ITO-10(1)(4), MUMBAI V. PAGE 3 FASHIONS PVT.LTD., MUMBAI

ITA 4909/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62410 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 21-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Question of law; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) AND SHRI RAJENDR A (A.M) ITA NO. 4909/M/2011(A.Y. 2008-09) THE ITO 10(1) (4), 457, AAYKAR BHAVAN, 4 TH FLOOR, M.K.MARG, MUMBAI - 20 (APPELLANT) VS. M/S. PAGE 3 FASHIONS PVT. LTD., 30, GAURAV CHS LTD., BHARAT COAL COMPOUND, BAIL BAZAR, KURLA (W), MUMBAI - 70 (PAN: AAECP 1850G) (RESPONDENT) APPELLANT BY : SHRI V.V. SHASTRI RESPONDENT BY : NONE DATE OF HEARING : 01/05/2012 DATE OF PRONOUNCEMENT : 1 6/05/2012 ORDER PER N.V.VASUDEVAN, J.M THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 26/04/2011 OF CIT(A)-21, MUMBAI RELATING TO ASSESSMENT YEAR 20 08-09. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.48, 00,000/- ASSESSED IN THE HANDS OF THE ASSESSEE AS DIVIDEND U/S.2(22)(E) OF THE I.T.ACT, 1961 ON THE GROUND THAT THE ASSESSEE COMPANY IS NOT SHAR EHOLDER OF THE LENDING COMPANY, JAJ INTERNATIONAL (INDIA) LIMITED, IGNORING THE STATUTORY PROVISIONS TO ANY CONCERN IN WHICH SUCH S HARERHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HAS A SUBSTANTIAL INTEREST ENACTED IN THE SECOND LIMB OF SECTION 2(22)(E) OF THE I.T.A CT, 1961 BY FINANCE ACT 1987 AND THE LEGISLATIVE INTENT EXPLAINED IN TH E MEMORANDUM TO TAX SUCH INCOME IN THE HANDS OF ASSESSEE CONCERN EVEN AFTER THE CIT(A) ACKNOWLEDGED THAT RS.48,00,000/- IS IN THE N ATURE OF LOAN AND THUS CAN BE ASSESSED IN THE HANDS OF MR.ASHOK P.SHE TTY AND MR. SHAKEEL MIRZA WHO ARE HOLDING 50% EACH OF EQUITY SH ARES OF THE ASSESSEE COMPANY PAGE 3 FASHIONS PRIVATE LIMITED AN D ALSO HOLDING 20% EACH IN JAJ INTERNATIONAL (INDIA) LIMITED. THUS THE ASSESSEE ITA NO. 4909/M/2011(A.Y. 2008-09) 2 FULFILLED ALL THE CONDITIONS OF SECTION 2(22) FOR B EING A CONCERN LIABLE TO CHARGE OF TAX ON DIVIDEND INCOME U/S.2(22)(E) OF TH E I.T.ACT, 1961. 2. AT THE TIME OF HEARING NONE APPEARED ON BEHALF O F THE ASSESSEE, THEREFORE, WE HAVE HEARD LD. D.R AND PROCEED TO DEC IDE THE ISSUE ON MERITS. 3.. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF TEXTILE MANUFACTURING. THE ASSESSEE HAD RECEIVED AN ADVANC E FOR SUPPLY FROM M/S. JAJ INTERNATIONAL INDIA PVT. LTD. OF RS. 48.00 LACS . THE BALANCE SHEET OF M/S. JAJ INTERNATIONAL INDIA PVT. LTD. SHOWED THAT THEY HAD ACCUMULATED PROFIT OF RS. 1,36,24,820/- AS ON 31/3/2008. THE AO FURTHER FOUND THE FOLLOWING SHAREHOLDING PATTERN OF THE ASSESSEE AS WELL AS M/ S. JAJ INTERNATIONAL INDIA PVT. LTD. SHAREHOLDING OF ASSESSEE AS ON 31-03-2007 AND 31-0 3-2008: S.NO. NAME, ADDRESS & PAN NO. OF SHARES HELD 1. ASHOK P. SHETTY 50% 2. SHAKEEL MIRZA 50% TOTAL 100% SHARE HOLDING OF M/S. JAJ INTERNATIONAL P. LTD. AS ON 31-3-2007 AND 31-03-2008. S.NO. NAME, ADDRESS & PAN NO. OF SHARES HELD 1. ASHOK P. SHETTY 20% 2. SHAKEEL MIRZA 20% 3. JAYAKAR S. SHETTY 20% 4. JAYA K. POOJARI 20% 5. OTHERS (4 PERSONS) 100% IT CAN BE SEEN FROM THE ABOVE TABLE THAT SHRI ASHOK P.SHETTY AND SHAKEEL MIRZA WERE HOLDING SHARES TOGETHER TO THE EXTENT OF 