Dy. Commissioner of income Tax, Hyderabad V. M/s. Ace Tyres Ltd., R.R.Dist

ITA 1370/HYD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5522 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 18-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: CH G MURALIKRISHNA MURTHY; P SATYANARAYANA M
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1370/HYD/13 : ASSTT. YEAR 2010 - 11 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD V/S. M/S.ACE TYRES LTD., BACHUPALLY, RANGA REDDY DIST. ( PAN - AADCA 2210 N) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.YADAGIRI RESPONDENT BY : SHRI CH.G. MURALIKRISHNA MURTHY & SHRI P.SATYANARAYANA MURTHY DATE OF HEARING 17.2.2014 DATE OF PRONOUNCEMENT 17.2.2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) II, HYDERABAD DATED 12.7.2013 FOR THE ASSESSMENT YEAR 2010 - 11. 2. EFFECTIVE GROUND S OF THE REVENUE IN THIS APPEAL READ AS FOLLOWS - 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT HOLDING ICDS RECEIVED FROM EXCEL RUBBER LTD., CANNOT BE CONSIDERED ALONGWITH LOANS AND ADVANCES FOR THE PURPOSE OF APPLICATION OF PROVISIONS OF SECTION 2(22)(E)OF THE I.T. ACT. 3. THE LEARNED CIT(A) ERRED IN HOLDIN G THAT THE PROVISIONS U/S. 2(22)(E) CAN BE INVOKED ONLY IN THE HANDS OF THE SHAREHOLDER AND SINCE THE ASSESSEE COMPANY IS NOT A SHAREHOLDER IN EXCEL RUBBER PVT. LTD., THE PROVISIONS CANNOT BE INVOKED. 4. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER AS SRI G.R.REDDY HAS SUBSTANTIAL INTEREST IN BOTH THE COMPANIES AND AS SUCH THE AMOUNTS RECEIVED BY THE ASSESSEE PARTAKES THE CHARACTER OF DEEMED DIVIDEND. 5. I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 2 3. FACTS OF THE CA S E IN BRIEF ARE THAT THE ASSESSEE IS ENGAG E D IN TH E BUSINESS OF MANUFACTURING OF TUBES AND TYRES. IT SUPPLIES TUBES AND TYRES EXCLU S IVELY TO CEAT AND APOLLO COMPANIES. FOR THE ASSESSMENT YEAR, THE ASSESSEE RECEIVED INTER - CORPORATE DEPOSI T S (ICDS) OF R S .1,95,00,00 FROM ITS SI S TER CONCERN, M/AS. EXCEL RUBBER PVT. LTD. SUCH ICD AMOUNT OF RS .1,95,00,000 WAS BROUGHT TO TAX AS DEEMED DIVIDEND UNDER S.2(22)(E) OF TH E INCOM E - TAX AC T, 1961 BY THE ASSESSING OFFICER. ASSESSEE SUBMI T TED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE I S NO T A SHAREHOLDER IN M/S. EXCEL RUBBER PVT. LTD. AND THE AMOUNT REC E IVED IS NO T IN THE NATURE OF LOAN, BU T IT I S IN TH E N A TURE OF ICD. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION OF TH E ASSESSEE, AND MADE THE IMPUGNED ADDITION, ON THE GROUND THAT THE ADDL. C IT RANGE - 1, HYDERABAD HAD ISSUED DIRECTIONS UNDER S.144A OF THE AC T FOR TH E ASSESSMENT YEAR 2006 - 07 ON THE SAME ISSUE TO BRING SUCH AMOUNT TO TAX UNDER S.2(22)(E) OF THE AC T. THOUGH THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ALSO TOOK NOTE OF THE FACT THAT THE ADDITION MADE FOR THE ASSESSMENT YEAR 2006 - 07 WAS DELETED BY TH E CIT(A) - II IN APPEAL, VIDE ORDER DATED 26.9.202, HE HASTENED TO ADD THAT THE DEPARTMENT HAS FILED APPEAL BEFORE THE TRIBUNAL, AGAINST THAT ORDER OF THE FIRST APPELLATE AUTHORITY. 