×Latest Case Laws on Income Tax by various High Courts of India
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1. The following questions of law arise in this appeal:
"1. Whether the Tribunal was right in holding that the advance of a sum of `6.16 crores made by M/s Ginza Industries Ltd. to the assessee cannot be taxed as deemed· dividend without returning a finding that the lending of money was the substantial part of the business of the said company (M/s Ginza Industries Ltd);
2. Whether the Tribunal was right in holding that the Assessing Officer had wrongly made disallowance of `43.50 paid by the assessee to M/s Adani Associates towards guarantee commission fee;
2. In this appeal under Section 260A of the Income Tax Act, 1961 (hereafter referred to as “the Act”), the Revenue is aggrieved and challenges the order of the Income Tax Appellate Tribunal (“ITAT”) which held that amount of ` 6.16 crores which the assessee received from M/s Ginza Industries Ltd. (“Ginza” hereafter) could not be taxable as deemed dividend under Section 2 (22) (e) of the Act. ITAT too held that the assessee was entitled to deduction of ` 43.50 lakhs paid as guarantee fee to M/s Adani Associates (hereinafter referred to “Adani”) for advance received from Ginza.
3. The facts are that in the return of income filed by the assessee company on 30.11.1995 Ginza (with its registered office at 133, Canning Street, 3rd Floor, Room no. 17, Calcutta-700 001) was shown as sundry creditor in its balance sheet to which an amount of ` 17,40,20,000/- was due as at 30.03.1995. In this regard the assessee company was asked by order sheet entry dated 09.09.1997 to furnish the information with date, mode and purpose with which the credit of ` 17,40,20,000/- has been in the account of Ginza Industries Limited in the books of accounts of the assessee for each and every rupee. The assessee replied, stating that during the year, it had indulged in the business of sale and purchase of import licenses. It tied up with Ginza for procurement of License worth` 50 crores approx. and had asked for advance of ` 20.00 crores for procurement of license. It was also stated that Adani stood as guarantor to Ginza, for the safe custody of the funds and in the Memo of their agreement Adani was to be paid 2.5% as guarantee commission by it (the assessee, Prasidh Leasing Ltd). The AO noticed, from the list of closing stock of shares for the Financial year 1994-95 filed with the return of income that the assesse held 17,67,642 shares of Ginza. Therefore, the assessee company was asked to furnish the details of share holdings and whether any share holders and Directors were common. Subsequently, the assessee was asked to furnish particulars set out in a questionnaire.
4. A survey under Section 133A of the Act was conducted at Ginza’s office premises at Kolkata, on 06.02.1998. One of the purposes for this survey was to ascertain if the interest free advance of ` 17.4 crores given to the assessee company by Ginza was covered under the definition of “Deemed Dividend" in terms of Section 2(22) of the Act. Summons were later issued to Ginza to furnish further particulars.
5. The AO, by his order brought to tax certain amounts. He held that the amount paid by Ginza fell within the description of the term “deemed dividend” under Section 2 (22) (e) and found as follows: ―In the case law cited above, it has been held that advances towards purchase are not covered under section 2(22)(e). But the fact in assessee's case is altogether different. These were no purchase made by Ginza Industries Ltd. from the assessee to show that purchase was the real motive for giving advances. The copy of agreement and correspondences between the parties shall be discussed subsequently. Right now it would be important to find out whether purchase of license was the real motive behind giving of advances. If the advance was given really for purchase as the assessee says, what was the need to have a guarantee. In the normal business, where advances are given for purchases, the purchases are generally made and the party does not ask for a guarantee. Furthermore, the assessee had agreed to pay of commission to Adani Associates @ 2.5% of the net advances made which further substantiates that the motive for taking