The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that Section 2 (22) of Income Tax cannot be invoked against Non-Beneficiary Shareholders in company receiving Company Loans.
In brief, the assessee, a private limited company operating a diagnostic center, declared an income of Rs. 2,55,37,237/- for Assessment Year 2013-14. Following scrutiny, the Assessing Officer (AO) noted that the assessee received a loan of Rs. 2,51,10,067/- from M/s. Calcutta Medical Imaging Institute Ltd., where a common shareholder, Jeetendra Sharma, held significant stakes in both companies. The Assessing Officer sought to invoke the provisions of deemed dividend under Section 2(22)(e) of the Income Tax Act.
The AO noticed that during the year under consideration, the assessee received an amount of Rs.2, 51,10,067/- as loan from M/s. Calcutta Medical Imaging Institute Ltd. Jeetendra Sharma is a common shareholder in both the Assessee Company as well as M/s. Calcutta Medical Imaging Institute Ltd., having shareholding of 33.11% and 33.01% respectively. Accumulated profits available for distribution in the books of M/s. Calcutta Medical Imaging Institute Ltd. amounted to Rs.3,20,17,845/-. The assessee was asked to explain as to why not the provisions of deemed dividend under Section 2(22)(e) of the Act be invoked
The counsel for the assessee Mr. A.K. Tulsyan submitted that the issue regarding deemed dividend under Section 2(22)(e) of the Income Tax Act, stands squarely covered in favour of the assessee by the decision of this Tribunal in the assessee’s own case for AY 2004-05 and 2006-07 wherein also, loan was received from M/s. Calcutta Medical Imaging Institute Ltd., and Tribunal has dismissed the appeal of the revenue
The tribunal referred to a judgment of the Punjab & Haryana High Court, which upheld the view that deemed dividend under Section 2(22)(e) was applicable only to shareholders of the lending company. Since the assessee was not a shareholder of the lending company, the loan could not be assessed under Section 2(22)(e).
The Coram of Sanjay Garg (Judicial member) and Dr. Manish Borad (Accountant member) concluded that since the assessee company was not a beneficial shareholder in M/s. Calcutta Medical Imaging Institute Ltd., the loan received was a commercial transaction. Thus, Section 2(22)(e) could not be invoked. Consequently, the revenue’s grounds were dismissed.
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