S.2(22)(e): Dividend- Deemed dividend-Share application money - Colour device - Not “loan or
advance”, cannot be assessed as deemed dividend.
The assessee was a beneficial shareholder of three companies named Kingston Properties P Ltd. (KPPL),
New Dimensions Consultants P Ltd (NDCPL) & R. S. Estate Developers P Ltd (RSEDPL). NDCPL &
RESEDPL advanced various sums of money to KPPL towards “share application money”. However,
some of the advances were returned by KPPL while some were adjusted towards allotment of shares. The
AO held that the transaction was a “colourable device” and a “loan and advance” which fell within the
ambit of s. 2(22) (e). The said “loan and advance” was assessed as “deemed dividend” in the hands of the
assessee – beneficial shareholder – following Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom).
The CIT (A) reversed the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:
Share application money or share application advance is distinct from ‘loan or advance’. Although share
application money is one kind of advance given with the intention to obtain the allotment of
shares/equity/preference shares etc., such advances are different form the normal loan or advances
specified both in section 269SS or 2(22) (e) of the Act. Unless the mala fide is demonstrated by the AO
with evidence, the book entries or resolution of the Board of the assessee become relevant and credible,
which should not be dismissed without bringing any adverse material to demonstrate the contrary. It is
also evident that share application money when partly returned without any allotment of shares, such
refunds should not be classified as ‘loan or advance’ merely because share application advance is returned
without allotment of share. In the instant case, the refund of the amount was done for commercial reasons
and also in the best interest of the prospective share applicant. Further, it is self-explanatory that the
assessee being a ‘beneficial share holder’, derives no benefit whatsoever, when the impugned ‘share
application money/advance’ is finally returned without any allotment of shares for commercial reasons.
In this kind of situations, the books entries become really relevant as they show the initial intentions of the
parties into the transactions. It is undisputed that the books entries suggest clearly the ‘share application’
nature of the advance and not the ‘loan or advance’. As such the revenue has merely suspected the
transactions without containing any material to support the suspicion. Therefore, the share application
money may be an advance but they are not advances which are referred to in section 2(22) (e) of the Act.
Such advances, when returned without any allotment or part allotment of shares to the
applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or
refunded in the same year or later years after keeping the money for some time with the company. So long
as the original intention of payment of share application money is towards the allotment of shares of any
kind, the same cannot be deemed as ‘loan or advance’ unless the mala fide intentions are exposed by the
AO with evidence. (A. Y. 2002-03 to 2007-08)
advance”, cannot be assessed as deemed dividend.
The assessee was a beneficial shareholder of three companies named Kingston Properties P Ltd. (KPPL),
New Dimensions Consultants P Ltd (NDCPL) & R. S. Estate Developers P Ltd (RSEDPL). NDCPL &
RESEDPL advanced various sums of money to KPPL towards “share application money”. However,
some of the advances were returned by KPPL while some were adjusted towards allotment of shares. The
AO held that the transaction was a “colourable device” and a “loan and advance” which fell within the
ambit of s. 2(22) (e). The said “loan and advance” was assessed as “deemed dividend” in the hands of the
assessee – beneficial shareholder – following Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom).
The CIT (A) reversed the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:
Share application money or share application advance is distinct from ‘loan or advance’. Although share
application money is one kind of advance given with the intention to obtain the allotment of
shares/equity/preference shares etc., such advances are different form the normal loan or advances
specified both in section 269SS or 2(22) (e) of the Act. Unless the mala fide is demonstrated by the AO
with evidence, the book entries or resolution of the Board of the assessee become relevant and credible,
which should not be dismissed without bringing any adverse material to demonstrate the contrary. It is
also evident that share application money when partly returned without any allotment of shares, such
refunds should not be classified as ‘loan or advance’ merely because share application advance is returned
without allotment of share. In the instant case, the refund of the amount was done for commercial reasons
and also in the best interest of the prospective share applicant. Further, it is self-explanatory that the
assessee being a ‘beneficial share holder’, derives no benefit whatsoever, when the impugned ‘share
application money/advance’ is finally returned without any allotment of shares for commercial reasons.
In this kind of situations, the books entries become really relevant as they show the initial intentions of the
parties into the transactions. It is undisputed that the books entries suggest clearly the ‘share application’
nature of the advance and not the ‘loan or advance’. As such the revenue has merely suspected the
transactions without containing any material to support the suspicion. Therefore, the share application
money may be an advance but they are not advances which are referred to in section 2(22) (e) of the Act.
Such advances, when returned without any allotment or part allotment of shares to the
applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or
refunded in the same year or later years after keeping the money for some time with the company. So long
as the original intention of payment of share application money is towards the allotment of shares of any
kind, the same cannot be deemed as ‘loan or advance’ unless the mala fide intentions are exposed by the
AO with evidence. (A. Y. 2002-03 to 2007-08)
No comments:
Post a Comment