9911796707
TMI Blog2024 (2) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... areholder of lender company. 2. Brief facts of the case are that a search was conducted in the case of Shri Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan, Smt. Rukmini Thiagarajan, M/s. ETL Power Services Limited, M/s. IG3 Infra Limited on 04.11.2020. The assessee company M/s. MAC Quality Builders Private Limited is also a part of the group companies of M/s. IG3 Infra Limited. During the search proceedings, materials were seized in the case of M/s. IG3 Infra Limited and the assessee company. Neither there are common shareholder between the lender company nor the assessee. For the sake of convenience, since the issue and facts are similar in all assessee's case, the facts of M/s. MAC Quality Builders Private Limited has been considered for adjudication. 3. The assessee company is engaged in the business of real estate. The assessee company has filed the return of income under section 139(1) of the Act on 02.03.2022 and declared a total loss of Rs..8,60,35,790/-. 4. The Assessing Officer has stated that the material seized vide ANN/BS/IG/LS/S-4 and ANN/BS/IG/LS/S-6 during the course of search conducted in the case of Shri Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan, Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f invoices. The mail communication between [email protected] and [email protected] has shown that the purchase orders were prepared and sent by Shri Yogeshwaran of M/s. IG3 Infra Limited on 30.09.2020 whereas the dates mentioned in the purchase orders are in the month of December 2019. The copies of the relevant emails purchase orders and bills of quotation were seized vide ANN/BS/IG/LS/S-6. 7. In his sworn statement recorded under section 132(4) of the Act dated 05.11.2020, Shri Yogeshwaran, Purchase manager stated that the purchase orders and the Bills of Quotation (BoQ) were prepared on the instructions of Smt Rukmini Thiagaraian at later date. Thus, it is evident that the purchase orders and BoQ were prepared at a much later date after the dates of payments. The payments to the assessee company and four other group companies were made in April, May and June 2020 whereas the purchase orders were prepared in October, 2020, though they were dated as December 2019. The Assessing Officer has noted that the payments aggregating to Rs..88,91,90,240/- were made by M/s. IG3 Infra Limited to the assessee even without purchase orders or BoQ. The same is the case in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company and four other group companies were used by the promoters of M/s. IG3 Infra Limited to divert funds of the said company for their own benefit and purpose. Further, a statement under section 131 of the Act was recorded from Shri Sasikumar, one of the Directors of the assessee company and that he had accepted that invoices were raised without carrying out any work. Smt Rukmini Thiagarajan has also admitted vide letter dated 03.02.2021 that funds were transferred from M/s.IG3 Infra Limited to the assessee company and four other group companies and that it was inadvertently recorded in the books of account as "Capital Work In Progress" instead of "Loans". Accordingly, the Assessing Officer has concluded that the amounts paid to the assessee company and four other group companies by M/s. IG3 Infra Limited during the previous year relevant to AY 2021-22 represent loans advanced by the said company. 11. The Assessing Officer has identified that the appellant company and four other group companies, to whom M/s.IG3 Infra Limited has advanced loans as stated above are related to each other. The AO observed that the address, the Directors, the Shareholders, details of Incorporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infra Limited to the assessee on 27.04.2020 in order to avoid the provisions of section 2(22)(e) of the Act and payment of taxes under the Act. On analysis of the old and new share holding pattern of the assessee company and corporate structure of M/s. IG3 Infra Limited, it is clear that the assessee company is a group concern of M/s. IG3 Infra Limited in which the family of Thiagarajan has substantial interest and the ultimate shareholders of the assessee company are Shri Shanmugam Thiagarajan, Smt Unnamalai Thiagarajan and Smt Rukmini Thiagarajan. The AO observed that the reserves and surplus of M/s. IG3 Infra Limited as on 31.03.2020 amounted to Rs..257,62,37,000/-. The AO also observed that these facts clearly establish that the fund transfers by way of loans to the tune of Rs..88,91,90,240/- to the assessee by M/s. IG3 Infra Limited is nothing but dividend payments by M/s. IG3 Infra Limited to the benefit of shareholders in terms of the provisions of section 2(22)(e) of the Act. The AO stated that the loan of Rs..88,91,90,240/- was received by the assessee on behalf of and for the benefit of the ultimate shareholders i.e., Shri Shanmugam Thiagarajan, Smt Unnamalai Thiagarajan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any as the same does not exceed the accumulated profits of M/s. IG3 Infra Limited as on 31.03.2020 and accordingly, made addition of Rs..88,91,90,240/- under section 2(22)(e) of the Act. 14. The assessee carried the matter in appeal before the ld. CIT(A). After considering the detailed written submissions