TMI Blog2016 (5) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... g can be added or implied while interpreting a deeming provision. One can only look at the language used. Therefore, we concur with the learned Commissioner of Income-tax (Appeals) that the lender company, i.e., M/s. STLL is a public limited company and so the loan/advance/ICD given to the assessee does not fall in the ken of section 2(22)(e) and moreover, the lender company is a NBFC which is also excluded from the said deeming provision, therefore, we do not find any merit in this ground of appeal and we uphold the learned Commissioner of Income-tax (Appeals)'s order and dismiss this ground. - Decided in favour of assessee. Disallowance of total interest - Held that:- We find that the assessee-company had sufficient free funds and that the assessee had stated before the Assessing Officer that the borrowed funds have been used for business purposes only and not for the investment, could not be controverted by both the authorities below. The Assessing Officer erred in concluding that since the assessee-company is incurring interest expenditure so no surplus fund is available to the assessee-company is erroneous on the fact that the total shareholder fund without interest burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (22)(e) is not applicable to the assessee-company, which are reproduced hereunder : (i) M/s. STLL is a NBFC registered with the RBI (proof of being NBFC is enclosed herewith). Section 2(22)(e) of the Income-tax Act, 1961, is not applicable to loan or advance given by a company having primary business as lending business. (ii) M/s. STLL is a listed company on the Delhi stock exchange and Jaipur stock exchange. Proof of being listed is enclosed herewith. Section 2(22)(e) of the Income-tax Act, 1961, is applicable only in respect of closely held companies. (iii) M/s. Sindhu Realtor Pvt. Ltd. is not holding more than 10 per cent. shares in M/s. STLL. (copy of shareholding of M/s. Sindhu Trade Links Ltd. is enclosed herewith). Hence section 2(22)(e) of the Income-tax Act, 1961, is not applicable. (iv) There is no single shareholder holding more than 10 per cent. in M/s. STLL, hence question that a shareholder holding more than 10 per cent. in M/s. STLL, holding more than 20 per cent. in the assessee-company does not arise. Hence section 2(22)(e) of the Income-tax Act, 1961, is not applicable. 7. The assessee, therefore, submitted before the Assessing Officer that in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g pattern of STLL as on March 31, 2008. It is seen from there that though the authorised representative submitted that the STLL is a public limited company, but has failed to substantiate that it is a public limited company in which public are substantially interested. As per the shareholding pattern filed by the authorised representative it is found that there were in total 279 shareholders of the STLL as on March 31, 2008. There are 5 directors-cum-shareholders/directors of the STLL who are also partners or substantial shareholders or directors in various companies/firms including the assessee-company. These directors/share holders are- 1. Shri Rudra Sen Sindhu 2. Shri Abhimanyu Sindhu 3. Shri Vir Sen Sindhu 4. Shri Dev Suman Sindhu 5. Shri Vrit Pal Sindhu As regards the assertion of the authorised representative that the company STLL is a public limited company, it is being demonstrated here with that this is not a company in which public are substantially interested because- This is a company in which shares have not been traded by the public at large ; a. Although the authorised representative has claimed that the STLL is a listed company at Delhi Sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. But so far as this assessee is concerned, it has failed to substantiate that the transactions by the STLL in the form of advances or loans were 'in the ordinary course of its business'. The onus was cast on the assessee-company to substantiate that the loans and advances received by it from the group company or associates company (STLL), in which common directors are beneficial shareholders, were in the ordinary course of business, i.e., advancing of loans and advances on interest of the payer company. Same is the case of PHDL. The assessee has failed to prove that the advances were given in the normal course of business. 9. Accordingly, relying on various authorities and factual matrix, the Assessing Officer held that the advances/loans received by the assessee were liable to be taxed in the hands of the assessee as deemed dividend as per section 2(22)(e) read with section 56 and section 115-O of the Act and ₹ 1,03,12,934 was added back to the total income of the assessee. 10. Aggrieved, the assessee went in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under ;' It was vehemently argued that these conditions are fulfilled by the lender companies and hence they are companies in which the public are substantially interested, and hence the deeming provisions of section 2(22)(e) of the Act cannot apply to the loans in question. c. The issue has been carefully perused, and the Assessing Officer's action in not considering the lender companies as those in which the public are substantially interested is found incorrect. In fact what is relevant to this issue is quoted in the assessment order itself as, 'it will be well to recall the words of Rowlatt J in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 at page 71, that : '. . . in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used'. Even while quoting this in the assessment order the Assessing Officer seeks to go beyond the intention of the Act. Especially in deeming provisions, the interpretation cannot be stretched to the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon by the Assessing Officer. 