TMI Blog2018 (9) TMI 1747X X X X Extracts X X X X X X X X Extracts X X X X ..... This Revenue s appeal for assessment year 2012-13 arises against the Commissioner of Income Tax (Appeals)-4, Kolkata s order dated 27.07.2016, passed in case No.1839/CIT(A)/4/Circle-10(1)/Kol/14-15, reversing Assessing Officer s action making section 2(22)(e) deemed dividend addition of ₹90,98,080/- in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short the Act . 2. The Revenue s sole substantive ground seeks to revive the Assessing Officer s action making sec. 2(22)(e) deemed dividend addition of ₹2,42,00,000/- in assessment order dated 07.02.2015. Learned Departmental Representative invites our attention to the CIT(A) s detailed discussion to this effect reading as under:- 5. Ground No.2 This ground is directed against the action of the AO in making addition of ₹2,42,00,000/- u/s. 2(22)(e) of the Act. this matte is discussed from para 4 to para 4.3 of the assessment order which is not repeated here again for the purpose of avoiding prolixity. However, during the appellate proceeding, the AR of the appellant apprised me of the fact that the same issue had been adjudicated upon by my predecessor CIT(A)-4, Kolkata exercising jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has been having regular day-to-day business dealings with SFPL. The manufactured products for the appellant [ Monginis Cakes, Cookies, Biscuits] were supplied sale to SFPL, as also to other retail chains. The account maintained is a running account. Both entities are separate business entities and are having inter-dependent regular commercial dealings. 4.1.2 Coming to the Loana, the appellant was in the process of setting up a second manufacturing unit at Kandua Food Park, Sankrail, Howrah, Capital was required. To assist in the capital requirement, several group concerns and individuals assisted. Thus SFPL advanced the Loan; as also another group concern [Snow Lion] and also Mr. Arnab Basu, This has been explained in the Project Report. Thus the Loan was but part of a Loan Consortium. Thus therefore the Loan being for capital requirement, it was but business and commercial requirement. The Loan is directly linked to the setting up of the 2nd manufacturing unit. There is no conceivable way for diversion for the personal benefit of Mr. Arnab Basu. 4.4.1.3 It is a Loan with interest being charged at arm s length rate. During the year the interest paid is at ₹53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend has undergone antipodal change. Since several years now there is tax paid at source itself upon the declaring of dividend [section 115-O]; and such tax-paid dividend is exclude from total income [section 10(34)]. Earlier, it was not so. The tax was to be paid by the shareholder; thus obviously there were ways to circumvent, and thus then was the origin of thee deemed dividend enactments. Point is ultimately it must be that the benefit was for the shareholder. 4.4.2.5 There is no legal bar to obtain loan from group concerns; save, it at all only regarding the interest expense quantum in circumstances u/s. 40A(2). When there is no legal bar to obtaining Loan from group concern, then why should the ambiguity in the 2nd limb of section 2(22)(e). Such provision would stifle business growth. There is just no logic or rationale. So, to just on the literal words in the section would be being goaded to trod with blinkers put upon. 4.4.2.6 As here we are discussing on the legal aspect of section 2(22)(e), and applied to the entire gamut of the facts and circumstances of this case I would also go to say that the exception in item (ii): any advance or loan made to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(22)(e), there is no need to go further to s. 2(22)(e)(ii) Therefore, amount advanced for the business transaction by PE Ltd. to the assessee company did not fall within the definition of deemed dividend under s. 2(22)(e) Held: The finding of facts, arrived at by the Tribunal is that the transaction in question was a business transaction and which transaction would have benefited both the assessee company and PE Ltd. In fact, the counsel for the appellant has conceded that the amount is in fact not a loan but only an advance because the amount paid to the assessee company would be adjusted against the entitlement of moneys of the assessee company payable by PE Ltd. in the subsequent years. The contention that since PE Ltd. is not into the business of lending of money, the payments made by it to the assessee company would be covered by s. 2(22)(e) (ii) and consequently payments even for business transactions would be a deemed dividend is not acceptable. The provision of s. 2(22)(e)(ii) is basically in the nature of an Explanation. That cannot however, have bearing on interpretation of the main provision of s. 2(22)(e) and once it is held that the business transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pee Empro Exports (P) Ltd. in order to increase its export business and to compete with the international standards in garment exports had suggested modernization and expansion of the plant and machinery of the assessee company for which M/s Pee Empro Export (P) Ltd. made available a project report for such expansion on 28th July, 2000 to the assessee company. The assessee company in turn vide its letter dt. 30th Sept., 2000 informed M/s Pee Empro Exports that for increasing such capacity as desired by M/s Pee Empro Exports a huge investment is enquired and showed its inability to invest such large amount out of the present available funds. M/s Pee Empro agreed then to make available funds to the extent of 50 per cent cost because it was not only in the interest of M/s Pee Empro Exports but also on account of fact that M/s Pee Empro itself owns 50 per cent shares in the assessee company. The rest of the 50 per cent project cost was to be made available by the directors Mr P.S. Uppel and Mr. P.M.S. Uppal. 