ACIT, MADURAI vs. JEYADEVI MILLS (P) LTD., ARUPPUKOTTAI

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ITA 4/CHNY/2016Status: DisposedITAT Chennai19 May 2016AY 2009-104 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that deemed dividend under Section 2(22)(e) can only be assessed in the hands of the registered shareholder of the lending company, not in the hands of the borrower company or its shareholders. Therefore, the addition made by the Assessing Officer was incorrect.

What were the facts?

The Revenue appealed against the deletion of an addition of Rs. 55,77,333/- treated as deemed dividend. The assessee-company received a loan from M/s Sri Sathu Spinning Mills Pvt. Ltd., in which the assessee's directors held shares.

What were the issues?

Whether a loan received by a company from another company, where the directors of the borrower company are shareholders of the lending company, can be treated as deemed dividend in the hands of the borrower company.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY

Hearing: 06.04.2016Pronounced: 19.05.2016

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

1.

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 1, Madurai, dated 09.10.2015 and pertains to assessment year 2009-10.

2.

The only issue arises for consideration is with regard to addition of `55,77,333/- as deemed dividend.

3.

No one appeared for the assessee inspite of issue of notice.

Therefore, we heard Ld. Departmental Representative and proceeded to dispose of the appeal on merit.

4.

Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the assessee has borrowed loan of `55,77,333/- from M/s Sri Sathu Spinning Mills Pvt. Ltd. According to the Ld. D.R., all the five Directors of the assessee-company are holding more than 10% shares and in fact, one of the Directors was holding more than 20% of shares in M/s Sri Sathu Spinning Mills Pvt. Ltd. The Ld. D.R. further submitted that M/s Sri Sathu Spinning Mills Pvt. Ltd. has also accumulated profits during the year under consideration. Admittedly, the assessee has received a sum of `55,77,333/- as a loan from M/s Sri Sathu Spinning Mills Pvt. Ltd. Therefore, the Assessing Officer, by placing reliance on the provisions Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act') treated the loan of `55,77,333/- as deemed dividend. However, the CIT(Appeals) by placing reliance on the judgment of Bombay High Court in of 2012 dated 04.07.2014 found that deemed dividend can be assessed only in the hands of the registered shareholder of the lending company. The assessee is not a registered shareholder of M/s Sri Sathu Spinning Mills Pvt. Ltd., therefore, the CIT(Appeals) deleted the addition made by the Assessing Officer. According to the Ld. D.R., the Directors of this company are holding shares in M/s Sri Sathu Spinning Mills Pvt. Ltd., therefore, it is an indirect benefit to the shareholders.

Therefore, the CIT(Appeals) is not correct in deleting the addition.

5.

We have considered the submissions of the Ld. D.R. and perused the relevant material available on record. Section 2(22)(e) of the Act provides for assessment of deemed dividend in the hands of the shareholder if a loan or advance was received either by the shareholder or by anybody else for the benefit of shareholder. In this case, it is not in dispute that the assessee-company received loan from M/s Sri Sathu Spinning Mills Pvt. Ltd. and the shareholders were indirectly benefited out of this loan. Therefore, the deemed dividend has to be assessed only in the hands of the registered shareholder.

6.

We have carefully gone through the provisions of Section 2(22)(e) of the Act. The deemed dividend cannot be assessed in the hands of anybody else other than the registered shareholder.

Therefore, since the benefit of receiving the loan by the assessee- company goes to the shareholders in M/s Sri Sathu Spinning Mills Pvt. Ltd., the assessment, if at all has to be made, has to be made only in their hands and not in the hands of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.

7.

In the result, the appeal of the Revenue is dismissed.

Order pronounced on 19th May, 2016 at Chennai.

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