The Commissioner Of Income Tax vs. M/S Venkatesh Beverages Ltd

ITA-24-2012 ( THE COMMISSIONER OF INCOME TAX Vs M/S VENKATESH BEVERAGES LTD) 16-04-2015 Shri S.M.Lal, learned counsel for the appellant. He is heard on the question of admission. The question of law proposed in this appeal under Section 260 A of the Income Tax Act contemplates as to whether the Commissioner Appeals and the Income Tax Appellate Tribunal were justified in deleting an addition of Rs.37,83,775/- made by the Assessing Officer after holding that the provisions of Section 2(22)(e) cannot be invoked in the case of the respondent/ assessee, as they are not the share holders in both the companies. Facts, in brief, go to show that the respondent/company had submitted it's return of income for the assessment year 2006-07 and it shows raising of a loan to the extent of Rs.76,00,936/- from M/s Kanti Beverages Pvt. Ltd. It was found during the proceedings of the Assessing Officer that one Shri Kanti P. Parasrampuria is a common share holder in both the assessee/Company and in M/s Kanti Beverages Pvt. Ltd. having equity share as is required under Section 2(22)(e) and as the assessee/Company was not a private limited company, the Assessing Officer in view of the involvement of Shri Kanti P. Parasrampuria as a share holder in both the companies added a sum of Rs.37,83,775/- as the deemed dividend on account of the assessee/Company. The Commissioner, Appeals and the Income Tax Appellate Tribunal having deleted the aforesaid entry, this appeal has been filed. It is an admitted position that Shri Kanti P. Parasrampuria is having share holding to the extent of 34% in the Assessee/ Company. However, both the Commissioner, Appeals and the Income Tax Appellate Tribunal after considering various judgments of the Rajasthan High Court, Delhi High Court, which were also based on certain judgments of the Supreme Court came to the conclusion that to attract the provisions of Section 2(22)(e), the appellant must be a person registered share holder to the company concerned. It was held that the payments were made to the companies and the company was not the share holder in the second company. Taking note of all these factors, the learned Commissioner, Appeals and the learned Income Tax Appellate Tribunal have deleted the entry. The learned Commissioner, appeals in the order passed has considered the matter in the following manner : “The Special Bench of Hon'ble Mumbai I.T.A.T. Which adjudicating this issue in the case of Bhaumik Colour Lab has followed the ratio laid down in the case of CIT VS. Hotel Hilltop, (2006) 217 CTR (Raj) 527. It has been held that deemed dividend can be taxed only in the hands of a person who is a shareholder of the lender company and not a person other than a shareholder. In the case of Bhaumik Colour Lab, it has been also clarified that a deemed dividend is applicable only when loan or advance has been given to a person who is not only a registered shareholder but also a beneficial shareholder. Hence, both the conditions are to be cumulatively satisfied for taxing the loan or advance as deemed dividend u/s 2(22)(e). Further, in the case of Ankitech Pvt.Ltd. Vs. JCIT, I.T.A.No.388(Del)07, it is held that deemed dividend cannot be assessed in the hands of the non-shareholder as primary requirement for dividend to be received rests with a shareholder and none else. In view of the above facts and circumstances, the case of the appellant company does not fall within the mischief of Section 2(22)(e) of the Income-tax Act, 1961, and, therefore, I proceed to delete the addition made by the Assessing Officer amounting to Rs.37,83,775/-. This ground is adjudicated in favour of the appellant.” And the learned Tribunal has held so in Paragraph-8 : “We have carefully considered the rival contentions and found from record that the assessee company is not a shareholder a lender company from whom loan has been received. One of the Directors/ shareholders of the assessee company Mr. K.P.Parasrampuria was holding equity shares beyond the permissible limit u/s 2(22)(e) in both the lender company and assessee company, which has received the loan during the year. I.T.A.T. Special Bench in the case of Bhaumik Colour Lab (supra) has held that for bringing an assessee within the purview of Section 2(22)(e), both the conditions regarding assessee being registered as well as beneficial shareholder of the lender company is required to be established. In case any one of the conditions are not satisfied, then deeming provisions contained u/s 2(22)(e) cannot be attracted. Applying the proposition of law laid down by I.T.A.T. Special Bench, we do not find any infirmity in the order of CIT (A) for not applying the provisions of Section 2(22)(e) in respect of loan received by the assessee company.” Keeping in view the reasons as indicated herein above, we are also satisfied that for attracting the deeming provisions as contained under Section 2(22)(e), both the situations contemplated therein should be fulfiled. If one of the condition is not fulfiled, the provision cannot be attracted. In this case, one of the condition is not fulfiled in as much as the Assessee/ Company is not a share holder in the lending Company, from which the loan was received. In view of the above, we see no error in the order passed concurrently by the Commissioner and the Appellate Tribunal and in rejecting the contention of the revenue, we are of the considered view that the tribunal has not committed any error. The tribunal's interpretation of Section 2(22)(e) is based on such consideration and no question of law is involved in the matter warranting reconsideration. The appeal is, therefore, dismissed. (RAJENDRA MENON) (S.K. GANGELE) JUDGE JUDGE