NALANDA ENTERTAINMENT & RESORTS P.LTD, MUMBAI V. ITO WD 2(2)(3), MUMBAI

ITA 6084/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7633 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 02-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Keywords: Principle of natural justice; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHIRI G. E. VEERABHADRAPPA, HON'BLE PRESIDEN T AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. : 6084/MUM/2011 ASSESSMENT YEARS : 2008-09 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. C/O. SHRI PRAKASH JHUNJHUNWALA, CHARTERED ACCOUNTANT, 5, JOLLY BHAWAN NO.2, GROUND FLOOR, 7 NEW MARINE LINES, CHURCHGATE, MUMBAI-400 020 PAN NO: AABCN 2013 Q VS. INCOME TAX OFFICER, WARD-2(2)(3), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAKASH JHUNJHUNWALA & SHRI SATISH GUPTA RESPONDENT BY : SHRI P. C. MAURYA DATE OF HEARING : 06.03.2012 DATE OF PRONOUNCEMENT : 28 .03.2012 ORDER PER AMIT SHUKLA (J.M.) : THIS APPEAL IS ARISING OUT OF ORDER DATED 15.11.20 05 PASSED BY CIT(APPEALS)-5, MUMBAI FOR THE QUANTUM OF ASSESSMEN T PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2008-09. THE AP PELLANT HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL TO CHALLENGE THE AF ORESAID ORDER. 1.0 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN DIN LAW, LD. CIT(A) ERRED IN CONFIRMING THE ADDITION U/S.2(2 2)(E) OF `. 54,01,948/- IN RESPECT OF ALLEGED LOAN RECEIVED FRO M HOTEL GORADIAS PVT. LTD. ON IGNORING THE FACT THAT APPEL LANT IS NOT A ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 2 REGISTERED NOR A BENEFICIAL SHAREHOLDER OF THE LEND ING COMPANY; 1.1 THE LD. CIT(A) SERIOUSLY ERRED IN IGNORING THE RELIED JUDICIAL DECISIONS OF HON'BLE SPECIAL BENCH IN THE CASE OF ACIT V/S. BHAUMIK COLOUR PVT. LTD. (27 SOT 270) AND OF H ON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. UNIVERSAL MEDICARE (P) LTD. (324 ITR 263) AND OTHER AUTHORITIES, THERE BY VIOLATED THE PRINCIPLE OF NATURAL JUSTICE; 2.0 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LD. CIT(A) ERRED IN CONFIRMING THE ADDITION U/S.2(22)(E ) OF `. 54,01,948/- ON IGNORING THE VITAL FACT THAT THE SUM RECEIVED BY THE APPELLANT IS IN THE NORMAL COURSE OF BUSINES S. 2. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT IN THE EARLIER YEARS THE ASSESSE E HAS SHOWN UNSECURED LOAN FROM M/S. HOTEL GORADIA PVT. LTD. WHICH AS ON 31.03.2009 AMOUNTED TO `. 54,01,948/-. THE ASSESSING OFFICER REQUIRED THE AP PELLANT TO EXPLAIN, AS TO WHY THE SAID LOAN OF `. 54,01,948/- BE NOT TREATED AS DEEMED DIVIDEND U/S.2(22)(E). THE BASIS FOR SUCH O N OBSERVATION WAS THAT HE HAD TAKEN INTO CONSIDERATION THE FACTS OF T HE ASSESSMENT YEAR 2007-08, WHEREIN IT WAS OBSERVED THAT MRS. MANJULA GORADIA ONE OF THE DIRECTOR IN THE APPELLANTS COMPANY AND IS A SHAREH OLDER, HOLDING 75% OF SHARES WITH VOTING POWER IN HOTEL GORADIA PVT. LTD. 2.1 BEFORE THE ASSESSING OFFICER THE APPELLANT CONT ENTED THAT THE PROVISIONS OF SECTION 2(22)(E) WILL NOT BE APPLICAB LE ON THE FOLLOWING REASONS :- (I) THAT DURING THE YEAR IT RECEIVED `. 54,01,948/- FROM M/S. HOTEL GORADIA PVT. LTD. AS A SECURITY DEPOSIT FOR PREMISES GIVEN BY IT ON RENT TO M/S. HOTEL GORADIA PVT. LTD. THAT IN ADDITION, IT ALSO RECEIVED OTHER AMOUNTS SUCH AS RE NT `. 7,42,464/-, REIMBURSEMENT OF EXPENSES `. 