of the assessee, the ld. CIT(A) has observed as under: 28. I have given careful consideration to the findings of the AO, the written submission of the appellant and the material available on record. In the assessment order, the AO treated the loan of Rs. 88,91,90,240/- advanced by M/s.IG3 Infra Limited to the appellant company on various dates during the period from 27.04.2020 to 25.06.2020 as income liable to tax in the hands of the appellant company by way of deemed dividend us 2(22)(e) of the Act. In the grounds of appeal, the appellant contended that the provisions of sec 2(22)(e) are not applicable to its case since neither the appellant company nor its present shareholders (shareholders at the time of receiving the loans) were holding any shares in the company which advanced loans to the appellant company. The appellant also contended that the AO has wrongly considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iagarajan and that such payment falls under the scope of deemed dividend u/s 2(22)(e) is erroneous since none of the said persons were shareholders in MsIG3 Infra Limited at the time of advancing the loan to the appellant company. 6) Though the AO asserted in the assessment order that Shri Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan and Smt. Rukmini Thiagarajan are the ultimate shareholders of MsIG3 Infra Limited as well as the appellant company, he has not substantiated the said assertion by any cogent material or reasoning. Further, the AO did not bring out any corroborative evidence to substantiate his finding that the ultimate shareholders have benefitted from the loan transactions even though they were not the shareholders in M/s. IG3 Infra Limited at the time of advancing the loan to the appellant company. 30. The contentions put forth by the appellant have been carefully examined in the light of the facts of the case and the provisions of sec 2(22)(e). The provisions of sec 2(22)(e) have laid down three situations where deemed dividend arises in the hands of the shareholders. The first situation is where loan is advanced by a closely held company to a shareholder w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and that such common share holder holds not less than 10% of the voting power in M/s.IG3 Infra Limited and not less than 20% of the voting power in the appellant company at the time of advancing the loan by M/s.IG3 Infra Limited to the appellant company in order to hold that the said conditions have been satisfied. 34. In this connection, it is important to understand the meaning of the expression "shareholder, being a person who is the beneficial owner of shares" used in sec 2(22)(e). The interpretation of the said expression has been the subject matter of the decisions of Hon'ble Delhi High Court in the case of CIT vs. Ankitech Private Limited (2012) 340 ITR 14 (Delhi) and the Hon'ble Supreme Court in the case of CIT vs Madhur Housing and Development Co. (2018) 401 ITR 152 (SC), In the case of CIT vs Ankitech Private Limited (Supra), the Hon'ble Delhi High Court held that the expression "shareholder" has to be construed to mean a 'registered shareholder' in view of the decisions of the Hon'ble Supreme Court in the cases of CIT vs. CP Sarathy Mudaliar (1972) 83 ITR 170 (SC) and CIT vs. Rameshwarlal Sanwarmal (1980) 22 ITR 1 (SC), The Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the HUF beneficial owner of the shares-would be taxed as deemed dividend in the hands of the HUE The Supreme Court held that the HUF being only the beneficial shareholder and not a registered shareholder would not fall within the purview of Section 2(6A)(e) of the 1922 Act. The apex Court observed as follows: .....What Section 2(6A)(e) is designed to strike at is advance or loan to a 'shareholder' and the word 'shareholder' can mean only a registered shareholder. It is difficult to see how a beneficial owner of shares whose name does not appear in the register of shareholders of the company can be said to be a 'shareholder'. He may be beneficially entitled to the share but he is certainly not a 'shareholder'. It is only the person whose name is entered in the register of the shareholders of the company as the holder of the shares who can be said to be a shareholder qua the company and not the person beneficially entitled to the shares. lt is the former who is a 'shareholder' within the matrix and scheme of the company law and not the latter. We are, therefore, of the view that it is only where a loan is advanced by the company to a reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said to fall within the parameters of Section 2(22)(e) of the Act. In the 196l Act, Section 2(22)(e) imposes a further condition that the shareholder has also to be 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 poser. It is not possible to accept the contention of the learned Departmental Representative that under the 1961 Act there is no requirement of a shareholder being a registered holder and that even a beneficial ownership of shares would be sufficient. 24. The expression "shareholder being a person who is the beneficial owner of shares" referred to in the first limb of Section 2(22)(e) refers to both a registered shareholder and beneficial shareholder If a person is a registered shareholder but not the beneficial then the provision of Section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of Section 2(22)(e) will not apply. 