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2015 (6) TMI 397 - AT - Income TaxDeemed dividend u/s 2(22)(e) - holding or ownership of voting rights of the shares held by the family - FAA deleted addition - Held that:- AO is of the view that that whether a person has a substantial interest in the company or not, the holding of the family members including the APS is to be seen and clubbed together and as such the share holding receipts of 20% in all the companies or concerns, the provisions of section 2(22)(e) of the I.T. Act gets attracted. In the impugned order the Ld. First Appellate Authority held that there is nothing in section 2(22)(e) of the Act or section 2(32) of the Act so as to suggest that the holding or ownership of voting rights of the shares held by the family can be taken into consideration for the purposes of determining substantial shareholding of a person/shareholder. The words used are "such shareholder is a member or a partner and in which he has a substantial interest" as appearing in section 2(22)(e) of the Act and "a person who is the beneficial owner of the 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 20% of the voting power" as appearing in section 2(32) of the Act. Thus it is the ownership of the shareholder alone in the company to which the loan/advance is made by the company, and not his or her relative or family members, which is the determinative factor. Accordingly, inclusion/clubbing of beneficial ownership of family members with that of Shri Anand Prakash Srivastava is not mandated by the provisions of the Act and thus tantamount to reading a condition which is not there. We find that Ld. CIT(A) has also held that the loan/advance given by the assessee company cannot be termed as having been made for and on behalf or for the individual benefit of APS, as envisaged by the provisions of section 2(22)(e) of the I.T. Act. The intention behind enacting the provisions of section 2(22)(e) is that closely held companies (i.e., companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become tax-able in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholder or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance.d. First Appellate Authority has deleted the addition in dispute by respectfully following the judgment of the Hon'ble Supreme Court in the case of Nalin Behari Lall Singha (1969 (7) TMI 2 - SUPREME Court) and Bhaumik Colour (P.) Ltd. (2008 (11) TMI 273 - ITAT BOMBAY-E ), which does need any interference on our part, hence, we uphold the impugned order by dismissing the Appeal filed by the Revenue. - Decided against revenue.
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