Dividend – Deemed dividend – Section 2(22)(e) – Sum shown as unsecured loan obtained by assessee firm from company in which one partner shareholder – Nature of transaction – Deferred liability – Assessee not shareholder of lender company – Loan not assessable as deemed dividend in hands of assessee

29. CIT vs. T. Abdul Wahid and Co. [2020]
428 ITR 456 (Mad.) Date
of order: 21^st September, 2020 A.Ys.: 2005-06 and 2006-07

Dividend
– Deemed dividend – Section 2(22)(e) – Sum shown as unsecured loan obtained by
assessee firm from company in which one partner shareholder – Nature of
transaction – Deferred liability – Assessee not shareholder of lender company –
Loan not assessable as deemed dividend in hands of assessee

One of the
partners of the assessee firm with a 35% stake in the assessee was also a
shareholder in a company with 26.25% shareholding in it. A sum of Rs. 2 crores
was shown as unsecured loan obtained from the company by the assessee. For the
A.Ys. 2012-13 and 2014-15, the A.O. considered this sum as deemed dividend
attracting the provisions of section 2(22)(e).

The
Tribunal held that the deemed dividend u/s 2(22)(e) was to be assessed in the
hands of the shareholder and not in the hands of the assessee firm and allowed
the appeals filed by the assessee.

On appeals
by the Revenue, the Madras High Court upheld the decision of the Tribunal and
held as under:

‘i)    Section 2(22)(e) would stand attracted when
a payment is made by a company in which public are not substantially interested
by way of advance or loan to a shareholder being a person who is the beneficial
owner of the shares.

ii)    On the facts it is clear that the payment
has been made to the assessee, a partnership firm. The partnership firm is not
a shareholder in the company. If such is the factual position, the decision in
the case of National Travel Services
relied on by the Revenue cannot be applied, nor can the case of Gopal and Sons, as they are factually
distinguishable. The records placed before the A.O. clearly show the nature of
the transaction between the firm and the company and it is neither a loan nor
an advance, but a deferred liability. These facts have been noted by the A.O.
In such circumstances, this Court is of the view that the Tribunal rightly
reversed the order passed by the Commissioner of Income-tax (Appeals) affirming
the order of the A.O.

iii)   For the above reasons, we find no grounds to
interfere with the order passed by the Tribunal and, accordingly, dismiss the
present appeals and answer the substantial question of law against the
Revenue.’