S.M. ARSHAD,MANGALORE vs. DCIT, BANGALORE

Per INTURI RAMA RAO, AM :

Page 2 of 9 for the assessment year 2007-08 was filed on 11/04/2008 declaring income of Rs.11,87,273/-. The said return of income was processed u/s 143(1) of the Income-tax Act, 1961 [‘the Act’ for short] and the case was not taken up for scrutiny assessment.

Thus, the explanation tendered by the assessee was that the amount drawn from the company was utilized only for the purpose of putting up Nilgiris and entertainment centre i.e. Amoeba. The said explanation was rejected by the AO. However, after reducing the amount received by the company from the assessee of Rs.34,28,219/- net dividend of Rs.1,23,99,761/- was treated as deemed dividend and brought to tax.

Page 5 of 9 4. Being aggrieved, an appeal was preferred before the CIT(A). It was inter alia contended that the amounts withdrawn from the company was utilised for the purpose of commencing super market of Nilgiris. Further, it was contended that the properties of the assessee were pledged with bank for obtaining loan for the company and placing reliance on the decision of the Hon’ble Calcutta High Court in the case of Pradip Kr.Malhotra vs. CIT (338 ITR 538) it cannot termed as deemed dividend. The said submissions were not accepted by the CIT(A) and he upheld the addition holding that the fact that subsequently loans were repaid has no bearing on the taxability of loans received as deemed dividend, placing reliance on the decision of the Hon’ble Apex Court in the case of Miss P.Sarada vs. CIT (229 ITR 444).

5. Learned Authorised Representative reiterated the same submissions as advanced before the CIT(A).

On the other hand, learned Departmental Representative relied on the orders of the lower authorities.

“30. It was also contended on behalf of the revenue that having regard to the plain words used in clause (e) 'to any concern', when the amount is paid or when any payment is made to a concern, the tax is levied on the concern and not on the shareholders. As far as this question is concerned, this Court following the judgment of the Bombay High Court in the case of CIT v. Universal Medicare (P.) Ltd.) [2010] 324 ITR 263/190 Taxman 144 has categorically held that when any payment is made by a company to any concern, which falls under clause (e), the tax is leviable on the shareholder only and not on the concern. We respectfully agree with the aforesaid judgment and we do not see any justification to take another view of this matter. Therefore, the finding recorded by the Tribunal that, these advances made by the BDPL to the sister concern as well as to its shareholder do not constitute deemed dividend under Section 2(22)(e) of the Act, is legal and valid and do not call for any interference.” Thus even a payment is made to a concern in which the shareholder has substantial interest, amount is taxable as deemed dividend only in the hands of the shareholder.

Page 8 of 9 by provisions of section 2(22)(e) of the Act. The submission of the assessee that the amounts drawn from the company were utilized for the purpose of putting up Nilgiris super market in the complex, is devoid of any merit as no material was placed before us in support of the contention canvassed. Even reliance placed by the learned counsel for assessee on the decision of the Hon’ble Calcutta High Court in the case of Pradip Kr.Malhotra (supra) is not applicable, as the assessee had not demonstrated before us with evidence that amounts withdrawn were towards consideration of guarantee given for the purpose of obtaining loan for the purpose of business of the company from which the amounts were withdrawn. There was no material placed before us showing that properties of the assessee were pledged for the purpose of procuring bank loan for the company. Mere bald assertions without corroborative evidence cannot be accepted. Therefore, the submissions made by learned AR of the assessee are devoid of any merit.