Deemed Dividends cannot be Taxed in the Hands of Non-Shareholders: ITAT Deletes Addition [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has deleted the additional holding that the deemed dividends could not be taxed in the hands of non-shareholders.

The Assessing Officer (AO) during the impugned order noted that as per tax audit report assessee, Aryavart Infrastructure P. Ltd. had received loan from Aryavart Commodities P. Ltd. arid Anmol Tradeline Pvt. Ltd. It was also observed that shareholders of the appellant company had substantial interest in these two companies.

The A.O. invoked provision of section 2(22)(e) of the Income Tax Act, 1961 rejecting the appellant's contention that the appellant company was not shareholder in any of these two companies.

The details of share holding of  Shailesh J. Bhatt and Suresh U. Gadhecha was considered in appellant companies as well as in these two companies, then both of them independently had substantial interest in appellant companies.

The A.O. after detailing provision of section 2(22)(e) of the Income Tax Act, invoked the ratio of  Delhi High Court order in CIT Vs. National Travel Services  and held that appellant company being beneficial shareholder and loans accepted added as deemed dividend.

Aseem L. Thakkar,appeared on behalf of the assessee and Sudhendu Das,appeared on behalf of the revenue.

The two-member Bench of Annapurna Gupta, (Accountant Member) and T.R. Senthil Kumar, (Judicial Member)  observed that the amount of loans & advances received by the assessee company from two entities had qualified as “deemed dividend” in terms of section 2(22)(e) of the Income Tax Act.

The Bench held that the assessee who had received advances from the said two concerns, was not a shareholder of these concerns, therefore, even though the advances qualified as deemed dividend in terms of section 2(22)(e) of the Income Tax Act, and they could not be taxed in the hands of the assessee

The Bench dismissed the appeal filed by the revenue holding that the deeming fiction envisaged in section 2(22)(e) of the Income Tax Act was only with respect to dividend and its scope therefore could not be enlarged to extend to shareholders also and deemed dividend could not be taxed in the hands of non shareholders.

To Read the full text of the Order CLICK HERE

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