Mewar Polytex Ltd v. Assistant Commissioner Of Income Tax, Circle-1, Udaipur

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B.INCOME TAX APPEAL NO. 28 / 2012 Mewar Polytex Ltd., Through its Managing Director, BabulalHastimal Bapna, aged 73 years, S/o Late Hastimal Bapna, 207-A, Mewar Industrial Area, Madri, Udaipur. ----Appellant Versus Assistant Commissioner of Income Tax, Circle-1, Udaipur. Connected With ----Respondent D.B.INCOME TAX APPEAL No. 29 / 2012 Mewar Polytex Ltd., Through its Managing Director, Babulal Hastimal Bapna, aged 73 years, S/o Late Hastimal Bapna, 207-A, Mewar Industrial Area, Madri, Udaipur. ----Appellant Versus Assistant Commissioner of Income Tax, Circle-1, Udaipur. ----Respondent _________________________________________________ For Petitioner :Mr. Anjay KothariMr. Bhagirath PatelFor Respondent :Mr. K.K. BissaMr. G.S. Rathore HON'BLE MR. JUSTICE SANGEET LODHAHON'BLE MR. JUSTICE VINIT KUMAR MATHURJudgment By the Court: (Per Hon’ble Mr.Sangeet Lodha, J.):-Reportable Dated:- 22[nd] December, 2016. 1.These two appeals preferred by the assessee companyunder Section 260A of the Income Tax Act, 1961 (for short ‘theAct of 1961’) arising out of order dated 9.12.11 passed by theIncome Tax Appellate Tribunal (ITAT), Jodhpur Bench, Jodhpurin ITA No.455/JU/2009 and ITA No.382/JU/2010 for AssessmentYears 2006-07 and 2007-08, raising the common questions oflaw were heard together and are being disposed of by thiscommon judgment. 2.The relevant facts are that the appellant, a public limitedcompany, engaged in manufacturing of PP/HDPE Fabric/Sacks,filed its return of income for the Assessment Year 2006-07,declaring total income of Rs.1,66,89,710/-. The assesseecompany declared dividend @ 5% on the paid up capital andpaid Rs.16.15 lacs as dividend to its share holders and also paidtax on dividend amounting to Rs.2,26,504/-. During therelevant assessment year the assessee had taken loan ofRs.1,32,20,000/-. The Assessing Officer (‘AO’) vide notice dated31.7.08 directed assessee company to furnish the break up ofthe above loan amount. The assessee through reply dated6.8.08 gave the break up of loan amount as under : Sun Polytex Pvt. Ltd. (Interest paid) Rs.75,00,000/-Crescent Polytex P.Ltd.(Interest paid) Rs.7,75,000/-Galaxy Industries (Interest paid) Rs.23,50,000/-Sisarama Plastic P.Ltd.(Interest paid) Rs. 8,00,000/-Crescent Polytex Pvt.Ltd.(Interest paid) Rs.25,15,000/- Rs.23,50,000/- _____________ Total Rs.1,32,20,000/- 3.The assessee company was share holder in the abovecompanies from which the loan had been received by it. Underthe directions of the AO, the assessee company furnished thedetails of its share holdings in the above companies. Thepercentage of share holdings of the assessee company in M/sSun Polytex was 23.67% and in M/s Sisarama Plastic Pvt. Ltd.14.7%. Considering the share holdings of the assesseecompany in above two companies being more than 10% of totalshare capital, the AO served the assessee company with anotice dated 21.8.08, asking as to why the loan taken by theassessee company from above two companies comprising ofRs.75,00,000/- from Sun Polytex Pvt. Ltd. and Rs.8,00,000/-from Sisarama Plastics Pvt. Ltd. be not added to the income ofthe assessee company under Section 2(22)(e) of the Act of1961. The assessee company by way of reply to the noticeclarified that it has taken loan from Sun Polytex Pvt.Ltd. a sumof Rs.55,00,000/- as corporate loan instead of Rs.75,00,000/-and paid interest Rs.1,05,534/- @ 12% and also deducted thetax at source a sum of Rs.23,682/-. The balance as on 31.3.06 (4 of19) [ITA-28/2012 AND ONE CONNECTED MATTER] (4 of19) [ITA-28/2012 AND ONE CONNECTED MATTER] was disclosed as Rs.57,27,988/-. The assessee contended thathe has taken loan from Sun Polytex Pvt. Ltd. in ordinary courseof its business. While referring to the Memorandum ofAssociation of Sun Polytex Pvt. Ltd., the assessee companysubmitted that Sun Polytex Pvt.Ltd. is engaged in business ofmanufacturing of PP/HDPE Fabric as well as financing to thecompanies/firms as inter corporate loans on interest at the rateprevailing in the market and the said company has earnedRs.2,97,552/- as interest during the year. The assesseecompany contended that by virtue of provisions of Section2(22)(e)(ii) of the Act of 1961, the “dividend” does not includeany advance or loan made by a company to a shareholder or toany concern in which such shareholder is a member or partner,in the ordinary course of business where the lending of moneyis substantial part of the business of the company. The AO afterdue consideration arrived at the conclusion that the provisionsof sub-clause (ii) of Section 2(22)(e) are attracted wheremoney lending is primary/main object of the company butsince, the main object of the company Sun Polytex Pvt. Ltd.was manufacturing of PP/HDPE Fabrics and notfinancing/money lending, the exception carved out cannot beinvoked. Accordingly, a sum of Rs.55,00,000/- received by theassessee company from Sun Polytex Pvt. Ltd. was added backto the income of the assessee for the assessment year 2006-07as deemed dividend under Section 2(22)(e) of the Act of 1961. (5 of19) 4.Similarly during the assessment year 2007-08, a sum ofRs.18,40,000/- received by the assessee company as loan fromSun Polytex Pvt. Ltd. was added to its income under Section2(22)(e) of the Act of 1961. 