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TMI Blog2019 (8) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... concern by a company in the ordinary course of its business, where lending of money is a substantial part of business of the company would not constitute dividend. As per Explanation-3, the term 'concern' would include Hindu Undivided family or a firm or an association of persons or a body of individuals or a company. 1.2 The Special Bench of Mumbai Tribunal in ACIT V/s Bhaumik Color (P.) Ltd. [118 ITD 1 19/11/2008], interpreting the provisions of Section 2(22)(e), held that deemed dividend could be assessed only in the hands of a person who is a shareholder of lender company and not in the hands of a person other than the shareholder. Further the shareholder should both be a registered shareholder as well as beneficial shareholder for the applicability of the said provisions. If a person is a registered shareholder but not beneficial shareholder or vice-versa, then provisions of section 2(22)(e) would not apply. Further, the deeming provision of Section 2(22)(e) as it applies to case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on presumption that loan or advances would ultimately be made available to shareholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the reference to any concern. Equally, any payment made by such company on behalf of the shareholder or for individual benefit of any shareholder to the extent to which the company in other case possesses accumulated profits has also been brought in. Thus, in addition to distribution of accumulated profit, debenture stock or deposit certificate etc, a payment of the aforesaid nature has been termed as "dividend" and included in the definition. At the same time, the legislature has taken care not to include any advance or loan made to a shareholder or the said concern in which such shareholder is a member or a partner and in which he has substantial interest in the ordinary course of the business of the company and where lending of money is substantial part of the business of the company. Equally, any dividend paid by the company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off, is also excluded advisedly. The ratio of the above decisions has subsequently been followed by various benches of Tribunal in umpteen number of decisions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 1,42,00,000/- u/s 2(22)(e) of the Income Tax Act, 1961 holding that the deemed dividend is taxable only in the hands of shareholders by placing reliance upon the decision of Mumbai Tribunal in the case of ACIT vs. Bhaumik Colours (2009) SOT (Mum SB) ignoring the intent of Legislation as envisaged in CBDT Circular No.495 dated 22/09/1987. The assessee, upon receipt of notice of hearing, has filed cross-objections against the same by pleading that Ld. first appellate authority erred in not adjudicating the alternative pleas of the assessee as raised during the course of appellate proceedings. In these submissions, the assessee had pleaded that the advances were in the nature of inter-corporate deposits [ICD] and therefore, the provisions of Sec. 2(22)(e) were not applicable to ICD. Another plea was that lending of money was substantial part of lender and therefore, the said provisions were not applicable. Lastly, it was pleaded that substantial loan was received by the assessee before Shri Nandan Damani became shareholder of the assessee and therefore, the loan received before that date could not be treated as deemed dividend u/s 2(22)(e). However, these grounds were not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of voting power. On this basis, after noticing that the audited accounts of the Company was showing a balance of Rs. 1,20,10,988/- as "Reserve & Surplus" as on 31st March, 2006, this amount was included in the income of the assessee as deemed dividend. 20. It is also found as a fact, from the audited annual return of the Company filed with ROC that the money towards share holding in the company was given by the assessee / HUF. Though, the share certificates were issued in the name of the Karta, Shri Gopal Kumar Sanei, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. In any case, it cannot be doubted that it is the beneficial shareholder. Even if we presume that it is not a registered shareholder, as per the provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and shareholder (Mr. Sanei, karta, in this case) is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. 21. It is clear from the above order that all the parties have clearly held that HUF was real benefici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial shareholder. Thus with no stretch of imagination the assessee can be covered under the definition of Section 2(22)(2) i.e., deemed dividend. 25. The similar issue was come before the Hon'ble Kerala High Court in case of CIT v/s Settlement Commission (IT & WT) (2009) 176 Taxman 421 (Kerala) where the Hon'ble High Court held as under:- "In this case, the Settlement Commission has rejected Ext. P2 on the ground that the issue raised is a debatable issue. But, I feel that when there is a decision of the Apex Court, no Inferior Court or Tribunal can say that the issue is a debatable issue for the reason that a Bench of two Judges of the Apex Court has doubted the correctness of the decision of the Constitution Bench. Even assuming there is a final judgment of a two Judges Bench of the Apex Court, the same has to be ignored and Inferior Courts and Tribunals are bound to follow the decision of the Constitution Bench in view of the law relating to precedents and also article 741 of the Constitution of India. So, the rejection of Ext. P2 application is unjustified." 26. In view of the above, the decision of the Hon'ble Supreme Court as on today established binding. Under Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company and Portescap, and even if we were to assume that the amount received by the assessee-company is for the benefit of the stated aforesaid common shareholder, yet, it could only be assessed in the hands of such registered shareholder and not in the hands of the assessee-company. This proposition has been relied upon by CIT (A) to delete the addition, and which is well supported by the judgments of the Hon'ble Bombay High Court in the case of Universal Medicare (P.) Ltd. (supra), Impact Containers (supra) and NSN Jewellers (P.) Ltd. (supra). Thus, we find no justifiable ground to interfere in the conclusion drawn by the CIT (A). 11. So far as the reliance placed by the Revenue on the judgment of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is concerned, the same, in our view, is quite inapplicable to the facts of the present case. Firstly, the assessee before the Hon'ble Supreme Court was a HUF and the issue was as to whether the loans and advances received by the HUF could be treated as 'deemed dividend' within the meaning of Sec. 2(22)(e) of the Act. Notably, in the case before the Hon'ble Supreme Court, the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could only be assessed in the hands of those registered shareholders and not in the hands of the assessee-company. 4.4 In our view, on a plain reading of the provisions of Section 2 (22)(e) of the Act, no other conclusion can be reached. As a matter of fact, a Division Bench of this Court, in the case of Commissioner of Income Tax v. Printwave Services P. Ltd., (2015) 373 ITR 665 (Mad.), has reached a somewhat similar conclusion. 5. Mr. Senthil Kumar, however, contends to the contrary and relies upon the judgment of the Supreme Court in Gopal and Sons (HUF) v. Commissioner of Income-tax, Kolkata-XI, (2017) 77 taxmann.com 71 (SC). 5.1 In our view, the question of law considered by the Supreme Court in the case of Gopal and Sons (supra) was different from the issue which arises in the present matter. The question of law which the Supreme Court was called upon to consider was whether loans and advances received by a HUF could be deemed as a dividend within the meaning of Section 2(22)(e) of the Act. The assessee in that case was the HUF and the payment in question was made to the HUF. The shares were held by the Karta of the HUF. It is in this context that the Supreme Court c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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