35. The abovementioned decision of the Hon'ble Delhi High Court has been affirmed by the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rafi holding 99.90% of the voting power and Ms. Anu Abraham holding 0.1% of the voting power. The said shareholders are hereinafter referred to as the 'present shareholders'. 39. The existence of a common registered and beneficial shareholder between M/s.IG3 Infra Limited and the appellant company has to be seen at the time of release of various tranches of the loan to the appellant company during the period from 27.04.2020 to 25.06.2020. During the said period, the appellant company has new shareholders as mentioned in the preceding paragraph. On comparing the registered shareholders of M/s.IG3 Infra Limited and the appellant company during the period of advancing the loans, it is noticed that there is no common registered shareholder between the two companies, much less a common registered shareholder holding not less than 10% of the voting power. As there is no common registered shareholder, the question of having a common registered and beneficial shareholder does not arise. 40. In the assessment order, the AO held that the ultimate shareholders of M/s.IG3 Infra Limited and the appellant company are the members of Thiagarajan Family in order to invoke the second lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholder on the date the loan was advanced. 43. Notwithstanding the legal infirmity in the comparison made by the AO between the shareholders of M/s.IG3 Infra Limited and the previous shareholders of the appellant company as stated in the preceding paragraphs, it is found that the finding rendered by the AO based on the said comparison is also without factual basis. It is seen that the AO did not furnish any reasons or data or documentary evidence in support of his finding that the ultimate shareholders of both the companies are Shri Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan and Smt. Rukmini Thiagarajan. Consequently, the said finding which is unsubstantiated on facts cannot be taken into consideration. 44. Moreover, even if the said finding is assumed to be factually correct, the same does not facilitate invoking of the second limb of sec 2(22)(e) since it is not adequate that the common shareholder is a beneficial shareholder and it is a mandatory requirement as per the decision of Hon'ble Supreme Court cited above that the common shareholder is a 'registered as well as beneficial' shareholder. Since there is no common registered and beneficial shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), as already discussed earlier in this order. 48. In the Assessment Order, the AO rendered a factual finding that the ultimate shareholders of both M/s.IG3 Infra Limited and the appellant company are Shri. Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan and Smt. Rukmini Thiagarajan and that the funds transferred by way of loans by M/s.IG3 Infra Limited to the appellant company are for the individual benefit of the said ultimate shareholders and that the appellant received the said funds on behalf of the ultimate shareholders. In this regard. it is seen that the AO did not furnish any reasons or data backed by evidence in support of his finding that the ultimate shareholders of M/s.IG3 Infra Limited (the company which made the payment) are Shri Shanmugam Thiagarajan, Smt. Unnamalai Thiagarajan and Smt. Rukmini Thiagarajan. Consequently, the said finding which is unsubstantiated on facts cannot be taken into consideration. 49. Moreover, even if the said finding is assumed to be factually correct, the same does not facilitate invoking of the third limb of sec 2(22)(e) since it is not adequate that the shareholder is a beneficial shareholder and it is a mandatory requirement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholder of M/s.IG3 Infra Limited holding not less than 10% of the voting power. Hence, it is required to be held that the third limb of sec 2(22)(e) cannot be invoked in the case of the appellant for the purpose of treating the amount received from M/s.IG3 Infra Limited as deemed dividend in its hands. Person in whose hands deemed dividend, if any, is taxable 52. Notwithstanding the findings rendered above that the conditions prescribed in sec 2(22)(e) are not satisfied in the facts of the appellant's case in order to hold that the provisions of deemed dividend are attracted, another issue which needs consideration is whether the deemed dividend, if any, is taxable in the hands of the appellant company. In the assessment order, the AO made addition of the deemed dividend in the hands of the appellant company. However, the appellant challenged the same in the grounds of appeal stating that the deemed dividend is not liable to be taxed in the hands of the appellant company since the appellant is not a shareholder in M/s.IG3 Infra Limited. Hence, the legal issue arising for consideration is whether the deemed dividend, if any, is assessable in the hands of the specified sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder is a member or a partner and in which he has a substantial interest. The Tribunal in the present case has found that as a matter of fact no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the books of account of the assessee. The fact that there was a defalcation seems to have been accepted since this amount was allowed as a business loss during the course of assessment year 2006- 2007. Consequently, according to the Tribunal the first requirement of there being an advance or loan was not fulfilled. In our view, the finding that there was no advance or loan is a pure finding of fact which does not give rise to any substantial question of law. However, even on the second aspect which has weighed with the Tribunal, we are of the view that the construction which has been placed on the provisions of Section 2(22)(e) is correct. Section 2(22)(e) defines the ambit of the expression 'dividend'. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder. The effect of Section 2(22) is to provide an inclusive definition of the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm. In which event, it would fall within the expression "deemed dividend" Obviously, income from dividend, is taxable as income from other sources, under Section 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Roop Kumar and Devendra Kumar, are the common persons, holding more than requisite amount of share holding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. 10. Thus, the significant requirement of Section 2(22) (e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm. 55. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(22) (e) of the Act, Viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of -deeming shareholder, then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the Revenue would stand answered, once we look into the matter from this perspective. 26. In a case like this, the recipient would be a shareholder by way of deeming provision. It is not correct on the part of the Revenue to argue that if this position is taken, then the income -is not taxed at the hands of the recipient. Such an argument based on the scheme of the Act as projected by the learned counsels for the Revenue on the basis of Sections 4 5, 8, 14 and 56 of the Act would be of no avail. Simple answer to this argument is that such loan or advance, in the first place, is not an income. Such a loan or advance has to be return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. The assessee-company as well as the said entity, i.e. Indev Logistics Pvt. Ltd., admittedly have common shareholders. The shares in the assessee company to the extent of 50% are held by Mr. Xavier Britto, while the balance shares are held by Smt. Vimalarani Britto. In so far as Indev Logistics Pvt. Ltd. is concerned, shares are held likewise by the said individuals, though in a different ratio. Mr. Xavier Britto holds 60% of the shares in Indev Logistics Pvt. Ltd., while Smt. Vimalarani Britto holds the balance 40% shares in the said entity. 4.2. The Revenue seeks to assess as income the capital advance received by the assessee-company from Indev Logistics Pvt. Ltd. on the ground that it is deemed dividend received by the assessee-company for the benefit of the registered shareholder. For this purpose, the provisions of Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act') is sought to be relied upon. The Tribunal has rejected the said contention of the Revenue, principally, on the ground that deemed dividend can only be assessed in the hands of the registered shareholder for whose benefit the money was advanced. 4.3. As indicated above, there is no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Pallava Resorts Private Limited Vs ITO (2022) 143 taxmann.com 08 (Chennai-Trib) and held that the amount of loan received by the assessee company from its holding company is not taxable as deemed dividend u/s 2(22)(e) in the hands of the assessee company and the same is taxable in the hands of the common registered shareholders only. The relevant portion of the decision of the Hon'ble Tribunal is extracted as under: 7. We have heard the rival contentions and had gone through the facts and circumstances of the case. We note that the Assessee does not hold any shares in QNEI and that it is QNEI that holds 72.299% shares in the Assessee Company. The fact remains that under the Companies Act, 1956, as a subsidiary company of QNEI, it is illegal to have shares in its holding company. From the Balance Sheet filed by the Assessee, it is noticed that the Assessee does not have any investments and therefore it is clear that the Assessee does not hold share in QNEI. However, it is noticed from the submissions of the learned Counsel for the Assessee that the holding company had regularly paid for the expenses of the Assessee and the Assessing Officer had considered these payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the Section. Such a deeming fiction would not be given a wider meaning that what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking section 2(22) (e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction between the inter-corporate deposits, viz. loans/advances, according to us the authorities below were not right in treating the same as deemed dividend ws.2(22) (e) of the Act. " 7.3 Since, the Assessee is not a shareholder of QNEI, the amount received from QNEI will not be taxable in the hands of the Assessee as deemed dividend u/s. 2(22)(e) of the Act and common shareholding in two companies