3. The AO for this amount paid to the assessee company by M/s Pee Empro Exports (P) Ltd. made an addition of ₹ 3,60,18,885 in terms of s 2(22)(e) of the Act as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions which are business transactions/commercial transactions and therefore, such transactions cannot fall under the expression deemed dividend within the provision of s. 2(22)(e) 6. Before we refer to the rival contentions of the parties, we would like to reproduce the following findings of facts arrived at by the Tribunal.: 7.5 In the present case the amount paid by M/s Pee Empro Exports to the appellant-company does not bear the characteristic of loans and advanced. The amount has been paid by M/s Pee Empro Exports in its own interest and that too for the purpose of business because the ultimate beneficiary of the proposed expansion of plant and machinery is M/s Pee Empro Exports itself. M/s Pee Empro Exports has not made the payment to the appellant company for the individual benefit of Mr. R.S. Upal and Mr. P.M.S.Uppal and on the contrary these two directors have also provided funds to the appellantcompany as owners of the company as also made by M/s Pee Empro Exports. The assessee undertook expansion of its capacity, which was in mutual interest of assessee as well Pee Empro Exports. If the assessee has not undertaken such expansion, no advance coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of tax on accumulated profits under s 23. It will be remembered that an advance or loan which falls within the mischief of the impugned section is advance or loan made by a company which does not normally deal in moneylending, and it is made with the full knowledge of the provision contained in the impugned section. The object of keeping accumulated profits without distributing them obviously is to take the benefit of the lower rate of super tax prescribed for companies. This object was defeated by s. 23A which provides that in the case of undistributed profits, tax would be levied on the shareholders on the basis that the accumulated profits will be deemed to have been distributed against the Similarly 12 (1B) provides that if a controlled company adopts the device of making a loan or advance to one of its shareholders such shareholders will be deemed to have received the said amount out of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It is clear that, when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately, decided to adopt th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed dividend . Page 9 10. We agree with the aforesaid observations. The finding of facts, arrived at by the Tribunal in the present case is that the transaction in question was a business transaction and which transaction would have benefited both the assessee company and M/s Pee Empro Exports (P) Lt. In fact, as stated above, the counsel for the appellant has conceded that the amount is in fact not a loan but only an advance because the amount paid to the assessee company would be adjusted against the entitlement of moneys of the assessee company payable by M/s Pee Empro Exports (P) Ltd in the subsequent years. 11. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this Court in Raj Kumar s case (supra) deals with the part of the definition of deemed dividend under s. 2(22)(e) which states that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [s.2(22)(e) (ii)] i.e., there is no deemed dividend only if the lending of moneys is by a company which is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of an advance or loan. 10.5 If this purpose is kept in mind then in our view, the word advance has to be read it conjunction with the word loan . Usually attributers of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan; it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term advance may or may not include lending. The word advance if not found in the company of or in conjunction with a word loan may or may not include the obligation of repayment. If it does not then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term advance . The rule of construction to our minds which answers this conundrum is nosciture a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson vs. George Day (1879) 5 AC 63 by observing it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them and our Supreme Court in the case of Rohit Pulp Papear Mills Ltd. vs. CCE AIR 1991 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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