TMI Blog2019 (6) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of money was substantial part of the business of the both lender companies under consideration from whom the assessee has received loans and advances. Since lending of money was a substantial part of the business of SDIPL and AIPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it has to be excluded from the definition of dividend by virtue of clause ( ii ) of Section 2( 22 ) of the Act. We therefore, hold accordingly. - I.T.A. No. 29/AHD/2019 - - - Dated:- 12-4-2019 - SHRI O. P. MEENA, ACCOUNTANT MEMBER AND MRS. MADUMITA ROY, JUDICIAL MEMBER For The Assessee : Shri HardikVora, AR For The Revenue : Shri B. P. Shrivastava, Sr. Dr. ORDER PER O. P. MEENA, AM This appeal by the assesseeis directed against the order of learned Commissioner of Income tax (Appeals)-4, Ahmedabad (in short the CIT (A) ) dated 30.11.2018 pertaining to Assessment Year 2015-16, which in turn has arisen from the assessment order passed under section 143 (3) dated 26.12.2017 of Income Tax Act,1961 (in short the Act ) by the Deputy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. (SDIPL) and 22.81% shareholding in the Aatrey Infrastructure Pvt. Ltd. (AIPL), the companies in which public are not substantially interested. Therefore, the AO hold that provisions of section 2(22) (e) of the Act are applicable as the assessee has received loans and advances from the aforesaid companies. The assessee has taken loan from SDIPL amounting to ₹ 6,76,65,000/- during the year under consideration, the accumulated profit of the said company was at ₹ 2,50,80,923/- (the accumulated profit of the company). Therefore, the assessee was asked to show-cause as to why the amount should not be treated as deemed dividend within the meaning of sec. 2(22)(e) of the Act. Similar show-cause notice has also issued in respect of AIPL from whom the assessee has taken loan and advances of ₹ 4,13,32,960/- of the accumulated profit was at ₹ 76,53,711/-. The assessee has repliedSDIPL and AIPL are covered by a specific exemption given in sub-clause (ii) of sec. 2(22)(e) of the Act, in which it has been provided that any advance or loan made to a share holder (or the said concerns) given by a copy to a shareholder in the ordinary course of its business, where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to unsecured loan taken comes to 105.25%, percentage of Net Interest Income to Profit comes to 30.67%, percentage of Loan and Advances to Total fund available comes to 79.37%, percentage of Loan and Advances to Total Assets of company comes to 69.71%. It was further contended that the contention of the AO that main object of the company does not cover money lending business and no license for money lending business is obtained by the company is totally incorrect as exemption provided in sub-clause (ii) sec. 2(22)(e) does not require such conditions. It was further shown by filing of a copy of ledger account of SDIPL,that the appellant had paid interest @9% of ₹ 37,40,062/- and has deducted tax deducted at source @ 10% u/s. 194A of ₹ 3,74,062/- thereon. Hence, the assessee has not received any individual benefit out of the said loan, but has compensated the company by way of paying interest of ₹ 37,40,625/-. It was further contended that the money lending business was a substantial part of its business, the net interest income constitutes 30.67% of its profit for the year and total loans and advances are 69.71% of its total assets. Hence, exclusionary condition und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at moneylending business has been stated in the Memorandum of Association. The CIT(A) has referred Part (A) of Memorandum of Association and reproduce the same in the appellate order and also reproduce Part (B) of the Memorandum of Association and observed that it could be seen from the Part (A) (B) of the Memorandum of Association that the money lending business is nowhere specified in the main object and it is only mentioned in incidental and ancillary objects. Further, clause 6 of incidental or ancillary object is also not helping the appellant, as he is neither company not corporation nor trust nor institutions. The CIT (A) noted that the AR has referred clause no. (20) of incidental or ancillary to contend that object says that to lend surplus money. However, this argument was not found acceptable by the Ld. CIT(A). Further, the CIT (A) observed that the case law relied by the assessee are not applicable as money lending business of the lender companies is not proved. Therefore, the CIT(A) observed there is no money lending business as no such amount are given or taken to general public though illegal without approval from RBI or other departments etc. It is large amount tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the word appearing in the section and rules must be given the same meaning unless there is nothing to indicate the contrary. Therefore, the Ld. Counsel contended that where SDIPL is money lending business ratio to total loans and advances are 69.71% and AIPL ha 35.66% percentage of total assets then the lending company has money lending business has a substantial part of its business. Thus, the funds deployed in loans and advances at 69.71% by SDIPL and 35.65% By AIPL which is more than 20% of from money lending business, hence the exception provide in sub-clause (ii) of sec. 2(22)(e) are applicable. The learned counsel for the assessee has placed reliance on this decision of Hon ble Bombay High Court in the case of CIT vs. Parley Plastics Ltd. (2011) 332 ITR 63 (Bom), wherein referring to para 10 of the said order it was submitted that the ITAT has noted that 42% of the total asset of AIPL as on 31.03.1996 and 39% of total asset of AMPL as on 31.03.1997 were deployed out of total loans and advances. By no means, the deployment of about 40% of the total asset into the business lending could be regarded as an insignificant part of the business of AMPL and held that by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the Act. It was held that gratuitous loan or advance given by a company to those classes of shareholders thus, would come within the purview of section 2(22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. 10. On the other hand, the ld. Sr. D.R. submitted that the AO has considered all the details during the scrutiny assessment and found that the condition of the provisions of section 2(22)(e) are attracted and therefore loan and advances received during the year have been treated as deemed dividend u/s. 2(22)(e) of the Act. The ld. Sr. D.R. further referred page 8 of the assessment order and submitted that the AO has clearly observed that the main object of the lender companies was to carrying on business of builder, mason, and the general construction as well as industrial construction etc. The other objects of the lender companies are incidental to main object. Further, the assessee has not obtained any licence for carrying on moneylending business from RBI. Therefore, it was contended that there is no specific mention regarding moneylending business as ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts business as the percentage ratio of loan and advances to total funds available comes to 79.37% and percentage of loan and advances to total assets of the company comes to 69.71%. The ratio of loans and advances given to unsecured loan was at 105.25%. Similarly, AIPL percentage ratio of loan and advances to total funds available comes to 35.66% and percentage of loan and advances to total assets of the company comes to 32.45%. The ratio of loans and advances given to unsecured loan was at 56.29%.We further observe that though the memorandum of article of the Association of the company does not authorized money lending business as main object, but page 2 paragraphs 6 and at page 4 para 20 authorized the lending of surplus money by these companies.The perusal of sub clause (ii) of section 2 (22) (e) shows that it does not envisaged such acondition of authorization. In order to appreciate that there is no requirement of main object as of money lending business, it would be relevant to reproduced the sub clause (ii) of section 2(22)(e) which read as under:- Any advance or loan made to shareholder (or the said concern) by a company in the ordinary course of its business, where the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tics Ltd. [2011] 332 ITR 63 (Bombay) held as follows 12. Applying these tests to the present case, we do not find that the ITAT has committed any error in coming to the conclusion that lending of money was a substantial part of the business of AMPL. The ITAT has noted that 42% of the total assets of AMPL as on 31.3.1996 and 39% of the total assets of AMPL as on 31.3.1997 were deployed by it by way of total loans and advances. By no means, the deployment of about 40% of the total assets into the business of lending could be regarded as an insignificant part of the business of AMPL. The ITAT has also held that the income AMPL had received by way of interest of ₹ 1,08,18,036/- while it s total profit was ₹ 67,56,335. Excluding the income earned by AMPL by way of interest, the other business had resulted into net loss. In our view, the ITAT has taken into consideration the relevant factors and has applied the correct tests to come to the conclusion that lending of money was substantial part of the business of the 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 regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(2) of the Act. The learned counsel for the assessee relied in the case of ACIT vs. M/s. Zenon (India) Pvt. Ltd. ITA No. 1124/Kol/2012 (Paper Book 38 to 43 and Smt. Sangita Jain vs. ITO ITA No. 1817/Kol/2009 (Paper Book 44 to 51) which supports his contentions. The learned counsel for the assessee placed reliance in the case of Shri Pradip Kumar Malhotra v. CIT [I.T.A.No. 219 of 2013 dated 02.08.2011 of Hon ble Calcutta High Court] [PB-24-37]. Wherein it was held by the Honourable Calcutta High Court that phrase by way of advance or loan appearing in section 2(22)(e) must be construed to mean those advances or loans, which is shareholder enjoys for simply on account of being a Partner, who is the beneficial owner of shares, but if such loan or advance is given to such shareholder as a consequence of any further consideration, which is beneficial to the Company, received from such shareholder, in such a case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. It was held that gratuitous loan or advance given by a company to those classes of shareholders thus, would come within the purview of section 2(22)(e) but not the cases where the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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