CIT-II Ludhiana v Sharman Woolen Mills Ltd

CIT-II Ludhiana v Sharman Woolen Mills Ltd

High Court of Punjab and Haryana

ITA No. 152 of 2011

Hemant Gupta and Jaswant Singh, JJ

Decided on: 28 September 2011

Counsel appeared:

Ms Savita Saxena, Adv. for the appellant

Judgment

Per: Hemant Gupta, J:

Revenue has sought the following two substantial questions of law having arisen out of the

order passed by learned Income Tax Appellate Tribunal, Chandigarh (for short the

‘Tribunal’) on 18.8.2010: -

1. “Whether on the facts and in law, the Hon’ble ITAT was legally justified in dismissing the

appeal of the department and upholding the order of CIT(Appeals) in deleting the addition of

Rs. 99,10,000/- made under section 2(22)(e) of the Act.”

2. “Whether on the facts and in law, the Hon’ble ITAT was legally justified in dismissing the

appeal of the department and upholding the order of CIT(Appeals) in deleting the addition

made under section 2(22)(e) of the Act ignoring the fact that provisions of section 2(22)(e)

were squarely applicable to the case?”

Learned counsel for the appellant contends that M/s Ankur Agro Pvt. Ltd has advanced

unsecured loan to the assessee i.e. M/s Sharman Woolen Mills Ltd., a separate registered

Company under the provisions of Companies Act, 1956. The Assessing Officer made an

addition of Rs. 99,10,000/- in the income of the assessee as a dividend in terms of section

2(22)(e) of the Income Tax Act, 1961 (for short the ‘Act’) which order was set aside in

appeal and maintained by Tribunal.

Learned Tribunal has found that in terms of section 2(22)(e) of the Act, the dividend income

is assessable only in the hands of shareholders of the lending company. It has been found that

assessee is not a shareholder of M/s Ankur Agro Pvt. Ltd. Thus, the said amount cannot be

assessed in the hands of the assessee in terms of section 2(22)(e) of the Act.

Learned counsel for the appellant has vehemently argued that the shareholders of the lending

company and that of the assessee are the same. Therefore, the unsecured loan advanced by

the lending company to the assessee is in fact the loan to its shareholders.

We do not find any merit in the said argument. Even if the shareholders are common of two

companies but the fact remains that the assessee is a separate juristic entity. The assessee is

assessed to income tax separately than its shareholders. The loan has been advanced to a

company who is not a shareholder of M/s Ankur Agro Pvt. Ltd.

Therefore, we do not find that any substantial question of law arises in the present appeal.

Dismissed.