The Tax Publishers2020 TaxPub(DT) 3961 (Mad-HC) : (2020) 428 ITR 0456 : (2020) 275 TAXMAN 0101

INCOME TAX ACT, 1961

Section 2(22)(e)

Since nature of transaction between the firm and the company and it was neither a loan nor an advance, but a deferred liability and these facts have been noted by AO, therefore, appeal of Revenue was dismissed.

Dividend - Deemed dividend under section 2(22)(e) - Shareholder of company had substantial interest in the Partnership - Money advanced to firm

Assessee showed a sum as unsecured loan obtained from M/s A. One of partners of assessee firm who holds 35% stake in assessee partnership firm, was also a share holder in the company holding 26.25% shares. Therefore, it was stated that shareholder of company had substantial interest in the firm and consequently, the concept of deemed dividend under section 2(22)(e) would apply. Held: Section 2(22)(e) provision would stand attracted when a payment is made by a company, in which public are not substantial interested by way of advance or loan to a share holder, being a person who is the beneficial owner of the shares. It was clear that payment was made to the assessee, a partnership firm. The partnership firm was not a shareholder in the company. The records placed before AO clearly showed the nature of transaction between the firm and the company and it was neither a loan nor an advance, but a deferred liability. These facts have been noted by AO. Therefore appeal of Revenue was dismissed.

Distinguished:National Travel Services v. CIT (2018) 401 ITR 0154 (SC) : 2018 TaxPub(DT) 0526 (SC)Followed:CIT v. Ankitech Pvt. Ltd. & Ors. (2012) 340 ITR 0014 (Del) : 2011 TaxPub(DT) 1008 (Del-HC) T. Abdul Wahid & Co. v. ACIT [ITA Nos.1796 & 1797/Mds/2017, dt. 17-10-2017]

REFERRED : C.I.T. v. Madhur Housing & Development Company 2017 TaxPub(DT) 4516 (SC) Gopal and Sons (HUF) v. CIT (2017) 145 DR 0289 (SC) Miss. P. Sarada v. CIT (1998) 229 ITR 444 (SC) : 1998 TaxPub(DT) 1048 (SC) Bhagavathy Velan v. DCIT (2019) 106 Taxmann.Com Page 67 (Madras) : 2019 TaxPub(DT) 3483 (Mad-HC) Sahir Sami Khatib v. ITO (2019) 411 ITR 637 (Bombay) : 2018 TaxPub(DT) 6550 (Bom-HC) CIT v. C. Subba Reddy [T.C.A.No.1465 of 2007, dated 19-12-2016] : 2017 TaxPub(DT) 0398 (Mad-HC) CIT v. National Travel Services (2012) 347 ITR 0305 (Del) : 2011 TaxPub(DT) 1936 (Del-HC)

FAVOUR : In assessee's favour

A.Y. : 2012-13

IN THE MADRAS HIGH COURT

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT