M/s SPL Finance Ltd., New Delhi V. ITO, New Delhi

ITA 5730/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3117 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 17-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KANSH KENDRA TIWARI
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DLEHI BEFORE SHRI G.D. AGRAWAL, PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. NO. 5730/DEL/2013 ASSESSMENT YEAR: 2010-11 SPL FINANCE LTD., VS INCOME-TAX OFFICER, WARD 9 (2) R-40, NDSE-II, NEW DELHI. NEW DELHI. (PAN: AABCS8725J) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJIV SAXENA, ADVOCATE RESPONDENT BY: SHRI KANSH KENDRA TIWARI, SR. DR DATE OF HEARING: 27.02.2018 DATE OF PRONOUNCEMENT: 28.02.2018 ORDER PER K. NARASIMHA CHARY, JM THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 8.8 .L2013 IN APPEAL NO.84/12-13 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS)-XII, NEW DELHI (CIT(A)) CHALLENGING THE CONFIRMATION O F THE ADDITION MADE BY INVOKING SECTION 222(E) OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MONEY LENDING BY REGISTERING WITH RBI AS A NONBANKING FINANCIAL CORPORATION. THEY HAVE GOT BOTH SECURED AND UNSECUR ED LOANS TO RUN THE BUSINESS. FOR THE ASSESSMENT YEAR 2010-11, THEY HAVE FILED THEIR RETURN OF INCOME ON 30.9.2009 BY DECLARING A TOTAL LOSS OF RS.5,96,37 7/- AND DURING THE SCRUTINY, 2 FROM THE BALANCE SHEET OF THE ASSESSEE, LEARNED ASS ESSING OFFICE (LD. AO) NOTICED THAT THE ASSESSEE HAD AN OPENING AND CLOSING BANK B ALANCE OF UNSECURED LOANS RECEIVED, AND AS PER THE EXPLANATION OF THE ASSESSE E THEY HAVE RECEIVED AN UNSECURED LOANS FROM M/S SURYA SHAKTI VESSELS (P) LT D. (SSVPL) TO A TUNE OF RS.25,60,000/- AND ALSO THAT ONE RAMESH KUMAR BATRA HELD 10% SHARE HOLDING WITH SSVPL AND MORE THAN 20% SHAREHOLDING WITH THE ASSESSEE. LD. AO RERECORDED A FINDING THAT :- AS PER THE FACTS OF THE CASE THE LOAN/ADVANCE GIVE R M/S SURYA SHAKTI VESSELS P. LTD. IS A COMPANY WHICH IS NOT IN THE BUS INESS OF GIVING LOANS AND ADVANCES IN ITS ORDINARY COURSE OF BUSINESS. SECONDL Y, IT IS A CLOSELY HELD COMPANY I.E ONE IN WHICH THE PUBLIC IS NOT SUBSTANT IALLY INTERESTED. THIRDLY, IT HAS MADE AN ADVANCE TO AN ENTITY THAT HAS A SHARE HOLDER MR RAMESH KUMAR BATRA WHO HOLDS MORE THAN 10% SHAREHOLDING IN M/S SURYA SHAKTI VESSELS P. LTD RESULTS PRIVATE LIMITED AND MORE THA N 20% SHAREHOLDING IN THE ASSESSEE COMPANY. FOURTHLY THE ADVANCE GIVING COMPAN Y HAS MORE THAN THE AMOUNT OF ADVANCE GIVEN RESERVE AND SURPLUS AS ACCUMULATED PROFIT. ON THIS PREMISE LEARNED AO MADE AN ADDITION OF RS.2 6,60,000/- BY INVOKING THE PROVISIONS U/S 2(22)(E) OF THE ACT BY TREATING THE L OAN AMOUNT AS DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. 3. LEARNED CIT(A) BY WAY OF IMPUGNED ORDER OBSERVED T HAT THE COMPANY WHICH HAS GIVEN THE LOAN/ADVANCE IS NOT IN THE BUSI NESS OF GIVING LOANS AND ADVANCES BEING A CLOSELY HELD COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTEREST AND THE SHAREHOLDER TO WHOM THE ADVANCE IS GIVEN HOLDS MORE THAN 10% OF THE SHARES IN THE SAID COMPANY, HAVING 20% SHARES IN THE ASSESSEE COMPANY AND THEREFORE, THIS CASE SQUARELY FALLS WITHIN THE P URVIEW OF SECTION 2(22)(E) OF THE ACT. HENCE, THIS APPEAL BY THE ASSESSEE. 