2022 (5) TMI 1681 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - inter corporate deposits - assessee has received loan from Entrack International Pvt. Ltd. one of the shareholder of the assessee has holding shares in assessee company of 98.76% and in Entrack International Trading Pvt. Ltd.59.17% of the shares - assessee claimed before the AO the loan is nothing but inter corporate deposit from the sister concern since the assessee cannot deposit these monies in bank deposits when the sister concerns is badly in need of money - CIT(A) deleted the addition HELD THAT - DR appearing for the Revenue could not contravent that the assessee herein hold any shares in EIPL and also conceded that the provisions of Section 2(22)(e) cannot be invoked in the present case. Recording the both submissions we hereby reject the grounds of appeal raised by the Revenue. We also find that this issue has attained finality in the case of Madhur Housing Development Co 2017 (10) TMI 1279 - SUPREME COURT which states where loans and advances are given in normal course of business and transaction in question benefits both payer and payee companies provisions of section 2(22)(e) cannot be invoked - Decided in favour of assessee.

Summary

ISSUES:

Whether the acceptance of inter-corporate deposit by a company from another company, which is not a shareholder in the recipient company, attracts the provisions of Section 2(22)(e) of the Income Tax Act, 1961.Whether a loan or deposit received from a company in which the recipient company does not hold shares can be treated as deemed dividend under Section 2(22)(e).Whether the provisions of Section 2(22)(e) apply when the loan or advance is given in the normal course of business benefiting both payer and payee companies.

RULINGS / HOLDINGS:

The provisions of Section 2(22)(e) of the Act are not attracted where the recipient company does not hold any shares in the company from which the loan or inter-corporate deposit is received, as it is a pre-requisite that the recipient company should be a registered shareholder of the lender company.The acceptance of inter-corporate deposit from a company in which the recipient company holds no shares cannot be treated as deemed dividend under Section 2(22)(e) of the Act.The Supreme Court has held that "where loans and advances are given in normal course of business and transaction in question benefits both payer and payee companies, provisions of section 2(22)(e) cannot be invoked," supporting the view that such transactions do not attract deemed dividend provisions.

RATIONALE:

The court applied the statutory interpretation of Section 2(22)(e) of the Income Tax Act, 1961, which defines deemed dividend to include loans or advances made by a company to its shareholders or to any concern in which the company's shareholders have substantial interest.The decision relied on the jurisdictional High Court precedent that emphasized the necessity of shareholding by the recipient company in the lender company to invoke Section 2(22)(e).The Supreme Court's authoritative ruling in the case of CIT vs. Madhur Housing Development & Co. was followed, which clarified that transactions in the normal course of business benefiting both parties do not attract Section 2(22)(e).No dissenting or differing opinions were recorded; the Tribunal respected binding precedents and statutory language to reach its conclusion.