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Income Tax Appellate Tribunal, DELHI BENCHES “E” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
Date of Hearing : 23.04.2018 Date of Pronouncement : 23.04.2018 ORDER PER BHAVNESH SAINI, J.M.
This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-2, New Delhi, dated 19th February, 2016, for the A.Y. 2012-2013, challenging the deletion of addition of 2 ITA.No.2583/Del./2016 M/s. Baheti Rohoplast Pvt. Ltd.,New Delhi.
Rs.64,73,651/- on account of disallowance under section 2(22)(e) of the I.T. Act, 1961.
The A.O. made the addition under section 2(22)(e) of the I.T. Act being the sum received by the assessee from M/s.
Pure Ganga Water Systems Pvt. Ltd. It was observed by the A.O. that Mrs. Sarika Baheti who was 33.62% share holder in the assessee-company was also shareholder to the extent of 75.85% in M/s. Pure Ganga Water Systems Pvt. Ltd. M/s. Pure Ganga Water Systems Pvt. Ltd. was found to be having reserves and surplus of Rs.78.88 lakhs as on 31st March, 2011 and Rs.86.09 lakhs as on 31st March, 2012. Thus, the A.O. held that the conditions laid down in section 2(22)(e) were satisfied and Rs.64,73,657/- received by the assessee-company from M/s.
Pure Ganga Water Systems Pvt. Ltd. were added to the income of the assessee-company.
The assessee challenged the addition before the Ld. CIT(A) and written submissions of the assessee is reproduced in the appellate order in which it was briefly explained that A.O.
3 ITA.No.2583/Del./2016 M/s. Baheti Rohoplast Pvt. Ltd.,New Delhi. has failed to appreciate that transaction was in the nature of inter corporate deposits and both the lender and lendee are corporate bodies. Therefore, provisions of section 2(22)(e) are not applicable in the case of corporate deposits. It was further explained that assessee is not shareholder of the lending company, therefore, condition of section 2(22)(e) are not attracted. The contention was supported by several decisions noted in the submission of the assessee.
The Ld. CIT(A) found that assessee-company was not a registered shareholder in M/s. Pure Ganga Water Systems Pvt. Ltd., therefore, addition was deleted. The findings of Ld. CIT(A) are reproduced as under :
“3.2. I have considered the findings of the Assessing
Officer in the impugned order as well as the submissions of the appellant’s A.R. Hon’ble Courts, including Hon’ble
Jurisdictional High Court, have held in a number of cases that for the provisions of section 2(22)(e) to be attracted, the payee company should be registered shareholder of the 4 ITA.No.2583/Del./2016 M/s. Baheti Rohoplast Pvt. Ltd.,New Delhi. payer company. In the case of the appellant, although one of the shareholders namely, Mrs. Sarika Baheti, was common to the appellant as well as M/'s. Pure
Ganga Water Pvt. Ltd. (from whom the appellant received Rs.64,73,657/- during the year), the appellant was not a registered shareholder having voting rights of 10% or more in the latter company, which has been held by Hon’ble Courts to be one of the pre-requisites for section 2 (22) (e) to be attracted. Accordingly, the addition made by the Assessing Officer is directed to be deleted and grounds nos. 1 & 2 of the appeal are allowed.”
Ld. D.R. contended that Mrs. Sarika Behati was shareholder in the assessee-company as well as in M/s. Pure Ganga Water Systems Pvt. Ltd. Therefore, she is a common shareholder in both the companies. Therefore, Ld. CIT(A), should not have deleted the addition.
None appeared on behalf of the assessee.
5 ITA.No.2583/Del./2016 M/s. Baheti Rohoplast Pvt. Ltd.,New Delhi.
We have considered the submissions of the Ld. D.R. and perused the findings of the authorities below. The Hon’ble Supreme Court in the case of Rameshwarlal Sanwarmal vs. CIT, Assam (1980) 122 ITR 1 (SC) held as under :
“It is only where a loan is advanced by the company to a registered shareholder and the other conditions set out in s.
2(6A)(e) of the Indian I.T. Act, 1920 are satisfied, that the amount of the loan would be liable to be regarded as “deemed dividend ” within the meaning of s. 2(6A)(e). A loan granted to a beneficial owner of the shares who is not the registered shareholder would not fall within the mischief of s. 2(6A)(e). What s. 2(6A)(e) is designed to strike at is advance or loan to a “shareholder” and the word “shareholder” can mean only a registered shareholder. It is difficult to see how a beneficial owner of shares whose name does not appear in the register of shareholders of the company can be said to be a “shareholder” he may be beneficially entitled to the shares but he is certainly not a shareholder.”
6 ITA.No.2583/Del./2016 M/s. Baheti Rohoplast Pvt. Ltd.,New Delhi.
7.1. The Hon’ble Bombay High Court in the case of CIT vs. Jignesh P. Shah (2015) 372 ITR 392 (Bom.) held as under:
“Fiscal statutes have to be interpreted strictly. On a strict interpretation of section 2(22)(e) of the Income-tax Act, 1961, unless the assessee is the shareholder of the company lending him money, no occasion to apply it can arise.
The assessee received a loan from a company NS. The Revenue sought to tax this loan as deemed dividend on the ground that one the company L had advanced money to NS which in turn advanced money to the assessee, that the assessee was a 50 per cent, shareholder of L and in view thereof, the loan advanced by NS to the assessee was to be treated as a dividend in the hands of assessee. It was the admitted position that the assessee was not a shareholder in NS. The Assessing Officer brought to tax the amount of loan received by the assessee from NS as deemed dividend under section 2(22)(e) of the Act. On appeal, the Commissioner
(Appeals) held that the loan given by NS to the assessee was 7 ITA.No.2583/Del./2016 M/s. Baheti Rohoplast Pvt. Ltd.,New Delhi. not payment made by it to its shareholder. Thus, section 2(22)(e) of the Act could have no application. This was confirmed by the Tribunal. On appeal to the High Court:
Held, dismissing the appeal, that the amount was not assessable under section 2(22)(e).”
7.2. The Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Singh and Co. (2007) 295 ITR 9 (All) held as under :
“Held. (i) that clause (e) of section 2(22) of the Act as it existed provided that if the loan is received by the shareholder, it is only then that the loan can be deemed to be dividend in his hands. The assessee-firm was not the shareholder of J and the partners of the firm were the shareholders in the books of the company. Therefore the loan advanced by the company to the assessee could not be deemed to be dividend inasmuch as the loan was not to the shareholder but to the assessee which was not the shareholder in the books of the company.”
8 ITA.No.2583/Del./2016 M/s. Baheti Rohoplast Pvt. Ltd.,New Delhi.
7.3. The ITAT, Mumbai Special Bench in the case of Bhoumik Colours 118 ITD 1 held that “dividend cannot be taxed in the hands of person who is not shareholder in it.”
[[ 8. It is an admitted fact that assessee was not a registered shareholder in M/s. Pure Ganga Water Systems Pvt. Ltd. from whom corporate deposits have been received.
Therefore, the conditions of Section 2(22)(e) would not be attracted in the case of the assessee. Merely because Mrs. Sarika Behati is common shareholder in both the lender and lendee companies is not sufficient to make the addition against the assessee. No infirmity have been pointed out in the order of the Ld. CIT(A). We, accordingly, confirm his order and dismiss the departmental appeal.
In the result, appeal of the Department is dismissed.
Order pronounced in the open Court.