TMI Blog2013 (4) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... member of the respondentassessee. We had made following observations : 2. Though two separate questions have been framed, issue is single namely of the decision of the Assessing Officer to tax a certain income in the hands of the respondent-assessee as a deemed dividend under Section 2 (22) (e) of the Income Tax Act, 1961 ( the Act for short). 3. For the assessment year 2006-07, the Assessing Officer inquired with the assessee regarding the assessees share holding in a company namely M/s. Amod Stampings Pvt. Ltd. (hereinafter to be referred to as the said company). It appears that during course of a search operation carried out by the department, it was noticed that the said company had given loans to various members including the assessee having share holding and voting powers exceeding 10%. The assessee was, during the search operation, confronted with such shareholding pattern and the loans advanced. Assessee wrote a letter dated 19.03.2009 agreeing to accept a sum of ₹ 881.71 lacs as deemed dividend under Section 2 (22)(e) of the Act. During the course of the assessment proceedings, however, it was asserted before the Assessing Officer that a trust was created on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otarized by a notary, who has authenticated its execution. Rather it was alleged that no attempt was made by the Revenue to negate the validity of the said document. Revenue Department could have examined the veracity of the said document by investigating the records of the stamp vendor, as also the said notary. A legal document which is executed in the presence of a duly authorised person, i.e. notary, an appointed legal entity by Government of India, has to be acknowledged and to be accepted as true and correct unless and until proved otherwise. From the side of the assessee, it was strongly contested that to corroborate such declaration, reliance is also placed on the minutes of the meeting of the Board of Directors of M/s. Amod Stampings Pvt. Ltd. held on 22/12/2005, wherein it was resolved as under:- RESOLVED FURTHER THAT the copy of the said resolution be submitted to the Bank. 03. SETTLEMENT OF SHARES HELD BY N.S. PATEL FAMILYS CHILDREN TRUST. The Chairman placed before the board information received from the three shareholders of the Company being Smt. Lalitaben N. Patel, Shri Navinbhai N. Patel and Shri Krupeshbhai N. Patel about settlement of 5,12,000 enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of the said declaration. In respect of few other queries, explanation of the assessee was that in the absence of any other transaction or earning or NIL income, there was no necessity to open a bank account. Further, about the registration of the shares, it was explained that as per section 153 of the Companies Act,1956, a company is not permitted to include the name of the Trust in the register because trusts are not required to be entered in the register. Due to this reason, the name which was earlier noted as shareholders remained the same, however through a Board meeting it was resolved to acknowledge the change in the vesting of the shares. Under the totality of the circumstances of the case and the evidence on record, we are of the view that a deeming provision has to be applied strictly, so that a fiction so created by a Statute should not cover within its ambits more than what is subscribed. A deeming provision is, therefore, to be applied restrictively, so that its application must not enlarge the scope of presumption. Rather, it has been held in the case of L.H.Sugar Factory 125 ITR 293 (SC) that no authority can presume something which is not envisaged in the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany or otherwise) [made after the 31 st 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 (hereinafter 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; 12. What is envisaged under Section 2 (22)(e) of the Act is any payment by a company not being a company in which public are substantially interested any sum, by way of advance or loan to shareholder who happens to be a person who is a beneficial owner of shares holding not less than 10% of the voting power or to any concerned in which such shareholder is a member or a partner in which he has a substantial interest. Thus, the payment by a company by way of advance or loan should be to a shareholder, who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt other facts, such as that the Companies Act would not permit transfer of the shares in the name of the trust; that there was no dividend declared by the Company and that the Trust, therefore, did not receive any income so as either to open a bank account or to file a return. Equally importantly the mere fact that the trust deed was not found at the time of search and that later on the assessee agreed to surrender tax on such dividend income did not convince the Tribunal. We have ourselves perused the said letter dated 19.03.2009. In such letter the assessee had stated that he had agreed to take such a stand to avoid any litigation. He however held a belief that the said income was not chargeable to tax as a deemed dividend. Creation of a trust and settlement of the shares in such trust were also mentioned in such communication. It was stated that the authority had expressed the opinion that since there was no financial transaction in the name of the trust and that the trust was not registered, it would not be possible to accept that the shares were settled in the said trust. It was for these reasons that the income was being surrendered. 14. In our opinion, the entire issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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