TMI Blog2000 (11) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee was selected for scrutiny. In the course of assessment proceedings it was found that the assessee had reflected receipt of share application money pending allotment amounting to Rs. 4,48,00,000 from four companies. This includes an amount of Rs. 26,00,000 received from Hoovar Services Pvt. Ltd. (hereinafter called HSPL). It was revealed that HSPL was closely-held company. The money was received in three unequal instalments of Rs. 10,00,000, Rs. 4,00,000 and Rs. 12,00,000 on29-9-1995,25-10-1995and30-10-1995. The assessee was required to show that why the amount of Rs. 26,00,000 received from HSPL, be not treated as deemed dividend under the provision of section 2(22)(e) of the Act. It was explained that the amount was received as share application money. It was not loan or advance. The Assessing Officer did not accept this explanation. He made an addition of Rs. 26,00,000 by resorting to the provisions of section 2(22)(e) of the Act. Being aggrieved the assessee preferred appeal there against, before the Commissioner of Income-tax (Appeals). The appeal of the assessee was dismissed by the CIT (Appeals). Against that order the assessee is in appeal before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -4-1996when the shares were allotted for the amount received. On this factual backdrop, it would be highly improper to consider the amount as loan. By no stretch of imagination it can be treated as deemed dividend in the hands of the assessee-company. M/s. HSPL reflected the whole payment as 'share application money' in their balance sheet. The amount received from HSPL was converted into share capital on25-4-1996and1-4-1998. 8. It was argued that the amount paid was not in the nature of loan or deposit. It was not repay able after a notice or after a period. In the case of the share application money - in the eventuality of full allotment - no amount is repayable. Thus, the share application money does not fall in the category of loan or deposit Section 269SS and section 269T were referred to explain the meaning of loan and deposit. 9. It was further argued that the balance sheet of the assessee-company was drawn in accordance with proforma set out in Schedule VI of the Companies Act, 1956. The balance sheet was audited by the Chartered Accountant in conformity with the provisions of the Companies Act, 1956. The balance sheet of HSPL was also audited, by the auditors. It was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs. 4,65,168. It was contended that in any case, addition cannot exceed to this amount. Reference was made to the decision of the Hon'ble Bombay High Court rendered in the case of CIT v. Nagindas M. Kapadia [1989] 177 ITR 393. Reliance was also placed on the decision of the Apex Court rendered in the case of E.D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27. 14. Shri R.K. Rai, the learned Departmental Representative vehemently argued that the Revenue authorities were correct in treating the amounts of share application money as loan and advance for the purpose of attracting the provisions of section 2(22)(e) of the Act. It was stated that the amount received comes within the ambit of the definition of "dividend". Reliance was placed on the decision of the Hon'ble Madras High Court rendered in the case of CIT v. K. Srinivasan [1963] 50 ITR 788. It was stated that the expression 'advances' means something which is due to a person, but is paid to him ahead of the time. Reference was made to the Dictionary of Accounts by Eric L. Kolher Vth Edition, wherein it is defined as payment of cash or transfer of goods for which accounting must be rendered by the recipient at some later date. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tin depositum, a technical word used in the Roman law of bailment for a bailment of a specific thing to be kept for the bailor and returned when wanted, as opposed to commodatum where a specific thing is lent to the bailee to be used by him and returned. In popular language commodatum is translated by the word 'loan' and the distinction between deposit and loan is this: that a deposit is to be kept by the depositee for the depositor and the loan is to be kept by the borrower for himself. Thus I deposit my hat in the cloak room. My hat is not to be used by the depositee, but is to be kept for me and returned to me on my demand; but I lend my money to a friend and he can do what he likes with it as long as he returns it to me either on demand or at some specified time. It may be, as observed by Sir Walter Schwabe when Chief Justice of the Madras High Court in Kishtappa Chetty v. Lakshmi Anand, AIR 1923 Mad. 578 that article 145 covers more than the depositum of Roman Law, and his Lordship observed that the framers of the Indian Limitation Act 'meant to use simple and plain language', but, I take this to mean that the word 'deposit' is used in the ordinary sense of the word in the Eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as plain that the object of such a loan or advance was to evade the payment of tax on accumulated profits. Section 2(22)(e) was enacted for curing this mischief. 21. Loan means a lending; delivery by one party to and receipt by another party of sum of moneys upon agreement, express or implied, to repay with or without interest. For a loan there must be a lender, a borrower, a thing loaned for use as well as a contract between the parties for the return of the thing loaned. A loan contracted no doubt creates a debt, but there may be a debt without contracting a loan. In a loan the mind and intention of the two parties, the lender and the borrower must be ad idem. The expression 'advance' means something which is due to a person, but which is paid to him ahead of time when it is due to be paid. This view was taken in the case of K. Srinivasan Co. In the dictionary of accounts by Eric L. Kohler [5th Edition], the expression 'advance' was defined as payment of cash or the transfer of goods for which accounting must be rendered by the recipient at some later date. Loan and advances could only be considered 'deemed dividend' for the purpose of section 2(22)(e), it is, therefore, sine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) requires the determination of two factors viz., whether the payment is loan, etc., and whether at the date when the payment is made there were "accumulated profits' and that these two factors are to be co-related and the result must be ascertained at the date of each such payment. The chief ingredient of section 2(22)(e) is that one should be shareholder on the date the loan was advanced to him. Where such ingredient is not established, the advance could not be taken as deemed dividend under section 2(22)(e) of the Act. 24. It is a settled rule of interpretation of a fiction that the court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the court has to assume all facts which are incidental to the giving effect to that fiction. It will not be given a wider meaning than what it purports to do. Law dealing with fiction relates to that branch of jurisprudence which should be narrowly watched, jealously regarded and never to be pressed-beyond its true limits. 25. Taking into consideration the entire conspectus of the case, we are of the opinion that the receipt of Rs. 26,00,000 from M/s. Hoovar Services Pvt. Ltd. was in the 'nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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