TMI Blog2017 (1) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... l JUDGMENT K. S. Jhaveri, J. 1. Since all these appeals involve common question of law and fact, therefore they are decided by this common judgment. For convenience of the court, facts are taken from D.B. Income Tax Appeal No.619/2009. 2. By way of this appeal, the Department has challenged the judgment and order of the Tribunal whereby Tribunal has dismissed the appeal of the department and cross objections were allowed for statistical purposes. 3. The facts of the case are that TDS verification was conducted on 27.02.2008 and it was noticed that the assessee has made payments under various heads but TDS was not deducted as per provisions of Income tax Act 1916. A show cause notice u/s 201(1)/201(1A) was issued to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2(22)(e) of the Income Tax Act, 1961 any payment given from current account to persons specified u/s 2(22)(e) cannot be considered as loan as advance and hence cannot be considered as deemed divident? 5. The contention of the department before the AO u/s 2(22)(e) of the Act which reads 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 31st day of May, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(e) cannot apply where the corporate body holds 100% shares of the subsidiary. It will only apply to a case where the holding company has a substantial interest in the subsidiary company. We fail to appreciate this submission. Having a 100% interest is the same as having a substantial interest. In the premises question No. 1 which is referred to us at the instance of the assessee is answered in the affirmative and against the assessee. 7. He also relied upon the judgment of the Gujarat High Court in Ravindra D. Amin vs. Commissioner of Income Tax reported in (1994) 208 ITR 815 (Guj.) holding as under:- It is also difficult to appreciate how the Tribunal after coming to the conclusion that we have to proceed on the basis that pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very object of the section. By manipulating and by making a show that the company had given advance or loan to its shareholder on its own and not at the instance of the shareholder, a shareholder can evade liability to pay tax. In our opinion, the Tribunal totally lost sight of this aspect and, therefore, erroneously held that s. 194 can apply only in those cases where the company gives loan or advance to its shareholder at the instance of the shareholder. It is also not possible to agree with the reasoning given by the other member of the Tribunal. In our opinion, the situations pointed out by the Tribunal for deducting amount of tax when advance or loan is made by the company to a shareholder in the middle of the year, are more imagin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the management of the company, its affairs and its profits. It is for this group to decide whether the profits should be distributed as dividends or not. The declaration of dividend is entirely within the discretion of this group. Therefore, the legislature realized that though funds were available with the company in the form of profits, the controlling group refused to distribute accumulated profits as dividends to the shareholders but adopted the device of advancing the said profits by way of loan to one of its shareholders so as to avoid payment of tax on accumulated profits. This was the main reason for enacting Section 2(22)(e) of the Act. 10. Counsel for the respondent contended that Section 194 is charging section which rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated under Section 2(22)(e) of the Act. We have to keep in mind that this legal provision relates to ―dividend ‖. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to ―shareholder‖. When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under Section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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