4 . ON APPEAL, THE CIT(A), AFTER ANALYZING THE PROVISION S OF S.2(22)(E) OF THE ACT, OBSERVED THAT EVEN IN CASES WHERE ADVANCE OR LOAN IS GIVEN TO A CON C ERN (WHERE THE SHAREHOLDER IS SUBSTANTIALLY INTER E STED), SUCH AD V ANCE OR LOAN SHALL BE DEEM E D AS DIVIDEND IN THE H A NDS OF THE SHAREHOLDER, BUT NOT IN THE HANDS O F THE CONCERN IN WHICH THE SHAREHOLDER HAS SUBSTANTIAL INTER E ST. HE ALSO TOOK NOTE OF PLETHORA OF DECISIONS, WHEREIN IT WAS HELD THAT DEEMED DIVIDEND HAS TO BE TAXED ONLY IN THE HANDS OF THE SHAREHOLDER. THE CIT(A) EXAMINING THE ISSUE WH E TH E R THE INTER - CORPORATE DEPOSITS CAN BE BROUGHT UNDER THE NET OF DEEMED DI VIDEND, REFERRED TO THE MUMBAI H BENCH OF THE T RIBUNAL IN THE CASE OF BOMB A Y OIL INDUS T RIES V/S. DCIT(2 8 SOT 383 ) , DULY EXTRACTING RELEVANT PORTION OF THE SAID DECISION, CONCLUDED THAT INTER CORPORATE DEPOSITS CANNOT BE TAXED AS DEEMED DIVIDEND. THE CIT (A) CONSEQUENTLY DELETED THE ADDITION OF I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 3 R S .1,95,00,000 MADE BY THE ASSESSING OFFICER IN THE HANDS OF THE ASSESSEE, OBSERVING HOWEVER, THAT THE ASSESSING OFFICER CAN EXAMINE THE AP P LI C ABILITY O F S.2(22)(E) OF THE ACT IN THE HANDS OF SHRI G.R. REDDY, WHO HA S MORE THAN 10% SHAREHOLDING IN BOTH THE COMPANIES, VIZ. M/S. EXCEL RUBBER LTD. AND M/S. ACE TYRES LTD. 5. AGGRIEVED BY THE RELIEF GRANTEED BY THE CIT(A), R E VENU E IS IN APPEAL BEFORE US. 6. W E HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORERS OF REV ENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO APPLICABILITY OF PROVISIONS OF S.2(22)(E) OF THE ACT TO THE INTER - CORPORATE DEPOSITS RECEIVED BY THE ASSESSEE. AS NOTED ABOVE, IMPUGNED ORDER OF TH E CIT(A) ON THIS ISSUE IS BASED ON THE ORDER O F THE MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF BOMBAY OIL INDUSTRIES (SUPRA). FURTHER, A S NOTED BY THE ASSESSING OFFICER HIMSELF, IN THE IMPUGNED ORDER, CORRESPONDING ADDITION IN TERMS OF S.2(22)(E) MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2006 - 07 IN PURSUANCE OF THE DIRECTION OF THE ADDL. COMMISSIONER OF IT UNDER S.144A OF THE ACT, HAS BEEN DELETED BY THE CIT(A), AND AN APPEAL OF THE REVENUE AGAINST THAT ORDER OF THE CIT(A) WAS PENDING BEFORE T HE TRIBUNAL. IT HAS NOW BEEN BROUGHT TO OUR NOTICE THAT THE TRIBUNAL VIDE ITS ORDER DATED 30.9.2013 IN ITA NO.1721/HYD/2012 UPHELD THE SAID ORDER OF THE CIT(A) AND CONSEQUENTLY DISMISSED THE APPEAL OF THE REVENUE. THE REASONS DISCUSSED BY THE TRIBUNAL FO R UPHOLDING THE VIEW TAKEN BY THE CIT(A) FOR THAT YEAR IN ITS ORDER DATED 30.9.2013L, VIDE PARAS 10 AND 11 THEREOF READ AS FOLLOWS - 8. