TMI Blog2011 (10) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... style-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-fareast-language:EN-US;} <![endif]--> SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M. For the Appellant : Shri Keshav Saxena, CIT DR For the Respondent : Shri S.S.Deshpande, C.A. ORDER PER R. C. SHARMA, A.M. This is an appeal filed by the assessee against the order of CIT(A) dated 30th July, 2009, for the assessment year 2005- 06 in the matter of order passed by the Assessing Officer u/s 143(3) dated 31.12.2007. 2. Following grounds have been taken by the Revenue :- On the facts and in the circumstances of the case , the ld. CIT(A) has erred in :- 1. deleting the addition of ₹ 58,40,226/- out of interest of ₹ 60,92,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als on 31.02.2005 against delivery of gift articles in the subsequent year. A copy of ledger account was furnished for my perusal. The explanation given in this regard is, therefore, acceptable. It was also submitted that advances of ₹ 9,00,000/- was given to the cargo Co. Ltd. during the fag end of the relevant year and the interest of ₹ 24,177/- has been charged and accounted for in the next year. Regarding Shri Bhartiya Sanskriti Sansthan to whom loans and advances of ₹ 50,00,000/- was given during the year, it was stated that the same is given as advance against land and expenses. The nature and purpose of loan given has not been specified before the AO or before me. It is significant to note that the appellant company is following mercantile system of accounting and the interest accounted for in the case of Cargo Co.Ltd. in assessment year 2006-07 should have been accounted for in the year under appeal i.e. assessment year 2005-06. Hence, the gross interest chargeable by the appellant from the said party amounting to ₹ 27,000/- is brought to tax in this year. Regarding Bhartiya Sanskriti Sansthan Limited to whom loans/advances has been given interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income, therefore, whatever addition is sustained by the ld. CIT(A) is also deserves to be deleted or required to be adjusted in the next year when interest income was duly offered. 8. We have considered the rival contentions, carefully gone through the orders of the authorities below and found from record that there were total creditors of ₹ 35.32 crores in assessee's books of account, out of which AO found that the assessee had given advance to the sister concern/associate concern without charging interest in respect of creditors amounting to ₹ 13.11 crores. Separate annexures for these advances were prepared by the Assessing Officer, which was forming part of assessment order in the form of Annexure A. By applying interest rate of 12 % on these advances of ₹ 13.11 crores, the AO has disallowed interest of ₹ 60,92,226/-. The ld. CIT(A) has duly considered all these advances and it was found that the assessee has duly charged interest of ₹ 37,79,233/- and offered the same in the books of account. Only in respect of three parties stated above, it was observed by the ld. CIT(A) that advance was given to Kopran Pharmaceuticals on 31.3.2005 agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure-C to this order. Therefore, loan given by Multinet to assessee company is taxable as deemed dividend to the extent of accumulated profits of Multinet. Annexure C which are ₹ 1,74,27,588/- as per balance sheet of Multinet placed at Annexure D to this order. The amount of ₹ 1,74,27,588/- is taxed as deemed dividend u/s 2(22)(e). 11. By the impugned order, the ld. CIT(A) deleted the addition made u/s 2(22)(e) of the Act after having the following observations :- I have gone through the facts of the case, the submission offered by the ld. Authorized Representative of the appellant, case laws cited by him and supporting evidences filed during the appellate proceedings. It is seen that the AO while making an addition of ₹ 1,74,27,588/- u/s 2(22)(e) of the Income-tax Act, 1961, has stated that the appellant during the year has taken loan of ₹ 54,03,93,819/- from M/s Bhaskar Multinet Limited. It was observed that Mr. R. C. Agarwal had 10% shareholding in M/s. Bhaskar Multinet Limited and 20% shareholding in the appellant company. The AO concluded that in view of the above facts loan given by M/s. Bhaskar Multinet Limited to the appellant company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consideration while deciding the issue is advance or loans to a shareholder. The special bench of I.T.A.T., Mumbai in the case of ACIT vs. Bhaumik Colour has affirmed the ratio laid down in the case of CIT vs. Hotel