5.Aggrieved by the assessment order dated 30.9.08 passedby the AO for the assessment year 2006-07, the assesseecompany preferred an appeal before the Commissioner ofIncome Tax (Appeals) Udaipur [CIT(A)]. The assessment orderdated 1.11.09 passed by the AO for assessment year 2007-08was also appealed against by the assessee company before theCIT (A). 6.The CIT(A) opined that amount given by the Sun PolytexPvt. Ltd. to the assessee company was in the nature of intercorporate deposit, which cannot be treated as loan for thepurposes of Section 2(22)(e) of the Act of 1961 andaccordingly, the addition made by the AO was ordered to bedeleted by the CIT(A) vide order dated 29.5.09. For the parityof the reasons, the appeal preferred by the assessee againstthe order of the AO making addition as aforesaid during theassessment year 2007-08 was also allowed by the CIT(A) videorder dated 11.3.10 and the addition made was deleted. 7.Aggrieved by the orders passed by the CIT(A), theRevenue preferred two separate appeals before the ITAT. Theappeal preferred by the Revenue for the assessment year 2006- 07 has been allowed by the ITAT holding that the assessecompany has not been able to show that Sun Polytex Pvt. Ltd.was having money lending business as substantial part of itsbusiness and therefore, AO was justified in holding the sum ofRs.55,00,000/- as deemed dividend in the hands of assessee.However, the issue of addition of loan amount to the income ofthe assessee as deemed dividend during the assessment year2007-08 has been restored to the file of the AO to ascertain asto whether the advance during the year exceeds the closingbalance of earlier year. The ITAT observed that in case itexceeds then the amount to be treated as dividend in view offinding arrived at for assessment year 2006-07 and if theamount is less then no addition will be made because theadvance in immediately preceding year has already beentreated as deemed dividend. Hence, these appeals. 8.On 22.7.13, the appeals preferred by the assesseecompany were admitted by this Court on the followingsubstantial questions of law : 8.On 22.7.13, the appeals preferred by the assesseecompany were admitted by this Court on the followingsubstantial questions of law : “(i) Whether, ITAT has grossly erred in misconstruing theprovisions of section 2(22)(e) by ignoring the exception carvedout by sub-clause (ii) of Section 2(22) and by not appreciatingthe settled position of law that transactions entered in theordinary course of business are not hit by section 2(22)(e) ofthe Act ? (ii) Whether the impugned order dt. 9.12.2011 passed by theITAT is liable to be set aside in view of the provisions of section10(34) r.w.s.115-O of the Act since income by way of dividendsis exempt in the hands of the shareholder ?” (7 of19) 9.Learned counsel appearing for the assessee companycontended that true and correct nature of the amount ofRs.55,00,000/- by way of inter corporate deposits is “Deposit”and not loan and therefore, Section 2(22)(e) was at all notattracted. Learned counsel submitted that the inter corporatedeposits can neither be regarded as loan nor as advance for thepurposes of Section 2(22)(e) of the Act of 1961. Learnedcounsel submitted that even if the substantial part of thebusiness of Sun Polytex Pvt. Ltd. is not taken to be moneylending, the inter corporate deposit, a genuine businesstransaction, not being gratuitous loan advanced, do not fallwithin Section 2(22)(e) of the Act of 1961 and there is no needeven to go further to sub-clause (ii) of Section 2(22)(e) of theAct of 1961. Learned counsel submitted that the provisions ofSection 2(22)(e) were brought so as to tax deemed dividend inthe form of payments by way of advance or loan to ashareholder, holding not less than 10% of voting power, wherethe real object of such payment is distribution of accumulatedprofits and not giving of loan in its true perspective. Learnedcounsel urged that the loans and advances covered by Section2(22)(e) are such loans and advances which are not genuineand made solely with a view to evade tax on dividend income.In support of the contention, learned counsel has relied upon adecision of the Hon’ble Supreme Court in the matter of ‘NavnitLal C. Javeri Vs. K.K. Sen, Appellate Assistant Commissioner of (8 of19) Income Tax, Bombay’ (1965) 66 ITR 198 (SC). According to thelearned counsel, the normal transactions made on account ofcommercial expediency with profit motive to earn interest donot fall within the purview of Section 2(22)(e) of the Act of1961. In support of the contention, learned counsel has reliedupon a decision of High Court of Delhi in the matter of‘Commissioner of Income Tax Vs. Creative Dyeing & Printing(P) Ltd.’ (2009) 318 ITR 476 and a decision of High Court ofCalcutta in the matter of ‘Pradip Kumar Malhotra Vs.Commissioner of Income Tax’ (2011) 338 ITR 538. Learnedcounsel urged that interest income received by Sun Polytex Pvt.Ltd. formed part of its business income and has been assessedunder the head “profits and gains of the business”. Learnedcounsel submitted that business of money lending consisted asubstantial part of business of Sun Polytex Pvt. Ltd. and themoney was advanced to the assessee company in the ordinarycourse of its business activity. Relying upon a decision of HighCourt of Bombay in the matter of ‘Commissioner of Income TaxVs. Parle Plastics Ltd. and another’ (2011) 332 ITR 63, learnedcounsel submitted that the expression “substantial part” doesnot connote an idea of being the “major part” or the part thatconstitute majority of the whole. Learned counsel submittedthat any business of a company, which the company does notregard as small, trivial or inconsequential as compared to thewhole of the business is substantial business. Learned counsel submitted that Sun Polytex Pvt. Ltd. during the assessmentyear 2006-07 has earned interest income, a sum ofRs.2,97,552/- and thus the money lending has to be treated assubstantial part of its business and therefore, the provisions ofSection 2(22)(e) cannot be validly invoked in view of specificexception carved out in sub-clause (ii) of Section 2(22)(e) ofthe Act of 1961. Lastly, learned counsel submitted that byvirtue of provisions of Section 10(34) of the Act of 1961, theincome of the assessee company by way of dividend cannot beincluded while computing the total income of the previous yearand therefore, the order impugned passed the ITAT, settingaside the order passed by the CIT(A) and restoring the orderpassed by the AO deserves to be set aside for this reason also. 10.On the other hand, the counsel appearing for the Revenuewhile supporting the order of ITAT submitted that the factum ofSun Polytex Pvt. Ltd. advancing loan to the assessee companywas not even disputed on behalf of the assessee companybefore the AO rather, only contention raised by the assesseewas on anvil of the provisions of sub-clause (ii) of Section 2(22)(e) of the Act of 1961, which has rightly been rejected by theITAT holding that the money lending cannot be treated to besubstantial part of the business of the company Sun PolytexPvt. Ltd. Learned counsel submitted that after dueconsideration of rival submissions the ITAT has categorically held that the money received by the assessee company was notinter corporate deposits and thus, the money lending being notsubstantial part of the business of the said company, the shortterm loan taken by the assessee cannot be construed to be incourse of money lending business. Learned counsel urged thatthe order passed by the ITAT does not suffer from any infirmityor illegality and as a matter of fact, no substantial question oflaw arises for consideration of this Court out of the ordersimpugned and therefore, the appeals deserve to be dismissed. 11.We have considered the rival submissions and perused thematerial on record. 12.Indisputably, in the first instance, the provision, to bringwithin the tax net the monies paid by a closely held companiesto their principal shareholders in the guise of loan or advanceout of their accumulated profits to avoid payment of tax wasintroduced by inserting clause (e) to Section 2 (6A) in theIncome Tax Act, 1922 (‘the Act of 1922’). The definition of“Dividend” as incorporated in Section 2(22) of the Act of 1961,corresponds to Section 2 (6A) of the Act of 1922. 