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2019 (8) TMI 800 - AT - Income TaxDeemed dividend u/s 2(22)(e) - assessee was in receipt of loan from an entity namely M/s Lucky Vyapar and Holdings Pvt. Ltd - admittedly common shareholder hold substantial interest in both the entities - appellant is not a registered shareholder in lender company - HELD THAT - We have carefully heard the rival submissions and perused relevant material on record. We find that Ld. first appellate authority has deleted the impugned additions by relying upon the decision of jurisdictional High Court in CIT VERSUS IMPACT CONTAINERS PVT. LTD AND OTHERS 2014 (9) TMI 88 - BOMBAY HIGH COURT . Therefore respectfully following the binding judicial precedent in the shape of decisions of Hon ble Bombay High Court and the decision of coordinate bench of the Tribunal we confirm the stand of Ld. first appellate authority in deleting the impugned addition and dismiss revenue s appeal.
Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961. 2. Determination of deemed dividend in the hands of the shareholder or concern. 3. Interpretation of judicial precedents in the context of deemed dividend. Detailed Analysis: 1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961: Section 2(22)(e) of the Income Tax Act, 1961 defines "dividend" to include any payment by a company, not being a company in which the public are substantially interested, by way of advance or loan to a shareholder who holds not less than 10% of the voting power, or to any concern in which such shareholder is a member or partner and has substantial interest. However, this provision excludes any advance or loan made in the ordinary course of business where lending of money is a substantial part of the company's business. 2. Determination of deemed dividend in the hands of the shareholder or concern: The Special Bench of Mumbai Tribunal in ACIT V/s Bhaumik Color (P.) Ltd. held that deemed dividend could only be assessed in the hands of a registered and beneficial shareholder of the lending company. The Bombay High Court in CIT V/s Universal Medicare Pvt. Ltd. confirmed that deemed dividend is taxable only in the hands of shareholders and not in the hands of the concern to which loans were granted. 3. Interpretation of judicial precedents in the context of deemed dividend: The Tribunal relied on the Bombay High Court's decision in CIT V/s Impact Containers Pvt. Ltd., which reinforced the position that deemed dividend is taxable in the hands of the shareholder. The Tribunal also distinguished the facts of the present case from the Supreme Court decisions in National Travel Services V/s CIT and Gopal & Sons HUF V/s CIT, concluding that these cases were not applicable to the present factual matrix. Case Specific Analysis: 2.1 Factual Matrix: The assessee, a resident corporate entity, received a loan of Rs. 142 Lacs from M/s Lucky Vyapar and Holdings Pvt. Ltd. The shareholding pattern revealed that Shri Nandan Damani held substantial interest in both entities. The assessee was neither a beneficial nor a registered shareholder of the lender company. The Assessing Officer treated the loan as deemed dividend under Section 2(22)(e) and added it to the assessee's income, relying on the Delhi High Court decision in CIT V/s National Travel Services. The first appellate authority deleted the addition, relying on the Bombay High Court decision in CIT V/s Impact Containers Pvt. Ltd. 2.2 Revenue's Appeal: The revenue challenged the deletion of the addition, arguing that the CIT(A) erred in holding that deemed dividend is taxable only in the hands of shareholders. The revenue cited the Supreme Court decisions in National Travel Services and Gopal & Sons HUF to support their stance. 3. Tribunal's Findings: The Tribunal found that the CIT(A) correctly relied on the jurisdictional High Court's decision. The Tribunal noted that the Supreme Court decisions cited by the revenue were distinguishable on facts. It referenced the Tribunal's decisions in Neha Home Builders Pvt. Ltd. V/s DCIT and DCIT V/s Gilbarco Veeder Root India (P.) Ltd., which supported the view that deemed dividend cannot be taxed in the hands of a non-shareholder entity. 4. Conclusion: The Tribunal upheld the CIT(A)'s decision, confirming that the deemed dividend provisions under Section 2(22)(e) could not be applied to the assessee, as it was neither a registered nor a beneficial shareholder of the lender company. Consequently, the revenue's appeal was dismissed, and the assessee's cross-objections were deemed infructuous. Order Pronouncement: The appeal and cross-objections were dismissed, and the order was pronounced in the open court on 09.08.2019.
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