Dy.CIT, Cir-1(1), Hyderabad V. M/s Ace Tyres Limited, Hyderabad

ITA 1721/HYD/2012

• Counselvise Citation: 172122514 RSA 2012
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 30-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R LAXMAN
• Assessee Lawyers: CHH MURALIKRISHNA MURTHY; P SATYANARAYANA M
• Keywords: Deemed dividend
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1721/HYD/2012 ASSESSMENT YEAR : 2006-07 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE - 1(1,)HYDERABAD. VS. M/S ACE TYRES LTD., RESPONDENT HYDERABAD (PAN AAACA2210N) APPELLANT BY : SHRI R. LAXMAN RESPONDENT BY : SHRI CHH. MURALIKRISHNA MURTHY & SHRI P. SATYANARAYANA MURT HY DATE OF HEARING : 26/09/2013 DATE OF PRONOUNCEMENT : 3 0/09/2013 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER OF CIT(A)-II, HYDERABAD, DATED 26/09/2012 , FOR THE ASSESSMENT YEAR 2006-07. 2. IN THE GROUNDS RAISED THE DEPARTMENT HAS CHALLENGED THE ORDER OF THE CIT(A) DELETING THE ADD ITION MADE BY THE ASSESSING OFFICER BY TREATING THE AMOUN T RECEIVED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT . 3. BRIEFLY THE FACTS ARE, THE ASSESSEE A COMPANY FI LED ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 2 ITS RETURN OF INCOME ON 24/11/2007 DECLARING TOTAL INCOME OF RS. 2,81,03,800/- FOR THE IMPUGNED ASSESSMENT YEAR. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DT. 30/10/2008 DETERMI NING TOTAL INCOME AT RS. 2,93,03,089/-. SUBSEQUENTLY, HOWEVER, THE ASSESSING OFFICER HAVING REASON TO BEL IEVE THAT INCOME HAS ESCAPED ASSESSMENT INITIATED ACTION U/S 147 OF THE ACT BY ISSUING A NOTICE U/S 148 OF THE A CT ON 29/03/2011. THE ASSESSMENT WAS REOPENED ON THE REASON THAT THE ASSESSEE HAD RECEIVED SUBSTANTIAL AMOUNTS AS ADVANCE/LOAN FROM M/S EXCEL RUBBERS PVT. LTD. DURING THE RELEVANT PREVIOUS YEAR. THE CORE PROMOTER, SHRI G.R. REDDY POSSESSES MORE THAN 10% O F VOTING RIGHTS IN THE ASSESSEE COMPANY AND ALSO MORE THAN 20% IN EXCEL RUBBER PVT. LTD AND SINCE M/S EXC EL RUBBER PVT. LTD. IS A CLOSELY HELD COMPANY AND HAVI NG ACCUMULATED PROFIT, THE LOAN/ADVANCE RECEIVED BY TH E ASSESSEE PARTAKES THE CHARACTER OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 4. DURING THE REASSESSMENT PROCEEDING WHEN THE ASSESSING OFFICER SOUGHT AN EXPLANATION FROM THE ASSESSEE ON THE ISSUE, THE ASSESSEE EXPLAINED THAT THE AMOUNTS RECEIVED FROM EXCEL RUBBER PVT. LTD WAS IN THE FORM OF INTER CORPORATE DEPOSIT (ICD) AND ADVANCES ARE FOR BUSINESS PURPOSES, HENCE, CANNOT BE TREATED AS DEEMED DIVIDEND. THE ASSESSEE FURTHER CONTENDED THA T SINCE THE ASSESSEE IS NOT A SHAREHOLDER IN M/S EXCE L RUBBER PVT. LTD., THE AMOUNT RECEIVED CANNOT BE TRE ATED AS DEEMED DIVIDEND. THE ASSESSEE ALSO SOUGHT A DIRECTION FROM THE ADDL. CIT U/S 144A OF THE ACT ON THE ISSUE. THE ADDL. CIT, AS NOTED IN PARA 4 OF THE ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 3 ASSESSMENT ORDER, THOUGH ACCEPTED THAT THE ASSESSEE IS NOT A SHAREHOLDER IN M/S EXCEL RUBBER PVT. LTD BUT STILL THEN HELD THAT THE ICD OF RS. 2,91,50,000/- AND ADV ANCE OF RS. 1,44,86,549/- RECEIVED FROM M/S EXCEL RUBBER PVT. LTD. IS TO BE TREATED AS DEEMED DIVIDEND IN THE HAN DS OF THE ASSESSEE AS PER SECTION 2(22)(E) OF THE ACT. FOLLOWING THE DIRECTIONS OF THE ADDL. CIT, THE ASSE SSING OFFICER TREATED THE AMOUNTS OF RS. 2,91,50,000/- AN D RS. 1,44,86,549/- AS DEEMED DIVIDEND U/S 2(22)(E) OF TH E ACT AND ADDED IT TO THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER DISPUTE. 