9911796707
TMI Blog2006 (5) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 35,50,000/-. The Assessing Officer required the assessee why the loans should not be treated as dividend under section 2(22)(e) of the Act. The assessee raised two objections - (i) that none of the shareholder in the assessee-company is having 20 per cent shareholding, and (ii) that all the three companies who have advanced these loans are not carrying on any business of lending money and therefore, the loan can be said to be having paid in the ordinary course of the assessee's business. The Assessing Officer rejected both the contentions of the assessee. On a perusal of the details of share holding, he noticed that Shri Atul Indravadan Lekhadia is in fact commanding more than 20 per cent of the total share holding in his capacity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the assets of the company or otherwise) made after the 31-5-1987. (i) by way of advance or loan to a shareholder, (ii) or to any concern in which such shareholder is a member of a partner, (iii) or any payment by any such company on behalf or for the individual benefit, of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... burden of taxation. The Assessing Officer while relying on the provisions of section 2(22)(e) as seen above has stated that as per the provisions of section 2(22)(e) as seen above has stated that as per the provisions of section 2(22)(e) the payment is to be treated as the deemed dividend in the hands of the recipient concern. However, as seen above the provisions of section 2(22)(e) is silent about this aspect and there is no mention as to in whose hands the payment is to be treated as deemed dividend. Further as rightly pointed out by the Authorised Representative if the interpretation of the Assessing Officer about treating the payment as the deemed dividend in the hands of the recipient concern is accepted then the provision of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein it was stated that - "the company has not given any loan or advances in the nature of loan to any party". He further submitted that the company is not a money lending company and therefore, the CIT(A) was not justified in deleting the addition. 5. The ld. Counsel for the assessee, on the other hand, submitted that section 2(22)(e) is not at all applicable to the assessee-company. In order to attract the provisions of section 2(22)(e ) of the Act, the common shareholder has to hold minimum of 10 per cent of the shares in the company which is advancing the loan and a minimum of 20 per cent of the shares in the company which is taking the loan. The assessee is a company which has taken the loan and therefore the common shareholder i.e. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f only Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This clause is as evident not applicable to a company and a person having substantial interest in relation to a company as defined in section 2(32) of the Act, to mean that 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 per cent of the voting power. Skri Atul Lakhadia himself is not a beneficial owner of the shares of 20 per cent. His shareholding is only 10.24 per cent. If the shareholding of HUF is also considered then only it exceeds 20 per cent, but as per the plain 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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