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PRINCIPAL COMMISSIONER OF INCOME TAX-1 Versus MEHUL PRATAP ASNANI

2017 (2) TMI 226 - GUJARAT HIGH COURT

Deemed dividend addition u/s 2(22)(e) - assessee held more than 90% shares of the lending company - Held that:- It is an admitted position that neither BVCPL was the shareholder in the BOPL nor the BOPL was shareholder in the BVCPL. Under the circumstances, merely because the assessee was a common shareholder in BVCPL and BOPL, the loan given by the BVCPL to BOPL could not have been treated as deemed dividend under Section 2(22)(e) of the Act in the hands of the assessee. - Delhi High Court .....

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sfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal, Ahmedabad A Bench, Ahmedabad in ITA No.2476/AHD/2011 for AY 2007-08, by which, the learned Tribunal has allowed the appeal preferred by the assessee and has directed to delete the addition made by the Assessing Officer a sum of ₹ 40,26,933/-as deemed dividend under Section 2(22)(e) of the Act, the Revenue has preferred present Tax Appeal with the following proposed question of law. Whether the A .....

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mic Pvt Ltd (BOPL for short) and also having 94.92% in Biotech Vision Care Pvt Ltd (BVCPL for short) granted loan of ₹ 40,26,933/- to BOPL in the AY 2007-08. The Assessing Officer reopened the assessment by issuing a notice under Section 148 of the Act and made addition of ₹ 40,26,933/- in AY 2007-08 treating the amount of loan by BVCPL to BOPL as deemed dividend under Section 2(22)(e) of the Act. According to the AO, the loan given by the BVCPL to BOPL be treated as deemed dividend, .....

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the addition made by the AO and consequently partly allowed the appeal. 2.3. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A) in deleting the only part amount towards deemed dividend i.e. ₹ 18,73,532/- and ₹ 81,374/- out of total addition of ₹ 40,26,933/-, the assessee preferred appeal before the learned Tribunal. By the impugned judgment and order, the learned Tribunal has deleted the entire addition of ₹ 40,26,933/-, made by the AO treatin .....

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itted that while making the deletion of aforesaid addition made by the AO, the learned Tribunal has not properly appreciated the scope and ambit of Section 2(22)(e) of the Act. 3.1. It is further submitted by Shri Manish Bhatt, learned counsel for the revenue that the learned Tribunal has not properly appreciated the fact that the assessee was common shareholder both in BOPL and BVCPL having more than 20% share in both the aforesaid companies and therefore, the loan given by the BVCPL of ₹ .....

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be noted that the AO made addition of ₹ 40,26,933/- treating the same as deemed dividend under Section 2(22)(e) of the Act on the ground that the assessee was a common shareholder in both BVCPL and BOPL and therefore, the loan given by the BVCPL to BOPL be treated as deemed dividend under Section 2(22)(e) of the Act in the hands of the assessee. However, it is required to be noted and it is an admitted position that neither BVCPL was the shareholder in the BOPL nor the BOPL was shareholde .....

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ion made by the learned Tribunal by holding that from whom loan and advance was taken by the assessee must be shareholder in the assessee company. In para para 3 & 4, the Division Bench has observed and held as under: [3.0] We have heard Shri Manish Bhatt, learned Counsel appearing on behalf of the revenue at length. We have also considered and gone through the impugned judgment and order passed by the learned Tribunal; the assessment order as well as the order passed by the learned CIT(A) m .....

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bute such profit as dividend because if so distributed the dividend income would become 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 .....

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advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by a legal fiction created 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 Secti .....

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advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of deeming shareholder, then the Legislature would have inserted a deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned Counsel for the revenue would stand answered, once we l .....

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loan or advance, in the first place, is not an income. Such a loan or advance has to be returned by the recipient to the Company, which has given the loan or advance. 27. Precisely, for this very reason, the Courts have held if the amounts advanced are for business transactions between the parties, such payment would not fall within the deeming dividend under Section 2(22)(e) of the Act. Considering the provisions of Section 2(22)(e) of the Act, we are in complete agreement with the view taken .....

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