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TMI Blog2019 (1) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2010-2011, the respondent assessee was found having received amounts/loans and has paid various amounts to Tanushka Automobiles Pvt. Ltd and M/s Vinayaka Farms and Resorts (India) Pvt. Ltd., during assessment year 2010-2011. The assessee in his return filed on 4.9.2010 declared his total income of Rs. 5,91,17,150/-. The case was selected for scrutiny. After notice under Section 142 of 1961 Act, a questionnaire was issued on 22.11.2012. During the course of assessment proceedings the assessment officer noticed that the assessee received various amounts from and paid various amounts to Tanushka Automobiles Pvt. Ltd. The Assessing Officer treated such loans/advance amount of Rs. 3,69,12,500/- and Rs. 10,00,000/- from M/s Vinayaka Far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Appellate Tribunal upheld the deletion. As regard to deemed dividend under Section 2(22) (e) of 1961 Act, we, at the outset, observe that the issue as to applicability of said provision to a nonmember/ non-shareholder of the concerned company which has given the loan/advance has been settled by the decision in "CIT Vs. M/s Ankitech Pvt. Ltd and others [340 ITR 14 (Del)] (ITR 462/2009)" wherein Division Bench of High Court of Delhi held: "24. The intention behind enacting provisions of Section 2(22)(e) is that closely-held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 given to nonmembers. The second category specified under Section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or 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 han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of such a concern which is not a shareholder, and that according to us is the correct legal position, such a circular would be of no avail. 29. No doubt, the legal fiction/deemed provision created by the legislature has to be taken to 'logical conclusion' as held in Andaleeb Sehgal (supra). The Revenue wants the deeming provision to be extended which is illogical and attempt is to create a real legal fiction, which is not created by the Legislature. We say at the cost of repetition that the definition of shareholder is not enlarged by any fiction. ....................... 32. We, thus, answer the questions in favour of the assessee and against the Revenue, as a result, these appeals are dismissed." The decision in M/s Ank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the space given to Axis Bank was the prime space of the property. Further the appellant had taken a security deposit of Rs. 2 cr. from Tanushka Automobiles Pvt Ltd as against no security deposit received from Axis Bank Ltd. Thus arrival of fair rental value on rent received from Tanushka Automobiles Pvt. Ltd. on the basis of rent received from Axis Bank Ltd. would not be a correct position as the terms and circumstances of both the tenants are different. In the various case laws cited by the appellate it has been held that if the appellant has received an actual rent in excess of municipal valuation then such a rent ought to be treated as fair rent in terms of section 23. Following the ratio laid down by the said decisions I find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not doubted that fact that the appellant received a security deposit and an advance. The AO has also not doubted the fact that there was a formal agreement between both the parties to pay interest. The AO has also not doubted the fact that the interest provided/paid by the appellant to Tanushka Automobiles Pvt Ltd. was 6%. The AO has also not doubted and has allowed interest paid to other depositors @ 12% per annum by the appellant. Merely because no interest was paid on certain security deposit would not be the factor for determining the allowability of interest and applicability of provisions of section 40A(2)(b). The test thus would be whether the interest @ 6% paid by the appellant to Tanushka Automobiles Pvt Ltd was reasonable and fai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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