TMI Blog2005 (10) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... journal entry on the credit side in the name of the assessee amount, which was said to be in the business and not due to any loan or advance. The CIT(A) has deleted the addition by concluding that there was no cash flow or any payment to the assessee during the previous year and hence, the provisions of section 2(22)(e) are not attracted. It is not disputed that there was no transaction of any nature whatsoever during the previous year relevant to the assessment year 199697. Whatever book entries were passed, those were relating to the earlier years and that was also in respect of the agreement between the assessee and the company. The agreement is not disputed as a device used by the assessee for circumventing the provisions of section 2(22)(e) of the IT Act as was the issue in the case of M.D. Jindal. In this case also, it is not the contention of the Assessing Officer that some benefit was given to the assessee by the company. We, therefore, find no infirmity in the order of the CIT (Appeals). The CIT (Appeals) has rightly deleted the said addition. We, therefore, confirm his order. In the result, the appeal filed by the revenue stands dismissed. - HON'BLE N. BARATHVAJA S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground floor of the building was fully let out in 1994 itself and that the rental income was offered for taxation by the assessee from the assessment year 1995-96 onwards. It was contended that there was no construction on behalf of the assessee or any advance or loan given to the assessee during the previous year relevant to the assessment year 1996-97. It was the case of the assessee that though the construction of the portion retained by the assessee was finished before 1-4-1995, the requisite journal entry was passed in the company's books debiting the assessee's account only during the financial year 1995-96 relevant to the assessment year under appeal. It was also the case of the assessee that M/s. Seethal Apartments (P.) Ltd. was a company in which the assessee and her husband were shareholders. The assessee has also given the details showing that the assessee and her husband had advanced money to the company from the assessment year 1993-94 onwards and the total advance made by the assessee and her husband up to the assessment year 1996-97 was Rs. 68,26,468. It was also contended that the total value of the area retained by the assessee was Rs. 80,49,000 which inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -clauses (a), (b), (d) and (e) would include all profits of the company up to the date of distribution or payment referred to in these sub-clauses. As such, the amount of Rs. 9,02,890 transferred to Reserve and Surplus Account is rightly assessable under the provisions of section 2(22)(e) of the I.T. Act. The ld. departmental representative relied on the following decisions in support of her contentions: (i) M.D. Jindal v. CIT [1986] 164 ITR 28 (Cal.) (ii) T. Sundaram Chettiar v. CIT [1963] 49 ITR 287 (Mad.) She, therefore, submitted that the addition made by the Assessing Officer under section 2(22)(e) of the IT Act was as per the provisions of the Act and the order of the Commissioner (Appeals) be set aside and that of the Assessing Officer restored. 6. The ld. Representative for the assessee submitted that though the journal entry was passed in respect of the business transaction between the assessee and the company on 30-3-1996, there was no advance or transfer of money made to the assessee during the previous year relevant to the assessment year 1996-97. He further submitted that the company, M/s. Seethal Apartments (P.) Ltd. passed journal entry debiting an amount of Rs. 53,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possess accumulated profits. This clause also contains six sub-clauses which exclude certain receipts from the definition of dividend but sub-clause (ii) is important as far as the issue before us is concerned. Now, we will have to examine the facts of the case in the light of section 2(22)(e) of the IT Act in the case of a closely held company if any payment is made by the company by way of advance or loan to a shareholder who is holding not less than ten per cent of the voting power or to any concern in which such shareholder is a member or partner or in which he has substantial interest or any payment by any such company on behalf of or for the individual benefit of such shareholder, such advance or loan or any payment on behalf, or for the individual benefit, of any such sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that by way of journal entry on 30-3-1996, a sum of Rs. 80,49,211 is debited. As per the argument of the ld. CA, there is another journal entry on the credit side in the name of the assessee amounting to Rs. 53,93,191 which was said to be in the business and not due to any loan or advance. The CIT(A) has deleted the addition by concluding that there was no cash flow or any payment to the assessee during the previous year and hence, the provisions of section 2(22)(e) are not attracted. Now we will have to examine the facts of this case in the backdrop of the legal principles laid down in the decisions cited by both the parties. 9. In the case of M.D. Jindal, the issue before the Calcutta High Court was whether the value of iron materials supplied by the company to the assessee and his wife who were the only directors of the company can be treated as dividend within the meaning of section 2(22)(e) of the IT Act. In this case the assessee purchased two adjacent plots of land, one in the joint name of himself and his wife and the other in the names of his two minor sons. The assessee constructed a multi-storied building containing several flats, on the said plots. The assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the accumulated profit of the company for invoking the provisions of section 2(6A)(e) of the IT Act, 1922. 10. In the case of Smt. Savithri Sam, the issue before the Hon'ble High Court was whether for the purpose of computation of deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, there must be actual flow of cash from the company to the shareholder and the transfer of money did not amount to a payment as envisaged in that section. On the facts and circumstances of the case, while applying the ratio in the case of G.R. Govindarajulu Naidu, the High Court held that section 2(22)(e) has introduced a fiction and by the fiction dividend is made to include any payment by a company etc. Therefore, it is difficult to introduce another fiction in respect of the words payment by the company by construing even a transfer entry as amounting to payment. It was further held that when section 2(22)(e) introduces afiction, it is improper to introduce another fiction and construe a payment as equivalent to a constructive payment. In the case of G.R. Govindarajulu Naidu, the issue before the Hon'ble High Court was whether the term payment and loans advances also inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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