TMI Blog2006 (5) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... in language in section 2(32) of the Act, it is the beneficial ownership of a person that alone is to be considered. In that view of the matter neither Lakhadia himself nor in his capacity as HUF was holding shares of 20 per cent or more. In these circumstances, the provisions of section 2(22)(e) applying to a concern in which such shareholder is a member and in which he has substantial interest would not apply. Shri Atul Lakhadia is no doubt a member in the assessee-company. M/s Kunal Organics Pvt. Ltd., but he has not holding a substantial interest in that concern and therefore, this provision would not be applicable. Here, the shares are allotted to the HUF and certificate to this extent has been filed heing Register Folio Certificate for the holding of 1700 shares by the HUF. His individual shares are 2050, which is only 10.24 per cent. This view finds support from the decisions of the Supreme Court in the case of Rameshwarlal Sanwarmal v. CIT [ 1979 (12) TMI 1 - SUPREME COURT] and CIT v. C.P. Sarathy Mudaliar [ 1971 (10) TMI 8 - SUPREME COURT] . Hence, the alternate contentions of the assessee that the amounts have been advanced in the ordinary course of business need not be di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding money and it was only because the actual trading activity of none of the three companies had began during the current accounting year, it had received income only from dividend and interest. He, therefore, rejected the contention of the assessee as they were dealing in lending of money and therefore, loans and advances by these companies cannot be taken out of exception under section 2(22)(e) of the Act. 2. The CIT(A) deleted the addition by observing as under- 6. I have considered the rival submissions and perused the various details filed before me. Out of 5 clauses namely (a), (b), (c ), (d) and (e) of section 2(22) of the Income-tax Act, 1961, the first four clauses deal with the distribution of accumulated profits to the shareholders which is treated as dividend. However, sub-clause (e) refers to a payment made under three different situations (as stated in the said clause) which is treated as dividend if the conditions stipulated in the said clause are satisfied. The three different situations given in the said clause are as under:- Any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating the payment as the deemed dividend in the hands of the recipient concern is accepted then the provision of section 2(22)(e)( iii) becomes redundant. Further as the individual and HUF are two different entities their shareholding cannot be clubbed for the purpose of section 2(22)(e). Also on perusal of the profit and loss account and balance sheet of the 3 companies in question for the period of immediately three preceding assessment years it is seen that a substantial part of the income of these companies consists of interest income earned on money lent. Therefore, looking to the totality of facts in my opinion the provisions of section 2(22)(e) are not applicable to the appellant company. The Assessing Officer is, therefore, not justified in taxing the loan amount of ₹ 35.50 lakhs as dividend in the hands of the appellant company. 3. Aggrieved, the revenue is in appeal before us. 4. The ld. DR submitted that under the Income-tax Act, the recipient is to be taxed. Since the assessee company has received the money by way of loans and advances, it is the assessee is to be taxed. He, further submitted that the shareholding of HUF and individual are taken together, it s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee who is not a shareholder, for which he placed reliance on the decision of Allahabad High Court in the case of CIT v. H.K. Mittal (1996) 219 ITR 420. The Counsel also submitted that alternatively and without prejudice, the assessee has received loan of only ₹ 8.50 lakhs from Chirag Audi Pharma Pvt. Ltd. during the previous year relevant to the assessment year under consideration and rest of the loans have been received in the previous year relevant to assessment year 1995-96. 6. We have heard the rival parties and perused the material placed on record, as well as the case law cited. 7. Section 2(22)(e ) of the Income-tax Act, 1961, reads as under:- (e) 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 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 inprofits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company. M/s Kunal Organics Pvt. Ltd., but he has not holding a substantial interest in that concern and therefore, this provision would not be applicable. The Madras High Court decision in the case of Sokkalal (T.P.S.H.) (supra) would not be applicable because in that case the shares were in the name of a father as guardian on behalf of the minor children of the assessee, and in view of the specific finding of the Tribunal that Selva Saroja was a shareholder and not the minors and the shares held by her in her own and on behalf of the miners cannot be ignored. In the present case, the shares are allotted to the HUF and certificate to this extent has been filed heing Register Folio No. 109 Certificate No. 015 for the holding of 1700 shares by the HUF. His individual shares are 2050, which is only 10.24 per cent. This view finds support from the following three Tribunal decisions : (i) S.S. Barodawala s case (supra) (ii) Minnie R. Cama s case (supra) (iii) Smt. Gunvanti R. Mehta s case (supra). and also the two decisions of the Supreme Court in the case of Rameshwarlal Sanwarmal v. CIT (1980) 122 ITR 1 and CIT v. C.P. Sarathy Mudaliar (1972) 83 ITR 170. In view of the above, the al ..... 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