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The Tax Publishers ACIT v. CH. Krishna Murthy [ITA No. 1128/Hyd/2011 & 1210/Hyd/2012, dt. 13-5-2016] : 2016 TaxPub(DT) 2531 (Hyd-Trib) Deemed dividend arising out of a de-merger *Facts:* Assessee was found to have created indebtedness for 2.46 crores with from a company called Vishnu Chemicals P. Ltd. (VCL) of which he was a director (assessee owed this much to VCL). It is also factual that he is a director in another company called Solvey Vishnu Barium P. Ltd. (SVBL) This was read as deemed dividend under section 2(22)(e) by assessing officer. The assessees plea was that the sum had risen out of a de-merger, where in VCL was supposed to be allotted shares of SVBL which was objected by the chairman of SVBL. Finally it was the assessee to whom the said shares of SVBL were allotted instead; along with the family members of the assessee. Thus the sums indebtedness were in fact share application money payable by VCL to SVBL by virtue of allotment to assessee VCL became a debtor to assessee. This was discharged by the assessee subsequently. Thus he claimed it was out of scope of section 2(22)(e). Since these were not borrowings but monies due by VCL to SVBL now due by assessee to VCL for the shares allotted to their name they were not to form deemed dividend. If at all deemed dividend can be taxed it can be only in the hands of VCL. Held in favour of the assessee that the order of Commissioner (Appeals) requires no revision as it was a speaking order and no deemed dividend could be read into the same. Note: Assessee was in receipt of money from VCL indirectly due to the shares allotted to him by SVBL. This was a debt. But by virtue of the cross holdings VCL was owing to SVBL, thus the deemed dividend logic could have risen only in the hands of VCL such a reading was what was given in this case.

The Tax Publishers

ACIT v. CH. Krishna Murthy [ITA No. 1128/Hyd/2011 & 1210/Hyd/2012, dt. 13-5-2016] : 2016 TaxPub(DT) 2531 (Hyd-Trib)

Deemed dividend arising out of a de-merger

Facts:

Assessee was found to have created indebtedness for 2.46 crores with from a company called Vishnu Chemicals P. Ltd. (VCL) of which he was a director (assessee owed this much to VCL). It is also factual that he is a director in another company called Solvey Vishnu Barium P. Ltd. (SVBL) This was read as deemed dividend under section 2(22)(e) by assessing officer. The assessees plea was that the sum had risen out of a de-merger, where in VCL was supposed to be allotted shares of SVBL which was objected by the chairman of SVBL. Finally it was the assessee to whom the said shares of SVBL were allotted instead; along with the family members of the assessee. Thus the sums indebtedness were in fact share application money payable by VCL to SVBL by virtue of allotment to assessee VCL became a debtor to assessee. This was discharged by the assessee subsequently. Thus he claimed it was out of scope of section 2(22)(e). Since these were not borrowings but monies due by VCL to SVBL now due by assessee to VCL for the shares allotted to their name they were not to form deemed dividend. If at all deemed dividend can be taxed it can be only in the hands of VCL.

Held in favour of the assessee that the order of Commissioner (Appeals) requires no revision as it was a speaking order and no deemed dividend could be read into the same.

Note: Assessee was in receipt of money from VCL indirectly due to the shares allotted to him by SVBL. This was a debt. But by virtue of the cross holdings VCL was owing to SVBL, thus the deemed dividend logic could have risen only in the hands of VCL such a reading was what was given in this case.