Hilltop reported in 217 CTR 327 (Raj) that deemed dividend can be taxed only in the hands of a person who is a shareholder of the lender company and not a person other than a shareholder. In the case of Bhaumik Colour it has been also clarified that a deemed dividend is applicable only when loan or advance has been given to a person who is not only a registered shareholder but also a beneficial shareholder. Hence, both the conditions are to be cumulatively satisfied for taxing the loan and advances as deemed dividend u/s 2(22)(e). In the present case, the appellant company is not a shareholder of M/s. Bhaskar Multinet limited and hence transactions between the two companies will not fall within the ambit of Section 2(22)(e). Further, in the case of Ankitech Pvt.Ltd. vs. JCIT I.T.A.No. 388/Del/2007, it is held that deemed dividend cannot be assessed in the hands of a none shareholder as primary requirement for dividend to be received rests with a shareholder and none e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the deeming provisions of Section 2(22)(e), and merely on the plea that the assessee company was not a shareholder of lender company, the amount so received by the assessee company as a loan cannot be ignored on the plea of decision of I.T.A.T., Special Bench in the case of Bhaumuk Colour Lab. The ld. CIT DR also placed on record recent decision of Delhi High Court dated 25.4.2011 in the case of National Travels services Limited, wherein after considering second and third limb of Section 2(22)(e), the amount of loan received by the partnership firm, who is not a shareholder of the lender company was brought in the mischief of Section 2(22)(e) of the Act. The ld. CIT DR further elaborated the proposition laid down in this case and submitted that even though the partnership firm was not a shareholder of the lender company and only one of its partner was shareholder of the lender company, the Hon'ble Delhi High Court held that Section 2(22)(e) will be attracted in respect of loan given to the partnership firm, notwithstanding, the fact that the partnership firm was not shareholder of the lender company. 14. On the other hand, it was argued by the ld. Authorized Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its mischief such adjustment entries, when no actual loans or advances was received by the assessee company. Furthermore, in view of the decision of I.T.A.T., Special Bench in the case of Bhaumik Colour Lab (supra), the provisions of Section 2(22)(e) can be attracted only when the assessee company is registered and beneficial owner of shares in the lender company. Furthermore, in the case of CIT Vs. Indian Technocraft Ltd ,ITA NO. 352 of 2011 order dated 11th May, 2011 the Hon'ble Delhi High Court by considering the decision of C.P.Sarathy Mudaliar 1972) 83 ITR 170 and Rameshwarlal Sanwarmal Vs. CIT (1980) 122 ITR 1 (SC) held as under:- It is thus clear from the aforesaid pronouncement of the Hon'ble Supreme Court that to attract the first limb of the provisions of Section 2 (22) (e) the payment must be to a person who is a registered holder of shares. As already mentioned the condition under the 1922 Act and the 1961 Act regarding the payee being a shareholder remains the same and it is the condition under that such shareholder should be beneficial owner of the shares and the percentage of voting power that such shareholder should hold that has been prescribed as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shareholder and beneficial shareholder. If a person is a registered shares holder but not he beneficial then the provision of Section 2(22) (e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of Section 2 (22) (e) will not apply . Page 47 para 46 In view of the above, this appeal is also dismissed. A xerox copy of the order is enclosed herewith. Reliance is also placed on the following decisions:- (i) ACIT Vs. Bhaumik Colour P.Ltd (2009) 313 ITR (A.T) 146 (Mumbai) (SB). (ii) JCIT Vs. Kunal Organics (P) Ltd. 164 Taxman 169 (Ahd.) Thus even with the change in the definition under the current provisions of the Income-tax Act, 1961, wherein the definition of deemed dividend is applicable to loan or advance given to a registered and a beneficial shareholder, the aforementioned decision of the Supreme Court in the case of Rameshwarlal Sanwarmal (Supra) is not applicable to the facts of assessee's case. (ii). SAI Narayan Row (supra) This case deals with the refund of the illegal levy of taxes and thus has facts which are materially different from the present facts and thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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