Case Law Details

Case Name : CIT Vs M/s Atul Engineering Udyog (Allahabad High Court)
Appeal Number : Income Tax Appeal No.223 Of 2011
Date of Judgement/Order : 26/09/2014
Related Assessment Year :
Courts : All High Courts (5988) Allahabad High Court (337)
CA Prarthana Jalan

From a reading of Section 2(22)(e) of the Act, it is apparent that it has the effect of bringing to tax as dividend where any payment of any sum is made by way of advance or loan to a shareholder in which a shareholder holds a substantial interest or any payment is made on behalf of a shareholder or any payment is made for the individual benefit of a shareholder. Any of the above three conditions would be taxed if the “advance” or “loan” is made to a shareholder and the Company possesses a cumulative profit at the time it makes the payment and, therefore, such payment would be deemed to be a dividend only to the extent of such profits.

The Tribunal, after considering the matter in detail found that the assessee firm was having a business dealing with its sister concern, which was apparent from the books of account of the assessee,  which showed various job works being carried out by the sister concern. The Tribunal also  found that the sister concern was bound to make payment to M/s Gas Authority of India Ltd. of the minimum contracted quantity to the extent of 80% of the natural gas irrespective of its use. The Tribunal further found that a commercial transaction had taken place between the assessee and its sister concern whereby the assessee was getting in return concessional rate of electricity @ Rs.2/- per unit and, for such business expediency, the sister concern had furnished a refundable interest free security deposit to the assessee. The Tribunal found, that on account of this commercial transaction the sister concern had paid Rs.80 lacs to the assessee as interest free refundable security deposit, which was subsequently refunded by the assessee to the sister concern and, consequently, held that the said amount given by the sister concern was a security deposit and not a loan or an advance. The finding arrived at by the Tribunal is a finding of fact based on appreciation of evidence, which has not been doubted by the appellant.

The only ground urged that since the partners of the assessee firm had worked as shareholders in the Company and had a substantial interest, such deposit of loan was by way of diversion of the profits of the Company and, therefore, such deposit has to be treated as a deemed dividend under Section 2(22)(e) of the Act, in view of the ratio laid down in Commissioner of Income Tax vs. Sunil Chopra, (2011)201 Taxman 31 6(Delhi), Commissioner of Income Tax vs. National Travel Services, (2011)202 Taxman 327(Delhi), P.K.Badiani vs. Commissioner of Income Tax, I.T.R. 105 (SC)642, Sadhana Textiles Mills Pvt. Ltd. vs. Commissioner of Income Tax, I.T.R. 188  (Bombay High Court) 318, M.D.Jindal vs. Commissioner of Income Tax, I.T.R. 164 (Calcutta High Court)28, Commissioner of Income Tax vs. P.K.Abubucker, I.T.R. 259 (Madras High Court)507, Commissioner of Income Tax, Andhara Pradesh vs. C.P. Sarathy Mudaliar, I.T.R. 83 (S.C.)170.

We find that the aforesaid decisions are distinguishable and not applicable as in these cases the advance was made to a shareholder and, therefore, a finding was given that it was a deemed dividend.

In Commissioner of Income Tax vs. Creative Dyeing and Printing Pvt. Ltd., 318 ITR 476, an advance was given to the said assessee by the sister concern, which held 50% of the share holding in the assessee concern for mordenisation project. The advance so given was adjusted against the dues for job work to be done by the assessee. The Delhi High Court held that it was a business transaction and the advance was not assessable as a deemed dividend under Section 2(22)(e) of the Act. The said decision was affirmed by the Supreme Court when the appeal of the Department in S.L.P. No.8558 of 2010 was dismissed by the Supreme Court on 7.7.2010. The said decision is squarely applicable in the instant case.

Apart from the aforesaid, the word “loan” means anything lent, especially money on interest. On the other hand, “deposit” means something which is deposited or put down, namely, a sum of money paid to secure an article, service, etc. The legislature has made a conscious distinction between the expression “loan’ and “deposit”. The two are not identical in meaning.

In the case of a deposit the delivery of money is usually at the instance of the giver and it is for the benefit of the person who deposits the money. The benefit normally being earning of interest from the party who accepts the deposit. The deposit could also be for safe keeping or as a security for the performance of an obligation undertaken by the depositor. On the other hand, in the case of a loan, it is the borrower at whose instance and for whose needs the money is advanced. The borrowing is primarily for the benefit of the borrower although the person, who lends the money, may also stand to gain by earning interest on the amount lent. Another distinction is the obligation to return the money so received. In the case of a deposit, the deposit becomes payable when a demand is made and, in the case of the “loan”, the obligation to repay the amount arises immediately on receipt of the loan.

In the light of the aforesaid, we find that the deposit made by the sister concern was a business transaction arising in the normal course of business between the two concerns. This is a finding of fact, which is based on the appreciation of evidence. Consequently, we find that the order of the Tribunal does not suffer from any manifest error of law. No substantial question of law arises for consideration.

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