Irm Trust, Ahmedabad vs Assessee
- CitationITA No. 1894/Ahd/2011
Ratio decidendi
The rule this decision rests on
Section 2(22)(e) of the Income Tax Act is attracted only where the payment (loan or advance) is made to a person who is a registered shareholder holding not less than 10% of the voting power in the lending company, or to a concern in which such a shareholder has a substantial interest; the section cannot be invoked against an assessee that was neither the recipient of the payment nor, on the facts found, the shareholder-recipient contemplated by the section. Following the Special Bench decision in Bhomik Colour Pvt. Ltd. (118 ITD 1), the payment must be made to the assessee, or to a person who is a registered shareholder with the requisite voting power, for the first limb of section 2(22)(e) to be attracted; where the loan passes between two other companies that merely share a common shareholder, the transaction does not fall within section 2(22)(e) as against the shareholder that received no money, and the deemed dividend addition cannot stand.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
The assessee is in appeal before us against the order of Ld. Commissioner of Income Tax (Appeals) dated 27th May, 2011 passed for Assessment Year 2003-04.
I.T.A No. 1894/Ahd/2011 A.Y. 2003-04 Page No 2 IRM Trust vs. DCIT
2. The solitary grievance of the assessee is that ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 2,30,400/- which was added by the Assessing Officer with the aid of Section 2(22)(e).
3. Learned counsel for the assessee at the very outset submitted that issue in dispute is squarely covered in favour of the assessee by the decision of Special Bench of the ITAT rendered in the case of ACIT vs. Bhomik Colour Ltd reported in 118 ITD 1.
4. The brief facts of the case are that ld. Assessing Officer has initiated re-assessment proceeding by issuance of a notice u/s. 148 of the Income Tax Act on 31-03-2010. According to the Assessing Officer, during the assessment proceeding for Assessment Year 2006-07 in the case of M/s Cadila Pharmaceutical Ltd revealed that M/s. Casil Health Products Ltd had an opening debit balance of Rs. 5.01 crore and a closing balance of Rs. 4.7 crore. The Assessing Officer has also noticed that further amounts were given by the assessee to these concerns during the year. Thus, there was heavy outstanding amount pending against M/s Casil Health Products Ltd for a long period starting from 2001 to till date of assessment order.
5. He further observed that perusal of share-holding pattern of these concerns indicate that M/s IRM Trust has 82.2% share-holding in M/s Cadila Pharmaceutical Ltd. This company had 29% share-holding in M/s IRM Trust. According to the Assessing Officer, section 2(22)(e) is squarely applicable in the hands of the assessee because M/s IRM Trust having I.T.A No. 1894/Ahd/2011 A.Y. 2003-04 Page No 3 IRM Trust vs. DCIT
substantial interest in both the concerns. He originally worked out the deemed dividend to the tune of Rs. 1,86,86,427/-. The assessee moved an application u/s. 154. That application has been allowed and ultimately an addition of Rs. 2,30,400/- has been worked out. The specific reason for making the addition by the Assessing Officer is that M/s. IRM Trust has a common share-holding between M/s Cadila Pharmaceutical Ltd and M/s Casil Health Product Ltd. The loan given by M/s Cadila Pharmaceutical Ltd to M/s Casil Health Product Ltd is to be treated as deemed dividend.
6. Appeal to the Commissioner of Income Tax (Appeals) did not bring any relief to the assessee.
7. With the assistance of ld. representatives, we have gone through the record carefully. The facts in the case of Bhomik Colour Pvt. Ltd relied upon by the ld. counsel for the assessee are that assessee company namely; BCPL took an interest bearing loan of Rs. 9 lacs from another company, UPPL. The Assessing Officer noticed that though BCPL was not a share-holder of UPPL yet, both the companies had one common share-holder i.e. Narmada Ben Nandlal Trust (NTT) and that trust was holding 20% shares in BCPL and 10% shares in UPPL. The ld. Assessing Officer arrived at a conclusion that the impugned transaction of loan was covered by the second limb of section 2(22)(e). The ITAT has held that for attracting first limb of the section 2(22)(e), the payment must be made to a person who is a registered share-holder. In the present case also, the payment was not made to M/s. IRM Trust, the payment was made by M/s Cadila Pharmaceutical Ltd to M/s Casil Health Product Ltd. In other words, for attracting section 2(22)(e), apart from other conditions, the following two conditions should be present i.e. (a) there should by payment to a I.T.A No. 1894/Ahd/2011 A.Y. 2003-04 Page No 4 IRM Trust vs. DCIT
person/entity; (b) the recipient should be registered share-holder with a share-holding of not less than 10% of the voting power. The assessee is not the recipient of any money. Therefore, section 2(22)(e) is not attracted. The issue in dispute is covered in favour of the assessee by the decision of the Special Bench. Therefore, we allow the appeal of assessee and delete the disallowance.
Order pronounced in the open court on 25-06-2015
Sd/- Sd/-
(G.D. AGRAWAL) (RAJPAL YADAV) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 25/06/2015 ak
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद
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