TMI Blog2015 (2) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... urt of Karnataka and in view of the fact that the CIT(A) has determined the ALV at a much higher figure than what is contemplated by the decision of Hon'ble High Court 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 - Decided in favour of assessee Disallowance of interest on borrowings made - CIT(A) allowed the claim - Held that:- 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). - Decided in favour of assessee Deemed dividend addition u/s. 2(22)(e) - Held that:- Since the Assessee in the present case is not a shareholder in the lender company, we are of the view that loan or advance to a non-shareholder cannot be taxed as Deemed Dividend in the hands of a non-shareholder - Decided in favour of assessee - ITA No.1440/Bang/2013 - - - Dated:- 27-2-2015 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER Appellant by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-05 409 2,21,18,288 Total 5,42,36,338 6. The CIT(A) held that as per the decision of Hon ble Gujarat High Court in Bipinbhai Vadilal Family Trust (No.1) v. CIT (1994) 208 ITR 1005, the fair rent of the property would be ₹ 46,10,080 per annum being 8.5% of the total investment of ₹ 5,42,36,338. Based on this, working for six months, rental income would be ₹ 23,05,040 and accordingly he directed the AO re-compute income under the head income from house property. In this connection, he also observed that the doctrine of res judicata or estoppel does not apply as held by Hon ble Supreme Court in New Jehangir Vakil Mills Co. Ltd. v. CIT (1963) 49 ITR 137 (SC). Thus, assessee was allowed a relief of ₹ 20,14,960 by the CIT(A). 7. Aggrieved by the order of CIT(A), the revenue has preferred the present appeal before the Tribunal. 8. We have heard the submissions of the ld. DR, who reiterated the stand of the AO. The ld. counsel for the assessee relied on the order of CIT(A). 9. We have considered the rival submissions. Perusal of the order of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07, 408 and 409 acquired during the financial year 2002-03 and total investment made thereon of ₹ 5,42,36,338/-. Initially loan was borrowed from ING Vysya Bank which was repaid by obtaining loan from M/s Innovision Properties Pvt. Ltd. amounting to ₹ 5,19,00,000/-. Here it would be worthwhile to mentioned that said loan was taken for purchase of four sites i.e. site No. 407, 408, 409 and 445 at Koramangala and investment made in site No.445 at ₹ 1,70,37,600/- and remaining ₹ 3,48,62,400/- towards purchase of site No.407, 408 and 409. Further it is also observed that the outstanding loan as on 29/06/2084 was repaid after obtaining loan from M/s Tayana Consult Pvt. Ltd. of ₹ 5,61,81,550/- on 29/06/2004. Thus if at all interest to be charged on ₹ 3,48,62,408/- not on ₹ 5,19,00,000/-, since site No.445 was not subjected to lease agreement. Thus the total interest would comes at ₹ 20,91,744/- and six months interest would be ₹ 10,45,872/-. The Assessing Officer is therefore directed to consider interest of ₹ 10,45,872/- while computing income under the head Income from House Property. Thus the appellant partly succeeds in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of assessee. 19. Aggrieved, the Revenue has raised the aforesaid issue in ground Nos. 5 6 before the Tribunal. 20. We have heard the submissions of the ld. DR who relied on the order of AO. The ld. counsel for the assessee relied on the order of CIT(A). 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power. This is because of the expression Such Shareholder found in the relevant 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 deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hotels (P) Ltd. To the firm M/S.Hotel Hill Top was treated as deemed dividend in the hands of M/S.Hotel Hill Top, the firm under the Second limb of Sec.2(22)(e) of the Act. The CIT(A) held that since 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would became taxable in the hands 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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