3 4. IT IS THE SUBMISSION OF THE LEARNED AR THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MONEY LENDING AND HAD MORE THAN RS.2 CRO RES INCLUDING SECURED AND UNSECURED LOANS IN RESPECT OF WHICH IT PAID INTERES T OF RS.15.97 LACS ON UNSECURED LOANS AND AFFECTING TDS THEREON. HE SUBMITTED THAT THIS BEING PURELY A BUSINESS TRANSACTION, CANNOT BE IMPUTED FOR THE BENEFIT OF T HE SHAREHOLDER TO INVOKE SECTION2(22)(E). FOR THIS HE PLACED RELIANCE ON TH E DECISION REPORTED IN PRADIP KUMAR MALHOTRA VS CIT (2011) 338 ITR 538 (CALCUTTA) , SMT. SANGITA JAIN VS ITO IN ITA NO.1817/KOL/2009 DT. 11.3.2016. 5. HE FURTHER SUBMITTED THAT THERE IS NO BAR FOR TH E CLOSELY HELD COMPANIES TO HAVE BUSINESS TRANSACTIONS WITH OTHER COMPANIES MER ELY BECAUSE THERE IS BUSINESS RELATIONSHIP BETWEEN THEM FOR THE PURPOSE OF EARNING INCOME. BECAUSE OF THE AVAILABILITY OF IDLE FUNDS WITH M/S SSVPL, S UCH FUNDS ARE INVESTED WITH THE ASSESSEE FOR EARNING INTEREST INCOME. 6. THIRDLY, HE SUBMITTED THAT EVEN IF IT IS ASSUMED FOR A WHILE THAT THE ADVANCE OF LOAN TO THE ASSESSEE BY M.S SSVPL IS IN T HE NATURE OF DIVIDEND, IT HAS TO BE TAXED ONLY IN THE HANDS OF THE SHAREHOLDER BUT NO T IN THE HANDS OF THE ASSESSEE, INASMUCH AS THE ASSESSEE IS NOT A SHAREHO LDER WITH M/S SSVPL. HE PLACED RELIANCE ON THE DECISION REPORTED IN CIT VS. UNIVERSAL MEDICARE P. LTD., 190 TAXMANN 144 AND CIT VS. ANKITECH P. LTD. (2012) 340 ITR 0014 (DEL) IN SUPPORT OF THIS CONTENTION AS CONFIRMED BY THE HONBLE APEX COU RT IN CIT VS. MADHUR HOUSING AND DEVELOPMENT COMPANY, CIVIL APPEAL NO.396 1 OF 2013 AND BATCH DECIDED ON 5.10.2017. 7. LASTLY, IT IS CONTENDED BY THE LEARNED AR THAT SIN CE M/S SSSVPL INVESTED THE AMOUNTS IN THE ASSESSEE COMPANY TO EARN INTEREST INC OME ON WHICH HE HAD PAID 4 TAXES ALSO, MERELY BECAUSE THERE IS COMMON SHAREHOL DER IN BOTH THESE COMPANIES, IT DOES NOT MAKE A LOAN ADVANCED IN THE NORMAL BUSINESS TRANSACTION A DEEMED DIVIDEND. 8. PER CONTRA, IT IS THE SUBMISSION OF THE LEARNED XDR THAT THE ADVANCES MADE BY M/S SSVPL TO THE ASSESSEE HAS TO BE TREATED AS DE EMED DIVIDEND INASMUCH AS LENDING OF MONEY WAS NOT PART OF THE BUSINESS OF M/S SSSVPL. HE PLACED RELIANCE ON MISS P. SARADA VS CIT , 229 ITR 444, FOR THE PRI NCIP0LE THAT THE ADVANCES MADE BY COMPANY TO ASSESSEEO2ULD HAVE TO BE TREATED AS DEE MED DIVIDENDS PAID ON DATES WHEN WITHDRAWALS WERE ALLOWED TO BE MADE AND SUBSEQUENT ADJUSTMENT OF ACCOUNT MADE ON VERY LAST DAY OF ACCOUNTING YEAR WOULD NOT ALTER POSITION THAT ASSESSEE RECEIVED NOTIONAL DIVIDENDS ON VARIOUS DAT ES; CIT VS. MISS P. SARADA, 21 TAXMAN 94 FOR THE PRINCIPLE THAT THE AMOUNT OF IMPU GNED EXCESS WITHDRAWALS, EVEN THOUGH ADJUSTED AGAINST CREDIT BALANCE BEFORE CLOSE OF YEAR, WAS ASSE3SSABVLE AS DEEMED DIVIDEND IN ASSESSEES HANDS IN TERMS OF SECTION 2(22)(E), CIT VS MUKUNDRAT K. SHAH 290 ITR 433 FOR THE PRINCI PLE THAT WHEN TWO FIRMS WERE USED AS CONDUITS BY ASSESSEE; THAT A HAD MADE PAYME NTS TO B AND C FOR BENEFIT OF ASSESSEE, WHICH ENABLED HIM TO BUY NINE P ER CENT RBI RELIEF BONDS AND UPHELD FINDING OF ASSESSING OFFICER. , PUNEET BHAG AT VS ITO, 57 ITD 353 FOR THE PRINCIPLE THAT THE DEEMED DIVIDEND LOANS AND ADVAN CES TO SHAREHOLDERS LOANS RECEIVED BY THE COMPANY WOULD BE TREATED AS DEEMED DI VIDEND