The ITAT, Hyderabad bench, in DCIT v. M/s. My Home Constructions Private Ltd, held that the provisions of deemed dividend does not attract in a case where the payment received as advance expenditure for subscription of shares.
The assessee-Company have is a shareholder in M/s My Home Industries Ltd. while completing assessment against the assessee, the AO found that during financial year 2006-07, MHIL has advanced an amount of Rs.18,00,09,978 to the assessee. Therefore, he observed that since the MHCPL has acquired 54,99,000 shares of assesse as on 30.03.2007, it has acquired substantial interest i.e. more than 20% shareholding in M/s MHPL and at the same time, it is holding 46.556% in MHIL. Accordingly, he completed assessment by invoking the provisions of s. 2(22)(e) of the Act by treating the advance given by the assessee to M/s MHIL as deemed dividend in the hands of the assessee.
Before the Tribunal, the assessee submitted that the provisions of deemed dividend does not applicable for the reason that when the advance was given to the subsidiary company i.e. MHPL, the assessee was not a shareholder of the company and that the assessee has acquired the shares of the MHPL company only w.e.f. 30.03.2007 i.e. after repayment of substantial part of the loan by the subsidiary company.
The bench noted that on the day when the advances were given to MHPL by MHIL, the assessee was the shareholder of MHIL but had no interest whatsoever in MHPL.
Dismissing the appeal filed by the Revenue, the bench said, “the question as to whether the advancement of the loan of 18,00,09,978/- to M/s My home Power Ltd, as deemed dividend in the hands of the MHIL has come up for consideration before the coordinate bench of this tribunal, wherein it has been held that the provisions of section 2(22)(e) of the Act are not applicable when the payment is made to non share holder. We find that this decision of the Income Tax Appellate Tribunal has also been upheld by the Hon’ble Andhra Pradesh High Court of vide orders dated 13-08-2013. The facts and circumstances being similar before us, we find that CIT(A) has rightly held that the said amount cannot be brought to tax as deemed dividend in the hands of the assessee.”
Read the full text of the order below.