would not attract the provisions of Section 2(22)(e) of the Act. In the light of the above, we are of the opinion that the reassessment made by the Assessing Officer stands null and void and the addition of Rs. 1,40,67,364/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31.03.2020 was Rs..366,83,51,830/- whereas the same was Rs..714,01,89,265/- as on 03.11.2020. Thus, there was an increase of Rs..347,18,37,435/- between 31.03.2020 and 03.11.2020. The ld. DR submitted that the increase in Capital Work in Progress was attributable to the payments made to the following assessee companies: S.No Name of the companies Amount (Rs.) 1 MAC Quality Builders Private Limited 88,92,45,200 2 Mukunda Land Developers Private Limited 51 ,13,44,866 3 Mugilan Structurals Private Limited 36,85,89,045 4 Minal Contractors and Builders Private Limited 87,80,05,819 5 Meadows Infrastructure Private Limited 72,60,86,883 Total 337,32,71 ,813 The ld. DR submitted that though the above payments were accounted as made towards contract works undertaken by the assessee companies in the books of account of M/s. IG3 Infra Limited, the matter of fact is no works were actually carried out by the assessee companies. 15.2 The Ld. DR invited our attention to the assessment order and submitted that all the invoices raised by the assessee companies are similar without much detail. It is submitted that most of the invoices are dated subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of the Ld. DR that all the assessee companies are related to each other and connected with M/s. IG3 Infra Limited and operating under the instructions of family members of Shri Thiagarajan who are the promoters of M/s.IG3 Infra Limited. Thus, the ld. DR submitted that the loans given by M/s. IG3 Infra Limited to the assessee companies on the instructions of Ms. Rukmini Thiagarajan are for the ultimate benefit of family members of Thiagarajan and accordingly falls within the four corners of section 2(22)(e) which the Assessing Officer has rightly made the addition towards deemed divldend in the hands of the assessee companies. 15.5 The ld. DR further submitted that the shareholding of the assessee companies were changed just prior to the receipt of first tranche of loans from M/s. IG3 Infra Limited in order to escape from the applicability of section 2(22)(e) of the Act. It is the submission of the ld. DR that the shareholding prior to the change has to be taken into consideration to examine the applicability of section 2(22)(e) of the Act in the hands of the assessee companies. 15.6 The ld. DR submitted that the Assessing Officer has rightly invoked third limb of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder Percentage of equity share holding (%) 1 ETL Power Services Limited 89.56 2 Green Grid Group Pte Limited 7.86 3 IL & FS Trust Co Ltd, A/c IL & FS Pvt. Equity Trust- IL & FS Reality Fund 1.77 4 Elnet Technologies Limited 0.8 5 Unnamalai Thiagarajan (beneficial interest held by ETL Power Services Ltd. 0.002 ETL Power Services Limited) 6 A. Subramanian (beneficial interest held by ETL Power Services Ltd. 0.002 7 V.G Madan Mohan (beneficial interest held by ETL Power Services Ltd. 0.002 8 R. Tamil Selvam (beneficial interest held by ETL Power Services Ltd. 0.002 9 Vaikkam Infrastructures Projects Private Limited (beneficial interest held By ETL Power Services Limited) 0.002 The ld. Counsel further invited our attention to the old and present shareholding of the assessee companies as follows: Particulars MAC Quality Builders P Ltd. Minal Contractors & Builders P. Lrd. Mukunda Land Developers P. Ltd. Mugilan Structurals P. Ltd. Meadows Infrastructure P Ltd. Date of change in shareholding 23.04.2020 23.04.2020 23.04.2020 & 08.05.2020 08.05.2020 23.04.2020 Old shareholders Southern Projects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. Counsel submitted that the provisions of section 2(22)(e) of the Act will not come into picture as the primary condition of being a equity shareholder with not less than 10% of the voting power is not satisfied. 16.2 The ld. Counsel submitted that the Ld. CIT(A) has rightly held that the expression 'shareholder' referred to in section 2(22)(e) of the Act to mean both registered and beneficial shareholder by relying on the judgement of the Hon'ble Delhi High Court in the case of CIT v. Ankitech (P.) Ltd [2011] 340 ITR 14 (Del) which was affirmed by the Hon'ble Supreme Court in the case of CIT v. Madhur Housing & Development Co [2018] 401 ITR 152 (SC). 16.3 The Ld. Counsel submitted that in the case of CIT v, National Travel Services [2012] 347 ITR 305 (Del), the Hon'ble Delhi Court has taken a contrary view which matter was travelled before the Hon'ble Supreme Court. The Hon'ble Supreme Court in National Travel Services v. CIT [2018] 401 ITR 154 (SC) has referred the matter to the Hon'ble Chief Justice of India in order to constitute a larger bench for reconsideration of the issue whether the shareholder should be both registered and beneficial. The Ld. Counsel relying on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of KIIC Investment Company v. DCIT [2019] 101 taxmann.com 19 (mum-Trib) and submitted that the relevant date for ascertaining the shareholding is the date of granting of loan. 16.6 The Ld. Counsel submitted that the factual finding of the Ld. CIT(A) regarding no common registered and beneficial shareholder is not controverted by the Ld. DR. Thus, the Ld. Counsel submitted that the Ld. CIT(A) is justified in deleting the additions made by the Assessing Officer towards deemed dividend holding that there is no common registered and beneficial shareholders between M/s. IG3 Infra Limited and the assessee companies. 