TMI Blog2014 (10) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholder holds a substantial interest or any payment is made on behalf of a shareholder or any payment is made for the individual benefit of a shareholder - the assessee firm was having a business dealing with its sister concern, which was apparent from the books of account of the assessee, which showed various job works being carried out by the sister concern. The borrowing is primarily for the benefit of the borrower although the person, who lends the money, may also stand to gain by earning interest on the amount lent - Another distinction is the obligation to return the money so received - In the case of a deposit, the deposit becomes payable when a demand is made and, in the case of the "loan", the obligation to repay the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, the sister concern was to use the generators and generate electricity on the basis of the gas supplied by the GAIL. In return, the sister concern would supply electricity to the assessee at concessional rate. The deposit was made by the sister concern to the assessee in the ordinary course of business. The assessee firm is not a shareholder in the Company though its partners are shareholders in the Company. The payment received by the assessee was utilised for payment to the creditors from whom the assessee had purchased the raw material for manufacture of its products and other statutory liabilities. The assessing officer did not agree with the contention of the assessee that the amount received by the assessee from its sist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was given in the course of business and was not given to a shareholder and, consequently, the provision of Section 2(22)(e) was not applicable. In this backdrop we have heard Sri Dhananjai Awasthi, the learned counsel for the appellant and Sri Rahul Agarwal, the learned counsel for the assessee. The short point involved is, whether the amount of ₹ 80 lacs given by the sister concern to the assessee is a deemed dividend under Section 2(22)(2) of the Act. For facility, the said provision is extracted hereunder: 2 (22) dividend includes (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of dividend has been enlarged to cover loan and advance granted by closely held Companies to their shareholders. From a reading of Section 2(22)(e) of the Act, it is apparent that it has the effect of bringing to tax as dividend where any payment of any sum is made by way of advance or loan to a shareholder in which a shareholder holds a substantial interest or any payment is made on behalf of a shareholder or any payment is made for the individual benefit of a shareholder. Any of the above three conditions would be taxed if the advance or loan is made to a shareholder and the Company possesses a cumulative profit at the time it makes the payment and, therefore, such payment would be deemed to be a dividend only to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch deposit of loan was by way of diversion of the profits of the Company and, therefore, such deposit has to be treated as a deemed dividend under Section 2(22)(e) of the Act, in view of the ratio laid down in Commissioner of Income Tax vs. Sunil Chopra, (2011)201 Taxman 316(Delhi), Commissioner of Income Tax vs. National Travel Services, (2011)202 Taxman 327(Delhi), P.K.Badiani vs. Commissioner of Income Tax, I.T.R. 105 (SC)642, Sadhana Textiles Mills Pvt. Ltd. vs. Commissioner of Income Tax, I.T.R.188 (Bombay High Court) 318, M.D.Jindal vs. Commissioner of Income Tax, I.T.R. 164(Calcutta High Court)28, Commissioner of Income Tax vs. P.K.Abubucker, I.T.R. 259 (Madras High Court)507, Commissioner of Income Tax, Andhara Pradesh vs. C.P. Sara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arning of interest from the party who accepts the deposit. The deposit could also be for safe keeping or as a security for the performance of an obligation undertaken by the depositor. On the other hand, in the case of a loan, it is the borrower at whose instance and for whose needs the money is advanced. The borrowing is primarily for the benefit of the borrower although the person, who lends the money, may also stand to gain by earning interest on the amount lent. Another distinction is the obligation to return the money so received. In the case of a deposit, the deposit becomes payable when a demand is made and, in the case of the loan , the obligation to repay the amount arises immediately on receipt of the loan. In the light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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