TMI Blog2022 (2) TMI 1397X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO opined that one of partners of assessee-firm, being also a shareholder in the said company, holding 26.25 per cent shares had substantial interest in the firm and, consequently, concept of deemed dividend under section 2(22)(e) of the Act would apply. The High Court, on appeal by the Revenue, held that since payment had been made to the assessee, a partnership firm and assessee was not a shareholder in company, it was neither a loan nor an advance, but a deferred liability and, thus, section 2(22) (e) of the Act would not apply. The decision of Gopal and Sons (HUF) [ 2017 (1) TMI 331 - SUPREME COURT] was distinguished by the Madras High Court after observing that as in the case before the Supreme Court the assessee was the beneficial shareholder, whereas on facts, it was not so, in the assessee's case. Admittedly, the assessee in the case on hand was neither the beneficial owner of the shares nor registered owners of the shares. Accordingly, in our humble understanding, the principles laid down by the Hon ble Supreme Court in the case of Gopal and Sons (HUF) [ 2017 (1) TMI 331 - SUPREME COURT] are not applicable in the given facts and circumstances. Thus the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only whereas assessee company is not holding any share in M/s JP Iscon Ltd. Hence, the provisions of section 2(22)(e) are not applicable in its case. However the AO treated the above unsecured loan as deemed dividend under the provision of section 2(22)(e) of the Act, by observing that both parties are closely held company and having common shareholders holding more than 20% share in each company i.e. the assessee company and JP Iscon Ltd. At the same time, there was also sufficient reserve and surplus of Rs. 20,65,96,173. Accordingly the AO made addition of Rs. 8,94,41,125/- under section 2(22)(e) of the Act to the total income of the assessee. 4.2 The assessee carried the matter before the learned CIT (A) who deleted the addition made by the AO by observing as under: 2.6. I have carefully perused the assessment order and the written submission made by the learned A.Rs. It is observed that it is fact that Shri Jateen Gupta Shri Amit Gupta were having substantial share holding in both the companies i.e. Giver Company well as the Recipient company. The express provisions of section 2(22)(e) show that there are three limbs of the said section i.e. (i) the payment by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 2(22)(e) of the Act. From the reading of the provisions of section 2(22)(e), it is seen that the provision is intended to tax the dividend in the hands of a shareholder and the deeming provision as it applies to the case of loan or advance by a company to a concern in which is shareholder and has substantial interest, is based on the presumption that the loan or advance would ultimately be made available to the shareholder of the company giving loan or advance. Various court decisions e.g. ACIT v/s. Bhaumik Colour (P.) Ltd.(2009] 118 ITD 1 (Mum.) (SB) jurisdictional High Court I decision in the case of CIT v/s Daisy Packers (P) Ltd [2013] 40 taxmann.com 480 (Gujarat), CIT vs. Impact Containers (P.) Ltd 367 ITR 346 [2014] (Bombay) and other decisions (supra) support this view that the deemed dividend u/s 2(22)(e) can only be I assessed in the hands of the person who is a shareholder of the lender company and I not in the hands of a person other than the shareholder. In view of the above facts and on the basis of the above referred decisions (supra), the addition made by the Assessing Officer u/s.2(22)(e) is held to be not justified and the same is deleted. The additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; 8.2 On perusal of above provision what inferred is that the provision of section 2(22)(e) of the Act can only be invoked in case of shareholder who is holding substantial interest. The provision of section 2(22)(e) of the Act nowhere talks about taxing an entity/company who is not a shareholder holder in lender company but shareholder of such company holding substantial share in lender company. In this regard we find support and guidance from the judgment of Hon ble Jurisdictional High court in Tax appeal no. 891 of 2016 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2(22)(e) of the Act in its case. The learned CIT(A) rightly deleted the addition made by the AO. 8.4 At this juncture, it is also important to deal with the contention raised by the learned DR at the time of hearing as discussed above after referring to the judgment of Hon ble Supreme Court in the case of Gopal and Sons (HUF) Vs. CIT reported in 77 Taxmann.com 71. In Gopal And Sons (HUF) v. CIT [2017] 391 ITR 1/77 taxmann.com 71/245 Taxman 48 (SC) the assessee a HUF received a loan from a company in which it had 37.12% of the total shareholdings. The shares were issued in the name of Karta and in the return filed to the ROC it was stated by the company that the registered ownership was in the name of Karta and the HUF was the beneficial shareholder. The apex court held that the payment was made to the HUF which was covered by the term 'concern' given in Explanation 3 to section 2(22). The karta was a member of the HUF and he had not less than 20% of the income of the HUF as his entitlement. The apex court, accordingly, held that the amount of loan given by the company to the HUF was taxable as deemed dividend. 8.5 However, we note that in the case which arose bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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