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. WE HAVE ALSO CAREFULLY EXAMINED VARIOUS JUDICIAL PRECEDENTS PLACED BEFORE US. SO FAR AS ICDS OF RS. 2,91,50,000/ - IS CONCERNED WE FULLY AGREE WITH THE CONCLUSION OF THE CIT(A) THAT IT CANNOT BE CONSIDERED TO BE IN THE NATURE OF LOANS AND ADVANCES SO AS TO TREAT IT AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. EVEN ASSUMING THAT THE I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 4 ICDS ARE LOANS AND ADVANCES, STILL IT CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT BECAUSE OF THE FOLLOWING REASONS. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS NOT A SHAREHOLDER IN M/S EXEL RUBBER PVT. LTD. FROM WHICH ADVANCE HAS BEEN RECEIVED. A PLAIN READING OF PROVISIONS CONTAINED U/S 2(22)(E) OF THE ACT MAKES IT CLEAR THAT ANY LOAN OR ADVANCE MADE TO A SHAREHOLDER BY A COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED WOULD BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF SUCH SHAREHOLDERS. SINCE, THE ASSESSEE IS NOT A SHAREHOLDER IN M/S EXEL RUBBER PVT. LTD., THE LOAN AND ADVANCE RECEIVED BY THE ASSESSEE C ANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE. THE HON'BLE DELHI HIGH COURT IN CASE OF CIT VS. ANKITECH P. LTD. (SUPRA) WHILE CONSIDERING IDENTICAL ISSUE APPROVED THE DECISION OF THE ITAT, MUMBAI SPECIAL BENCH IN CASE OF BHAUMIC COLOURS (P) LTD., 313 ITR (AT) 146 AND HELD AS UNDER: '22. INSOFAR AS THE PROVISIONS OF SECTION 2(22)(E) ARE CONCERNED, WE HAVE ALREADY EXTRACTED THIS PROVISION AND TAKEN NOTE OF THE CONDITIONS/REQUISITES WHICH ARE TO BE ESTABLISHED FOR MAK ING PROVISION APPLICABLE. IN COMMISSIONER OF INCOME TAX VS. C.P. SARATHY MUDALIAR[1972] 83 ITR 170, THE SUPREME COURT HAD TRACED OUT THE ASSESSEE OF THIS PROVISION IN THE FOLLOWING MANNER: ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTEREST, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER 31.05.19987 BY WAY OF ADVANCE OR LOAN. FIRST LIMB A) TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OF SHARES (NOT BEING SH ARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER, SECOND LIMB B) OR TO MY CONCERN IN WHICH, SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) THIRD LIMB C) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OR ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 5 23. IT IS RIGHTLY POINTED OUT BY THE BOMBAY HIGH COURT IN UNIVERSAL MEDICAR E (P) LTD.(SUPRA)THAT SECTION 2(22)(E) OF THE ACT IS NOT ARTISTICALLY WORDED. BE AS IT MAY, WE MAY REITERATE THAT AS PER THIS PROVISION, THE FOLLOWING CONDITIONS ARE TO BE SATISFIED: (1) THE PAYER COMPANY MUST BE A CLOSELY HELD COMPANY. (2) IT APPLIES TO A NY SUM PAID BY WAY OF LOAN OR ADVANCE DURING THE YEAR TO THE FOLLOWING PERSONS: (A) A SHAREHOLDER HOLDING AT LEAST 10 OF VOTING POWER IN THE PAYER COMPANY. (B) A COMPANY IN WHICH SUCH SHAREHOLDER HAS AT LEAST 20% OF THE VOTING POWER. (C) A CONCERN (OTHER T HAN COMPANY) IN WHICH SUCH SHAREHOLDER HAS AT LEAST 20% INTEREST. (3) THE PAYER COMPANY HAS ACCUMULATED PROFITS ON THE DATE OF ANY SUCH PAYMENT AND THE PAYMENT IS OUT OF ACCUMULATED PROFITS. (4) THE PAYMENT OF LOAN OR ADVANCE IS NOT IN COURSE OF ORDINARY B USINESS ACTIVITIES. 