13. The learned authorised representative for the assessee reiterated the submissions made before the learned Commissioner of Income-tax (Appeals) and for the sake of clarity, the same are reproduced hereunder : Ground III-Amount involved is ₹ 1,03,12,934 The appellant-company has received inter corporate deposits of ₹ 1.03 crores from M/s. Sindhu Trade Links Ltd. (STLL) during the year under assessment. The appellant-company was show-caused vide notice dated December 9, 2010, during the course of assessment proceedings as follows : 'It is seen from the details filed that the assessee-company has taken loan of ₹ 1,03,12,934 from Sindhu Trade Links. It is also noticed that directors of the assessee-company are substantially interested in both the above named company. It is also noticed that some shareholders are common to both companies. In view of these facts, you are being show caused as to why not provision of section 2(22)(e) of the Act be invoked.' It was submitted vide letter dated December 13, 2010 (copy enclosed) that STLL is a NBFC certificate holding company and also stock exchange listed company. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holds substantial interest, i.e., 20 per cent. shareholding in the concern who received the loan. From the balance-sheet as on March 31, 2008-Investment schedule of the assessee-company (copy enclosed) and shareholding charts of STLL and PHDL, it is clear that the assessee-company is not holding any shares in these companies and hence in no way the amounts can be taxed in the hands of assessee-company. Further note from shareholding charts of STLL that there is no shareholder holding 10 per cent. in these companies, who is further holding 20 per cent. in the assessee-company. Hence section 2(22)(e) of the Income-tax Act, 1961, is not applicable since shareholding condition, mandatory for applicability of section 2(22)(e) of the Income-tax Act, 1961, are not satisfied. Section 2(22)(e) applicable in the hands of shareholder : Neither the appellant-company is shareholder in these companies nor there is a shareholder holding 10 per cent. in these companies, is holding 20 per cent. in the appellant-company. Hence addition made in the hands of appellant-company, should not have been made. Section 2(22)(e) : Not applicable to widely held companies : Section 2(22)(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the learned Assessing Officer point-wise : a. Trading of shares and acceptance of public deposit are no parameters to check whether a company is a widely held company or not. It is section 2(18) definition which should prevail while assessing whether a company is a company, in which public is substantially interested or not. b. The allegation of the learned Assessing Officer that the appellant- company has failed to evidence that STLL and PHDL continues to be listed at stock exchanges and has not been suspended or de-listed, is not correct. As an evidence of being listed on Delhi Stock Exchanges, the appellant-company submitted the annual listing fee bills raised by the respective stock exchanges on the STLL. Proof of payment of listing fee for both the stock exchanges were submitted during the course of assessment proceedings vide letter date December 15, 2010. Had the STLL was been suspended or delisted, stock exchanges would not have raised the annual listing fee bills. Further as per information available in public domain on Delhi Stock Exchange website at http://www.dseindia.org.in/sitepages/list companies.php it can be seen that STLL is a listed company on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period not less than two days and that applications received in pursuance of such offer were allotted.' Since the assessee-company is in compliance of this rule, allegation that controlling 59 per cent. of the shareholding in the assessee- company would take away the benefit of listing, is purely baseless. Section 2(22)(e) : Not applicable on inter corporate deposits Provisions of section 2(22)(e) of the Income-tax Act, 1961, are not applicable to inter corporate deposits. They are applicable to payments by way of advance or loans only. Reliance in this regard has been placed on Bombay Oil Industries Ltd. v. Deputy CIT [2009] 28 SOT 383 (Mumbai) (copy placed on record) wherein the hon'ble Income-tax Appellate Tribunal, Mumbai, has held that since there is a clear distinction between the words advance or loan and inter corporate deposits and hence deeming provisions of section 2(22)(e) of the Income-tax Act, 1961, cannot be applied to inter corporate deposits. Section 2(22)(e) : Not applicable to loan or advance by non-banking finance companies Section 2(22) of the Income-tax Act, 1961, has an exclusion clause that dividend does not include where advance or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder. 15. We find that the assessee before the Assessing Officer and the learned Commissioner of Income-tax (Appeals) has submitted that both these companies are public limited companies and they have produced evidences to substantiate that the STLL is a listed company at the Delhi Stock Exchange and Jaipur Stock Exchange and also the shareholding pattern as on March 31, 2008. And that section 2(22)(e) is not applicable to loans or advances by non-banking finance companies (NBFC). In order to substantiate that STLL is NBFC, it was submitted that they are registered with the Reserve Bank of India since 1998 in category of loan investment company and engaged in the activities of shares sale, financing activities, loan syndication activities and hypothecation activities. It is a well-settled principle of law that deeming provision has to be interpreted strictly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans and advances of ₹ 14,03,24,434 and out of which, an amount of ₹ 9,86,87,800 had been expressly shown as loans and advances in the balance-sheet although in the latter details the assessee had shown it in the garb of share application money but it had failed to discharge its onus that these advances were in the ordinary course of business of the assessee-company. The Assessing Officer observed that since the assessee was not in the business of finance and it was also not a NBFC company it could not be said that it had advanced this much huge amount in the ordinary course of business. He further opined that the assessee was in the business of civil construction where money was very much required and further, the assessee had not proved that the money which it advanced in the form of/in the garb of share application money were actually allotted to the assessee. He held that the assessee had failed to substantiate as to whether the money advanced in the garb of share application money would give any income to the assessee in the ordinary course of business or not. He further observed that this transaction was directly in the nature of loans and advances and the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has failed to substantiate as to whether the money advanced in the garb of share application money will give any income to the assessee-company in the ordinary course of business. The assessee-company has not shown any return on income/interest on these amounts. (page 3 of the assessment order). Reply to allegation : The investment are generally made to gain in strategic manner in long term, out of which capital gain will accrue and will be taxed at prevailing rates of that particular time. Investments are not like advances which will start earning interest from the day one. Each and every financial product has its own standing in terms of return on it. All over the world, people make investments in equities (be it quoted one or unquoted share) to gain in longer term or to earn dividends. Also they are considered as the best financial vehicle for earning of people who has long-term horizon for making investments. Though in the case of appellant-company, no allotment was made but this is purely normal. Even in the case of IPDs, people do get back their money back due to non-allotment of shares. Also there is no binding provision in SEBI or Companies Acts f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that purpose was placed on the judgment of the Calcutta High Court in the case of Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219 (Cal). It was further submitted that the view taken by the Calcutta High Court had found approval by the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 (SC). Further reliance in this regard is placed on CIT v. Reliance Utilities and Power Ltd., I. T. A. No. 1398 of 2008 (Mumbai High Court) pronounced on January 9, 2009 [2009] 313 ITR 340 (Bom). (Copy of judgment placed on record). Hence the assessee-company pleaded disallowance made of interest shall be deleted since the appellant-company has utilised borrowed money for the purposes of earning income and interest-free funds of ₹ 34.46 crores means they are in abundance considering the amount of share application money of ₹ 9,86,87,800 paid by the appellant- company. 21. In view of these submissions, the learned authorised representative pleaded that the orders of the authorities below be set aside on this issue and the appeal of the assessee be allowed. 22. On the other hand, the learned Departmental representative relied on the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is the shareholders fund position of the appellant-company as on March 31, 2008 : (Rs.) Paid-up share capital 2,62,00,000 Share premium 2,34,00,000 Profit and loss account 62,84,839 Share application money 28,88,00,000 Total shareholder fund available without interest burden 34,46,84,839 24. A perusal of the above reveals that the assessee-company had sufficient funds to the tune of more than ₹ 34.46 crores whereas the share application money invested as on March 31, 2008, only at ₹ 9.28 crores which is only 28.63 per cent. of the total shareholder funds. Thus, we note that the assessee-company has sufficient free funds for making advances/investment out of its own shareholder funds without incurring any interest burden. Our attention was brought to the judgment of the hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), wherein the judgment of the hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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