ITO, Ward-16(1), Hyderabad V. M/s My Time Pharmacy, Secunderabad

ITA 262/HYD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69738 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V RAGHURAM
• Assessee Lawyers: M H NAIK
• Keywords: Deemed dividend
• Section: 147; 148

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. 262/HYD/2013 ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER, APPELLANT WARD 16(1,)HYDERABAD. VS. M/S MY TIME PHARMACY, RESPONDENT HYDERABAD 500 016. (PAN AAECM9084H) APPELLANT BY : SHRI A.V. RAGHURAM RESPONDENT BY : SHRI M.H. NAIK DATE OF HEARING : 12/06/2013 DATE OF PRONOUNCEMENT : 0 8/08/2013 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER OF CIT(A)-V, HYDERABAD, DATED 02/11/2012, FOR THE ASSESSMENT YEAR 2007-08. 2. IN THE PRESENT APPEAL THE DEPARTMENT HAS ASSAIL ED THE ORDER OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER NOT TO TREAT THE AMOUNT OF RS. 16,32,800/- AS DEEME D DIVIDEND AT THE HANDS OF THE ASSESSEE. ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 2 3. BRIEFLY THE FACTS ARE, THE ASSESSEE A PRIVATE LI MITED COMPANY IS ENGAGED IN THE BUSINESS OF CHAIN STORES FOR SALE OF DRUGS. THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS NOT FILED ITS RETURN OF INCOME FOR THE PERIOD 03/01/2007 TO 31/03/2007 BUT HAS FILED A RETURN OF INCOME FOR THE CONSOLIDATED PERIOD OF 15 MONTHS FRO M 01/01/2007 TO 31/03/2009 REOPENED THE ASSESSMENT U/ S 147 OF THE ACT BY ISSUING A NOTICE U/S 148 OF THE A CT ON 03/03/2011. IN COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER ON VERIFICATION OF THE INFORMATIO N AVAILABLE ON RECORD NOTICED THAT DURING THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 THE ASSESSE E HAD RECEIVED LOAN OF RS. 16,32,800/- FROM TIME PROJ ECTS P. LTD. THE ASSESSING OFFICER ON EXAMINING THE SHAREHOLDING PATTERN OF BOTH THE COMPANIES NOTICED THAT DR. Y. KRISHNA MOHAN, ONE OF THE DIRECTORS OF TIME PROJECTS PVT. LTD. WAS ALSO HOLDING MORE THAN 20% O F THE SHARES IN THE ASSESSEE COMPANY. SIMILARLY SMT. Y. PADMAVATHI, ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY WAS ALSO HOLDING MORE THAN 20% OF THE SHARE S IN TIME PROJECTS PVT. LTD. HE FURTHER NOTICED THAT THE LENDER COMPANY WAS ALSO HOLDING 67% SHARES IN THE ASSESSEE COMPANY. SINCE BOTH THE COMPANIES ARE CLOS ELY HELD COMPANIES AND THE ACCUMULATED PROFITS OF THE L ENDER COMPANY WAS MORE THAN THE LOAN AMOUNT, THE ASSESSIN G OFFICER CAME TO A CONCLUSION THAT PROVISIONS OF SEC TION 2(22)(E) ARE ATTRACTED AND ACCORDINGLY TREATED THE AMOUNT OF RS. 16,32,800/- AS DEEMED DIVIDEND AT THE HANDS OF THE ASSESSEE. 3. THE ASSESSEE BEING AGGRIEVED OF THE ASSESSMENT S O MADE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 3 FIRST APPELLATE AUTHORITY IT WAS CONTENDED BY THE A SSESSEE THAT THE FUNDS RECEIVED ARE USED FOR DEVELOPMENT OF THE ASSESSEE COMPANY AND WAS FOR THE PURPOSES OF BUSINE SS. IT WAS SUBMITTED THAT THE LENDER COMPANY, M/S TIME PROJECTS (P) LTD. HAS BUSINESS INTEREST IN THE ASSE SSEE COMPANY AND THE FUNDS WERE NOT USED BY ANY SHAREHOLDER WHO IS SHAREHOLDER IN THE COMPANY M/S T IME PROJECTS (P) LTD. IN SUPPORT OF ITS CONTENTION THE ASSESSEE SPECIFICALLY PLACED RELIANCE UPON A DECISI ON OF THE ITAT, HYDERABAD BENCH IN CASE OF MARC MANUFACTURERS PVT. LTD. VS. ACIT IN ITA NO. 555/HYD/2008 DT. 31/08/2009. THE CIT(A) FOLLOWING DECISION OF THE ITAT, HYDERABAD BENCHES IN CASE OF MARC MANUFACTURERS PVT. LTD. (SUPRA) HELD THAT THE LOAN AMOUNT OF RS. 16,32,800/- ADVANCED TO THE ASSESSEE CANNOT BE TREATED AS DEEMED DIVIDEND. 4. THE LEARNED DR SUBMITTED THAT THE LENDER COMPANY WAS HAVING 67% SHAREHOLDING WITH THE ASSESSEE AND THERE ARE COMMON DIRECTORS WHO ARE HOLDING MORE THA N 20% SHARES. THE LENDER COMPANY WAS ALSO HAVING ACCUMULATED PROFIT OF MORE THAN THE LOAN ADVANCED, HENCE, THE PROVISIONS OF SEC. 2(22)(E) AND CLEARLY ATTRACTED TO THE FACTS OF THE ASSESSEES CASE. 5. THE LEARNED AR ON THE OTHER HAND STRONGLY SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT A LL THE DIRECTORS ARE NOT COMMON. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS ALSO NOT A SHAREHOLDER IN THE L ENDER COMPANY MY TIME PROJECTS PVT. LTD. HENCE, THE SECTI ON 2(22)(E) CANNOT BE ATTRACTED TO THE LOAN AMOUNT BY TREATING IT AS DEEMED DIVIDEND. HE FURTHER SUBMITTE D THAT ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 4 IF AT ALL IT HAS TO BE TREATED AS DEEMED DIVIDEND U /S 2(22)(E) THEN IT HAS TO BE ASSESSED AT THE HANDS OF THE SHAREHOLDERS AND NOT THE ASSESSEE COMPANY. IN SUPPO RT OF HIS CONTENTION THE LEARNED AR RELIED UPON THE DE CISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. ANKITECH P. LTD. (340 ITR 14) AND THE DECISION OF T HE ITAYT, HYDERABAD BENCH IN CASE OF MARC MANUFACTURER S PVT. LTD. VS. ACIT (SUPRA). 6. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. WE HAVE ALSO EXAMI NED THE DECISIONS RELIED UPON BY THE PARTIES. AS CAN BE SEEN FROM THE FACTS RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THE ASSESSEE IS NOT A SHAREHOLDER OF THE LENDER COMPANY MY TIMES PROJECT PVT. LTD. BUT T HE LENDER COMPANY IS HOLDING 67% SHARES IN THE ASSESSE E COMPANY. THAT BESIDES AS PER THE ASSESSING OFFICER S OWN FINDING SHAREHOLDERS ARE ALSO NOT COMMON EXCEPTING ONE IN EACH COMPANY. A PLAIN READING OF THE PROVISIONS CONTAINED U/S 2(22)(E) OF THE ACT MAKES IT CLEAR TH AT ANY LOAN OR ADVANCE MADE BY A COMPANY IN WHICH PUBLIC A RE NOT SUBSTANTIALLY INTERESTED WOULD BE TREATED AS A DEEMED DIVIDEND AT THE HANDS OF SUCH SHAREHOLDER. I N THE FACTS OF THE PRESENT CASE UNDISPUTEDLY THE ASSE SSEE IS NOT A SHAREHOLDER OF THE LENDER COMPANY MY TIMES PROJECT (P) LTD. HENCE THE LOAN AMOUNT ADVANCED TO THE ASSESSEE CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AT THE HANDS OF THE ASSESSEE. T HE 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 ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 5 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 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 ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 6 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. (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 ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 7 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 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. ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 8 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 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. 7. THE ITAT, HYDERABAD BENCH IN CASE OF MARC MANUFACTURERS PVT. LTD. (SUPRA) WHILE CONSIDERING IDENTICAL ISSUE OF ADVANCEMENT OF LOAN TO ONE COMPA NY, ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 9 WHICH IS NOT A SHAREHOLDER OF THE LENDER COMPANY FOLLOWING THE DECISION 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 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 ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 10 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 CLEARLY THAT CLAUSE (E) WOULD APPLY ONLY IN CASE OF PA YMENTS TO THE SHAREHOLDER AND NOT TO OTHERS. 8. 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 LOAN ADVA NCED TO THE ASSESSEE AMOUNTING TO RS. 16,32,800/- CANNOT BE TREATED 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. 9. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 08/08/2013. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED: 8 TH AUGUST, 2013. KV COPY TO:- 1) ITO, WARD 16(1), ROOM NO. 613, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2) M/S MEGA CYBER TECH LTD., 1 ST FLOOR, SHYAM TOWERS, SD ROAD, SECUNDERABAD. 3) CIT(A)-V, HYDERABAD. 4) CIT-IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T ., HYDERABAD. DESCRIPTION DATE INTLS ITA NO. 262/HYD/2013 M/S MY TIME PHARMACY 11 S.NO. 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER WITH BEST WISHES FROM MEMBERS OF ITAT,HYDERABAD BENCHES, HYDERABAD.