Mumbai ITAT deletes deemed dividend addition u/s 2(22)(e) – Distinguishes SC ruling in Gopal & Sons and National Travel Services

Golani Brothers

Mumbai ITAT deletes deemed dividend addition u/s 2(22)(e) made on assessee (partnership firm) which had taken loan from sister concern, distinguishes SC ruling in Gopal & Sons and National Travel Services;

 Holds that since two of assessee’s partners held shares in the sister concern (closely held company), on their own account and not on behalf of the firm, partnership firm is neither registered not beneficial shareholder to attract provisions of Sec 2(22)(e);

Refers to plethora of rulings including SC ruling in Ankitech Pvt. Ltd., wherein it was held that “loan or advance cannot be treated as deemed dividend at the hands of such a concern which is not shareholder”;

Distinguishes assessee’s reliance on SC ruling in Gopal And Sons (HUF) noting that in that case, assessee HUF was registered as well as beneficial shareholder,

 Further distinguishes SC ruling in National Travel Services where partners held shares on behalf of the firm.

Its a welcome judgement against the draconian provisions of section 2 (22)(e).

Most of the judgment on the issues are in favour of the Assessee.  The taxman invariably examines the aspect of former dividend almost in all the income tax proceeding.