TMI Blog2015 (12) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is directed against the order dated 20.3.2014 passed by the ld. CIT(A)-27, Mumbai and it relates to the assessment year 2009-10. 2. The revenue is aggrieved by the decision of the ld.CIT(A) in cancelling the assessment of deemed dividend made under section 2(22)(e) of the Income Tax Act, 1961. 3. The facts relating to the issue are stated in brief. The assessee is engaged in the business of manufacture and export of cut and polished diamonds. The assessee is a shareholder in two closely held companies, viz., M/s Ace Divine Jewellery Pvt Ltd (ADJPL) and M/s Dinurje Jewellery Pvt Ltd (DJPL). The shareholding pattern of the above said companies as under: Name of the shareholder % of share held Ace Divine Jewellery Pvt Ltd Dinurje Jewellery Pvt Ltd Dina S Shah 75 72 Milan S Shah 20 23 Jesal Shah 1 1 Milan Sl Shah-HUF 1 1 Premal Shah-HUF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not ultimately purchased and the advance amount might have been repaid. Accordingly he submitted that the payment made by the M/s ADJPL to M/s DJPL should be considered as loan transaction only. He further submitted that the provisions of section 2(22)(e) shall be attracted at the moment the loan was taken and the repayment of loan there after will not take transactions from the ambit of section 2(22)(e). Accordingly he submitted that the subsequent repayment of advance amount by M/s DJPL to M/s ADJPL will not be relevant here. He further submitted that the information received by the assessee shows that there was a financial transaction between M/s DJPL and M/s ADJPL, meaning thereby it should be construed as loan transaction only. 6. On the contrary, the ld. AR submitted that the provisions of section 2(22)(e) of the Act shall apply only when the amount was given as loan or advance. He submitted that the commercial transactions and trading transactions are excluded from the ambit of the provisions of sec. 2(22)(e) of the Act. He submitted that the assessing officer himself has assessed a sum of ₹ 4.48 crores as deemed dividend in the hands of the assessee, even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to apply the provisions of sec. 2(22)(e) is as to whether the individual share holder has benefited from the financial transaction or not. If the share holder is benefitted, then the provisions of sec. 2(22)(e) of the Act and if he is not benefitted, it may not be proper to apply the said provisions as the same defeats its objective. The Ld A.R submitted that, in the instant case, one closely held company has given money to another closely held company in relation to a commercial transaction. The assessee herein has not got any benefit at all in respect of this commercial transaction. Hence, the assessing officer was not right in invoking the provisions of sec. 2(22)(e) of the Act, when the assessee has not got any benefit at all. 8. The ld. AR further submitted that both the companies are having one more shareholder by name Milan S Shah and he also holds share of 20% voting power in ADJPL and 23% voting power in the other company. In this kind of situation, the statute is not clear about the imposition of tax liability on a particular share holder. The natural solution is that the share holder, who has benefitted from the transaction should be imposed the liability of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would allow the rule of purposive construction with noscitur a sociis, as was done by the Supreme Court in the case of LIC of India v. Retired LIC Officers Association (2008) 3 SCC 321. The observation in para 24 of the report being apposite are extracted hereinbelow:- Each word employed in a statute must take colour from the purport and object for which it is used. The principle of purposive interpretation, therefore, should be taken recourse to. A close examination of the judgment of the Bombay High Court in the case of Nagindas M Kapadia (1989)(177 ITR 393) would show that the court excluded from the ambit of dividend , monies which the assessee had received towards purchases. In our view, both the Commissioner of Income tax (Appeals) and the Tribunal have correctly appreciated this aspect of the matter in the said judgment of the Bombay High Court. The relevant portion of the judgment of the Bombay High Court which sets out this aspect of the matter is already extracted by us in the narrative given by us hereinabove. We are also in agreement with the view of the Tribunal that the judgment of the Supreme Court in the case of P.Sarada (1998)(229 ITR 444) and Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney which was given by ADJPL to DJPL was towards purchase of a property for which a notarised MOU dated 09-05-2008 