While dismissing a departmental appeal, a division bench of the Gujarat High Court held that the provisions relating to ‘deemed dividend’ would not attract when the borrowing by one person and some other person holding not less than 10% of the voting power of the said company.
M/s. Sagar Drugs and Pharmaceuticals Ltd advanced loan to the assesse company, GPSAR Healthcare Ltd.
According to the Revenue, the loan to the assessee company by M/s. Sagar Drugs and Pharmaceuticals Ltd. should be treated as a deemed dividend in terms of section 2(22)(e) of the Income Tax Act since one Rohit J. Patel, who holds 62% shares of M/s. Sagar Drugs and Pharmaceuticals Ltd also holding 12% share of the assessee company.
Before the High Court, the assesse relied on the decisions in cases of Commissioner of Income tax v. Daisy Packerts (P) ltd, PR. Commissioner of Income Tax Vadodara1 v. M/s. Amigo Brushes (P) Ltd and in Principal Commissioner of Income Tax1 v. Mehul Pratap Asnani and contended that the loan advanced to the assesse would not subject to s. 2(22)(e) of the Income Tax Act.
In the light of the above decisions, the bench held that the said provision does not cover a case where the borrowing by one person and some other person holding not less than 10% of the voting power of the said company.
Read the full text of the Judgment below.
