The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) observed that the taxpayer without shareholding cannot be deemed ‘dividend’ receiver under Section 2(22) of Income Tax Act, 1961.
The assessee filed its return of income on 30.09.2013, reporting total loss of Rs.2, 16, 59,610/-. Assessee is engaged in the business of Brand Owning and Consultancy. During the year under consideration, assessee Apeejay Surrendra Management Services Pvt. Ltd. ( ASMSPL ) received a sum of Rs.5,50,11,501/- as loans/advances from another group company called as Apeejay Private Ltd. (APL). Assessee is not a registered shareholder of APL who is a lender company
Mr. Manish Tiwari representing the assessee, assertively submitted that the assessee was not a shareholder in APL and, therefore, no addition can be made in the hands of the assessee by applying the provisions of section 2(22)(e) of Income Tax Act. According to him, a deemed dividend can be assessed only in the hands of the person who is a shareholder of the lender company and not in the hands of any other person.
The AO for making the addition is owing to a fact that there is a common shareholder i.e. KSWPL having substantial interest in both APL and ASMSPL which does not meet the test under Section 2(22)(e) of Income Tax Act. He further stated that the sums received by the assessee are not gratuitous loans enjoyed by the assessee.
Per contra, Mr.Abhijit Kundu representing the revenue strongly supported the orders of the authorities, he submitted that KSWPL was a common shareholder in both, the lender and the assessee company, having substantial interest therein and thus, the case squarely falls within the second limb of Section 2(22)(e) of Income Tax Act.
Further submitted that the mischief of Section 2(22) (e) is attracted and the loan amount by APL to ASMSPL is taxable in the hands of ASMSPL as deemed dividend. He strongly placed reliance on the decision of the Supreme Court in the case of National Travel Services (supra).
The bench noted that so far as the first limb is concerned, the same is applicable to a shareholder of the company who gives such loan or advance and the shareholder is the beneficial owner of the shares as mentioned in the provisions of Section 2(22)(e) of Income Tax Act. Third limb applied in a case where payments are made by such a company for the individual benefit of any such shareholder. So far as the second limb is concerned, where a concern in which such shareholder as referred in the first limb is a member or a partner having substantial interest, receives loan/advance from a company in which also such shareholder is a beneficial owner as referred in Section 2(22)(e) of Income Tax Act can be invoked.
The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance.
The two member bench of the tribunal comprising Sanjay Garg ( Judicial member ) and Girish Agarwal ( Accountant member ) concluded that by invoking second limb of section 2(22)(e) of Income Tax Act, accrual of income and its taxability cannot be held to be in the hands of the assessee i.e. ASMSPL. ITAT thus, set aside the findings of CIT(A) and deleted the addition of Rs.5,50,11,501/- added in the hands of the assessee ( ASMSPL ) by treating the amount of loan and advance as deemed dividend under Section (22)(e) of the Income Tax Act. Accordingly, ground taken by the assessee was allowed.
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