was presented during the course of assessment proceedings. The very same document was also produced before the undersigned and the same was forwarded to the Ld. AO in the remand proceedings. However, even in the second round, the Ld. AO did not find it worthwhile to comment on the veracity or otherwise of the document in question. Therefore, on the face of it, the MOU signed on a judicial stamp paper and which was duly notarised before the Notory Public, Government of Maharashtra, becomes a vital piece of evidence which could not have been simply brushed aside without giving any cogent reasons. It could not also be said that this piece of evidence was an afterthought as not only is it dated 09-05-2008, it is also notarised on the same date and was presented before the Ld. AO during the assessment proceedings itself. Secondly, it is also corroborated by the payment of cheque No. 246161 dated 09-05-2008 drawn on Bank of India, SEEPZ branch, Mumbai. 2.4.10 It is trite law that while considering the provisions of section 2(22)(e), interpretation demands that transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase may be, either to a shareholder, being a beneficial owner holding not less than ten percent of the voting power or to any concern in which such a shareholder is a member or a partner and in which he has a substantial interest. Sec. 2(22)(e) defines the ambit of the expression 'dividend'. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend viz. the shareholder. The effect of section 2(22) is to provide an inclusive definition of the expression 'dividend'. Clause (e) expands the nature of payments which can be classified as a 'dividend'. Clause (e) of section 2(22) includes a payment made by the company in which the public is not substantially interested by way of an advance or loan to a shareholder or to any concern to which such shareholder is a member or partner, subject to the fulfilment of the requirements which are spelt out in the provision. Similarly, a payment made by a company on behalf, or for the individual benefit, of any such shareholder is treated by cl. (e) to be included in the expression 'dividend'. Consequently, the effect of cl. (e) of s. 2(22) is to broaden the ambit of the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an advance or loan was not fulfilled. The finding that there was no advance or loan was a pure finding of fact which did not give rise to any substantial question of law. 2.4.16 It was held by the Hon'ble High Court in Smt. Savithri Sam 236 ITR 1003 (Mad) that the Tribunal was justified in holding that for the purpose of computation of Deemed Dividend u/s. 2(22)(e), there must be actual payment of money i.e. actual payment from company to the shareholder and not constructive. 2.4.17 From the ratio decidendi emerging from the above judgement when applied to the facts of the appellant's case, it emerges that the money that (DJPL) had to receive from ADJPL was for proposed sale of premises. For bringing it to tax as 'Deemed Dividend' ADJPL should have 'actually paid money' to the appellant and then only the provision of section 2(22)(e) could have been invoked. In view of the above decision of the Madras High Court, the sum of money paid by ADJPL to DJPL on account of proposed sale of office could not be brought to tax as 'payment by company of a loan'. 2.4.18 Similarly, in the case of CIT vs, Arvind Kumar Jain (2012) 205. Taxman 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t coming through, the MOU was to stand cancelled and the assessee was to refund the deposit of ₹ 2.25 crores to S Ltd. It did so happen. All these facts remained unrebutted. From this factual matrix, it was evident that the provisions of section 2(22)(e) were, in no way, applicable (emphasis supplied) 2.4.30 I find that the appellant s case is squarely covered by the above said decision of the Mumbai ITAT in the case of Seamist Properties (P) Ltd as even in that case a sum was advanced for which an MOU was signed and in the absence of the facts remaining uncontroverted, it was evident that the provision of section 2(22)(e) was in no way applicable. Therefore, I do not find any justification in the action of the Ld. AO in bringing to tax deemed dividend in the hands of the appellant. Accordingly, ground Nos. 1 to 3 are allowed. 12. A careful perusal of the order passed by Ld CIT(A) would show that the Ld CIT(A) has adjudicated this issue by following the principles laid down by the various Courts in the decisions referred supra. We notice that the Ld CIT(A) has appreciated the fact that the amount given by M/s ADJPL to M/s DJPL was in connection with a commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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