63,036/-, INTEREST ON DEPOSIT `. 8,31,092/- WHICH ARE REFLECTED IN THE LOAN ACCOUNT. FURTHER, THAT THE DEPOSIT IN TOTALITY WAS ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 3 `. 60,00,000/- OUT OF WHICH ONLY `. 54,01,948/- HAS BEEN RECEIVED DURING THE YEAR AND THE DIFFERENCE OF `. 5,98,052/- IS THE BALANCE RECEIVABLE AS AT 31.03.2008. (II) THAT THE SUM RECEIVED BY THE ASSESSEE IS NOT I N THE NATURE OF LOAN OR ADVANCE BUT RECEIVED UNDER NORMAL BUSINESS TRANSACTION AS THE ASSESSEE HAD APPLIED FOR AMALGAM ATION WITH M/S. HOTEL GORADIA PVT. LTD. AND THE AMOUNTS W ERE RECEIVED AS THEY WERE REQUIRED BY THE ASSESSEE TO R EPAY ITS CREDITORS. (III) THAT THE PROVISIONS OF SECTION 2(22)(E) SHALL NOT APPLY IN A CASE OF INTER-CORPORATE DEPOSIT. FURHTER THAT TH E ASSESSEE BEING A PRIVATE COMPANY RECEIVED FROM ITS ASSOCIATE COMPANY, M/S. HOTEL GORADIA PVT. LTD. IN THE NATURE OF INTER -CORPORATE DEPOSIT WHICH IS DIFFERENT FROM LOAN OR ADVANCE. (IV) THAT ON LEGAL GROUND PROVISIONS OF SECTION 2(2 2)(E) SHALL NOT APPLY AS THE ASSESSEE COMPANY IS NOT A SHAREHOL DER OF M/S. HOTEL GORADIA PVT. LTD. FOLLOWING THE DECISION IN THE CASE OF BHAUMIK COLOUR PVT. LTD., 118 ITD 1 MUM SPL. BEN CH AND DECISION IN THE CASE OF NATIONAL TRAVEL SERVICES 31 SOT 76 DELHI. 2.2 THE ASSESSING OFFICER AFTER CONSIDERING THE CON TENTION OF THE APPELLANT, REJECTED THE SAME AFTER GIVING ELABORATE REASONS WHICH HAS BEEN REPRODUCED FROM PARA 3.1 TO 6.2 OF THE ASSESSM ENT ORDER. 3. BEFORE THE CIT(APPEALS), THE APPELLANT CONTENTED THAT THE DEEMING PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY IN T HE IMPUGNED CASE, MAINLY FOR THE REASON THAT THE APPELLANT IS NOT A SHAREHOL DER OF THE LENDING COMPANY I.E. M/S. HOTEL GORADIA PVT. LTD. THE SHAR EHOLDING PATTERN OF M/S. HOTEL GORADIA PVT. LTD. AND THAT OF THE APPELL ANT COMPANY WAS FILED BEFORE THE CIT(APPEALS) WHICH HAS BEEN REPRODUCED I N PARA 3 OF THE APPELLATE ORDER AS UNDER :- ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 4 THE SHAREHOLDING PATTERN OF HOTEL GORADIA PVT. LTD . NAME OF SHAREHOLDER NO. OF SHARES % AMOUNT ( `. `.`. `. ) MR. SURESH M. GORADIA 85,000 53.13 85,00,000 MRS. MANJULA S. GORADIA 73,000 45.63 73,00,000 MS. BHAVESHA S. GORADIA 2,000 7.25 2,00,000 1,60,000 100.00 1,60,00,000 THE SHAREHOLDING PATTERN OF THE APPELLANT NAME OF SHAREHOLDER NO. OF SHARES % AMOUNT ( `. `.`. `. ) MR. SURESH M. GORADIA 40,000 12.90 4,00,000 MRS. MANJULA S. GORADIA 2,32,500 75.00 23,25,000 MS. BHAVESHA S. GORADIA 37,500 12.10 3,75,000 3,10,000 100.00 31,00,000 4. THE APPELLANT PLACED HEAVY RELIANCE ON THE SPECI AL BENCH JUDGMENT OF ACIT VS. BHAUMIK COLOUR (P) LTD. REPORTED IN (2009) 118 ITD AND CIT VS. UNIVERSAL MEDICARE (P) LTD. 324 ITR 263 (BO M) THAT THE DEEMING PROVISION U/S.2(22)(E) WILL BE APPLICAB LE ONLY IN THE CASE OF SHAREHOLDER AND NOT WHERE THE ASSESSEE IS NOT A SHA REHOLDER. THE CIT(APPEALS) REJECTED THE CONTENTION OF THE APPELLA NT AFTER OBSERVING AND HOLDING AS UNDER :- 4.1 IT MAY ALSO BE STATED HERE THAT IN SEVERAL DEC ISIONS, HON'BLE ITAT, MUMBAI BENCH HAS UPHELD TREATMENT OF SUCH LOANS AS DEEMED DIVIDEND. RELIANCE COULD BE PLACED ON NCK SONS EXPORTS P. LTD. VS. ITO (2006) 102 ITD 311 (MU M) IN WHICH IT WAS HELD THAT WHERE TOW CONCERNS NAMELY K AND T WERE SHAREHOLDERS IN THE ASSESSEE COMPANY AS WELL A S IN OTHER COMPANY S AND