TMI Blog2013 (10) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... /Hyd/2011 - - - Dated:- 30-9-2013 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Appellant : Shri P. Somasekhar Reddy For the Respondent : Shri K. Gopal Chowdhry ORDER Per Saktijit Dey, J. M. These appeals pertaining to one assessee preferred by the Revenue are directed against separate orders of CIT(A)-V, Hyderabad, for the assessment years 2005-06 to 2008-09. As identical issue is involved in all these appeals, they were clubbed and heard together, therefore, a common order is passed for the sake of convenience. 2. In the grounds raised the Department has challenged the order of the CIT(A) deleting the addition made by the Assessing Officer by treating the amount received as deemed dividend u/s 2(22)(e) of the Act, in all the years under consideration. 3. Since the issue is common and facts are identical in all these appeals, we will deal with the facts in ITA No. 689/Hyd/2010 pertaining to the assessment year 2005- 06 for the sake of convenience. 4. Briefly the facts are, the assessee is a Private Ltd. company mainly engaged in the business of marketing and sale promotion besides various other activities. For the assessment year under dispute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the orders of the revenue authorities as well as other materials on record, we do not find any infirmity in the order of the CIT(A). The fact that the assessee is not a shareholder of M/s Ushodaya Enterprises Ltd. has not been controverted by the department. Therefore, as per the provision contained u/s 2(22)(e) of the Act the advances cannot be considered as deemed dividend in the hands of the assessee. The Hon'ble Delhi High Court in case of CIT Vs. Ankitech P. Ltd. 340 ITR 14, while considering identical issue approved the decision of the ITAT, Mumbai Special Bench in case of Bhaumic Colours (P) Ltd., 313 ITR (AT) 146 and held as under: "22. Insofar as the provisions of Section 2(22)(e) are concerned, we have already extracted this provision and taken note of the conditions/requisites which are to be established for making provision applicable. In Commissioner of Income Tax Vs. C.P. Sarathy Mudaliar[1972] 83 ITR 170, the Supreme Court had traced out the assessee of this provision in the following manner: ―Any payment by a company, not being a company in which the public are substantially interest, of any sum (whether as representing a part of the assets of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Section 2(22)(e) of the Act is to tax dividend in the hands of shareholders. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. 25. Further, it is an admitted case that under normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under Section 2(22)(e) of the Act. We have to keep in mind that this legal provision relates to 'dividend'. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to 'shareholder'. When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under Section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded which is illogical and attempt is to create a real legal fiction, which is not created by the Legislature. We say at the cost of repetition that the definition of shareholder is not enlarged by any fiction. 30. Before we part with, some comments are to be necessarily made by us. As pointed out above, it is not in dispute that the conditions stipulated in Section 2(22)(e) of the Act treating the loan and advance as deemed dividend are established in these cases. Therefore, it would always be open to the Revenue to take corrective measure by treating this dividend income at the hands of the shareholders and tax them accordingly. As otherwise, it would amount to escapement of income at the hands of those shareholders." 8. The same view has also been expressed by the Hon'ble Delhi High Court again in case of CIT Vs. Navyug Promoters P. Ltd. (203 Taxman 618) and Hon'ble Bombay High Court in case of CIT Vs. Universal Medicare (P) Ltd., (324 ITR 263). 9. The ITAT, Hyderabad Bench in case of MARC Manufacturers Pvt. Ltd. Vs. ACIT in ITA No. 555/Hyd/2008 dt. 31/08/2009 while considering identical issue of advancement of loan to one company, which is not a shareholder of the lender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made to a shareholder. Section 199 also indicates that adjustment of TOS would be provided in the assessment of shareholder only. The very fact that the provision for deduction of tax at source and adjustment of tax is only in respect of the payments to the' shareholder would clearly indicate that even after the amendment, the effect of clause (e) of sub section (22) of Sec. 2 would apply only when the payment is made to shareholder. Wherever, the tax is to be deducted at source from a dividend or deemed dividend and the consequential effect of giving effect to such deduction of tax at source, etc., reference was made only to the payments to the shareholder. This would indicate clearly that clause (e) would apply only in case of payments to the shareholder and not to others." Therefore, considered in the light of the ratios laid down as aforesaid the advances cannot be treated as deemed dividend coming within the ambit of section 2(22)(e) of the Act. 10. Even otherwise also the amounts received by the assessee from M/s Ushodaya Enterprises P. Ltd. cannot be treated as deemed dividend under section 2(22)(e) of the Act. On a perusal of the order passed by the CIT(A) for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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