Case Law Details
CA, CS Pawan Sehrawat
Trade advance which are in the nature of money transacted to give effect to commercial transaction would not fall within the ambit of the provisions of section 2(22)(e).
As per section 2(22)(e) of IT Act, Deemed dividend (to extent of accumulated profit) includes, Any payment by way of loan or advance by a closely-held company to a shareholder holding substantial interest. Such deemded dividend is treated as Income From Other Sources (IFOS) in the hand of such shareholder. Unless the loan made in the ordinary course of business and money-lending is substantial part of the company’s business.
In case of “Asstt. Commissioner of Income Tax Versus Pravin C. Pandya – Income Tax – ITAT INDORE” ITAT held that the word advance which appears, in the company of the word “loan”, could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to commercial transaction would not fall within the ambit of the provisions of section 2(22)(e). The trade advances do not fall within the ambit of section 2(22)(e) of the Act as the business transactions are outside the purview of section 2(22)(e).
In this case, Assessee was having share holding in M/s Jayvin Sales Private Limited to the extent of 60%. The assessee was asked to produce the ledger of M/s Jayvin Sales Private Limited in its books. The assessee furnished necessary details. On perusal of such details, the learned Assessing Officer observed that the assessee received payment as advance from M/s Jayvin Sales Private Limited.
The learned Assessing Officer invoked the provisions of section 2(22)(e) of the Act adding Rs.14,63,400/- as deemed dividend in the hands of the assessee.
On appeal, the learned CIT(A) considered the submissions of the assessee along with certain judicial pronouncements and held that the learned Assessing Officer was not justified in invoking the provisions of section 2(22)(e) of the Act and deleted the addition. ITAT INDORE also confirmed the decision of learned CIT(A) in favour of assessee.
Full text of the Judgment is as follows :-
INCOME TAX APPELLATE TRIBUNAL, INDORE
ITA No. 309/Ind/2013 – A.Y. 2008-09
Asst. Commissioner of Income Tax
Vs
Pravin C. Pandya
Date of pronouncement 20.8.2013
ORDER
PER JOGINDER SINGH, judicial member
The Revenue is aggrieved by the impugned order dated 23.1.2013 passed by the learned first appellate authority. The only ground raised in this appeal pertains to deleting the addition of Rs. 14,63,400/- made by invoking section 2(22)(e) of the Act allegedly treating the trade advance outside the purview of the section.
2. During hearing of this appeal, the crux of argument on behalf of the Revenue is in support to the assessment order. However, nobody is present for the assessee. Registered AD notice was sent to the assessee on 16th July, 2013. In spite of that, the assessee neither presented himself nor moved any adjournment petition, therefore, we have no option but to proceed ex parte qua the assessee and tend to dispose of this appeal on the basis of material available on record.
3. We have considered the submissions put forth by the learned Senior DR and have gone through the material available on record. The facts, in brief, are that the assessee is engaged in the business of trading of pesticides, bio-fertilizers, organic manure and C&F activities, declared income of Rs.34,72,400/- in its return filed on 25th September, 2008. Since the case of the assessee was selected for scrutiny, therefore, required notices along with questionnaire were served upon the assessee to which the assessee furnished various details and attended assessment proceedings. The assessee was having share holding in M/s Jayvin Sales Private Limited to the extent of 60%. The assessee was asked to produce the ledger of M/s Jayvin Sales Private Limited in its books. The assessee furnished necessary details. On perusal of such details, the learned Assessing Officer observed that the assessee received payment as advance from M/s Jayvin Sales Private Limited. The learned Assessing Officer invoked the provisions of section 2(22)(e) of the Act adding Rs. 14,63,400/- as deemed dividend in the hands of the assessee.
3.1 On appeal, the learned CIT(A) considered the submissions of the assessee along with certain judicial pronouncements and held that the learned Assessing Officer was not justified in invoking the provisions of section 2(22)(e) of the Act and deleted the addition. The aggrieved Revenue is in appeal before the Tribunal.
3.2 If the totality of facts available on record, observations made in the assessment, conclusion drawn in the impugned order and the arguments of the learned Senior DR are kept in juxtaposition and analysed, we find that the impugned addition was made by the learned Assessing Officer on the observation that the assessee received loans/advances amounting to Rs. 15,80,965/- from M/s Jayvin Sales Private Limited and by applying the provisions of section 2(22)(e) of the Act the addition of Rs. 14,63,400/- was made to the total income of the assessee being deemed dividend. The stand of the assessee right from the assessment stage had been that the provisions of section 2(22)(e) of the Act are not applicable to trade transactions more specifically when such advance is made during the course of business of the assessee. The stand of the Revenue is that if the company makes any payment to any share holder either by loan or advance, in both situations, the provision of section 2(22)(e) of the Act is attracted. The assessee duly filed the copy of ledger account of M/s Jayvin Sales Private Limited evidencing that the amounts were paid in the regular course of business. We are of the view that under the facts available on record, the trade advances do not fall within the ambit of section 2(22)(e) of the Act as the business transactions are outside the purview of section 2(22)(e) of the Act. Section 2(22)(e) of the Income Tax Act, 1961 shows that a payment would acquire the attributes of a dividend if the following conditions are satisfied –
(a) the company making the payment is one in which the public are not substantially interested;
(b) money should be paid by the company to a share holder holding not less than 10% of the voting power of the company. It would make no difference if the payment was out of the asset of the company or otherwise;
(c) the money should be paid either by way of advance of loan or it may be “any payment” which the company make on behalf of or for the individual benefit of any share holder or also to any concern in which such share holder is a member or a partner and in which he is substantially interested and
(d) the limiting factor being that these payments must be to the extent of accumulated profits, possessed by such company.
Keeping in view rule/observation in mind, we are of the opinion that the word “advance” which appears in the company of the word “loan” could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to commercial transaction would not, in our view, fall within the ambit of the provisions of section 2(22)(e) of the Act. This interpretation would allow the rule of purposive construction with noscitur a sociis, as was done by Hon’ble Apex Court in the case of LIC of India vs. Retired LIC Officers Association (2008) 3 SCC 321. The observation made in para 24 is extracted here under 0#
“Each word employed in a statute must take color from the purport and object for which it is used. The principle of proposive interpretation, therefore, should be taken recourse to.”
A close examination of the decision from Hon’ble Bombay High Court in the case of Nagindas M. Kapadia (1989) 177 ITR 393 would show that the Court excluded from the ambit of “dividend”, monies which the assessee received towards purchases. Identical ratio was laid down by Hon’ble Delhi High Court in CIT vs.Creative Dyeing & Printing P Ltd.; (2009) 318 ITR 476. In view of the clear facts, we find no infirmity in the conclusion drawn in the impugned order. It is affirmed.
Finally, the appeal of the Revenue is dismissed.
This order was pronounced in the open Court in the presence of learned Senior DR at the conclusion of the hearing on 20.8.2013.