16.7 The Ld. Counsel submitted that the Ld. CIT(A) has rightly held that the payments made by M/s. IG3 Infra limited to the assessee companies cannot be regarded as paid for the individual benefit of the family of Shri Thiagarajan since the Assessing Officer failed to substantiate with any cogent evidence. Thus, it is the submission of the Ld. Counsel that third limb of section 2(22)(e) cannot be invoked in the hands of the assessee companies. 16.8 The Ld. Counsel further submitted that the Ld. CIT(A) notwithstanding to the adjudication on the applicability of second and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Assessing Officer called upon the assessee companies to explain why the addition towards deemed dividend should not be made in their hands in view of transfer of loans from M/s. IG3 Infra Limited to the assessee companies for the ultimate benefit of family members of Shri Thiagarajan. 17.1 The assessee submitted before the Assessing Officer that the shareholders do not hold any equity shares either on an individual basis or on a beneficial basis in M/s. IG3 Infra Limited, thus submitted that the provisions of section 2(22)(e) of the Act are not applicable. In respect of date of determination of shareholding to examine the applicability of section 2(22)(e) of the Act it was submitted that the shareholding as on the date of advancing of loans is to be considered. Thus, submitted before the Assessing Officer that the previous shareholders have no relevance on the date of advancing of loans by M/s. IG3 Infra Limited to the assessee companies. The assessee further submitted before the Assessing Officer that the previous shareholders do not own equity shares in M/s. IG3 Infra Limited as they were holding only Redeemable Optionally Convertible Cumulative Preference Shares (ROCCPS) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares" holding not less than 10% of the voting power, so as to attract the provisions of the third limb of section 2(22)(e) of the Act. The Ld. CIT(A) drawn this conclusion on the basis of the fact that Shri Shanmugam Thiagarajan and Smt Rukmini Thiagarajan are not registered shareholders of M/s. IG3 Infra Limited and consequently both of them cannot be regarded as "registered and beneficial shareholder". Further, the Ld. CIT(A) observed that though Smt Unnamalai Thiagarajan is a registered shareholder in M/s. IG3 Infra Limited, her holding was a mere 0.002% which is less than the prescribed voting power of 10% to attract the provisions of section 2(22)(e) of the Act. 17.5 The Ld. CIT(A) having deleted the additions holding non applicability of second and third limbs of section 2(22)(e) of the Act, also held alternatively that no addition towards deemed dividend can be made in the hands of the assessee companies since the assessee companies are not the shareholders of M/s. IG3 Infra Limited. Thus, the Ld. CIT(A) deleted the additions made by the Assessing Officer in the hands of the assessee companies invoking the provisions of section 2(22)(e) of the Act. 18. The only issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are covered since they are the ones who are eligible for voting power, thus, excluding all other shareholders like preference etc. The expression 'shareholder, being a person who is the beneficial owner of shares' is a subject matter of debate i.e. whether the shareholder to mean registered and beneficial or beneficial alone. The Hon'ble Delhi High Court in the case of CIT v. Ankitech (P.) Ltd (supra) has held that the term 'shareholder' used in the section referred to both a registered and beneficial shareholder. The relevant portion of the judgement is extracted below: "20. In the case of CIT v. C.P. Sarathy Mudaliar (supra), provisions of section 2(6A)(e) of the Act, 1922, which was synonymous to section 2(22)(e) of the Income tax Act, 1961 came up for consideration. In the said case, members of HUF acquired shares in a company with the fund of the family. Loans were granted to HUF and the question was whether the loans could be treated as dividend income of the family falling within section 2(6A)(e) of the Act, 1922. The Apex Court held that only loans advanced to shareholders could be deemed to be dividends under section 2(6A)(e) of the Act; the HUF could not be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 2(22)(e) the payment must be to a person who is a registered holder of shares. As already mentioned the condition under the 1922 Act and the 1961 Act regarding the payee being a shareholder remains the same and it is the condition that such shareholder should be beneficial owner of the shares and the percentage of voting power that such shareholder should hold that has been prescribed as an additional condition under the 1961 Act. The word "shareholder" alone existed in the definition of dividend in the 1922 Act. The expression "shareholder" has been interpreted under the 1922 Act to mean a registered shareholder. This expression "shareholder" found in