IN THE HANDS OF P & S IN PROPORTION TO THEIR SHAREHOLDINGS, SHASHI PA L AGARWAL VS CIT (2015) 370 ITR 720 (ALLAHABAD) FOR THE PRINCIPLE THAT WHERE LENDIN G OF MONEY WAS NOT PART OF BUSINESS OF LENDING COMPANIES, LOANS/ADVANCES GIVEN TO ASSESSEE-SHAREHOLDER WOULD BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E), S TAR CHEMICALS (P) LTD. VS CIT, 203 ITR 11 FOR THE PRINCIPLE THAT PROVISIONS OF SEC TION 2(22)(E) WOULD APPLY TO A 5 COMPANY WHICH HAD TAKEN LOAN FROM ITS SUBSIDIARY, AD DL. CIT VS SHRI CHANDRAKANT VS GOSALIA, (2015 TIOL-1187-ITAT-MUM) FOR THE PRIN CIPLE THAT WHERE REPAYMENT OF MONEY BORROWED BY THE SHAREHOLDER WILL NOT ESCAPE HIM FROM THE PROVISIONS OF SECTION 2(22)(E), AND THUS IT CAN BE TREATED AS DEE MED DIVIDEND. AND SUNIL KAPOOR VS CIT (2015) 63 TAXMANN.COM 97 (MADRAS) FOR THE PR INCIPLE THAT WHERE THE ASSESSEE HOLDING 60% SHARES OF A COMPANY, TOOK PERSO NAL LOAN FROM ACCUMULATED SURPLUS OF SAID COMPANY, SAID AMOUNT WOULD BE TREATE D AS DEEMED DIVIDEND U/S 2(22)(E), AFTER REDUCING THEREFROM AMOUNT REPAID BY ASSESSEE DURING THE YEAR.. 9. WE HAVE GONE THROUGH THE RECORD. PAGE NO.58 OF T HE APPEAL SET IS THE PROFIT AND LOSS ACCOUNT OF M/S SSVPL SHOWING 1.8 CR ORES AS THE PROFIT AFTER TAXATION AND SCHEDULE XII THEREOF AT PAGE NO. 61 TH EREOF SHOWS THAT THE SAID COMPANY EARNED RS.13.60 LACS FROM INTEREST. FURTHER PAGE NO.49 & 50 OF THE APPEAL SET WHICH IS THE RETURN OF INCOME AND COMPUT ATION OF M/S SSVPL SHOWS INCOME OF RS.2.83 CRORES. SCHEDULE IX AT PAGE NO. 61 RELATES TO ADVANCES RECOVERABLE (UNSECURED LOANS) TO A TUNE OF RS.2.12 CRORES. THE FINANCIALS OF M/S SSVPL SHOW THAT M/S SSVPL INVESTED A SUM OF RS.212 LACS FOR THE PURPOSE OF EARNING INTEREST OUT OF WHICH ONLY A SUM OF RS.25.60 LACS WAS ADVANCED TO THE ASSESSEE. FURTHER, PAGE NO.35 OF THE APPEAL SET AT S.NO.4 UNSECURED LOANS, SHOWS THAT THE ASSESSEE CLEARED THE LOAN TO M/S SSVPL DUR ING THAT YEAR ONLY. 10. IT IS, THEREFORE, APPARENT FROM THE RECORD THAT THE INVESTMENT OF AMOUNTS BY M/S SSSVPL WITH THE ASSESSEE AS INTER-CORPORATE L OAN IS A PURELY BUSINESS TRANSACTION. TO THIS SET OF FACTS, THE RATIO OF TH E HONBLE CALCUTTA HIGH COURT IN PRADIP KUMAR MALHOTRA (SUPRA) WHEREIN IT WAS HELD THAT ADVANCE OR LOAN AS APPEARING IN SECTION 2(22)(E) WOULD MEAN THOSE ADVA NCES OR LOANS WHICH A SHARE 6 HOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BE NEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAREHOLDER, IN SUCH CASE, SUC H ADVANCE OR LOAN CANNOT BE SAID TO BE A DEEMED DIVIDEND, CASE IS APPLICABLE. R ELEVANT OBSERVATION IS THAT, - 10. AFTER HEARING THE LEARNED COUNSEL FOR THE PARTIES A ND AFTER GOING THROUGH THE AFORESAID PROVISIONS OF THE ACT, WE ARE OF THE OPIN ION THAT THE PHRASE 'BY WAY OF ADVANCE OR LOAN' APPEARING IN SUB-CL. (E) MUST BE C ONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS FOR SI MPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT B EING 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; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAR EHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, FOR GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAREHOLDERS WOULD COME WITHIN THE PURVIEW OF S. 2( 22) BUT NOT TO THE CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREHOLDER. 