TMI Blog2016 (2) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not a shareholder in the lender company, addition to be deleted. - Decided in favour of assessee Revision u/s 263 - Held that:- We are of the view that the order of CIT cannot be sustained as in any case there can be no addition and there can be no prejudice to the interest of the revenue in as much as no addition on account of deemed dividend u/s.2(22)( e ) can be made in the facts and circumstances of the present case. We therefore quash the order u/s.263 of the Act and allow the appeal by the Assessee.- Decided in favour of assessee - ITA No.405/Kol/2015 - - - Dated:- 15-1-2016 - Shri N.V.Vasudevan, JM Shri Waseem Ahmed, AM For The Appellant : Shri Manoj Kataruka, Advocate For The Respondent : None ORDER Per Shri N.V.Vasudevan, JM This is an appeal by the assessee directed against the order dated 18.03.2015 of CIT-Kolkata-3, Kolkata relating to A.Y.2010-11. 2. The undisputed facts are that the assessee had received loan from M/s Jet Age Finance Limited (JAFL) of ₹ 1,88,75,000/-. The CIT was of the view the said amount received as loan should be treated as deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961 (Act). The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umulated profits. Explanation-3 to Section 2(22)(e) is as follows: Explanation-3: For the purpose of this clause- (a) concern means a Hindu Undivided Family, or a firm or an association of persons or a body of individuals or a company; (b) A person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty percent of the income of such concern; 6.1. Section 2(32) defines the expression person who has a substantial interest in the company , in relation to a company, means 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, carrying not less than twenty percent of the voting power. 6.2. An analysis of the above provisions shows that there are three limbs to Sec.2(22)(e) which are as follows:- 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 31-5-1987, by way of advance or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the question Whether deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961 can be assessed in the hands of a person other than a shareholder of the lender? The Special Bench held that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. The Special Bench on the above issue has observed as follows:- 30. At the outset it has to be mentioned that provisions of Sec.2(22)(e) which brought in a new category of payment which was to be considered as dividend as introduced by the Finance Act 1987 w.e.f.1-4-88 viz., payment by a company to any concern in which such shareholder is a member or a partner and in which he has a substantial interest do not say as to in whose hands the dividend has to be brought to tax, whether in the hands of the concern or the shareholder . We have already seen the divergent views on this issue which have been referred to in the earlier part of this order. 31. The above provisions were subject matter of consideration before the Hon ble Rajasthan High Court in the case of CIT Vs. Hotel Hilltop. 217 CTR 527(Raj). The facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the individual benefit of any such shareholder . Thus, the substance of the requirement is that the payment should be made on behalf of or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is pad by the company, whether to the shareholder, or to the concerned firm. In which event, it would fall within the expression deemed dividend . Obviously, income from dividend, is taxable as income from the other sources under section 56, and in the very nature of things the income has to be of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course, the two individuals being R and D. are the common persons, holding more than requisite amount of shareholding and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend only in the hands of the shareholder and not in the hands of the concern. 36. The basis of bringing in the amendment to Sec.2(22)(e) of the Act by the Finance Act, 1987 w.e.f 1-4-88 is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can drawn the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore proper to construe those provisions as contemplating a charge to tax in the hands of the shareholder and not in the hands of a non-shareholder viz., concern. A loan or advance received by a concern is not in the nature of income. In other words there is a deemed accrual of income even u/s.5(1)(b) in the hands of the shareholder only and not in the hands of the payee viz., non-shareholder (Concern). Sec.5(1)(a) contemplates that the receipt or deemed receipt should be in the nature of income. Therefore the deeming fiction can be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