13.The provisions of Section 2 (22)(e) and sub-clause (ii)appended thereto carving out an exception, relevant fordetermination of the substantial question of law arising forconsideration of this court in the present appeals may bebeneficially quoted: “2(22) “dividend” includes- xxx……….xxxxx.. (e) any payment by a company, not being a company inwhich the public are substantially interested, of any sum(whether as representing a part of the assets of thecompany or otherwise) made after the 31[st] day of May,1987, by way of advance or loan to a shareholder, being aperson who is the beneficial owner of shares (not beingshares entitled to a fixed rate of dividend whether with orwithout a right to participate in profits) holding not lessthan ten per cent, of the voting power, or to any concernin which such shareholder is a member or a partner and inwhich he has a substantial interest (hereafter in thisclause referred to as the said concern) or any payment byany such company on behalf, or for the individual benefit,of any such shareholder, to the extent to which thecompany in either case possesses accumulated profits; but “dividend” does not include- (i) ….xxxxx…...xxxxx. but “dividend” does not include- (i) ….xxxxx…...xxxxx. (ii) any advance or loan made to a shareholder or the saidconcern by a company in the ordinary course of itsbusiness, where the lending of money is a substantial partof the business of the company.” 14.A bare perusal of Section 2 (22) (e) makes it abundantlyclear that it embodies the concept of “deemed dividend”whereby any sum paid by way of advance or loan by a companyin which the public are substantially interested to a shareholderbeing a person who is beneficial owner of shares (not beingshares entitled to a fixed rate of dividend with or without a rightto participate in profits) holding not less than 10% of votingpower or to any concern in which such shareholder is a memberor partner and in which he has a substantial interest or anypayment by any such company on behalf of or for individual (12 of19) benefit to the extent to which the company in either casepossesses accumulated profits, is deemed to be dividend. 15.The facts not in dispute are that the assessee companyhaving percentage of shareholding in Sun Polytex Pvt. Ltd.23.67%, had taken loan from the said company a sum ofRs.55,00,000/-. According to the assessee company, since theSun Polytex Pvt. Ltd. is engaged in business of manufacturingof PP/HDPE Fabric as well as financing to the companies/Firmsas inter corporate loan on interest at the prevailing market rate,it was inter corporate loan taken in ordinary course of business.The assessee company claimed that it has already paid intereston the loan advanced a sum of Rs.1,05,534/- @ 12% and alsodeducted the tax at source a sum of Rs.23,682/-. The furtherstand of the assessee company before the Assessing Officerwas that in light of para (ii) of Section 2 (22)(e), any advanceor loan made to a share holder (or the said concern), acompany, in ordinary course of business is excluded from thedefinition of “deemed dividend”. 16.In Navnit Lal C. Javeri’s case (supra) relied upon by thelearned counsel appearing for the appellant, the Hon’bleSupreme Court while rejecting the challenge to the validity ofSections 2 (6A) (e) and 12 (IB) of the Act of 1922 observedthat to meet the mischief by the private controlled companies inadopting the device of making advances or giving loans to their (13 of19) shareholders with the object of evading payment of tax, thelegislature can step in and create a fiction by which the amountostensibly and nominally advanced to a shareholder as a loan,is treated in reality for tax purposes as payment of dividend tohim. 17.Precisely, whenever any payment is made by closely heldcompany by way of loans or advances to certain share holdersof the company or to the concern/companies in which theyhave substantial interest shall be treated to be dividend bydeeming fiction, which is not actually dividend distributed byclosely held company and shall be liable to be taxed in thehands of the recipient to the extent to which the closely heldcompany has accumulated profits. 18.As noticed hereinabove, the assessee company hasreceived a sum of Rs.55,00,000/- during the relevantassessment year from the closely held company M/s. SunPolytex Pvt. Ltd. wherein, the assessee company has more than10% of the shares. The record does not reflect that the loanadvanced by M/s. Sun Polytex Pvt. Ltd to the assesseecompany in the previous year relevant to the assessment yearwas inter corporate deposit. Merely because, the assesseecompany has paid the interest to the closely held company andalso deducted the tax at source, the loan taken cannot betreated to be inter corporate loan received in ordinary course of (14 of19) 18.As noticed hereinabove, the assessee company hasreceived a sum of Rs.55,00,000/- during the relevantassessment year from the closely held company M/s. SunPolytex Pvt. Ltd. wherein, the assessee company has more than10% of the shares. The record does not reflect that the loanadvanced by M/s. Sun Polytex Pvt. Ltd to the assesseecompany in the previous year relevant to the assessment yearwas inter corporate deposit. Merely because, the assesseecompany has paid the interest to the closely held company andalso deducted the tax at source, the loan taken cannot betreated to be inter corporate loan received in ordinary course of (14 of19) business. In other words, on account of the payment of interestby the assessee company to the closely held company againstthe loan advanced or the repayment of loan, the deemingfiction in treating the loan advanced as ‘deemed dividend’ shallnot be ceased to be operative. As a matter of fact, if on accountof payment of interest by the assessee company to the closelyheld company on the loan advanced, it is not treated to be‘deemed dividend’ within the meaning of Section 2 (22)(e) andtreated to be inter corporate deposit, the very object sought tobe achieved by incorporation of the said provision to remedythe mischief, shall stand frustrated. 