TMI Blog2016 (2) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a deeming provision. One can only look at the language used. Therefore, we concur with the ld. CIT (A) that the lender company i.e. M/s. STLL and M/s. PHDL are public limited companies and so the loan/advance/ICD given to the assessee does not fall in the ken of section 2(22)(e) and moreover, the lender companies are NBFC which are also excluded from the said deeming provision, therefore, we do not find any merit in this ground of appeal and we uphold the ld. CIT (A)’s order and dismiss this ground. - Decided in favour of assessee - ITA No. 2766/Del. /2012 - - - Dated:- 29-1-2016 - Shri G. D. Agrawal, Vice President And Shri A. T. Varkey, Judicial Member For the Petitioner : Shri Salil Kapoor Sanat Kapoor, Advocates For the Respondent : Shri B.R.R. Kumar, Senior DR ORDER Per A. T. Varkey, Judicial Member This appeal, at the instance of the revenue, is filed against the order of the CIT (Appeals)-XI, New Delhi dated 14.03.2012 for the assessment year 2008-09. 2. The solitary ground taken by the revenue is against the deletion of addition of ₹ 2,70,00,000/- made by the AO under section 2(22)(e) of the Income-tax Act, 1961 (hereinafter the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er shareholdings patterns of PHDL as on 31.03.2008, more than 50% shares were held by Mr. Sindhu and their family members/associates. According to the AO, the onus was on the assessee to prove that STLL was a widely held public limited company in which the public were substantially interested and the onus was also on the assessee company that the shares of the STLL were widely traded and its shares were available in the open market for purchase and sale by any common man/person; and held that the assessee failed to discharge its onus and the AO countered the submission of the assessee that the STLL was an NBFC and therefore the deeming provision of section 2(22)( e) would not be applicable, by giving following reasons:- The Income Tax Act provides certain exceptions with the respect to the provision of deemed dividend. This has been laid down in saving clause (ii) section 2(22) of the IT Act, which be reproduced herewith - but dividend does not include- (ii) any advance or loan made to a shareholder [or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has submitted extensive arguments on this issue. Again, the crucial issue is found to be whether the lender companies are ones in which the public are substantially interested. Section 2(22)(e): Not applicable to widely held Companies: Section 2(22)(e) uses the words: any payment by a company ''not being a company in which the public are substantially interested meaning thereby that Section is applicable only to companies which are commonly known as closely held companies. Section 2(18) of the Act reads as under: (18) company in which the public are substantially interested -a company is said to be a company in which the public are substantially interested- (b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely:- shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the percentage of shares of other directors and their family members would again go on to prove that it was not a company in which public are substantially interested, rather it was a company which was closely held by the promoter Mr. Sindhu and his family members and therefore the saving clause (ii) of section 2(22) of the Act would not be applicable and come to the rescue of the Assessee Company insofar as invoking section 2(22) (e) was concerned. The ld. DR submitted that likewise, in the case of PHDL also, a perusal of the shareholdings patterns of this company as on 31.03.2008 will reveal that more than 50% shares were held by Mr. Sindhu and their family members/associates and according to him, the assessee failed to prove the onus that STLL was a widely held public limited company in which the public were substantially interested, and that the shares of the STLL were widely traded and its shares were available in the open market for purchase and sale by any common man/person. He also submitted that the assessee has failed to prove that the STLL was an NBFC, therefore, the deeming provision of section 2(22)( e) would be applicable. He, therefore, submitted that the loans ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether 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 of 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 per cent of the voting power, or to any 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)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; .... But dividend does not include - (ii) any advance or loan made to a shareholder [or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; From the reading of above Section, following interpretations can be drawn. The interpretation of the Section has been dealt point wise vis a vis observation of the Ld. AO and submission against those observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as on the last day of the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder; It was submitted before the Ld. AO that STLL and PHDL are Public Limited Company through following evidences which have been discussed by Ld. AO at page no. 11 to 15 in the Assessment order: (a) Listing evidences of being listed on Delhi Stock Exchange and Jaipur Stock Exchange. (b) Shareholding pattern as on 31.03.008 of the Assessee Company Submission before your good self against Ld. AO observation: The observations made by the Ld. AO are dealt herewith point wise: a. Trading of shares and acceptance of public deposit are no parameters to check whether a company is a widely held Company or not. It is the section 2(18) definition which should prevails while assessing whether a Company is a company, in which Public is substantially interested or not. b. The allegation of the Ld. AO that the Assessee Company has failed to evidence that STLL and PHDL continues to be listed at stock exchanges and has not been suspended or de-listed, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, 1957, Rule 19(2)(b) provides following with respect to public shareholding for a listed company: Requirements with respect to the listing of securities on a recognized stock exchange. 19. (2) Apart from complying with such other terms and conditions as may be laid down by a recognized stock exchange, an applicant company shall satisfy the stock exchange that: [(b) At least 10 per cent of each class or kind of securities issued by a company was offered to the public for subscription through advertisement in newspapers for a period not less than two days and that applications received in pursuance of such offer were allotted subject to the following conditions: (a) minimum 20 lakh securities (excluding reservations, firm allotment and promoters contribution) was offered to the public; (b) the size of the offer to the public, i.e., the offer price multiplied by the number or securities offered to the public was minimum ₹ 100 crores; and (c) the issue was made only through book building method with allocation of 60 per cent of the issue size to the qualified institutional buyers as specified by the Securities and Exchange Board of India: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest Income 32,532,082.00 62,64,244.00 Loan Syndication Charges 7,129,302.23 - Hypothecation Charges 1,562,631.81 - Bad Debts recovered 1,613,303.00 - Misc. receipts in nature of Processing fee etc. 1,647,815.06 - Total 44,485,134.10 62,64,244.00 The above details shows that STLL and PHDL are pursuing NBFC activities and Inter Corporate Deposit has also been advanced in the ordinary course of activities. In the light of the above submission, the ld AR does not want us to interfere in the order of ld CIT(A) 7. We have heard both the sides and perused the material on record. The only dispute is whether the lender companies which has made deposits (Inter- Corporate Deposits (ICD)) will fall under the deeming provision under section 2(22)(e) of the Act or not. We find that section 2(22)(e) excludes publ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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