40% IN M/S.JAJ INTERNATIONAL P.LTD. AND 100% SHARE CAPITAL OF THE ASSESSEE. SINCE SHRI ASHOK P. SHETTY AND SHAKEEL MIRZA WERE HOLDING SHAR ES IN BOTH THE ASSESSEE AS COMPANY AS WELL AS M/S. JAJ INTERNAT IONAL INDIA PVT. LTD. THE AO WAS OF THE VIEW THAT THE PROVISIONS OF SECTI ON 2(22)(E) OF THE ITA NO. 4909/M/2011(A.Y. 2008-09) 3 INCOME TAX ACT, 1961 (THE ACT) WILL BE APPLICABLE. THE RELEVANT PROVISIONS OF SEC.2(22) OF THE ACT, READ AS FOLLOWS: SECTION 2(22) DIVIDEND INCLUDES ( E ) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31-5-1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARE S (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH O R WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN P ER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A ME MBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTE REST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL B ENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFITS. EXPLANATION-3 TO SECTION 2(22)(E) IS AS FOLLOWS: EXPLANATION-3: FOR THE PURPOSE OF THIS CLAUSE- (A) CONCERN MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTE REST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PERCENT OF THE INCOME OF SUCH CONCERN; SECTION 2(32) DEFINES THE EXPRESSION PERSON WHO HA S A SUBSTANTIAL INTEREST IN THE COMPANY, IN RELATION TO A COMPANY, MEANS A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES, NOT BEING SH ARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RI GHT TO PARTICIPATE IN PROFITS, CARRYING NOT LESS THAN TWENTY PERCENT OF T HE VOTING POWER ACCORDING TO THE AO, THE PERSONS HOLDING 40% OF THE SHARES OF THE LENDER COMPANY VIZ., M/S.JAJ INTERNATIONAL PVT.LTD. ALSO HELD 100% OF THE SHARES OF THE ASSESSEE AND THEREFORE IT WOULD BE A CASE WHERE ADVANCE OR LOAN BY A ITA NO. 4909/M/2011(A.Y. 2008-09) 4 COMPANY TO A CONCERN IN WHICH TWO SHAREHOLDERS HAVE 100% SHAREHOLDING IN THE BORROWING COMPANY AND 40% SHAREHOLDING IN THE L ENDER COMPANY AND THEREFORE THE PROVISIONS OF SEC.2(22)(E) OF THE ACT WOULD BE APPLICABLE. VIZ., THE CLAUSE A LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED 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 SUBSTANTI AL INTEREST. ACCORDINGLY THE AO BROUGHT TO TAX A SUM OF RS. 48 L ACS AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 4.. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED T HE ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF ITAT IN THE CASE OF BHAUMICK COLOUR PVT. LTD. 313 ITR (AT) 146(SB) (MUM), HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD., 324 ITR 263 (BOM) , AND HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HILL TOP, 217 CT R 527 (RAJ), WHEREIN IT WAS HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS SHAREHOLDER OF THE LENDER COMPANY AND NOT I N THE HANDS OF A PERSON OTHER THAN THE SHAREHOLDER. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. D.R A ND ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. THE SPECIAL BENCH OF ITAT, MUMBAI, IN THE CASE OF BHAUMICK COLO R LABS ITA 5030/M/04, 118 ITD 1 (SB) (MUM), CONSIDERED THE QUE STION WHETHER DEEMED DIVIDEND U/S. 2(22)(E) OF THE INCOME TAX ACT , 1961 CAN BE ASSESSED IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER O F THE LENDER ? THE SPECIAL BENCH HELD THAT DEEMED DIVIDEND CAN BE ASSE SSED ONLY IN THE HANDS ITA NO. 4909/M/2011(A.Y. 2008-09) 5 OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMP ANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. THE SPECIAL BENCH ON THE ABOVE ISSUE HAS OBSERVED AS FOLLOWS: 30. AT THE OUTSET IT HAS TO BE MENTIONED THAT PRO VISIONS OF SEC.2(22)(E) WHICH BROUGHT IN A NEW CATEGORY OF PAY MENT WHICH WAS TO BE CONSIDERED AS DIVIDEND AS INTRODUCED BY THE FINA NCE ACT 1987 W.E.F.1-4-88 VIZ., PAYMENT BY A COMPANY TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST DO NOT SAY AS TO IN WHOSE HANDS THE DIVIDEND HAS TO BE BROUGHT TO TAX, WHETHER IN THE HANDS OF T HE CONCERN OR THE SHAREHOLDER. WE HAVE ALREADY SEEN THE DIVERGENT VIEWS ON THIS ISSUE WHICH HAVE BEEN REFERRED TO IN THE EARLIER PART OF THIS ORDER. 31. THE ABOVE PROVISIONS WERE SUBJECT MATTER OF CO NSIDERATION BEFORE THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP. 217 CTR 527(RAJ). THE FACTS OF THE CASE BEFORE THE HONBLE COURT WERE AS FOLLOWS. THE ASSESSEE WAS ONE M/S.HOTEL HILLTOP A PARTNERSHIP FIRM. THIS FIRM RECEIVED AN ADVANCE OF RS.10 LACS FROM A COMPANY M/S.HILLTOP PALACE HOTESLS (P) LTD. THE SHAREHOLDI NG PATTERN OF M/S.HILLLTOP PALACE HOTELS (P) LTD., WAS AS FOLLOWS : 1. SHRI ROOP KUMAR KHURANA : 23.33% 2. SMT.SAROJ KHURANA : 4.67% 3. VIKAS KHURANA : 22% 4. DESHBANDHU KHURANA: 25% 5. SHRI.RAJIV KHURANA : 25% THE CONSTITUTION OF THE FIRM HOTEL HILL TOP WAS AS FOLLOWS: 1. SHRI ROOP KUMAR KHURANA: 45% 2. SHRI.DESHBANDHU KHURANA: 55% THE AO ASSESSED THE SUM OF RS.10 LACS AS DEEMED DIV IDEND U/S.2(22)(E) OF THE ACT IN THE HANDS OF THE FIRM BE CAUSE THE TWO PARTNERS OF M/S.HOTEL HILL TOP WERE HOLDING SHARES BY WHICH THEY HAD 10% VOTING POWER IN M/S.HILL TOP PALACE HOTESL (P) LTD. THEY WERE ALSO ENTITLED TO 20% OF THE INCOME OF THE FIRM M/S.HOTEL HILL TOP. THEREFORE THE LOAN BY M/S.HILL TOP PALACE HOTELS (P) LTD. TO THE FIRM M/S.HOTEL HILL TOP WAS TREATED AS DEEMED DIVIDEND IN THE HAND S OF M/S.HOTEL HILL TOP, THE FIRM UNDER THE SECOND LIMB OF SEC.2(22)(E) OF THE ACT. THE CIT(A) HELD THAT SINCE THE FIRM WAS NOT THE SHAREHO LDER OF THE COMPANY ITA NO. 4909/M/2011(A.Y. 2008-09) 6 THE ASSESSMENT AS DEEMED DIVIDEND IN THE HANDS OF T HE FIRM WAS NOT CORRECT. THE ORDER OF THE CIT(A) WAS CONFIRMED BY THE TRIBUNAL. ON REVENUES APPEAL BEFORE THE HONBLE HIGH COURT, THE FOLLOWING QUESTION OF LAW WAS FRAMED FOR CONSIDERATION. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ORDER OF LEARNED CIT(A) DELETING THE ADDITION OF RS.10 LACS AS DEEME D DIVIDEND UNDER SECTION 2(22)(E) OF THE IT ACT? THE HONBLE COURT HELD AS FOLLOWS: THE IMPORTANT ASPECT, BEING THE REQUIREMENT OF SEC TION 2(22)(E) IS, THAT THE PAYMENT MAY BE MADE TO ANY C ONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER, OR THE PARTNER, AND IN WHICH HE HAS SUBSTANTIAL INTEREST, OR ANY PAYMENT B Y ANY SUCH COMPANY, ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER . THUS, THE SUBSTANCE OF THE REQUIR EMENT IS THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER, OBVIOUS