ASSESSEE RECEIVED LOAN FROM S, PAYMENT RECEIVED BY THE ASSESSEE WAS AS A SHAREHOLDER FROM COMPANY IN WHICH IT HAD SUBSTANTIAL INTEREST AND THE SAME W AS TO BE ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 5 TAXED AS DEEMED DIVIDEND. SIMILARLY, IN DCIT VS. O SCAR INVESTMENT LTD. (2006) 98 ITD 339 (MUM), IT WAS LIK EWISE HELD THAT WHERE THE ASSESSEE HAD RAISED CERTAIN LOANS FR OM A, A CLOSELY HELD COMPANY AND THE ASSESSING OFFICER MADE ADDITION TREATING THE AMOUNT AS DEEMED DIVIDEND ON THE GROUND THAT J A COMMON SHAREHOLDER WAS HOLDING SHAR ES OF BOTH THE ASSESSEE AND THE LENDER COMPANY HAVING MOR E THAN THE SPECIFIED NUMBER OF SHARES, PROVISIONS WERE CLE ARLY APPLICABLE. THE SAID SECTION PROVIDES FOR THREE DI FFERENT SITUATIONS FOR ATTRACTING IT AND THE ASSESSEE CASE WAS THE SECOND INSTANCE WHERE IT WAS A CONCERN IN WHICH CER TAIN SHAREHOLDERS WERE COMMON AND OTHER CONDITIONS WERE ALSO FULFILLED. IN ANOTHER CASE OF EXTEMPORE SECURITIES AND INVESTMENTS P. LTD. VS. DCIT (2008) 116 TTJ 525 (MU M), IT WAS HELD THAT ANY PAYMENT MADE BY A COMPANY IN WHIC H PUBLIC ARE NOT SUBSTANTIALLY INTERESTED, OUT OF ITS ACCUMULATED PROFITS, TO A SHAREHOLDER OR TO ANY PERSON IN WHICH SUCH A SHAREHOLDER IS A MEMBER OR PARTNER AND HAS SUBSTANT IAL INTEREST, BY WAY OF LOAN OR ADVANCE IS DEEMED DIVID END INCOME OF THE RECIPIENT. IN THIS CASE, THE ASSESSE E IS THE RECIPIENT OF THE LOAN FROM CERTAIN COMPANY WHICH HA S ACCUMULATED PROFIT AND THOUGH THE ASSESSEE IS NOT A SHAREHOLDER IN IT, BUT IT IS THE CONCERN IN WHICH T HE SHAREHOLDER OF THE SAID COMPANY HOLDS MORE THAN 20% OF EQUITY SHARE CAPITAL, THE PROVISIONS ARE APPLICABLE . SINCE FACTS OF THE CASE REMAIN THE SAME AS IN THE DECISIONS REL IED UPON IN THE YEAR UNDER CONSIDERATION. I DO NOT FIND ANY IN FIRMITY IN THE ADDITION MADE BY THE AO. ACCORDINGLY, ACTION OF TH E AO IS UPHELD. IN THE RESULT, THE APPEAL IS DISMISSED. 5. THE LEARNED AR APPEARING ON BEHALF OF THE APPELL ANT SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT THE PROVISIONS OF SEC TION 2(22)(E) WILL NOT BE APPLICABLE IN THE CASE WHERE THE ASSESSEE IS NOT A SHAREHOLDER, WHICH HERE IN THIS CASE HAS NOT BEEN DISPUTED BY THE CIT( APPEALS) OR THE ASSESSING OFFICER. ON THE OTHER HAND, THE LEARNED SR. DR RELIED UPON THE ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 6 JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH PVT. LTD. (2011) REPORTED IN TAXMAN.COM 100. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ALSO THE ORDERS PASSED BY THE AUTHORITIES BELOW. WE FIND TH AT THIS ISSUE IS SQUARELY COVERED BY THE HON'BLE SPECIAL BENCH IN TH E CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA) AND THE JUDGMENT OF JURISDICTIONAL HIGH COURT AS MENTIONED ABOVE. IN A SIMILAR MATTER IN THE CASE OF M/S. BIJIS HOTEL (INDIA) PVT. LTD. IN ITA NO.3444/MUM/2 011 AFTER RELYING UPON THE JUDGEMENT OF HON'BLE JURISDICTIONAL HIGH COURT WE HAVE COME TO THE FOLLOWING CONCLUSION:- 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND ALSO GONE THROUGH THE ORDERS OF THE ASSESSING OFFIC ER AS WELL AS THE LEARNED CIT(APPEALS). IT IS UNDISPUTED FACT THAT THE ASSESSEE COMPANY NAMELY, M/S. BIJIS HOTELS (INDIA) PVT. LTD. IS NOT A SHAREHOLDER OF M/S. EMS ELECTRICALS & ENGG . PVT. LTD WHICH HAS ADVANCED LOANS OF `. 