TMI Blog2015 (10) TMI 1900X X X X Extracts X X X X X X X X Extracts X X X X ..... on a count of Inter- Corporate Deposits (ICDs) received by the assessee from M/s. Excel Rubber Limited treating the same as deemed dividend under S.2(22)(e) of the Act. 2. The assessee in the present case is a company, which is engaged in the business of manufacture of automotive tyres. The return of income for the year under consideration was filed by it on 29.9.2011 declaring total income of ₹ 5,97,78,552. During the year under consideration, the assessee company had received ICD of ₹ 7.5 crores from M/s. Excel Rubber Pvt. Ltd. being a closely held company. According to the Assessing Officer, the said company having accumulated profit, the amount of ICD received by the assessee from the said company was liable to be added to its total income as deemed dividend under S.2(22)(e). In this regard, the submissions made by the assessee that the transaction involving receipt of ICD being regular business transaction and it being not a share holder in M/s. Excel Rubber Pvt. Ltd., the amount of ICD was not liable to be treated as deemed dividend in its hands, was not accepted by the Assessing Officer and relying on the assessment order passed by him in assessee s own cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or advance made to a shareholder by a company in which the public are not substantially interested would be treated as deemed dividend in the hands of such shareholders. Since, the assessee is not a shareholder in M/s Exel Rubber Pvt. Ltd., the loan and advance received by the assessee cannot be treated as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee. The Hon'ble Delhi High Court in case of CIT Vs. Ankitech P. Ltd. (supra) 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 the company or otherwise) made after 31.05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded 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. 9. 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). 10. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch payments were 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. 11. In the appeal before us admittedly the assessee is not a shareholder of the lender company. Hence, considered in the light of the ratio laid down in the judicial precedents referred to above the ICDs of ₹ 2,91,50,000/- and the advances to the assessee amounting to ₹ 1,44,86,549/- cannot be treated as deemed dividend at the hands of the assessee. Therefore, there is absol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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