11. IN UNIVERSAL MEDICARE P. LTD. (SUPRA) IT IS HEL D AS FOLLOWS: 8. CLAUSE (E) OF S. 2(22) IS NOT ARTISTICALLY WORDED. FOR FACILITY OF EXPOSITION, THE CONTENTS CAN BE BROKEN DOWN FOR ANALYSIS : (I) CLAU SE (E) APPLIES TO ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLI C ARE SUBSTANTIALLY INTERESTED OF ANY SUM, WHETHER AS REPRESENTING A PA RT OF THE ASSETS OF THE COMPANY OR OTHERWISE MADE AFTER THE 31ST MAY 1987; (II) CLAUSE (E) COVERS A PAYMENT MADE BY WAY OF A LOAN OR ADVANCE TO (A) A S HAREHOLDER, BEING A BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER; OR (B) ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST; (III) CLAUSE (E) ALSO INCLUDES IN ITS PURVIEW ANY PAYMENT MADE BY A COMPANY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER; (I V) CLAUSE (E) WILL APPLY TO THE EXTENT TO WHICH THE COMPANY, IN EITHER CASE, POSSES SES ACCUMULATED PROFITS. THE REMAINING PART OF THE PROVISION IS NOT MATERIAL FOR THE PURPOSES OF THIS APPEAL. 7 BY PROVIDING AN INCLUSIVE DEFINITION OF THE EXPRESS ION 'DIVIDEND', CL. 2(22) BRINGS WITHIN ITS PURVIEW ITEMS WHICH MAY NOT ORDINARILY C ONSTITUTE THE PAYMENT OF DIVIDEND. PARLIAMENT HAS EXPANDED THE AMBIT OF THE EXPRESSION 'DIVIDEND' BY PROVIDING AN INCLUSIVE DEFINITION. 9. SEC. 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION 'DIVIDEND'. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF TH E RECIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF S. 2(22) IS T O PROVIDE AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLAUSE (E) OF S. 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY IN TERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILMENT OF THE REQUIR EMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MADE BY A COMPANY O N BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER IS TREA TED BY CL. (E) TO BE INCLUDED IN THE EXPRESSION 'DIVIDEND'. CONSEQUENTLY, THE EFFECT OF CL. (E) OF S. 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION 'DIVIDEND' BY I NCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVA NCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREH OLDER. THE DEFINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TA XED IN THE HANDS OF THE SHAREHOLDER. CONSEQUENTLY, IN THE PRESENT CASE, THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN TH E HANDS OF THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. 12. HONBLE HIGH COURT OF DELHI IN CIT VS. ANKITECH (P) LTD. & ORS. (IT APPEAL NOS. 462 OF 2009 AND BATCH) (2012) 340 ITR 0014 (DE L), HELD THAT,- THE INTENTION BEHIND ENACTING PROVISIONS OF S. 2(22 )(E) IS THAT CLOSELY-HELD COMPANIES (I.E. COMPANIES IN WHICH PUBLIC ARE NOT S UBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH T HE COMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTRIBUTE SUCH PROFI T AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABL E IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED P ROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOANS OR ADVANCES TO SHAREHOLDER S 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 TREATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF S. 2(22)(E) IS TO TAX DIVI DEND IN THE HANDS OF SHAREHOLDERS. THE DEEMING PROVISION AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY 8 TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTI AL INTEREST, IS BASED ON THE PRESUMPTION THAT THE LOANS OR ADVANCES WOULD ULTIMA TELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. 