24. THE INTENTION BEHIND ENACTING PROVISIONS OF SECTION 2(22)(E) IS THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS A CCUMULATED PROFITS WOULD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYMENT BY THE COMPANY IS T REATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDERS. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON THE PRESUMPTION THAT THE LOANS OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. 25. FURTHER, IT IS AN ADMITTED CASE THAT UNDER NORMAL CIRCUMSTANCES, SUCH A LOAN OR ADVANCE GIVEN TO THE I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 6 SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREATED UNDER SECTION 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT THIS LEGAL PROVISION RELATES TO 'DIVIDEND'. THUS, BY A DE EMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FICTION DOES NOT EXTEND TO 'SHAREHOLDER'. WHEN WE KEEP IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP HERE AND IS NOT TO BE EXTENDED FURTHER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PR OFITS IN THE FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GIVEN TO NON - MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT, VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANCE IS A DMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF 'DEEMING SHAREHOLDER', THEN THE LEGISLATURE WOULD HAVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. MOST OF THE ARGUMENTS OF THE LEARNED COUNSELS FOR THE REVENUE WOULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FRO M THIS PERSPECTIVE. 26. IN A CASE LIKE THIS, THE RECIPIENT WOULD BE A SHAREHOLDER BY WAY OF DEEMING PROVISION. IT IS NOT CORRECT ON THE PART OF THE REVENUE TO ARGUE THAT IF THIS POSITION IS TAKEN, THEN THE INCOME 'IS NOT TAXED AT THE HANDS OF THE RECIPIENT '. SUCH AN ARGUMENT BASED ON THE SCHEME OF THE ACT AS PROJECTED BY THE LEARNED COUNSELS FOR THE REVENUE ON THE BASIS OF SECTIONS 4, 5, 8, 14 AND 56 OF THE ACT WOULD BE OF NO AVAIL. SIMPLE ANSWER TO THIS ARGUMENT IS THAT SUCH LOAN OR ADVANCE, IN THE FIRST P LACE, IS NOT AN INCOME. SUCH A LOAN OR ADVANCE HAS TO BE RETURNED BY THE RECIPIENT TO THE COMPANY, WHICH HAS GIVEN THE LOAN OR ADVANCE. 27. PRECISELY, FOR THIS VERY REASON, THE COURTS HAVE HELD THAT IF THE AMOUNTS ADVANCED ARE FOR BUSINESS TRANSACTIONS BET WEEN THE PARTIES, SUCH PAYMENT WOULD NOT FALL WITHIN THE DEEMING DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 28. INSOFAR AS RELIANCE UPON CIRCULAR NO. 495 DATED 22.09.1997 ISSUED BY CENTRAL BOARD OF DIRECT TAXES IS CONCERNED, WE ARE INCLINED TO AGREE WITH THE OBSERVATIONS OF THE MUMBAI BENCH DECISION IN BHAUMIK COLOUR (P) LTD. (SUPRA)THAT SUCH OBSERVATIONS ARE NOT BINDING ON THE COURTS. ONCE IT IS FOUND THAT SUCH LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEND AT THE HANDS OF SUCH A CONCERN WHICH IS I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 7 NO T A SHAREHOLDER, AND THAT ACCORDING TO US IS THE CORRECT LEGAL POSITION, SUCH A CIRCULAR WOULD BE OF NO AVAIL. 