1,58,14,061/- TO THE ASSESSEE COMPANY. TO BRING THIS LOAN INTO THE AMBIT OF DEEM ED DIVIDEND UNDER SECTION 2(22)(E), IT HAS TO BE ESTAB LISHED FIRST THAT THE SAME HAS BEEN GIVEN TO A SHAREHOLDER OUT O F ACCUMULATED PROFITS. THE PROVISIONS OF SECTION 2(2 2)(E) CREATES A FICTION WHICH BRINGS IN ANY PAYMENT BY WAY OF ADV ANCE OR LOAN TO A SHAREHOLDER INTO THE AMBIT OF DIVIDEND, T HEREFORE, CLAUSE (E) OF SECTION 2(22) MUST BE GIVEN STRICT IN TERPRETATION. IF THE ASSESSEE COMPANY WHICH HAS RECEIVED THE LOAN IS NOT A SHAREHOLDER THEN FICTION CANNOT BE EXTENDED ON THE GROUND THAT THE DIRECTORS WERE COMMON AND HAVING MORE THAN 10% OF VOTING RIGHTS. THIS ASPECT OF THE MATTER HAS BEEN ANALYSED IN DETAIL BY THE HON'BLE SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE VARIOUS JUDGMENT AND ANALYSING THE PROVISION OF SECTION 2(22)(E) IN DETAIL CAME TO THE FOLLOWING CONCLUSION : 34. WE ARE OF THE VIEW THAT THE PROVISIONS OF SECT ION 2(22)(E) DOES NOT SPELL OUT AS TO WHETHER THE INCOM E HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OR THE CONCERN (NON-SHAREHOLDER). THE PROVISIONS ARE ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 7 AMBIGUOUS. IT IS THEREFORE NECESSARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 35. THE INTENTION BEHIND ENACTING PROVISIONS OF SEC TION 2(22)(E) ARE THAT CLOSELY HELD COMPANIES (I.E. COMP ANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH T HE COMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTRIBUT E SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED T HE DIVIDEND INCOME WOULD BECAME TAXABLE IN THE HANDS O F THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULAT ED PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS L OAN 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 TREATED A S DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF SE CTION 2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHO LDER. 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 T HE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMAT ELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPAN Y GIVING THE LOAN OR ADVANCE. THE INTENTION OF THE LEGISLATURE IS THEREFORE TO TAX DIVIDEND ONLY IN TH E HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF TH E CONCERN. 36. THE BASIS OF BRINGING IN THE AMENDMENT TO SECTI ON 2(22)(E) OF THE ACT BY THE FINANCE ACT, 1987 WITH E FFECT FROM 1-4-1988 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 CONCE RN CAN DRAW THE SAME FROM THE CONCERN INSTEAD OF THE COMPANY DIRECTLY MAKING PAYMENT TO THE SHAREHOLDER AS DIVIDEND. THE SOURCE OF POWER TO CONTROL THE AFF AIRS OF THE COMPANY AND THE CONCERN IS THE BASIS ON WHICH THESE PROVISIONS HAVE BEEN MADE. IT IS THEREFORE PR OPER TO CONSTRUE THOSE PROVISIONS AS CONTEMPLATING A CHA RGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN T HE ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 8 HANDS OF A NON-SHAREHOLDER VIZ., CONCERN. A LOAN OR ADVANCE RECEIVED IY A CONCERN IS NOT IN THE NATURE OF INCOME. IN OTHER WORDS THERE IS DEEMED ACCRUAL OF INCOME EVEN UNDER SECTION 5(1)(B) IN THE HANDS OF T HE SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE PAYEE, VIZ., NON-SHAREHOLDER (CONCERN). SECTION 5(1)(A) CONTEMPLATES THAT THE RECEIPT OR DEEMED RECEIPT SHO ULD BE IN THE NATURE OF INCOME. THEREFORE THE DEEMING F ICTION CAN BE APPLIED ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT THE NON- SHAREHOLDER, VIZ., THE CONCERN. 