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The Tax Publishers DCIT & Ors. v. Hooghly Mills Co. Ltd. & Ors. [ITA Nos. 548, 598, 601, 746, 747/Kol/2011, CO. No. 32/Kol/2011, dt. 8-4-2016] : 2016 TaxPub(DT) 2134 (Kol-Trib) Deemed dividend from group companies under section 2(22)(e) *Facts:* Assessees holding company was one J/R Hutchinsons with 89% held by the parent. Three other group companies had cross holdings as under :-- Arun properties P. Ltd. - 90% in Victoria Glass P. Ltd. and 90% in Bajoria Finance P. Ltd. The said Arun properties also holds 24% in J/R Hutchinons the holding company. Amounts were received from Arun properties, Victoria Glass and Bajoria finance by the assessee. Considering the accumulated profits addition was made for INR 4.04 crores as deemed dividend under section 2(22)(e) on the premise that the controlling interest was crossly held and breached the substantial shareholder mark by the assessing officer. Assessees grounds were that none of the lenders had direct shareholding in the assessee company and the holding company did not have any shareholding in any of the said lender companies thus 2(22)(e) shall not apply (it was vice versa i.e. of Arun properties). Commissioner (Appeals) deleted the addition that there was no shareholding by the lenders thus 2(22)(e) was not attracted. Aggrieved department went in appeal: Held in favour of the assessee that the loans were not hit by section 2(22)(e) as there was no shareholding by the lenders. To trigger section 2(22)(e) clause (b) or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) following conditions are sine qua non :-- (a) There must be a payment to a concern by a company. (b) A person must be Shareholder of the company being a registered holder and beneficial owner of shares (not being 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. This is because of the expression "Such Shareholder" found in the relevant provision. This expression only refers to the shareholder referred to in the earlier part of Section 2(22)(e) viz., a registered and a beneficial holder of shares holding 10% voting power. (c)The very same person referred to in (b) above must also be a member or a partner in the concern holding substantial interest in the concern viz., when the concern is not a company, he must at any time during the previous year, be beneficially entitled to not less than twenty percent of the income of such concern; and where the concern is a company he must be the owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty percent of the voting power (d) If the above conditions are satisfied then the payment by the company to the concern will be dividend. Condition (b) is not met, also the same people do not hold shares in the other entities thus (c) is also not met.

The Tax Publishers

DCIT & Ors. v. Hooghly Mills Co. Ltd. & Ors. [ITA Nos. 548, 598, 601, 746, 747/Kol/2011, CO. No. 32/Kol/2011, dt. 8-4-2016] : 2016 TaxPub(DT) 2134 (Kol-Trib)

Deemed dividend from group companies under section 2(22)(e)

Facts:

Assessees holding company was one J/R Hutchinsons with 89% held by the parent. Three other group companies had cross holdings as under :--

Arun properties P. Ltd. - 90% in Victoria Glass P. Ltd. and 90% in Bajoria Finance P. Ltd. The said Arun properties also holds 24% in J/R Hutchinons the holding company. Amounts were received from Arun properties, Victoria Glass and Bajoria finance by the assessee. Considering the accumulated profits addition was made for INR 4.04 crores as deemed dividend under section 2(22)(e) on the premise that the controlling interest was crossly held and breached the substantial shareholder mark by the assessing officer. Assessees grounds were that none of the lenders had direct shareholding in the assessee company and the holding company did not have any shareholding in any of the said lender companies thus 2(22)(e) shall not apply (it was vice versa i.e. of Arun properties). Commissioner (Appeals) deleted the addition that there was no shareholding by the lenders thus 2(22)(e) was not attracted.

Aggrieved department went in appeal:

Held in favour of the assessee that the loans were not hit by section 2(22)(e) as there was no shareholding by the lenders. To trigger section 2(22)(e) clause (b) or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) following conditions are sine qua non :--

(a) There must be a payment to a concern by a company.

(b) A person must be Shareholder of the company being a registered holder and beneficial owner of shares (not being 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. This is because of the expression "Such Shareholder" found in the relevant provision. This expression only refers to the shareholder referred to in the earlier part of Section 2(22)(e) viz., a registered and a beneficial holder of shares holding 10% voting power.

(c)The very same person referred to in (b) above must also be a member or a partner in the concern holding substantial interest in the concern viz., when the concern is not a company, he must at any time during the previous year, be beneficially entitled to not less than twenty percent of the income of such concern; and where the concern is a company he must be the owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty percent of the voting power

(d) If the above conditions are satisfied then the payment by the company to the concern will be dividend.

Condition (b) is not met, also the same people do not hold shares in the other entities thus (c) is also not met.