LY, THE PROVISION IS INTENDED TO ATTRACT THE LIABILITY OF T AX ON THE PERSON, ON WHOSE BEHALF, OR FOR WHOSE INDIVIDUAL BENEFIT, T HE AMOUNT IS PAD BY THE COMPANY, WHETHER TO THE SHAREHOLDER, OR TO THE CONCERNED FIRM. IN WHICH EVENT, IT WOULD FALL WITHI N THE EXPRESSION DEEMED DIVIDEND. OBVIOUSLY, INCOME FRO M DIVIDEND, IS TAXABLE AS INCOME FROM THE OTHER SOURCES UNDER S ECTION 56, AND IN THE VERY NATURE OF THINGS THE INCOME HAS TO BE OF THE PERSON EARNING THE INCOME. THE ASSESSEE IN THE PRES ENT CASE IS NOT SHOWN TO BE ONE OF THE PERSONS, BEING SHAREHOLD ER. OF COURSE, THE TWO INDIVIDUALS BEING R AND D. ARE THE COMMON PERSONS, HOLDING MORE THAN REQUISITE AMOUNT OF SHAR EHOLDING AND ARE HAVING REQUISITE INTEREST, IN THE FIRM, BUT THEN, THEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM, RATHER IT WOULD OBVIOUSLY BE DEEMED DI VIDEND IN THE HANDS OF THE INDIVIDUALS, ON WHOSE BEHALF, OR ON WH OSE INDIVIDUAL BENEFIT, BEING SUCH SHAREHOLDER, THE AMO UNT IS PAID BY THE COMPANY TO THE CONCERN. THUS, THE SIGNIFICAN T REQUIREMENT OF SECTION 2(22)(E) IS NOT SHOWN TO EXI ST. THE LIABILITY OF TAX, AS DEEMED DIVIDED, COULD BE ATTRACTED IN TH E HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS, AND NOT IN THE HANDS OF THE FIRM. 32. THE AFORESAID DECISION OF THE HONBLE RAJASTHA N HIGH COURT WHICH IS THE ONLY DECISION OF HIGH COURT, SHOULD BE SUFFI CIENT TO ANSWER QUESTION NO.2 WHICH HAS BEEN REFERRED TO THE SPECIA L BENCH BY HOLDING THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HA NDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A ITA NO. 4909/M/2011(A.Y. 2008-09) 7 PERSON OTHER THAN A SHAREHOLDER. THE ARGUMENT OF T HE LEARNED D.R. THAT THE HONBLE RAJASTHAN HIGH COURT DID NOT DEAL WITH THE SECOND LIMB OF SEC.2(22)(E) OF THE ACT IS NOT CORRECT. THE SPECIAL BENCH FURTHER HELD AS FOLLOWS: 34. WE ARE OF THE VIEW THAT THE PROVISIONS OF SEC .2(22)(E) DOES NOT SPELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OR THE CONCERN(NON-SHAREHOLDER). THE P ROVISIONS ARE AMBIGUOUS. IT IS THEREFORE NECESSARY TO EXAMINE TH E INTENTION BEHIND ENACTING THE PROVISIONS OF SEC.2(22)(E) OF THE ACT. 35. THE INTENTION BEHIND ENACTING PROVISIONS OF SE CTION 2(22)(E) ARE THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHIC H PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOU LD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DI STRIBUTED THE DIVIDEND INCOME WOULD BECAME TAXABLE IN THE HANDS O F THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED P ROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SH AREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENE FIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVI SIONS SUCH PAYMENT BY THE COMPANY IS TREATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22)(E) IS TO TAX DIVIDE ND IN THE HANDS OF SHAREHOLDER. THE DEEMING PROVISIONS AS IT APPLIES T O 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 LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTI ON OF THE LEGISLATURE IS THEREFORE TO TAX DIVIDEND ONLY IN TH E HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. 