29. NO DOUBT, THE LEGAL FICTION/DEEMED PROVISION CREATED BY THE LEGISLATURE HAS TO BE TAKEN TO 'MAGIGICAL CONCLUSION' AS HELD IN ANDALEEB SEHGAL (SUPRA). THE REVENUE WANTS THE DEEMING PROVISION TO BE EXTENDED WHICH IS ILLOGICAL AND ATTEMPT IS TO CREATE A REAL LEGAL FICTION, WHICH IS NOT CREATED BY THE LEGISLATURE. WE SAY AT THE COST OF REPETITION THAT THE DEFINITION OF SHAREHOLDER IS NOT ENLARGED B Y ANY FICTION. 30. BEFORE WE PART WITH, SOME COMMENTS ARE TO BE NECESSARILY MADE BY US. AS POINTED OUT ABOVE, IT IS NOT IN DISPUTE THAT THE CONDITIONS STIPULATED IN SECTION 2(22)(E) OF THE ACT TREATING THE LOAN AND ADVANCE AS DEEMED DIVIDEND ARE ESTABLISHE D IN THESE CASES. THEREFORE, IT WOULD ALWAYS BE OPEN TO THE REVENUE TO TAKE CORRECTIVE MEASURE BY TREATING THIS DIVIDEND INCOME AT THE HANDS OF THE SHAREHOLDERS AND TAX THEM ACCORDINGLY. AS OTHERWISE, IT WOULD AMOUNT TO ESCAPEMENT OF INCOME AT THE HANDS OF THOSE SHAREHOLDERS.' 9. THE SAME VIEW HAS ALSO BEEN EXPRESSED BY THE HON'BLE DELHI HIGH COURT AGAIN IN CASE OF CIT VS. NAVYUG PROMOTERS P. LTD. (203 TAXMAN 618) AND HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD., (324 ITR 263). 1 0. THE ITAT, HYDERABAD BENCH IN CASE OF MARC MANUFACTURERS PVT. LTD. VS. ACIT IN ITA NO. 555/HYD/2008 DT. 31/08/2009 WHILE CONSIDERING IDENTICAL ISSUE OF ADVANCEMENT OF LOAN TO ONE COMPANY, WHICH IS NOT A SHAREHOLDER OF THE LENDER COMPANY FOLLOWING THE DEC ISION OF ITAT MUMBAI SPECIAL BENCH IN CASE OF BHAUMIK COLOUR P. LTD. (SUPRA) AND OTHER DECISIONS HELD AS UNDER: '5. IT CAN BE SEEN FROM THE CIRCULAR THAT THE PROVISIONS OF AMENDED SECTION 2(22)(E) ARE TO BE APPLIED ONLY TO THE PAYMENTS MADE TO THE SHAREHOL DERS AND NOT TO ANY OTHER PERSON OR CONCERN OTHER THAN THE SHAREHOLDERS. THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. H.K. MITTAL REPORTED IN 219 ITR 420 HELD THAT THE CHIEF INGREDIENT OF DIVIDEND AS DEFINED IN SUB CLAUSE (E) OF CLAUSE (22) OF SECTION 2 OF THE I T ACT IS THAT THE RECIPIENT SHOULD A SHAREHOLDER ON THE DAY THE LOAN WAS ADVANCED. IF THAT FACT IS NOT ESTABLISHED, THERE CANNOT BE A DEEMED DIVIDEND. THEREFORE, THE PROVISIONS OF SEC. 2(22)(E) CANNOT BE APPLIED TO MARC AS IT IS NOT A SHAREHOLDER IN MTAR TECHNOLOGIES PVT. LTD. (HEREINAFTER CALLED AS MTAR). IN THIS REGARD, THE ASSESSEE RELIES ON THE DECLSLON OF THE ITAT MUMBAI BENCH 'G' IN THE CASE OF SEAMIST PROPERTIES PVT. LTD. VS. ITO REPORTED IN (2005) 1 SOT PAGE 142. THE ASSESSEE FURTHER SUBMITS THAT THE PROVISIONS OF SEC. 2(22)( E) MENTION AS UNDER: I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 8 'ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SU BSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) (MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBST ANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE - EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S' 6. THE INTENTION