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2024 (4) TMI 320 - AT - Income TaxDeemed dividend u/s. 2(22)(e) - sum/loan received by the assessee from another group company - HELD THAT:- From the understanding of the provisions of the Companies Act, 2013 and the legislative intent of bringing amendment to section 2(22)(e) by the Finance Act, 1987, the beneficial ownership is with KSWPL under whose substantial control, loan from APL is granted to the concern i.e. ASMSPL, assessee. ASMSPL i.e. the assessee cannot influence the decision making of company KSWPL. Similarly, APL cannot influence the decision making process of KSWPL. In both the companies, the controlling interest (substantial interest) is held by KSWPL. It is in fact KSWPL who is in a position to influence the decision making process of the two companies. Therefore, the deeming fiction of section 2(22)(e) can be applied only in the hands of KSWPL who is the beneficial owner of shares in both, the lender and the receiving companies. A loan or advance received by assessee (a concern) is not per se in the nature of income. It is in fact deemed accrual of income u/s. 5(1)(b) of the Act in the hands of the beneficial shareholder and not in the hands of the receiver (concern) who is a non-shareholder. Also, the definition of dividend under the Act is an inclusive definition which was expanded to include even a loan or advance though in the natural and ordinary course, it is not an income. The basic character of dividend is a share in profits of the company, given to its shareholder. Assessee and APL are in no way in a position to compel KSWPL in any way for exercising its voting rights in a particular manner. In fact, in the present case, it is the other way that KSWPL, because of its shareholding, is in a position to compel, both the assessee and APL, by exercising its voting power, to conduct in a particular way. Thus, even by going with the observations and findings in the case of National Travel Services [2018 (1) TMI 1159 - SUPREME COURT] the beneficial shareholder in the present case is KSWPL under whose controlling interest and influence, APL has given loan/advance to the assessee. Accordingly, the deeming provisions of section 2(22)(e) under the second limb are attracted on KSWPL. Also, taking into consideration the provisions contained in section 5(1)(b), the income accrues or arises or is deemed to accrue or arise in the hands of KSWPL and not in the hands of the assessee, in the present case. This leads us to bringing legal fiction to a logical conclusion that by invoking second limb of section 2(22)(e) accrual of income and its taxability cannot be held to be in the hands of the assessee i.e. ASMSPL (the concern) before us. We thus, set aside the findings of CIT(A) and delete the addition made by treating the amount of loan and advance as deemed dividend u/s. 2(22)(e) of the Act. Accordingly, ground taken by the assessee is allowed.
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