36. THE BASIS OF BRINGING IN THE AMENDMENT TO SEC. 2(22)(E) OF THE ACT BY THE FINANCE ACT, 1987 W.E.F 1-4-88 IS TO ENSURE THAT PERSONS WHO CONTROL THE AFFAIRS OF A COMPANY AS WELL AS THAT OF A FIRM CAN HAVE THE PAYMENT MADE TO A CONCERN FROM THE COMPANY AND THE PERSON WHO CAN CONTROL THE AFFAIRS OF THE CONCERN CAN DRAWN TH E SAME FROM THE CONCERN INSTEAD OF THE COMPANY DIRECTLY MAKING PAYM ENT TO THE SHAREHOLDER AS DIVIDEND. THE SOURCE OF POWER TO CO NTROL THE AFFAIRS OF THE COMPANY AND THE CONCERN IS THE BASIS ON WHICH T HESE PROVISIONS HAVE BEEN MADE. IT IS THEREFORE PROPER TO CONSTRUE THOSE PROVISIONS AS CONTEMPLATING A CHARGE TO TAX IN THE HANDS OF THE S HAREHOLDER AND NOT ITA NO. 4909/M/2011(A.Y. 2008-09) 8 IN THE HANDS OF A NON-SHAREHOLDER VIZ., CONCERN. A LOAN OR ADVANCE RECEIVED BY A CONCERN IS NOT IN THE NATURE OF INCOM E. IN OTHER WORDS THERE IS A DEEMED ACCRUAL OF INCOME EVEN U/S.5(1)(B ) IN THE HANDS OF THE SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE PA YEE VIZ., NON- SHAREHOLDER (CONCERN). SEC.5(1)(A) CONTEMPLATES TH AT THE RECEIPT OR DEEMED RECEIPT SHOULD BE IN THE NATURE OF INCOME. THEREFORE THE DEEMING FICTION CAN BE APPLIED ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT THE NON-SHAREHOLDER VIZ., THE CONCERN. 37. THE DEFINITION OF DIVIDEND U/S.2(22)(E) OF THE ACT IS AN INCLUSIVE DEFINITION. SUCH INCLUSIVE DEFINITION ENLARGES THE MEANING OF THE TERM DIVIDEND ACCORDING TO ITS ORDINARY AND NATURAL ME ANING TO INCLUDE EVEN A LOAN OR ADVANCE. ANY LOAN OR ADVANCE CANNOT BE DIVIDEND ACCORDING TO ITS ORDINARY AND NATURAL MEANING. THE ORDINARY AND NATURAL MEANING OF THE TERM DIVIDEND WOULD BE A SHA RE IN PROFITS TO AN INVESTOR IN THE SHARE CAPITAL OF A LIMITED COMPANY. TO THE EXTENT THE MEANING OF THE WORD DIVIDEND IS EXTENDED TO LOANS AND ADVANCES TO A SHAREHOLDER OR TO A CONCERN IN WHICH A SHAREHOLDER IS SUBSTANTIALLY INTERESTED DEEMING THEM AS DIVIDEND IN THE HANDS OF A SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVID END IS ALTERED. TO THIS EXTENT THE DEFINITION OF THE TERM DIVIDEND CA N BE SAID TO OPERATE. IF THE DEFINITION OF DIVIDEND IS EXTENDED TO A LO AN OR ADVANCE TO A NON SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVIDEND IS TAKEN AWAY. IN THE LIGHT OF THE INTENTION BEHIND T HE PROVISIONS OF SEC.2(22)(E) AND IN THE ABSENCE OF INDICATION IN SE C.2(22)(E) TO EXTEND THE LEGAL FICTION TO A CASE OF LOAN OR ADVANCE TO A NON-SHAREHOLDER ALSO, WE ARE OF THE VIEW THAT LOAN OR ADVANCE TO A NON-SH AREHOLDER CANNOT BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF A NON-SHAR EHOLDER. SINCE THE ASSESSEE IN THE PRESENT CASE IS NOT A SHA REHOLDER IN THE LENDER COMPANY, WE ARE OF THE VIEW THAT THE ABOVE DECISION IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. CONSEQUENTLY, TH E APPEAL BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, APPEAL BY THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THE 16 TH DAY OF MAY 2012 SD/- SD/- (RAJENDRA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH MAY 2012 ITA NO. 4909/M/2011(A.Y. 2008-09) 9 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RC BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.