37. THE DEFINITION OF DIVIDEND UNDER SECTION 2(22 )(E) OF THE ACT IS AN INCLUSIVE DEFINITION. SUCH INCLUSIVE DEFINITION ENLARGES THE MEANING OF THE TERM DIVIDE ND ACCORDING TO ITS ORDINARY AND NATURAL MEANING TO IN CLUDE EVEN A LOAN OR ADVANCE. ANY LOAN OR ADVANCE CANNOT BE DIVIDEND ACCORDING TO ITS ORDINARY AND NATURAL MEAN ING. THE ORDINARY AND NATURAL MEANING OF THE TERM DIVIDEND WOULD BE A SHARE IN PROFITS TO AN INVEST OR IN THE SHARE CAPITAL OF A LIMITED COMPANY. TO THE EXTE NT THE MEANING OF THE WORD DIVIDEND IS EXTENDED TO LOANS AND ADVANCES TO A SHAREHOLDER OR TO A CONCERN IN WH ICH A SHAREHOLDER IS SUBSTANTIALLY INTERESTED DEEMING T HEM AS DIVIDEND IN THE HANDS OF A SHAREHOLDER THE ORDIN ARY AND NATURAL MEANING OF THE WORD DIVIDEND IS ALTER ED. TO THIS EXTENT THE DEFINITION OF THE TERM DIVIDEND CAN BE SAID TO OPERATE. IT THE DEFINITION OF DIVIDEND IS EXTENDED TO A LOAN OR ADVANCE TO A NON-SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVIDEND I S TAKEN AWAY. IN THE LIGHT OF THE INTENTION BEHIND T HE PROVISIONS OF SECTION 2(22)(E) AND IN THE ABSENCE O F INDICTION IN SECTION 2(22)(E) TO EXTEND THE LEGAL F ICTION TO A CASE OF LOAN OR ADVANCE TO A NON-SHAREHOLDER ALSO , WE ARE OF THE VIEW THAT LOAN OR ADVANCE TO A NON- SHAREHOLDER CANNOT BE TAXED AS DEEMED DIVIDEND IN T HE HANDS OF A NON-SHAREHOLDER. 8. THIS ISSUE HAS BEEN CONSIDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT ALSO IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD. (SUPRA) WHEREIN THE JUDGMENT OF SPECIAL BENCH WAS AFFIRMED AFTER OBSERVING AS UN DER :- ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 9 IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF SECT ION 2(22) OF THE INCOME-TAX ACT, 1961, IS ATTRACTED, THE PAYM ENT BY A COMPANY HAS TO BE BY WAY OF AN ADVANCE OR LOAN . THE ADVANCE OR LOAN HAS TO BE MADE, AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWN ER HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING PO WER OR TO ANY CONCERN IN WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST. SECTION 2(22)(E) DEFINES THE AMBIT OF TH E EXPRESSION DIVIDEND. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIP IENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. CONSEQUENT LY, THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BRO ADEN THE AMBIT OF THE EXPRESSION DIVIDEND BY INCLUDING CER TAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FO R THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFIN ITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. 7. THUS RESPECTFULLY FOLLOWING THE PRINCIPLE AND RA TIO LAID DOWN BY THE HON'BLE SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUM IK COLOUR (P) LTD. (SUPRA) AND HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD. (SUPRA), WE HOLD THAT THE ADDITION OF `. 54,01,948/- ON ACCOUNT OF DEEMED DIVIDEND CANNOT BE SUSTAINED AND THUS THE GROUNDS OF APPEAL OF THE APPELLANT ARE ALL OWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF MARCH, 2012. S D/ - S D/ - ( G. E. VEERABHADRAPPA ) ( AMIT SHUKLA ) PRESIDENT JUDICIAL MEMBER MUMBAI, DT: 28/03/2012 ITA NO : 6084/MUM/2011 M/S. NALANDA ENTERTAINMENT & RESORTS PVT. LTD. 10 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI