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TMI Blog2008 (6) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... The shareholding pattern of M/s. Jackson Generators P. Ltd. hereinafter referred to JGPL was: 1) Mahesh Kumar Gupta 43.19% (2) Ms. Rukmani Gupta 26.46% (3) Manmohan Chadha 30.35% 3. The Assessing Officer on the ground that the assessee had received advances from JGPL held that the amounts received should be treated as deemed dividend under section 2 (22) (e) of the IT Act 1961. The assessee had submitted that the assessee was not the registered shareholders in JGPL and that the advances were notional payments or book entry and for such loans the provisions of section 2(22)(e) did not apply. The Assessing Officer did not accept the contentions of the assessee and proceeded to tax the deemed dividend in the hands of the assessee. 4. Aggrieved the assessee had filed first appeal to the Commissioner of Income-tax (Appeals) who had confirmed the assessment. Aggrieved the assessee had filed this appeal before the Tribunal. 5. It was the submission of the ld. AR on behalf of the assessee that the assessee was not a shareholder in JGPL, but the loans and advances received by the assessee from JGPL had been treated as deemed dividend in the hands of the assessee - APL on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the concern being, the assessee as shareholder. In the absence of such a deeming provision the concern though defined in section 2 (22) (e) cannot be taxed. For this proposition he relied upon the decision of Hon'ble Madras High Court in the case of G.R. Govindarajulu Naidu reported in 90 ITR 13 wherein the Madras High Court had held that for invoking the deeming provisions of section 2(6A) the loan must be by a company to its registered shareholder as otherwise the said section will create a deemed dividend even when there is a loan by the company to the person other than a shareholder which the company cannot do under section 206 of the Companies Act. Section 2(6A) does not empower the company to pay dividends to persons other than its registered shareholder. In the circumstances, section 2(6A) (e) cannot be invoked unless the legislature introduces a further deeming provision to the effect that the joint family, which is the beneficial owner of the shares, shall be deemed to be the registered shareholder of the company. It was his submission that no such deeming fiction has been created in the amended section 2(22)(e) to treat the concern as a shareholder without possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer and the ld. Commissioner of Income-tax (Appeals) had not considered this issue. It was the submission that the deemed income if it is to be considered as taxable in the hands of the assessee would have to be exempted under the provisions of section 80 IB (4). It was the submission that the deemed income would be the income derived from the industrial undertaking and thus the income would be eligible for the deduction under section 80IB(4). He further submitted that the wordings of the 80 IB (4) were the income derived from the industrial undertaking and not the income derived from the business of the industrial undertaking. Thus, it was the submission that any income derived from the industrial undertaking was exempted and the provisions of section 80 IB (4) should not be restricted to the income derived from the business of the industrial undertaking. It was the submission that the advances received by the assessee from JGPL was used for the business of the assessee industrial undertaking and consequently if at all the advances were to be treated as deemed dividend in the hands of the assessee, the same should be treated as the income derived from the industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain cases companies having accumulated profits and the companies in which the substantial voting power lied in the hands of the persons other than the public and who have not distributed such accumulated profit as dividend to the shareholders, in order to avoid paying tax, the controlling group does what it likes with the management of the company, its affairs and its profits and such accumulated profits is transferred under the guise of loans and advance to avoid paying taxes. It was the submission that as the legislature realized that such funds are available with the company in the form of profits were being advanced by way of loans and advances to shareholders so as to avoid payment of tax on the accumulated profits the legislature had introduced the provisions of section 2(22)(e). It was the submission that the accumulated profits of JGPL had been advanced to the assessee company and consequently the provisions of section 2(22)(e) applied and the Assessing Officer had rightly taxed the same as deemed dividend. He vehemently supported the orders of the Assessing Officer and the ld. Commissioner of Income-tax (Appeals). 9. We have considered the rival submissions. For a be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner 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. but "dividend" does not include- (i) xxxxxxxxxxxxxxxxx (ia) xxxxxxxxxxxxxxxxx (ii) xxxxxxxxxxxxxxxxx (iii) any dividend paid by a company which is set-off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within, the meaning of sub-clause (e), to the extent to which it is so set-off;" (iv) xxxxxxxxxxxxxxxxx (v) xxxxxxxxxxxxxxxxx Explanation 3 to section 2(22) (e) is also important and is also extracted below:- Explanation 3: For the purposes of this clause,- (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b)a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern; 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from the Companies Act shows that the terms "member" and "shareholders" are synonymous under the Companies Act and it is clear that in so far as the company is concerned a person would be recognized as its member or shareholder only when his name is entered in the register of members. This view of ours find support from the decision of the Hon'ble Allahabad High Court in the case of Raj Kumar Singh and Co. reported in 199 CTR 88 (Allh.). 13. The modification to the provision of section 2(22) (e) as done by the Finance Act to include advances or loans made to any concern in which such shareholder is a member or partner and in which he has substantial interest shows that the legislature intended to bring to tax even such cases where the concern per se might not be a shareholder in the payer company but the shareholder or the members or the partners in the payer company has substantial interest in the payee company. The explanation 3 (b) specifies that the person shall be deemed to have a substantial interest in a concern if he is beneficially entitled to not less than 20 % income in such concern. In the present case it is noticed that Shri Mahesh Kumar Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc. we are of the view that as the Income Tax Act 1961 itself has given a definition to the term person in section 2(31) of the Act. Such definition would be applicable to all the provisions of the Act until and unless specifically excluded. This is because the opening words of the provisions of section (2) specify that "in this Act unless the context otherwise requires" the definitions are specified. The section 2(22) (e) does not give a context to give the term "person" another definition other than that which is provided under the Act in section 2(31). Our view finds support from the decision of the Hon'ble Bombay High Court in the case of Sadana Textile Mills Pvt. Ltd. reported in 188 ITR 318. In the circumstances, this submission made on behalf of the assessee also stands rejected. In regard to the submission that the computation of deemed dividend as made by the Assessing Officer is not as per the decisions of the Hon'ble Supreme Court in the case of Mukund Ray K. Shah as also the decision of the Hon'ble Delhi High Court in the case of P.K. Badiani and that the computation as submitted by the assessee should be considered. It is noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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