interest. The Tribunal in'the present case has found that as a matter of fact no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the books of account of the assessee. The fact that there was a defalcation seems to have been accepted since this amount was allowed as a business loss during the course of assessment year 2006-07. Consequently, according to the Tribunal the first requirement of there being an advance or loan was not fulfilled. In our view, the finding that there was no advance or loan is a pure finding of fact which does not give rise to any substantial question of law. However, even on the second aspect which has weighed with the Tribunal, we are of the view that the construction which has been placed on the provisions of section 2(22)(e) is correct. Section 2(22)(e) defines the ambit of the expression 'dividend . All payments by way of dividend have to be taxed in the hands of the recipient of the dividend nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder. or to the concern firm in which event, it would fall within the expression deemed dividend . Obviously, income from dividend, is taxable as income from other sources, under Section 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Hoop Kumar and Devendra Kumar, are the common persons, holding more than requisite amount of share holding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. 9. Thus, the significant requirement of Section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers. 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 if this position is taken, then the income is not taxed at the hands of the recipient'. Such an argument based on the scheme of the Act as projected by the learned counsels for the revenue on the basis of sections 4, 5, 8, 14 and 56 of the Act would be of no avail. Simple answer to this argument is that such loan or advance, in the first place, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n entity by the name of Indev Logistics Pvt. Ltd. The assessee-company as well as the said entity, i.e. Indev Logistics Pvt. Ltd., admittedly have common shareholders. The shares in the assessee company to the extent of 50% are held by Mr. Xavier Britto, while the balance shares are held by Smt. Vimalarani Britto. In so far as Indev Logistics Pvt. Ltd. is concerned, shares are held likewise by the said individuals, though in a different ratio. Mr. Xavier Britto holds 60% of the shares in Indev Logistics Pvt. Ltd., while Smt. Vimalarani Britto holds the balance 40% shares in the said entity. 4.2.The Revenue seeks to assess as income the capital advance received by the assessee-company from Indev Logistics Pvt. Ltd. on the ground that it is deemed dividend received by the assessee-company for the benefit of the registered shareholder. For this purpose, the provisions of Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act') is sought to be relied upon. The Tribunal has rejected the said contention of the Revenue, principally, on the ground that deemed dividend can only be assessed in the hands of the registered shareholder for whose benefit the money was advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts Private Limited v. ITO (2022) 143 taxmann.com 208 (Chennai Trib) has held that the amount of loan received by the assessee company from its holding company is not taxable as deemed dividend under section 2(22)(e) of the Act in the hands of the assessee company and the same is taxable in the hands of the common registered shareholders only. The relevant portion of the decision is extracted below: 7. We have heard the rival contentions and had gone through the facts and circumstances of the case. We note that the Assessee does not hold any shares in QNEI and that it is QNEI that holds 72.29% shares in the Assessee Company, The fact remains that under the Companies Act, 1956, as a subsidiary company of QNEI, it is illegal to have shares in its holding company. From the Balance Sheet filed by the Assessee, it is noticed that the Assessee does not have any investments and therefore it is clear that the Assessee does not hold share in QNEI. However, it is noticed from the submissions of the learned Counsel for the Assessee that the holding company had regularly paid for the expenses of the Assessee and the Assessing Officer had considered these payments as loans and had broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the Section. Such a deeming fiction would not be given a wider meaning that what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking section 2(22)(e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction between the intercorporate deposits, viz. loans/ advances, according to us the authorities below were not right in treating the same as deemed dividend u/s. 2(22)(e) of the Act. 7.3 Since, are Assessee is not a shareholder of QNEI the amount received from QNEI will not be taxable in the hands of the Assessee as deemed dividend u/s. 2(22)(e) of the Act and common shareholding in two companies would not attract the provisions of Section 23(22)(e) of the Act. In the light of the above, we are of the opinion that the reassessment made by the Assessing Officer stands null and void and the addition of Rs. 1,40,67,364/- made u/s. 2(22)(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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