| COURT: | Bombay High Court |
| CORAM: | G. S. Kulkarni J, M. S. Sanklecha J |
| SECTION(S): | 2(22)(e) |
| GENRE: | Domestic Tax |
| CATCH WORDS: | deemed dividend, interpretation of statutes, strict construction |
| COUNSEL: | Mihir Naniwadekar |
| DATE: | January 20, 2015 (Date of pronouncement) |
| DATE: | January 23, 2015 (Date of publication) |
| AY: | 2007-08 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 2(22)(e) has to be construed strictly. If assessee is not a shareholder of lending co, s. 2(22)(e) does not apply even if funds are ultimately paid by Co in which assessee is a shareholder | |
The assessee received loan from one NS Fincon Pvt. Ltd. The Revenue seeks to tax this loan as deemed dividend. The case of the Revenue was that one Lafin Financial Services Pvt. Limited had advanced money to NS Fincon Pvt. Ltd. who in turn advanced money to the Assessee. The Assessee a 50% share holder of Lafin Financial Services Pvt. Limited and in view thereof, loan advanced by NS Fincon Pvt. Ltd. to the Assessee is to be treated as a dividend in the hands of the Assessee. It is the admitted position that the Assesee is not a share holder in NS Fincon Pvt. Ltd. The AO brought to tax the amount of loan received by the Assesee from NS Fincon Pvt. Ltd. as deemed dividend under Section 2 (22)(e) of the Act. This was deleted by the CIT(A) and the Tribunal. On appeal by the department to the High Court HELD dismissing the appeal:
The submission on behalf of the Revenue made before us is that one has to look at the substance of the transaction and that if one looks at the substance, then the Assessee would be chargeable to tax. This is not acceptable as fiscal status have to be interpreted strictly. Section 2 (22)(e) of the Act creates a fiction by bringing to tax an amount as dividend when the amount so received is otherwise then dividend. On a strict interpretation of Section 2(22)(e) of the Act, unless the Assessee is the shareholder of the company lending him money, no occasion to apply it can arise (CIT v/s. Vatika Township 2015 (1) SCC 1, CIT v/s. Universal Medicare Pvt. Ltd. 324 ITR 263 CIT v/s. Impact Containers Pvt. Ltd. 367 ITR 346 followed)
The facts of said decision appear different from the facts on Bhaumik/Universal/Impact. Those three cases were where there was a common shareholder in two companies, but loan was not given to shareholder. Here, loan is given to assessee who is undisputedly a shareholder in the company from which money is ultimately received… With respect, Hon’ble HC has opened a new avenue for tax planning to avoid the harsh rigour of 2(22)(e) and judgment really speaking goes beyond Bhaumik/Universal etc.