TMI Blog2018 (1) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee received insurance commission is devoid of merit. In our view the CIT(A) rightly deleted the addition made by AO as it was not based on any material brought on record. - I.T.A Nos.1461 And 1462 /Kol/2015 - - - Dated:- 8-12-2017 - Sri N.V.Vasudevan, JM And Dr.Arjun Lal Saini, AM For The Appellant : Shri S.Dasgupta, Addl. CIT (DR) For The Respondent : Shri Ankit Jalan, A. R. ORDER Per N.V.Vasudevan, JM ITA Nos.1461 1462/Kol/2015 are appeals filed by the revenue against two different orders of both dated 16.09.2015 of CIT(A)-IV, Kolkata relating to A.Y.2008- 09 and 2011-12. First we take up for consideration the appeal for A.Y.2008-09. The only issue that arises for consideration in this appeal is as to whether CIT(A) was justified in deleting the addition of ₹ 1,61,91,000/- added by the AO as deemed dividend in the hands of the assessee by invoking the provision of section 2(22)(e) of the Income Tax Act, 1961 (Act). 2. The undisputed facts are that the assessee had received loan from M/s J.K.M.Overseas (P) Ltd., of ₹ 1,61,91,000/-. The AO was of the view the said amount received as loan should be treated as deemed dividend u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 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 profits. Explanation-3 to Section 2(22)(e) is as follows: Explanation-3: For the purpose 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial 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. 7.4. 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 deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961 can be assessed in the hands of a person other than a shareholder of the lender? The Special Bench held that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 the Finance Act, 1987 w.e.f 1-4-88 is to ensure that persons who control the affairs of a company as well as that of a firm can have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court of Bombay and Delhi in the case of CIT Vs. Universal Medicare Pvt. Ltd., 324 ITR 263 (Bom) and CIT Vs. Ankitech Pvt.Ltd. others 340 ITR 14 (Del.). The Hon ble Supreme Court in CIT Vs. Madhur Housing and Development company in Civil Appeal No.3961 of 2013 judgment dated 5.10.2017, confirmed the view taken by the Hon ble Delhi High Court in the case of CIT Vs. Ankitech Pvt.Ltd. others 340 ITR 14 (Del.). Since the Assessee in the present case is not a shareholder in the lender company, we are of the view that the above decision is squarely applicable to the facts of the Assessee s case. 7.7. In view of the aforesaid decision, we are of the view that the order of CIT(A) is just and proper and calls for no interference. We therefore uphold the order of the CIT(A) and dismiss the appeal by the Revenue for AY 2008-09 in ITA No.1461/Kol/2015. ITA No.1462/Kol/2015 A.Y.2011-12 8. Grounds No.1 to 5 raised by the revenue in this appeal is identical to ground nos. 1 to 5 raised by the revenue in A.Y.2008-09. The issue is with regard to taxing a sum of ₹ 1,17,50,000/- as deemed dividend in the hands of the assessee company u/s 2(22)(e) of the Act. The facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the appellant in the light of the AO's action. I find that that the AO observed that the dividend income of ₹ 66,354/- -was offered for. taxation but went on to calculate the disallowable expenses against this amount u/s 14A of the Act r. w. Rule 8D of the I. T. Rules in an amount of ₹ 1,34,008/-. I find the AO 's action to be on an erroneous plane in as much as the dividend Income had been offered for taxation and for which there was no requirement for calculating any disallowable expenses on this account. Section 14A of the Act talks of disallowance of expenses attributable to exempt income but in this case the impugned income was not claimed as exempt. Disallowance u/s 14A requires a finding of incurring of expenditure and if it is found that for earning exempted income no expenditure has been incurred, disallowance u/s 14A cannot stand. Viewed from any angle, the case of the appellant does not come within the ambit of section 14A r. w. Rule 80 for which the addition made by the AO on this count amounting to ₹ 1,34,008/- is directed to be deleted. 13. Aggrieved by the order of CIT(A) the revenue has raised ground no.6 before the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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