A Ltd Company having Three shareholders (each holding above 10% voting powers) among other shareholders, and these 3 shareholders also are being members in Association of Persons (AOP). Their respective share are 7.12% each which collectively aggregate to 21.42%. My Query is whether provisions of Section 2(22)(e) gets attracted, where above mentioned Ltd Company gives a Loan or Advance to Such AOP.
14 November 2013
Before arriving at any conclusion I would like to suggest to go through the Delhi High court judgement in the case of CIT v National Travel Services(2011)(202) Taxman 327. . The court has opined that a partnership firm holding shares through its partners can be treated as a beneficial shareholder- though it's not a registered shareholder. . The same is the case with an AOP. . Had the AOP would be a company, the said fiction can not be applied by adding the interests of the shareholders. . I am of the view, that after reading the case, you would be able to form an opinion, which will be different from Mr Kaushik's view. .
14 November 2013
Bafna ji I agree that there is a Delhi High Court judgment. But then there are other High Courts who have ruled that deemed dividend shall not apply in similar cases. You may refer to 199 CTR All 88 (Allahabad High Court).
Further you may also refer to Supreme Court judgment in the case of C.P. Sarathy Mudaliar.
"Section 2(6A) (e) gives an artificial definition of 'dividend'. It does not take in dividend actually declared or received. The dividend taken note of by that provision is a 'deemed dividend and not a real dividend. The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder. For certain purposes the legislature has deemed, such a loan as 'dividend'. Hence s. 2(6A)(e) must necessarily receive a strict construction. When s. 2(6A)(e) speaks of 'shareholders' it refers to the registered shareholder and not to the beneficial owner. The HUF cannot be considered as a shareholder either under s. 2(6A)(e) or under s. 23A or s. 16(2) read with s. 18(5) of the Act. Hence a loan given to an HUF cannot be considered as a loan advanced to a 'shareholder' of a company [1081 D-E]"
the Supreme Court judgment is still valid.
You may also refer: Rameshwari Lal Sanwarmal vs CIT 122 ITR 1
So We can conclude that for the applicability of Sec 2(22)(e) consolidation of % shareholding of different shareholders will not be considered. I agree, please reply.
it would be advisable that you go through each and every case law mentioned in our replies (both by me and bafna ji) and check which case law applies to the facts of your case the most.
Only after a thorough study you should take any position. In case you decide to take a position that 2(22)(e) doesn't apply, it would be important that you distinguish your case from National Travel Services.
15 November 2013
Truly said by Mr. Nikhil. You can not get a straight reply. The facts of your case matters more than the facts of any other decided case law. . You may also refer M/s Skyline Habitats P.Ltd V Department of Income Tax, of the Hon'ble Lucknow Tribunal Bench just for the sake of proper analysis.
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