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 S. 2(22)(E). ONE HAS TO KEEP IN MIND THAT THIS LEGAL PROVISION RELATES TO 'DIVIDEND'. THUS, BY A D EEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FIC TION DOES NOT EXTEND TO 'SHAREHOLDER'. KEEPING IN MIND THIS ASPECT, THE CON CLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIE D UNDER S. 2(22)(E) WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP HER E 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 DISTRIB UTE THE PROFITS IN THE FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DI VIDEND CANNOT BE GIVEN TO NON-MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER S. 2(22)(E) VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR AD VANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DI VIDEND. IF THE INTENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEM ED DIVIDEND AT THE HANDS OF 'DEEMING SHAREHOLDER', THEN THE LEGISLATURE WOULD H AVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT H AS NOT HAPPENED. IN A CASE LIKE THIS, THE RECIPIENT WOULD BE A SHAREHOLDER BY WAY O F 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 COUNSEL F OR THE REVENUE ON THE BASIS OF SS. 4, 5, 8, 14 AND 56 WOULD BE OF NO AVAIL. SIMPLE ANSWER TO THIS ARGUMENT IS THAT SUCH LOAN OR ADVANCE, IN THE FIRST PLACE, 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. PRECISELY, FOR THIS VERY REASON, THE COURT S HAVE HELD THAT IF THE AMOUNTS ADVANCED ARE FOR BUSINESS TRANSACTIONS BETWEEN THE PARTIES, SUCH PAYMENT WOULD NOT FALL WITHIN THE DEEMING DIVIDEND UNDER S. 2(22) (E). INSOFAR AS RELIANCE UPON CIRCULAR NO. 495, DT. 22ND SEPT., 1997 ISSUED BY CB DT IS CONCERNED, 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 NOT A SHAREHOLDER, AND THAT IS THE CORRECT LEGAL POSITION, SUCH A CIRCULAR WOULD BE OF NO AVAIL. THE DEFINITION OF SHAREHOLDER IS NOT ENLARGED BY ANY FICTION. 9 13. THE ABOVE FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT IS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS MADHUR HOUSING AND DEVELOPMENT COMPANY , CIVIL APPEAL NO.3961 OF 2013 AND BATCH DEC IDED ON 5.10.2017. 14. IN VIEW OF THIS FACTUAL AND LEGAL POSITION, WE ARE OF THE CONSIDERED OPINION THAT THE DECISIONS RELIED UPON BY THE LEARNED DR ARE NOT APPLICABLE TO THE ASSESSEES CASE BECAUSE THE IMPUGNED ADVANCE IS PRO VEN TO BE IN THE COURSE OF ORDINARY BUSINESS TRANSACTION AND THE DEEMED DIVIDEN D IS NOT TAXABLE IN THE HANDS OF A NON SHAREHOLDER. 15. WE, THEREFORE, WHILE RESPECTFULLY FOLLOWING THE DECISIONS IN PRADIP KUMAR MALHOTRA (SUPRA), UNIVERSAL MEDICARE LTD.(SUPRA) AN D ANKITECH P. LTD. (SUPRA) FIND IT DIFFICULT TO SUSTAIN THE ADDITION MADE BY INVOKIN G SECTION 2(22)(E) OF THE ACT, AND ACCORDINGLY DIRECT THE LEARNED AO TO DELETE THE SAME. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF FEBRUARY, 2018. SD/- SD/- (G.D. AGRAWAL) (K. NARASIMHA CHARY) PRESIDENT JUDICIAL MEMBER DATED: 28 TH FEBRUARY, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR, ITAT