TMI Blog2012 (2) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company. The shareholding pattern of the Directors i.e. Harish Amin and Moumita Amins in both the companies were as under : S. N Name of the Company Harish Amin Mounita Amin 1. M/s. EMS Electricals Engg. Pvt. Ltd. 60% 40% 2. Biji s Hotel (India) Pvt. Ltd. 35% 25% 2.2 The Assessing Officer further noted that M/s. EMS Electricals Engg. Pvt. Ltd had reserves and surplus to the tune of ₹ 4,30,45,446/- and, therefore, he held that provisions of section 2(22)(e) are clearly attracted. Before the Assessing Officer, the assessee s contention was that the deemed dividend can be assessed only in the hands of a person who is a shareholder of the company and the assessee company being not a shareholder of M/s. EMS Electricals Engg. Pvt. Ltd., therefore, provisions of section 2(22)(e) are not attracted. The Assessing Officer however rejected the contention of the assessee and after relying upon the CBDT Circular No.495 dated 22.09.1987 and also the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Apex Court which has been followed in the case of Rameshwarlal Sanvarmal vs. CIT (1980) 122 ITR 1 (SC). The Hon ble ITAT Mumbai (Spl. Bench), in the case of ACIT vs. Bhaumik Colour Pvt. Ltd. (2009) 118 ITD 01, has held that the expression share holder referred to in section 2(22)(e) refers to both the registered share holder and the beneficial share holder. If the person is registered share holder, but not beneficial share holder, the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial share holder but not registered share holder then also the provisions of section 2(22)(e) will not apply. Following the decision of Rajasthan High Court in Hotel Hill Top, the Hon ble Mumbai Tribunal has held in the case of Bhaumik Colour Pvt Ltd. that deemed dividend is assessable only in the hands of a person who is share holder in the lender company and not in the hands of a person other than share holder. The facts are that in the instant case the company has taken unsecured loan from M/s. Electrical and Engineering Pvt. Ltd. The recipient of the loan is not a share holder of the payer company. Moreover, the loan has been granted by the payer company to the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to a shareholder out of accumulated profits. The provisions of section 2(22)(e) creates a fiction which brings in any payment by way of advance or loan to a shareholder into the ambit of dividend, therefore, clause (e) of section 2(22) must be given strict interpretation. If the assessee company which has received the loan is not a shareholder then fiction cannot be extended on the ground that the directors were common and having more than 10% of voting rights. This aspect of the matter has been analysed in detail by the Hon'ble Special Bench in the case of ACIT vs. Bhaumik Colour (P) Ltd. (supra) wherein after considering the various judgment and analysing the provision of section 2(22)(e) in detail came to the following conclusion : 34. We are of the view that the provisions of section 2(22)(e) does not spell out as to whether the income has to be taxed in the hands of the shareholder or the concern (non-shareholder). The provisions are ambiguous. It is therefore necessary to examine the intention behind enacting the provisions of section 2(22)(e) of the Act. 35. The intention behind enacting provisions of section 2(22)(e) are that closely held companies (i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nonshareholder, viz., the concern. 37. The definition of Dividend under section 2(22)(e) of the Act is an inclusive definition. Such inclusive definition enlarges the meaning of the term Dividend according to its ordinary and natural meaning to include even a loan or advance. Any loan or advance cannot be dividend according to its ordinary and natural meaning. The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word Dividend is extended to loans and advances to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word Dividend is altered. To this extent the definition of the term Dividend can be said to operate. It the definition of Dividend is extended to a loan or advance to a non-shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of section 2(22)(e) and in the absence of indiction in section 2(22)(e) to extend the legal fiction to a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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