In a significant ruling, the division bench of the Madras High Court held that the registered shareholders for whose benefit the money was advanced are assessable on deemed dividend. In the common order, the division bench clarified that the Company cannot be made liable for income tax for the said income.
Coming to the facts of the case, the assessee-Company received a capital advance from another company. both these companies have common shareholders. The assessing officer, invoked section 2(22)(e) of the Income Tax Act and held that the income the capital advance received by the assessee-company from Indev Logistics Pvt. Ltd. is assessable in the hands of the assessee-Company since it is deemed dividend received by the assessee-company for the benefit of the registered shareholder.
The Tribunal concluded the matter in favour of the assessee and therefore, the Revenue preferred an appeal before the High court against the ITAT order.
Before the High Court, the Revenue relied upon arecent decision of the Apex Court in Gopal and Sons (HUF) vs. Commissioner of Income-tax.
Dismissing the appeal, Justice Rajiv Shakdher observed that “there is no dispute that the assessee did receive capital advance from Indev Logistics Pvt. Ltd. There is also no dispute that there are common shareholders both in the assessee-company and Indev Logistics Pvt. Ltd. Therefore, quite correctly, as noted by the Tribunal, though, the advance received by the assessee company may have been for the benefit of the aforementioned registered shareholders, it could only be assessed in the hands of those registered shareholders and not in the hands of the assseeee-company.”
With regard to the applicability of the decision in Gopal and Sons (HUF) vs. Commissioner of Income-tax, in the present case, the division bench opined that the question of law considered by the Supreme Court in the said case was different. 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 Income Tax Act.
“In the instant case, however, both the registered and beneficial shareholders are two individuals and not the assessee-company. Therefore, in our view, the judgment of the Supreme Court does not rule on the issue which has come up for consideration in the instant matter,” the bench also added.
Read the full text of the Judgment below.
