Firm, not a Shareholder in Pvt Company can’t be Taxed for Deemed Dividend: ITAT [Read Order]

Deemed Dividend - Taxscan

The Income Tax Appellate Tribunal (ITAT), Kolkata bench has held that a Firm, which is not a shareholder in a private company cannot be taxed for deemed dividend under Section 2(22)(e) of Income Tax Act, 1961.

While completing assessment against the assessee, the Assessing Officer noted that one Mr. Ripple P Doshi had 33.2% holding in M/s. Modern Solarum Pvt. Ltd. and had 25% share of profit in M/s. Modern Impex. The officer observed that the assessee satisfies the conditions of “any concern in which such shareholder is a member and in which he has a substantial interest” mentioned in section 2(22)(e) of Income Tax Act.

The assessee company, during the year, received an amount of Rs.55,00,000 from M/s. Modern Solaurum Pvt. Ltd., a company in which public were not substantially interested. The Officer, therefore, observed that Since the conditions attracting provisions of section 2(22)(e) of Income Tax Act are fully satisfied in respect of the loan received by the assessee company from M/s. Modern Solaurum Pvt. Ltd. it is held that the said amount of Rs.89,930 shall be deemed to be income of the assessee company u/s. 2(22)(e) of the Income Tax Act.

The Tribunal noted that one of the partners of assessee firm Shri Ripple P. Doshi holds 33.20% in the assessee firm.

“And the firm had received advance/loan from a company called M/s. Modern Solaurum Pvt. Ltd. wherein Shri Ripple P. Doshi was having a shareholding of 25%. So, AO added the accumulated profit of M/s. Modern Solaurum Pvt. Ltd. of Rs.89,930/- as deemed dividend u/s. 2(22)(e) of the Act in the hands of the assessee firm. We note that assessee firm is not a shareholder of M/s. Modern Solaurum Pvt. Ltd. So, sec. 2(22)(e) of the Act is not attracted against the assessee firm and so the impugned addition invoking sec. 2(22)(e) of the Act cannot be sustained as held by the Hon’ble Delhi High Court in Ankitech pvt ltd 2011[5] TMI 325, wherein this principal/ratio has been held. So since the Firm being not a shareholder of the Pvt. Ltd. company which lent the money cannot be taxed by applying sec. 2(22)(e) of the Act. So, the addition is deleted,” the Tribunal said.

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