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TMI Blog2012 (6) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were processed under section 143(1). Thereafter, on further examination of the records of earlier and subsequent assessments, the Assessing Officer found that the assessee company had received loan amounts from different subsidiaries and those borrowed funds were in turn advanced to other subsidiaries. According to the assessing authority, the loans obtained by the assessee from its subsidiaries were in the nature of deemed dividends as per section 2(22)(e) of the Income-tax Act, 1961 and, therefore, liable to be taxed. The assessing authority issued notices under section 148 and thereafter completed the income-escaping assessments after treating such loan amounts obtained by the assessee from its subsidiaries as deemed dividends for these two assessment years. 4. In first appeals, the Commissioner of Income-tax(Appeals) discussed the matter in detail. The assessee had produced a copy of the order passed by the Income-tax Appellate Tribunal, D-Bench, Chennai, in assessee's own case for the assessment year 2005-06, wherein the Tribunal has accepted the contentions of the assessee and held that such advances received by the assessee from its subsidiaries were not in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hierarchy envisaged under the Act. 4. The CIT(A) failed to appreciate that misreading of the judgment of the Supreme Court while not considering the relevant facts would vitiate his action in sustaining the orders of the Assessing Officer in applying in the deeming provisions under consideration. 5. The CIT(A) failed to appreciate that non consideration of the grounds challenging the validity of the re-assessments framed would vitiate his action in this regard. 6. The CIT(A) erred in distinguishing the decision of this Tribunal wherein it was held that after considering the totality facts and circumstances of the case, the beneficial interest had never accrued to the appellant at any case." 8. We heard Shri Akber Basha, the learned chartered accountant appearing for the assessee, and Shri KEB Rengarajan, the learned standing counsel appearing for the Revenue. Before proceeding to argue his case, Shri Akber Basha submitted on his eligibility to appear before the Income-tax Appellate Tribunal as a lawfully constituted authorized representative. He stated that he was a Member of the Income-tax Appellate Tribunal, working in the Hyderabad Benches ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the Tribunal in the case of Concept Creations (supra). But, as on today, the operation of the Notification as well as the Special Bench decision has been stayed by the Hon'ble Allahabad High Court. In their order passed by their Lordships on 19-1-2012, they have stayed the operation of the Rule as well as the Special Bench decision and have given a positive verdict that it would be open for the retired Members to practise before the Benches of the Tribunal where they had not remained posted and held courts temporarily or on regular basis. Therefore, as of now, there is nothing which prevents Mr. Akber Basha from appearing before the Tribunal as a qualified chartered accountant. 11. In the facts and circumstances of the case we place on record all the submissions made by him and hold that he is entitled to practise before the Income-tax Appellate Tribunal at Chennai Benches. 12. Now, coming to the merits of the case, following are the details of loans availed by the assessee company from its subsidiaries:- AY 2003-04 AY 2004-05 Rs. Rs. 1. Farida Classic Shoes Pvt. Ltd. 1,33,07,500 1,79,67,305 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been satisfied. No member of the assessee company has a voting power of ten per cent in the company. Therefore, section 2(22)(e) cannot be invoked against the assessee. (v) The assessee is in fact managing the activities of the subsidiaries and as such its functions are more of managerial/administrative in nature. In such circumstances, there cannot be a case that the assessee company had derived benefits out of such loan transactions. (vi) The Revenue has no dispute on the fact that the loans received from the subsidiary companies have further been passed on to other subsidiary companies for the purpose of maintaining control over financial matters among the subsidiary companies and the assessee company as such has not retained any loan funds for its own benefit. (vii) As there is no direct or indirect benefit to the credit of the assessee company, the deeming provision cannot be allowed to be operative, in view of the judgment of the Hon'ble Supreme Court in the case of CIT v. Mukundray K Shah [2007] 160 Taxman 276. 14. The very same issue was considered by the Income-tax Appellate Tribunal in assessee's own case for the assessment year 2005-06 in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of another creditor and therefore there was no justification in treating those loans as deemed dividends under section 2(22)(e). The Hon'ble Supreme Court held that the withdrawals made by the assessee from the company amounted to grant of loan or advance by the company to the shareholder. The legal fiction came into play as soon as the moneys were paid by the company to the assessee. Subsequent adjustment made by the assessee through the credit balance of another shareholder on the last day of the previous year would not alter the position. In other words, what has been held by the Hon'ble Supreme Court is that taking loan is one transaction and repayment of the loan is another transaction and only for the reason that the loans were repaid, there cannot be a ground that section 2(22)(e) will not apply. The court held that as soon as the shareholder has availed the loans from the company, the deeming provision comes into play and the assessee becomes liable for section 2(22)(e). 15. But the facts of the present case are different from the facts of the above mentioned case. In the present case the assessee is a holding company having 11 hundred-percent owned subsidiaries. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns availed from its subsidiaries. The assessee company had not retained those loan funds for its own activities. All the loan amounts have been redistributed to subsidiaries. These are normal business transactions carried out by any holding company. 18. In the facts and circumstances of the case, it is not proper on the part of the lower authorities to hold that these routine financial transactions managed by the assessee as a holding company do partake the character of deemed dividend under section 2(22)(e) of the Act. It is nothing but a fallacy to allege that those amounts were independent loans availed by the assessee company from its subsidiaries for its benefit and enjoyment. All the inflows and outflows of funds monitored and managed by the assessee company as a holding company were meant only for the benefit of the subsidiary companies to carry on their business. 19. Where regular business transactions are carried on by an assessee in its ordinary course of business in the above manner, they cannot be treated as deemed dividend for the purpose of section 2(22)(e) of the Act. In the facts and circumstances of the case, the cases discussed by the Commissioner of Income-tax( ..... 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