the 1961 Act has to be therefore construed as applying only to registered shareholder. It is a principle of interpretation of statutes that where once certain words in an Act have received a judicial construction in one of the superior Courts, and the Legislature has repeated them in a subsequent statute, the Legislature must be taken to have used them according to the meaning which a Court of competent jurisdiction has given them. 23. In the 1961 Act, the word "shareholder" is followed by the following words "b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the view that the judgement is a detailed judgement going into Section 2(22)(e) of the Income-tax Act which arises at the correct construction of the said Section. We do not wish to add anything to the judgement except to say that- we agree therewith", 18.3 The Hon'ble Delhi Court in the case of CIT v. National Travel Services (supra) has taken a contrary view holding that for the purpose of section 2(22)(e) of the Act it is not necessary that a shareholder has to be a registered shareholder and being a beneficial shareholder would suffice. 18.4 Against the above judgement of the Hon'ble Delhi High Court, assessee preferred further appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court in National Travel Services v. CIT (supra) has referred the matter to the Hon'ble Chief Justice of India in order to constitute a larger bench for reconsideration of the issue. 18.5 In the case of National Travel Service v, CIT (supra), neither any decision was rendered nor was any stay on applicability of judgement of the Hon'ble Supreme Court in the case of CIT v. Ankitech (P.) Ltd. (supra). Thus, there is no binding judgement arises in the case of National Travel Service v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablished binding. Under Article 141 of the Constitution, ratio of decision of the Hon'ble Supreme Court and principle underlying decision is binding. It is most crucial to note that in that case matter was referred to reconsider the earlier decision with their observation that for applying deemed dividend provision it is sufficient if the shareholder is beneficial shareholder. It need not be necessary that shareholder must be registered shareholder. Because as per earlier decision for applying deemed dividend shareholder must satisfy both character of shareholder i.e. Registered as well as beneficial shareholder. Thus, as per observation of this decision also shareholder needs to be beneficial Shareholder. If the shareholder is not a beneficial shareholder then as per this observation also provisions of deemed dividend will not apply. Hence, all the decision supports the contention of assessee that deemed divided cannot be apply in assessee's hand as it is neither registered nor beneficial shareholder of EIPL." 18.6 When the matter of National Travel Service v. CIT (supra) came up before the Larger Bench of the Supreme Court, it was dismissed as withdrawn as the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce or loan to a shareholder; V) any payment on behalf of a shareholder; and, (iii) any payment for the individual benefit of a shareholder. In the present case, qua the payment of Rs. 90,00,00,000/- made by Portescap to GVR, the Assessing Officer invoked Sec. 2(22)(e) of the Act considering that assessee was a common shareholder owning substantial shareholding in Portescap as well as GVR. The implication is that the Assessing Officer invoked the second limb of Sec, 2(22)(e) of the Act, namely that the payment by Portescap to GVR was on behalf of the common shareholder, i.e. the assessee. Quite clearly, the stand is not tenable because, factually speaking, on the dates when the monies have been given by Portescap to GVR, assessee was not holding any shares in GVR. Therefore, in such a situation, the judgement of the Hon'ble Allahabad High Court in the case of H.K. Mittal (supra) clearly militates against the Revenue because the relevant date to examine the shareholding pattern is the date on which the amount has been advanced. Insofar as the CIT(A) is concerned, he affirmed the approach adopted by the Assessing Officer by noticing that even prior to assessee becoming the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent companies have equity shareholders with 10% of the voting power or more. None of the family members of Shri Thiagarajan are registered and beneficial shareholders of M/s. IG3 Infra Limited and the respondent companies either before or after change in shareholding of the respondent companies. Thus, we are of the opinion that the provisions of section 2(22)(e) of the Act are not applicable to the facts of the respondent companies and accordingly no addition towards deemed dividend is warranted in the hands of the respondent companies. 21. The undisputed facts are Shri Shanmugam Thiagarajan and Smt Rukmini Thiagarajan are not the registered shareholders of M/s. IG3 Infra Limited and consequently, both of them cannot be regarded as a "registered and beneficial shareholder". Smt Unnamalai Thiagarajan though is a registered shareholder of M/s. IG3 Infra Limited, her shareholding in the company amounted to 0.002% which is less than the prescribed voting power of 10% to attract the provisions of third limb of section 2(22)(e) of the Act. Thus, none of the three persons of Thiagarajan family satisfy the legal requirements of being a shareholder in M/s. IG3 Infra Limited in order to att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not material for the purposes of this appeal. By providing an inclusive definition of the expression 'dividend', section 2(22) brings within its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression 'dividend' by providing an inclusive definition. 