OF THE LEGISLATURE IS CLARIFIED IN CIRCULAR ISSUED BY THE CBIT AS AT THE TIME OF AMENDMENT OF CLAUSE (E) OF SUB SECTION (22) OF SEC. 2 IS FURTHER FORTIFIED BY THE FACT THAT FOR DEDUCTION OF TAX AT SOURCE. SEC. 194 PROVIDE THAT SUCH DEDU CTION OF TAX HAS TO BE MADE IN THE CASE OF THE PAYMENTS OF THE NATURE MENTIONED IN CLAUSES (A), (B), (C), (D) AND (E) OF SUB SECTION (22) OF SECTION 2 ONLY IN A CASE WHERE SUCH PAYMENTS WERE MADE TO A SHAREHOLDER. SECTION 199 ALSO INDICATES THAT ADJUSTMENT OF TOS WOULD BE PROVIDED IN THE ASSESSMENT OF SHAREHOLDER ONLY. THE VERY FACT THAT THE PROVISION FOR DEDUCTION OF TAX AT SOURCE AND ADJUSTMENT OF TAX IS ONLY IN RESPECT OF THE PAYMENTS TO THE' SHAREHOLDER WOULD CLEARLY INDICATE THAT EVEN AFTER THE AMENDME NT, THE EFFECT OF CLAUSE (E) OF SUB SECTION (22) OF SEC. 2 WOULD APPLY ONLY WHEN THE PAYMENT IS MADE TO SHAREHOLDER. WHEREVER, THE TAX IS TO BE DEDUCTED AT SOURCE FROM A DIVIDEND OR DEEMED DIVIDEND AND THE CONSEQUENTIAL EFFECT OF GIVING EFFECT TO SUCH DEDU CTION OF TAX AT SOURCE, ETC., REFERENCE WAS MADE ONLY TO THE PAYMENTS TO THE SHAREHOLDER. THIS WOULD INDICATE CLEARLY THAT CLAUSE (E) WOULD APPLY ONLY IN CASE OF PAYMENTS TO THE SHAREHOLDER AND NOT TO OTHERS.' 11. IN THE APPEAL BEFORE US ADMITTEDLY THE ASS ESSEE IS NOT A SHAREHOLDER OF THE LENDER COMPANY. HENCE, CONSIDERED IN THE LIGHT OF THE RATIO LAID DOWN IN THE JUDICIAL PRECEDENTS REFERRED TO ABOVE THE ICDS OF RS. 2,91,50,000/ - AND THE ADVANCES TO THE ASSESSEE AMOUNTING TO RS. 1,44,86,549/ - CANNOT BE TRE ATED AS DEEMED DIVIDEND AT THE HANDS OF THE ASSESSEE. THEREFORE, THERE IS ABSOLUTELY NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE CIT(A) WHICH IS ACCORDINGLY UPHELD. 7. FACTS AND CIRCUMSTANCES OF THE CASE, ADMITTEDLY, BEING IDENTICAL EVEN FOR THE ASSESSMENT YEAR 2010 - 11, R ESPECTFULLY FOLLOWING THE MUMBAI BENCH DECISION OF THE TRIBUNAL IN THE CASE OF BOMBAY OIL INDUSTRIES (SUPRA), RELIED UPON I TA NO. 1370 / HYD/2013 M/S. ACE TYRES LTD., BACHUPALLY, R.R. DISTRICT 9 BY THE CIT(A) IN THE IMPUGNED ORDER, AND CONSISTENT WITH THE VIEW TAKEN BY THE COORDINATE BENCH OF THE TRIB UNAL IN ITS ORDER DATED 30.9.2013 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006 - 07, TO WHICH ONE OF US, VIZ. THE JUDICIAL MEMBER IS A PARTY, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A), WHICH IS ACCORDINGLY CONFIRMED. CONSEQUENTLY, GROUNDS OF THE REVENUE IN THIS APPEAL ARE REJECTED. 8 . IN THE RESULT, REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 17.2.2014 SD/ - SD/ - (SAKTIJIT DEY) (CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 17 TH FEBRUARY, 2014 COPY FORWARDED TO: 1. M/S. ACE TYRES LTD., 314 & 315 AMMENPUR ROAD, BACHUPALLY, RANGA REDDY DISTRICT, 2 . 3. DY. COMMISSIONER OF INCOME - TAX CIRCLE 1 ( 1 ), HYDERABAD COMMISSIONER OF INCOME - TAX(APPEALS) II HYDERABAD 4 . COMMISSIONER OF INCOME - TAX III, HYDERABAD 5 . DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V .S