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) AGAINST THE ASSESSMENT ORDER PASSED. IN COURSE OF HEARING OF APPEAL BEFORE THE CIT(A) THE ASSESSEE TO OK THE SAME STAND AS WAS TAKEN BEFORE THE ASSESSING OF FICER AND RELIED UPON VARIOUS DECISIONS OF HIGH COURTS AN D TRIBUNAL IN SUPPORT. 6. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF VARIOUS JUDICIAL PRECEDENT S CITED BEFORE HER MORE PARTICULARLY THE DECISION OF ITAT, MUMBAI BENCH IN CASE OF BOMBAY OIL INDUSTRIES LTD. VS. DCIT, ITA NO. 2985/MUM/2005, DATED 22/01/2009, HELD THAT ICDS RECEIVED BY THE ASSESSEE CANNOT BE CONSID ERED ALONG WITH LOANS AND ADVANCES FOR THE PURPOSE OF APPLICATION OF THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT. SO FAR AS THE ADVANCE RECEIVED FROM M/S EXCEL RUBBER PVT. LTD. IS CONCERNED, THE CIT(A) FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS. ANKITECH P. LTD. & OTHERS (340 ITR 14) AND DECISION OF THE ITAT, HYDERABAD BENCH IN CASE OF MTAR TECHNOLOG IES ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 4 PVT. LTD. VS. ACIT (39 SOT 465) HELD THAT THE AMOUN TS RECEIVED BY THE ASSESSEE FROM M/S EXCEL RUBBER PVT. LTD. CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) O F THE ACT AND ACCORDINGLY DELETED THE ADDITION MADE B Y THE ASSESSING OFFICER. THE FINDING OF THE CIT(A) IN THI S RESPECT IS EXTRACTED HEREUNDER FOR CONVENIENCE: 7. COMING TO THE FACTS OF THE CASE SRI G.R. REDDY IS A COMMON SHAREHOLDER IN BOTH THE COMPANIES WHILE OUT OF 19 SHAREHOLDER OF EXEL 10 ARE SHAREHOLDERS IN ACE AND ACE HAS 30 SHAREHOLDERS IN TOTAL. IT MAY BE NOTED THAT ACE I.E., THE APPELLANT COMPANY IS NOT A SHAREHOLDER IN THE EXEL RUBBER LTD. IT IS AN ADMITTED FACT THAT ACE IS A CONCERN I N WHICH SRI G.R. REDDY HOLDS SUBSTANTIAL INTEREST AND HE ALSO HOLDS MORE THAN 10% SHARES IN EXEL. FOLLOWING THE JURISDICTIONAL TRIBUNALS DECISION IN THE CASE OF MTAR TECHNOLOGIES (SUPRA), THE DEEMED DIVIDEND U/S 2(22)(E) CAN ONLY BE TAXED IN THE HAND S OF THE SHARE HOLDER AND THEREFORE THE LOANS AND ADVANCES RECEIVED BY THE APPELLANT WHICH IS NOT A SHARE HOLDER OF THE EXEL RUBBER LTD., CANNOT BE TREATED AS DEEMED DIVIDEND IN ITS HAND. THEREFORE THE ADDITION MADE IN THE HANDS OF THE APPELLANT COMPANY OF RS. 1,44,86,549/- ON ACCOUNT OF DEEMED DIVIDEND IS ORDERED TO BE DELETED. IF AT ALL THERE IS ANY DEEMED DIVIDEND, IT HAS TO BE CONSIDERED IN THE HANDS OF THE COMMON SHARE HOLDER AND SINCE THERE ARE NO FINDINGS BY THE ASSESSING OFFICER THAT THE COMMON SHARE HOLDER HAS WITHDRAWN ANY AMOUNTS FORM THE ADVANCES FOR HIS PERSONAL BENEFIT, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE APPLICABILITY OF SECTION 2(22)(E) IN THE HANDS OF S RI G.R. REDDY. 7. BEING AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS BEFORE US. 8. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDE RS PASSED BY THE REVENUE AUTHORITIES. WE HAVE ALSO CAREFULLY EXAMINED VARIOUS JUDICIAL PRECEDENTS PLAC ED ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 5 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 NA TURE OF LOANS AND ADVANCES SO AS TO TREAT IT AS DEEMED DIVI DEND U/S 2(22)(E) OF THE ACT. EVEN ASSUMING THAT THE ICD S ARE LOANS AND ADVANCES, STILL IT CANNOT BE TREATED AS D EEMED DIVIDEND U/S 2(22)(E) OF THE ACT BECAUSE OF THE FOL LOWING REASONS. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS NOT A SHAREHOLDER IN M/S EXEL RUBBER PVT. LTD. FROM WHI CH ADVANCE HAS BEEN RECEIVED. A PLAIN READING OF PROVI SIONS CONTAINED U/S 2(22)(E) OF THE ACT MAKES IT CLEAR TH AT ANY LOAN OR ADVANCE MADE TO A SHAREHOLDER BY A COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED W OULD BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF SUCH SHAREHOLDERS. SINCE, THE ASSESSEE IS NOT A SHAREHOL DER IN M/S EXEL RUBBER PVT. LTD., THE LOAN AND ADVANCE REC EIVED BY THE ASSESSEE CANNOT BE TREATED AS DEEMED DIVIDEN D U/S 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSE E. THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. ANKITEC H P. LTD. (SUPRA) WHILE CONSIDERING IDENTICAL ISSUE APPR OVED THE DECISION OF THE ITAT, MUMBAI SPECIAL BENCH IN C ASE OF BHAUMIC COLOURS (P) LTD., 313 ITR (AT) 146 AND H ELD 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/REQUISIT ES WHICH ARE TO BE ESTABLISHED FOR MAKING 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 ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 6 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 SHARES 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. 23. IT IS RIGHTLY POINTED OUT BY THE BOMBAY HIGH COURT IN UNIVERSAL MEDICARE (P) LTD.(SUPRA)THAT SECTION 2(22)(E) OF THE ACT IS NOT ARTISTICALLY WOR DED. 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 ANY 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. ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 7 (C) A CONCERN (OTHER THAN 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 BUSINESS 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 ACCUMULATED PROFITS WOULD NOT DISTRIBUTE SUCH PROFI T 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 O R 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 TREATED AS DIVIDEND. THE INTENTION BEHIN D 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 LOA NS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON T HE 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 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 RELA TES TO DIVIDEND. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FIC TION 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 ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 8 ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STO P 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 PROFITS IN THE FORM O F 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 ADMITTEDLY NO T 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 FROM 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 TAX ED 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 PLACE, IS NOT AN INCO ME. 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 HA VE HELD THAT IF THE AMOUNTS ADVANCED ARE FOR BUSINESS TRANSACTIONS BETWEEN 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 DATE D 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 ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 9 OBSERVATIONS ARE NOT BINDING ON THE COURTS. ONCE IT IS FOUND THAT SUCH LOAN OR ADVANCE CANNOT BE TREATE D AS DEEMED DIVIDEND AT THE HANDS OF SUCH A CONCERN WHICH IS NOT A SHAREHOLDER, AND THAT ACCORDING TO U S IS THE CORRECT LEGAL POSITION, SUCH A CIRCULAR WOUL D 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 B Y THE LEGISLATURE. WE SAY AT THE COST OF REPETITION T HAT THE DEFINITION OF SHAREHOLDER IS NOT ENLARGED BY AN Y 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 ESTABLISHED 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 HONBLE DELHI HIGH COURT AGAIN IN CASE OF CIT VS. N AVYUG PROMOTERS P. LTD. (203 TAXMAN 618) AND HONBLE BOMB AY HIGH COURT IN CASE OF CIT VS. UNIVERSAL MEDICARE (P ) LTD., (324 ITR 263). 