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2015 (10) TMI 1900 - ITAT HYDERABAD

2015 (10) TMI 1900 - ITAT HYDERABAD - TMI - Deemed dividend under S.2(22)(e) - Inter-Corporate Deposits (ICDs) received by the assessee from M/s. Excel Rubber Limited - CIT(A) deleted the addition - Held that:- Respectfully following the decision rendered by the coordinate bench of this Tribunal in assessee’s own case for the assessment years 2006-07 and 2010-11, we uphold the impugned order of the learned CIT(A), deleting the addition made by the Assessing Officer under S.2(22)(e) by treating t .....

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Hyderabad dated 15 7 2014, whereby she deleted the addition of ₹ 7.50 crores made by the Assessing Officer 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 .....

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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 case for assessment year 2006-07 treating a similar amount of ICD received from M/s. Excel Rubber P. Ltd. as deemed dividend, he added the amount of ₹ 7.50 cores to the total income of the a .....

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assessee from M/s Excel Rubber Pvt. Ltd., treating the same as deemed dividend under S.2(22)(e). Aggrieved by the order of the learned CIT(A) , the Revenue has preferred this appeal before the Tribunal. 4. We have heard the arguments of both the sides and also perused the relevant material on record. The learned representatives of both the sides have agreed that the solitary issue involved in this appeal of the Revenue is squarely covered in favour of the assessee by the decision of the Tribuna .....

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rities. We have also carefully examined various judicial precedents placed before us. So far as ICDs of ₹ 2,91,50,000/- is concerned we fully agree with the conclusion of the CIT(A) that it cannot be considered to be in the nature of loans and advances so as to treat it as deemed dividend u/s 2(22)(e) of the Act. Even assuming that the ICDs are loans and advances, still it cannot be treated as deemed dividend u/s 2(22)(e) of the Act because of the following reasons. It is an undisputed fac .....

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ted 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 .....

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f 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 percent of the voting power, Second limb b) or to my concern in which, such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) Third limb c) or any payment by any such company on behalf, or for the individual benefit, or any such shareholder, to the extent to whi .....

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least 10 of voting power in the payer company. (b) A company in which such shareholder has at least 20% of the voting power. (c) A concern (other than company) in which such shareholder has at least 20% interest. (3) The payer company has accumulated profits on the date of any such payment and the payment is out of accumulated profits. (4) The payment of loan or advance is not in course of ordinary business activities. 24. The intention behind enacting provisions of Section 2(22)(e) is that clo .....

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l interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is treated as dividend. The intention behind the provisions 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 .....

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ich 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 to distribute the profits in the form of dividend to .....

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lder", then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the Revenue would stand answered, once we look into the matter from this perspective. 26. In a case like this, the recipient would be a shareholder by way of deeming provision. It is not correct on the part of the Revenue to argue that if this position is taken, then the income "is not taxed at the hands of the rec .....

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ness transactions between the parties, such payment would not fall within the deeming dividend under Section 2(22)(e) of the Act 28. Insofar as reliance upon Circular No. 495 dated 22.09.1997 issued by Central Board of Direct Taxes is concerned, we are inclined to agree with the observations of the Mumbai Bench decision in Bhaumik Colour (P) Ltd. (supra) that such observations are not binding on the Courts. Once it is found that such loan or advance cannot be treated as deemed dividend at the ha .....

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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 o .....

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of loan to one company, which is not a shareholder of the lender company following the decision of ITAT Mumbai Special Bench in case of Bhaumik Colour P. Ltd. (supra) and other decisions held as under: "5. It can be seen from the circular that the provisions of amended section 2(22)(e) are to be applied only to the payments made to the shareholders and not to any other person or concern other than the shareholders. The Allahabad High Court in the case of CIT vs. H.K. Mittal reported in 219 .....

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"G" in the case of Seamist Properties Pvt. Ltd. vs. ITO reported in (2005) 1 SOT page 142. The assessee further submits that the provisions of sec. 2(22)( e) mention as under: "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 company or otherwise) (made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner .....

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case possesses accumulated profits" 6. The intention of the legislature is clarified in circular issued by the CBIT as at the time of amendment of clause (e) of sub section (22) of sec. 2 is further fortified by the fact that for deduction of tax at source. Sec. 194 provide that such deduction of tax has to be made in the case of the payments of the nature mentioned in clauses (a), (b), (c), (d) and (e) of sub section (22) of Section 2 only in a case where such payments were made to a share .....

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