19.Coming to the contention of the appellant company thatthe business of money lending consisted a substantial part ofthe business of M/s. Sun Polytex Pvt. Ltd., it is pertinent to notethat in the previous year relevant to the assessment year, thereis only one loan advanced i.e. the loan advanced to theassessee and other advances shown relate to the main businessand increase in advance on account of increase in refundableexcise duty. Suffice it to say that the other advances in nomanner could be construed as advances for the purpose ofmoney lending. That apart, during the relevant assessmentyear, M/s Sun Polytex Pvt. Ltd. is alleged to have earned ameagre Rs.2,97,552/- as interest. Thus, the conclusion arrivedat by the Assessing Officer, affirmed by the ITAT that the (15 of19) [ITA-28/2012 AND ONE CONNECTED MATTER] perusal of the balance sheet and profit & loss account of M/s.Sun Polytex Pvt. Ltd. did not inspire any confidence that M/s.Sun Polytex Pvt. Ltd. was having money lending as substantialpart of business, cannot be faulted with and therefore, the loanadvanced by the closely held company M/s. Sun Polytex Pvt.Ltd. to the assessee company does not fall within the exceptioncarved out under para (ii) of Section 2 (22)(e) of the Act of1961 either. 20.At this stage, it would be appropriate to refer to thedecisions of various High Courts cited by the learned counselappearing for the appellant. 21.In Creative Dyeing & Printing (P) Ltd.’s case (supra),wherein the assessee company received funds for expansion ofproduction capacity from a company PE Ltd. having 50% of theshareholdings in the assessee company as also commondirectors with the assessee, the Delhi High Court held that theamount advanced for business transaction by PE Ltd. to theassessee company whereby both the assessee and the recipientcompany were to be benefited does not fall within the definitionof deemed dividend under Section 2 (22) (e). 22.In Pradip Kumar Malhotra’s case (supra), the CalcuttaHigh Court opined that the phrase “by way of advance or loan”appearing in sub-clause (e) of Section 2 (22) must beconstrued to mean those advances or loans which a 21.In Creative Dyeing & Printing (P) Ltd.’s case (supra),wherein the assessee company received funds for expansion ofproduction capacity from a company PE Ltd. having 50% of theshareholdings in the assessee company as also commondirectors with the assessee, the Delhi High Court held that theamount advanced for business transaction by PE Ltd. to theassessee company whereby both the assessee and the recipientcompany were to be benefited does not fall within the definitionof deemed dividend under Section 2 (22) (e). 22.In Pradip Kumar Malhotra’s case (supra), the CalcuttaHigh Court opined that the phrase “by way of advance or loan”appearing in sub-clause (e) of Section 2 (22) must beconstrued to mean those advances or loans which a shareholder enjoys simply on account of being a person who isbeneficial owner of shares (not being shares entitled to a fixedrate of dividends whether with or without a right to participatein profits) holding not less than 10% shares of voting powers,but where such loan or advance is given to such shareholder asa consequence of any other consideration which is beneficial tothe company, in such case, such advance or loan cannot be saidto a deemed dividend within the meaning of the Act of 1961and accordingly, taking into consideration the fact that the loanadvanced by the company to a shareholder, the assessee, whopermitted company to mortgage his immovable property forenabling company to secure loan and in spite of request of theassessee, the company was unable to release the property fromthe mortgage, the loan advanced was not treated to begratuitous and deemed dividend within the meaning of Section2 (22) (e) of the Act of 1961. 23.Suffice it to say that in the instant case, the loanadvanced is found to be gratuitous inasmuch as, the loanadvanced was not in return to an advantage conferred upon theclosely held company by the assessee company and thus, noneof the decisions cited by the learned counsel referred tohereinabove help the appellant in any manner. 