TMI Blog2010 (3) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... which an amount of Rs. 32,00,000 was transferred from CSPL was part of the misappropriation. The Assessing Officer came to the conclusion that the provisions of section 2(22)(e) were attracted the moment a loan or advance is made and the subsequent defalcation of funds was immaterial. The Tribunal reversed the order. Held that- the Tribunal had found that as a matter of fact no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the book of account of the assessee. The fact that there was defalcation had been accepted since this amount was allowed as business loss during the course of assessment year 2006-07. Even assuming that it was a dividend, it would have to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for leave encashment without appreciating the fact that the disallowance was made as there was no proof of payment furnished to the effect that the same was paid before the due date of filing the return under section 139(1) of the Income-tax Act? 2. For convenience of reference, it would be appropriate to take up the third question initially. The Tribunal has relied upon the judgment of the Calcutta High Court in the case of Exide Industries Ltd. v. Union of India [2007] 292 ITR 470, in which the provisions of section 43B(f) have been struck down. The Tribunal directed the Assessing Officer to allow the amount as claimed towards leave encashment. The issue as regards the correctness of the judgment of the Calcutta High Court in Exide In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the books of the assessee since it had been misappropriated by the Vice President (Finance). The fact that the amount has been defalcated could not, according to the assessee, be disputed in view of the fact it has been allowed by the Assessing Officer as a business loss during the assessment year 2006-07. Hence, the contention of the assessee was twofold. First, according to the assessee, for section 2(22)(e) to apply the amount ought to have been received as an advance or loan from a company to a concern in which the shareholder had substantial interest. This condition, according to the assessee, was not met since the amount was neither an advance nor a loan to the assessee but represented misappropriation of funds by the vice presid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual amount which has been received by the assessee was held to be Rs.32,00,000 and not Rs. 35,00,000 as determined by the Assessing Officer. 6. The Tribunal in appeal has reversed the findings of the Commissioner of Income-tax (Appeals) on two counts. Firstly, the Tribunal held that the provisions of section 2(22)(e) would be attracted if a loan was taken by the shareholder from any closely held company. In the present case, the Tribunal noted that the amount was part of a fraud committed on the assessee and the transaction was not reflected in its books of account. In the circumstances, section 2(22)(e) was held not to apply. Secondly, the Tribunal held that even otherwise, the amount would have to be taxed in the hands of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated profits;" 8. Clause (e) of section 2(22) is not artistically worded. For facility of exposition, the contents can be broken down for analysis: (i) clause (e) applies to any payment by a company not being a company in which the public is substantially interested of any sum, whether as representing a part of the assets of the company or otherwise made after May 31, 1987 ; (ii) clause (e) covers a payment made by way of a loan or advance to (a) a shareholder, being a beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent. of the voting power; or (b) any concern in which such shareholder is a member or a partner and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the Tribunal the first requirement of there being an advance or loan was not fulfilled. In our view, the finding that there was no advance or loan is a pure finding of fact which does not give rise to any substantial question of law. However, even on the second aspect which has weighed with the Tribunal, we are of the view that the construction which has been placed on the provisions of section 2(22)(e) is correct. Section 2(22)(e) defines the ambit of the expression "dividend". All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder. The effect of section 2(22) is to provide an inclusive definition of the expression "dividend". Clause (e) expands the nature of payments w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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