TMI Blog2018 (7) TMI 818X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 (2) TMI 426 - ITAT KOLKATA) and by relying on the decision of the Hon’ble Bombay High Court in the case of Parle Plastics Ltd [2010 (9) TMI 726 - BOMBAY HIGH COURT] - Decided against revenue - I.T.A No. 872/Kol/2017 - - - Dated:- 4-7-2018 - Shri S. S. Godara, JM And Shri M. Balaganesh, AM For the Appellant : Shri A Bhattacharjee, Addl. CIT For the Respondent : Shri A. Dudhwewala, FCA ORDER Per M. Balaganesh, AM 1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-17, Kolkata [in short the ld CIT(A)] in Appeal No. 115/CIT(A)- 17/Kol/15-16 dated 09.08.2016 against the order passed by the ITO, Ward-4(3), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 10.03.2014 for the Assessment Year 2008-09. 2. The only issue to be decided in this appeal of the revenue is as to whether the ld CITA was justified in deleting the addition made in the sum of ₹ 1,51,00,000/- u/s 2(22)(e) of the Act in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a Non-Banking Finance Company (NBFC) engaged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making investment in shares and not granting of loans and advances. Hence the assessee s case does not fall under the exception provided in section 2(22)(e) of the Act. Accordingly, he made an addition of ₹ 1,51,00,000/- towards deemed dividend in the assessment. 5. Before the ld CITA, the assessee pleaded that the ld AO erred in holding that the substantial part of business of the lending company was not granting of loans and advances. The assessee pleaded that as against the amount received from M/s Off Shore India Ltd during the year in the sum of ₹ 1,51,00,000/-, a sum of ₹ 1,36,00,000/- was repaid out of the said loan during the previous year itself. Thus the incremental loan taken during the previous year was ₹ 15,00,000/- only. Further, M/s Off Shore India Ltd charged interest of ₹ 77,23,101/- for the financial year 2010-11 on the loans granted to the assessee by them which was debited in the assessee s profit and loss account as interest for the year ended 31.3.2011 and necessary tax deduction at source was also deposited by the assessee as per applicable provisions of law. As per the audited accounts of lending company as on 31.3.2011, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the revenue, that to constitute as a substantial part of the business of the lending company, the business of money lending must constitute more than 50% of the business. The Hon ble Bombay High Court discussed as to what constituted substantial part of the business and held that: The expression used under sub-clause (ii ) of section 2(22) is substantial part of the business . The expression substantial part does not connote an idea of being the major part or the part that constitutes majority of the whole. If the Legislature really intended that more than 50 per cent of the business of the lending company must come from the business of lending, nothing prevented the Legislature from using the expression majority of business . If the Legislature at all intended that a particular minimum percentage of the business of a lending company should come from the business of lending, the Legislature could have specifically provided for that percentage while drafting sub-clause (ii) of section 2(22). The Legislature had deliberately used the word substantial instead of using the word major and/or specifying any percentage of the business or profit to be coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest was ₹ 1,08,18,036, while its total profit was ₹ 67,56,335. Excluding the income earned by AMPL by way of interest, the other business had resulted in net loss. The Tribunal had taken into consideration the relevant factors and had applied the correct tests to come to the conclusion that lending of money was substantial part of the business of AMPL. Since lending of money was a substantial part of the business of AMPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it had to be excluded from the definition of dividend by virtue of sub-clause (ii ) of section 2(22). [Para 12] 6. The ld CITA deleted the addition made in the sum of ₹ 1.51.00.000/- towards deemed dividend by making the following observations :- Decision: I have carefully considered the submissions of the assessee and have gone through the findings of the AO. I find there is not much dispute with regard to the facts. The only question which needs to be adjudicated is whether on facts on record it can be said that granting of loans constituted substantial part of business of Offshore India Ltd. It is observed that as on 31.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng loans. Having regard to these facts and figures therefore it cannot be denied that more than 45% of the long term investible funds were deployed by OSIL in its business of granting loans. In the present case by AO's own admission 45.42% of the long term funds of OSIL were employed in granting of loans. In the circumstances, can it be said that granting of loans and lending of money constituted substantial part of assessee's business . The Bombay High Court in the case of CIT vs Parle Plastics Ltd (332 ITR 63) found that 42% and 39% of the total assets of the loan granting company as on 31.03. 1996 and 31.03.1997 respectively were deployed by way of loans and advances. According to the AO the business of money lending should have constituted more than 50% of assessee's business, but since only 42% or 39% of the total assets were found to be employed in granting loans the AO did not allow the assessee benefit of Clause --(ii) of Sec. 2(22). On appeal the Tribunal held that substantial part of assessee's business constituted money lending. On appeal by the Revenue; High Court upheld the order of ITAT. The observations of the Hon'ble Bombay High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act which led to judicial interpretations by various judicial forums and it has been held that the expression 'substantial part of the business' is different and distinct from the words principal business' or 'main business' used in other places in the Act. Taking cue from provisions of section 2(22)(e) and section 2(32) of the Act, the courts and various benches of the tribunal have held that threshold of 20% can be safely applied to ascertain whether a particular business activity can be considered to be forming 'substantial part of the business '. In the instant case, as already stated supra that GGPL had deployed more than 20% of its Net Owned funds by way of granting of inter corporate deposits to the assessee and then it could be concluded that the substantial part of company's business can be said to be granting loans, inter corporate deposits and advances and therefore clause (ii) of sec 2(22)(e) of the Act becomes applicable in case of such company. If the ratio derived from the above decisions is applied to the facts of the present case then I find that 45.42% of long term funds of OSIL were employed in the business of granting loans. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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