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2017 (5) TMI 1508 - AT - Income TaxDeemed dividend u/s.2(22)(e) - whether the assessee-company can be taxed towards the loans/advances received from the lender by virtue of deeming fiction under s.2(22)(e) where the assessee-company itself is not a shareholder of the lending company, notwithstanding the fact that both the companies (lender-company and assessee-company) had common shareholders having substantial interest in both the companies? - Held that:- The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loans or advances given by company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purpose, the legislature deemed such a loan/advance as of ‘dividend’ and made it taxable at the hands of the said shareholder. It is therefore ostensible that such a provision which is a deeming provision and fictionally creates certain kind of receipts as dividends is to be given strict interpretation. It follows that unless all the conditions contained in the said provision are fulfilled the receipt cannot be deemed as dividend. It is an undisputed fact that the assessee-company is not a shareholder per se in the lender company of the Act. We note that the CIT(A) has decided the issue in favour of assessee on the ground that the deemed income can be taxed only in the hands of shareholder of the lending company notwithstanding the fact that both the lender-company as well as the assessee-company has common shareholder having substantial interest in both the companies. For this proposition, the CIT(A) relied upon certain judicial precedents as noted in the operative para quoted above. We find that the legal fiction in section 2(22)(e) enlarges the definition of dividend but does not extend to or broaden the concept of a ‘shareholder’. As the assessee is not a shareholder of the lendercompany, the receipt is not susceptible to tax under s.2(22)(e) in its hands in view of long line of judicial precedents including Baumik Colour Pvt.Ltd.(2008 (11) TMI 273 - ITAT BOMBAY-E). - Decided against revenue.
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