24.In Parle Plastics Ltd.’s case (supra), the Bombay HighCourt while considering the clause (ii) of Section 2 (22) (e) of the Act of 1961 held that advance or loan made by a companyto a shareholder or a concern in which the shareholder hassubstantial interest would not be regarded as dividend if theadvance or loan was made by the lending company, if twoconditions are satisfied namely, (i) that the loan or advance wasmade by the lending company in the ordinary course of itsbusiness and (ii) lending of money was a substantial part ofbusiness of the lending company. The Court observed that the“substantial part” does not connote an idea of being the ‘majorpart’ or the part that constitutes majority of the whole. TheCourt further observed that any business of a company whichcompany does not regard as small, trivial or inconsequential ascompared to the whole of business is substantial business. TheCourt opined that percentage of turnover in relation to thewhole as also percentage of profit in relation to whole andsometimes even percentage of manpower used for a particularpart of business in relation to the total manpower or workingforce of the company would be required to be taken intoconsideration. 25.In view of the conclusion arrived at by us after dueconsideration of the facts situation emerging in the presentcase that money lending cannot be treated to be substantialpart of the business of the closely held company, the decision of the Bombay High Court in Parle Plastic Ltd.’s case (supra), alsodoes not help the appellant. 26.Accordingly, the question no.1 framed as aforesaid isanswered in terms that the ITAT has committed no error inconstruing the provision of Section 2 (22)(e) of the Act of 1961while arriving at the conclusion that the loan advanced by M/sSun Polytex Pvt. Ltd. shall be treated to be ‘deemed dividend’liable to be taxed in the hands of the assessee. 25.In view of the conclusion arrived at by us after dueconsideration of the facts situation emerging in the presentcase that money lending cannot be treated to be substantialpart of the business of the closely held company, the decision of the Bombay High Court in Parle Plastic Ltd.’s case (supra), alsodoes not help the appellant. 26.Accordingly, the question no.1 framed as aforesaid isanswered in terms that the ITAT has committed no error inconstruing the provision of Section 2 (22)(e) of the Act of 1961while arriving at the conclusion that the loan advanced by M/sSun Polytex Pvt. Ltd. shall be treated to be ‘deemed dividend’liable to be taxed in the hands of the assessee. 27.Coming to the second question regarding the income byway of dividends being exempt in the hands of shareholder inview of the provisions of Section 10(34) read with Section115-O of the Act of 1961, it is true that by virtue of provisionsof Section 10(34), any income by way of dividend referred to inSection 115-O shall not be included in computing the totalincome of a previous year of any person and thus, the recipientof the income of dividend shall not be liable to pay the tax ondividend income inasmuch as, under the new scheme, thedividend in the hands of recipient is tax free and the dividendpaying company has been made liable to pay tax on theamount of dividend declared, distributed or paid by it. But then,the ‘deemed dividend’ in terms of Section 2 (22) (e) of the Actof 1961 is not covered by the said provision. Obviously, the‘deemed dividend’ is included within the ‘income’ by virtue ofprovisions of Section 2(24) of the Act of 1961 and therefore, (19 of19) [ITA-28/2012 AND ONE CONNECTED MATTER] unless and until it specifically falls within the exclusion ascontemplated under the provisions of Section 10(34) read withSection 115-O, the same cannot be presumed to be excludedwhile computing the income of the recipient thereof. A bareperusal of Section 10(34) read with Section 115-O makes itabundantly clear that by virtue of said provisions, only theamount declared, distributed or paid by the domestic companyby way of dividends whether out of current or accumulatedprofits made chargeable to additional income tax in the handsof the company, stands excluded from the computation of theincome of any person and not the ‘deemed dividend’ in terms ofprovisiosn of Section 2 (22)(e) of the Act of 1961. Thus, theloan or advance by closely held company to the shareholder,which is treated to be ‘deemed dividend’ by virtue of provisionsof Section 2 (22)(e) of the Act of 1961, continues to remainliable to be taxed in the hands of the recipient. The questionno.2 is thus answered accordingly. 28.In view of the conclusions arrived at as aforesaid, theappeals fail, the same are hereby dismissed. No order as tocosts. (VINIT KUMAR MATHUR)J. (SANGEET LODHA)J.