TMI Blog2016 (4) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... the at the assessee in the present case was not a shareholder in the lender Company. Further, the Tribunal has al so relied upon the decision of Rajasthan High Court in case of Commissioner of Income Tax Vs. Hotel Hilltop reported at (2008 (3) TMI 310 - RAJASTHAN HIGH COURT ). - ITA NO. 305 OF 2015 - - - Dated:- 23-2-2016 - MR.JUSTICE JAYANT PATEL AND MRS.JUSTICE S SUJATHA. JJ. For The Appellant : Sri E.I.Sanmathi, Advocate For The Respondent : Sri S Parthasarathi, Advocate JUDGMENT The learned Counsel for the appellants-Revenue has submitted the memo for re-framing of questions of law, to which we have permitted. 2. The present appeal is directed against the order dated 27.02.2015 passed by the Tribunal in ITA No.1440/Bang/2013, whereby the Tribunal has not accepted the case of the Revenue and the appeal is dismissed. 3. We may record that the re-framed questions formulated by the appellants-Revenue are as under: 1. Whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the addition made by assessing authority in respect of rental income of Kormangala Property No.408 without appreciating the fact that the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Karnataka and in view of the fact that the assessee has not challenged the said determination of ALV by the CIT(A), we are of the view that the order of CIT(A) calls for no interference and should be confirmed. We hold accordingly and dismiss the relevant ground viz., grounds No.2 3 raised by the Revenue. 6. The aforesaid shows that the Tribunal has followed the decision of the High Court of Gujarat in case of Bipinbhai Vadilal Family Trust Vs. Commissoner of Income-Tax reported at (1994) 208 ITR 1005 Guj , whereby it was held that the reasonable return at the rate of 8.5% on the investment can be considered as the annual rateable value. 7. Under these circumstances, we do not find that question No.1 raised by the Revenue can be consider ed as substantial question of law which may arise for consideration in the present appeal. 8. On question No.2, the Tribunal at paragraph-14 observed thus: 14. We have considered the rival submissions. The findings of the CIT(A) clearly show that assessee had borrowed loans for the purpose of acquiring the property. There is no material on record brought out by the Revenue to dislodge the findings of CIT(A). In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has observed at paragraphs-21 to 28 which read as under: 21. We have heard the rival submissions. The provisions of Sec.2(22)(e) of the Act, reads as follows: (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 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 (hereafter 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. 22. 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 person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant provision. This expression only refers to the shareholder referred to in the earlier part of Sec.2(22)(e) viz., a registered and a beneficial holder of shares holding 10% voting power. (c) The very same person referred to in (b) above must also be a member or a partner in the concern holding substantial interest in the concern viz., when the concern is not a company, he must at any time during the previous year, be beneficially entitled to not less than twenty percent of the income of such concern; and where the concern is a company he must be the 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 (d) If the above conditions are satisfied then the payment by the company to the concern will be dividend. 26. The Special Bench of ITAT, Mumbai, in the case of Bhaumik Color Labs ITA 5030/M/04, 118 ITD 1 (SB) (Mum), 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the firm was not the shareholder of the company the assessment as deemed dividend in the hands of the firm was not correct. The order of the CIT(A) was confirmed by the Tribunal. On Revenue s appeal before the Hon ble High Court, the following question of law was framed for consideration:- Whether on the facts and in the circumstances of the case and in law the learned Tribunal was justified in upholding the order of learned CIT(A) deleting the addition of ₹ 10 lacs as deemed dividend under Section 2(22)(e) of the IT Act? The Hon ble Court held as follows:- The important aspect, being the requirement of section 2(22)(e) is, that the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf or for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which it s shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the legislature is therefore to tax dividend 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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