10. 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 IDENT ICAL ISSUE OF ADVANCEMENT OF LOAN TO ONE COMPANY, WHICH IS NOT A SHAREHOLDER OF THE LENDER COMPANY FOLLOWING T HE DECISION OF ITAT MUMBAI SPECIAL BENCH IN CASE OF BHAUMIK COLOUR P. LTD. (SUPRA) AND OTHER DECISIONS HELD ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 10 AS UNDER: 5. IT CAN BE SEEN FROM THE CIRCULAR THAT THE PROVI SIONS OF AMENDED SECTION 2(22)(E) ARE TO BE APPLIED ONLY TO THE PAYMENTS MADE TO THE SHAREHOLDERS AND NOT TO ANY OTHER PERSO N OR CONCERN OTHER THAN THE SHAREHOLDERS. THE ALLAHABAD HIGH COU RT 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 SHOU LD A SHAREHOLDER ON THE DAY THE LOAN WAS ADVANCED. IF THAT FACT IS NOT ESTABLISHED, THERE CANNOT BE A DEEMED DIVIDEND. THEREFORE, THE PROVISI ONS OF SEC. 2(22)(E) CANNOT BE APPLIED TO MARC AS IT IS NOT A S HAREHOLDER 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. LT D. VS. ITO REPORTED IN (2005) 1 SOT PAGE 142. THE ASSESSEE FUR THER SUBMITS THAT THE PROVISIONS OF SEC. 2(22)( E) MENTION AS UN DER: 'ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN W HICH THE PUBLIC ARE SUBSTANTIALLY 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, B Y WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF T HE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS T HE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHA LF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER , TO THE- EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS' 6. THE INTENTION OF THE LEGISLATURE IS CLA RIFIED 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 THA T FOR DEDUCTION OF TAX AT SOURCE. SEC. 194 PROVIDE THAT SUCH DEDUCTION OF TAX HAS TO BE MADE IN THE CASE OF THE PAYMENTS OF THE NATURE MENT IONED 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 S HAREHOLDER. SECTION 199 ALSO INDICATES THAT ADJUSTMENT OF TOS W OULD BE PROVIDED IN THE ASSESSMENT OF SHAREHOLDER ONLY. THE VERY FACT THAT THE PROVISION FOR DEDUCTION OF TAX AT SOURCE AND AD JUSTMENT OF TAX IS ONLY IN RESPECT OF THE PAYMENTS TO THE' SHAREHOLDER WOULD CLEARLY INDICATE THAT EVEN AFTER THE AMENDMENT, 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 DEDU CTED AT SOURCE FROM A DIVIDEND OR DEEMED DIVIDEND AND THE CONSEQUENTI AL EFFECT OF GIVING EFFECT TO SUCH DEDUCTION OF TAX AT SOURCE, ETC. , REFERENCE WAS MADE ONLY TO THE PAYMENTS TO THE SHAREHOLDER. THIS WOULD INDICATE ITA NO. 1721/HYD/2012 M/S ACE TYRES LTD. 11 CLEARLY THAT CLAUSE (E) WOULD APPLY ONLY IN CASE OF PA YMENTS TO THE SHAREHOLDER AND NOT TO OTHERS. 11. IN THE APPEAL BEFORE US ADMITTEDLY THE ASSESSEE IS NOT A SHAREHOLDER OF THE LENDER COMPANY. HENCE, CONSIDERED IN THE LIGHT OF THE RATIO LAID DOWN IN T HE JUDICIAL PRECEDENTS REFERRED TO ABOVE THE ICDS OF R S. 2,91,50,000/- AND THE ADVANCES TO THE ASSESSEE AMOUNTING TO RS. 1,44,86,549/- CANNOT BE TREATED AS DEEMED DIVIDEND AT THE HANDS OF THE ASSESSEE. THEREFORE, THERE IS ABSOLUTELY NO REASON TO INTERFE RE WITH THE ORDER PASSED BY THE CIT(A) WHICH IS ACCORDINGLY UPHELD. 12. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON 30/09/2013. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED: 30 TH SEPTEMBER, 2013. KV COPY TO:- 1) DCIT, CIRCLE 1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2) M/S ACE TYRES LTD., 314 & 315, AMEENPUR ROAD, BACHUPALLY, RANGA REDDY DT., HYDERABAD. 3) CIT(A)-II, HYDERABAD. 4) CIT-I HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T ., HYDERABAD.