9. In order that the first part of clause (e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent of the voting power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial interest. The Tribunal in'the present case has found that as a matter of fact no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the books of account of the assessee. The fact that there was a defalcation seems to have been accepted since this amount was allowed as a business loss during the course of assessment year 2006-07. Consequently, according to the Tribunal the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 527. The relevant portion of the judgement is extracted below: "8. The more important aspect, being the requirement of Section 2(22)(e) is, that "the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholder..." Thus, the substance of the requirement is. that the payment should be made on behalf of, or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder. or to the concern firm in which event, it would fall within the expression "deemed dividend". Obviously, income from dividend, is taxable as income from other sources, under Section 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Hoop Kumar and Devendra Kumar, are the common persons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enlarged. Legal fiction does not extend to 'shareholder'. When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the revenue would stand answered, once w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Madras High Court has also held in the case of CIT v. Ennore Cargo Terminal P Ltd (2018) 406 ITR 477 (Mad) that the deemed dividend can only be assessed in the hands of the registered shareholder for whose benefit money was advanced. The relevant portion of the decision of the Hon'ble High Court is extracted as under: 4. Insofar as Question Nos.3 and 4 are concerned, the following brief facts are required to be noticed: 4.1. The assessee-company, evidently, received a capital advance in a sum of Rs. 1,09,50,000/- from an entity by the name of Indev Logistics Pvt. Ltd. The assessee-company as well as the said entity, i.e. Indev Logistics Pvt. Ltd., admittedly have common shareholders. The shares in the assessee company to the extent of 50% are held by Mr. Xavier Britto, while the balance shares are held by Smt. Vimalarani Britto. In so far as Indev Logistics Pvt. Ltd. is concerned, shares are held likewise by the said individuals, though in a different ratio. Mr. Xavier Britto holds 60% of the shares in Indev Logistics Pvt. Ltd., while Smt. Vimalarani Britto holds the balance 40% shares in the said entity. 4.2.The Revenue seeks to assess as income the capital advance receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court does not rule on the issue which has come up for consideration in the instant matter. 6. Accordingly, in so far as questions Nos. 3 and 4 are concerned, we find that no interference is called for with the view taken by the Tribunal via the impugned order. In these circumstances, the Revenue's appeal, i.e. T.C.(A) No. 105 of 2017, pertaining to AY 2007-08, with regard to the said questions, is dismissed. 22.5 The Chennai Bench of this Tribunal in the case of Pallava Resorts Private Limited v. ITO (2022) 143 taxmann.com 208 (Chennai - Trib) has held that the amount of loan received by the assessee company from its holding company is not taxable as deemed dividend under section 2(22)(e) of the Act in the hands of the assessee company and the same is taxable in the hands of the common registered shareholders only. The relevant portion of the decision is extracted below: "7. We have heard the rival contentions and had gone through the facts and circumstances of the case. We note that the Assessee does not hold any shares in QNEI and that it is QNEI that holds 72.29% shares in the Assessee Company, The fact remains that under the Companies Act, 1956, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Jignesh P. Shah [2015] 54 taxmann.com 293/229 Taxman 302/372 ITR 392 wherein it has held that the provision of section 2(22)(e) of the Act cannot be invoked unless the Assessee itself is a shareholder of the company who was lending money to him. (d) The decision of the Co-ordinate Bench of this Tribunal, Mumbai Benches in the case of the Bombay Oil Industries Ltd. v. Dy. CIT [2009] 28 SOT 383, wherein it is held that "section 2(22)(e) of the Act enacts a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the Section. Such a deeming fiction would not be given a wider meaning that what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking section 2(22)(e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction between the intercorporate deposits, viz. loans/ advances, according to us the authorities below were not right in treating the same as deemed divid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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