DCIT v. Ritesh Properties & Industries Ltd.

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The Tax Publishers2021 TaxPub(DT) 0449 (Del-Trib)

INCOME TAX ACT, 1961

Section 2(22)(e)

A perusal of shareholding pattern of assessee during the relevant year revealed that Mr. Arora merely hold 16,33,632 equity shares in the assessee, which constituted merely 14.09 % of the total voting power, and, therefore, Mr. Arora did not hold 20% of the voting power in assessee and consequently, assessee cannot be regarded as a company in which Mr. Arora had substantial interest. Therefore, the relationship as contemplated in section 2(22)(e) to apply mischief of said section was not at all satisfied in the facts of assessee's case. Further, there was no denial of the submission made on behalf of assessee that no other shareholder in the assessee simultaneously held more than 20% of voting power in the assessee and more than 10% of the voting power in RSML. Accordingly, no addition could be made under section 2(22)(e).

Dividend - Deemed dividend under section 2(22)(e) - Loan received from another company - Both companies having common shareholder

Assessee received unsecured loan of Rs. 5,99,55,000 from M/s Ritesh Spinning Mills Ltd. ('RSML'), bearing interest of Rs. 76,19,342. AO was of the opinion that loan advanced by RSML to assessee was liable to tax as deemed dividend under section 2(22)(e), on the ground that Mr. Sanjiv Arora was a common shareholder holding substantial interest in both the companies, i.e., RSML and assessee. It was thus concluded by AO that loan advanced by RSML to assessee fell within the category of loan advanced by a company in which public was not substantially interested (i.e. RSML) to a concern (i.e. the assessee) in which the shareholder of RSML (i.e. Mr. Sanjiv Arora) had substantial interest, which was to be assessed as deemed dividend in the hands of the assessee to the extent of accumulated profits of RSML, and since accumulated profits of RSML aggregated to Rs. 3,27,71,164, loan advanced to the extent of such accumulated profits was treated as deemed divided under section 2(22)(e). Assessee contended that Mr. Arora did not hold substantial interest in assessee, inasmuch as Mr. Arora did not hold shares carrying at least 20% of the voting power in assessee. Held: A perusal of shareholding pattern of assessee during the relevant year, revealed that Mr. Arora merely holds 16,33,632 equity shares in the assessee, which constitutes merely 14.09% of the total voting power, and, therefore, Mr. Arora does not hold 20% of the voting power in assessee and consequently, assessee could not be regarded as a company in which Mr. Arora had substantial interest. Therefore, that the relationship as contemplated in section 2(22)(e) to apply mischief of said section was not at all satisfied in the facts of assessee case. Further, there was no denial of the submission made on behalf of assessee that no other shareholder in the assessee simultaneously held more than 20% of voting power in the assessee and more than 10% of the voting power in RSML. Accordingly, no addition could be made under section 2(22)(e).

Relied:CIT v. Mother India RefrigerationIndustries (P) Ltd.: (1985) 155 ITR 711 (SC) : 1985 TaxPub(DT) 1335 (SC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09

INCOME TAX ACT, 1961

Section 14A