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TMI Blog2018 (11) TMI 1802X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Checkpoint Systems Inc., was also the ultimate parent company of M/s. OAT System Software India Private Limited. As Checkpoint Systems Inc. held the entire share capital of the assessee as well as the lending company, the Assessing Officer concluded that the loan received by the assessee from M/s. OAT System Software India Private Limited was in the nature of a deemed dividend u/s. 2(22)(e). The Assessing Officer concluded that all the conditions required u/s. 2(22)(e) were fulfilled in this case and hence made additions on account of deemed dividend. Aggrieved, the assessee filed an appeal before the CIT(A), who allowed the appeal. 3. Aggrieved against the order of the Ld CIT(A), the Revenue filed this appeal with following grounds : "1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2. The learned CIT(A) erred in deleting the addition made of Rs. 4.25 crores by treating loan as deemed dividend u/s.2(22)(e) of the Act 2.1 The Learned CIT(A) erred in holding that the provisions ofsection 2(22)(e) of the Act are not applicable to the loantransaction entered between the assesseecompany andits related concern, without appreciating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der or to a concern in which 'such' shareholder is member or for the benefit of 'such' shareholder. 2.3 In the facts of the instant case, the shareholder of Oat Systems India (the lender) is Oat Systems Inc., USA and shareholder of the Assessee is ADS Worldwide Limited, United Kingdom. The shareholding structure of the Assessee and the lender is presented below for reference: 2.4 It will be appreciated that the Assessee is: - neither a shareholder of Oat Systems India nor does any shareholder of Oat Systems India hold any shares in the Assessee Company. - Assessee has not received any payment from Oat Systems India on behalf of or for the benefit of its shareholder (i.e. for ADS Worldwide Limited). Thus, none of the above conditions specified in section 2(22)(e) of the Act are satisfied in the Assessees case. 2.5 The AO, however, while framing the assessment has made following observations on page4, to allege that the amount received by the Assessee is exigible to tax as deemed dividend: 'The shares of the both the company are directly held by common parent Check Point Systems Inc, USA through two subsidiaiy namely MIs ADS Worldwide Limited and MIs OAT System Inc." 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies can be explained as under: It was contended that CGTIPL i.e. lender company was a subsidiary of Cargilllnt. Trading Pte Ltd. Singapore with 99% shareholding and none of the shares of lender company were held by assessee company and therefore provisions of section 2(22)(e) were not applicable. For the sake of convenience, we analysis the provisions of section 2(22)(e). Section 2(22)(e) applies to a shareholder being a person who is the beneficial owner of share holdings not less than 10% of the voting power of that company Thus in order to attract the provisions of section 2(22)(e) the person should be a (a) shareholder; (b) should be a beneficial owner of shares; (c) It must hold at least 10% of voting power in the lender company The aforesaid requirements of law are cumulative. Further it is settled position that the term shareholder as used in provision of section 2(22)(e) refers to shareholder who is a registered share holder i.e. whose name appears in the share register of the company. The Assessing Officer has held the amount of loan as deemed dividend because as per his opinion Cargill Inc. USA i.e. ultimate holding company of both assessee company and le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Services (supra), it is only one of the two aspects of taxability of deemed dividend has been discussed and referred for larger Bench. The position that the deemed dividend can be taxed only in the hands of shareholder, has not been diluted as held by Madhur Housing (supra) and Cargill India (supra). It is reiterated that the reference to larger Bench only seeks to dilute, the controversy regarding, whether shareholder should be both registered and beneficial shareholder and not the settled position that dividend ultimately can be taxed only in the hands of shareholder, be it registered or beneficial not otherwise. Thus, to that extent the judgement in the case of Ankitech (supra) still holds ground. 2.13 It is submitted that the AC had also disallowed the interest paid by the Assessee to CAT systems for the impugned loan at 13.5%. The CIT(A) has held the same to be as an allowable expenditure. The Department has not challenged such allowance of interest expenditure. Under the circumstances when one leg of the transaction has been accepted to be loan and interest paid thereof has been allowed / accepted as a business expenditure then the loan taken cannot be re-characterized as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of argument if it is considered that the legal position as enunciated by Supreme Court in Madhur Housing (supra) has been diluted by National Travel Services (supra), it is only one of the two aspects of taxability of deemed dividend has been discussed and referred for larger Bench. The position that the deemed dividend can be taxed only in the hands of shareholder, has not been diluted as held by Madhur Housing (supra) and Cargill India (supra). It is reiterated that the reference to larger Bench only seeks to dilute, the controversy regarding, whether shareholder should be both registered and beneficial shareholder and not the settled position that dividend ultimately can be taxed only in the hands of shareholder, be it registered or beneficial not otherwise. Thus, to that extent the judgement in the case of Ankitech (supra) still holds ground. 2.13 It is submitted that the AO had also disallowed the interest paid by the Assessee to CAT systems for the impugned loan at 13.5%. The CIT(A) has held the same to be as an allowable expenditure. The Department has not challenged such allowance of interest expenditure. Under the circumstances , when one leg of the transaction has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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