RAVI AGARWAL Vs. ASSISTANT COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The present appeal relates to the assessment year 2003 -04. The appellant took a loan of Rs.21.20 lacs from a Company known as Sarnath Finance Limited, in which the appellant is a share holder to the extent of 15%. In assessment proceedings the appellant was required to explain as to why the loans and advances taken from Sarnath Finance Ltd. should not be treated as a deemed dividend in view of the provision of Section 2(22)(e) of the Income Tax Act (hereinafter referred to as the "Act"). The assessing authority, after considering the explanation held, that the alleged loan taken by the appellant was a deemed dividend and, therefore an income from other sources. The assessing authority held that the Finance Company, namely, Sarnath Finance Limited was mainly engaged in advancing hire purchase of transport vehicle and that the said Finance Company had only made 10.79% investment in loans and advances which cannot be termed as a substantial part of business of the Company. The assessee, being aggrieved, filed an appeal which was dismissed and thereafter filed an appeal before the Tribunal.

(2.) During the pendency of the appeal the appellant filled an application seeking permission to add an additional ground, which was rejected. Thereafter an application under Section 254 of the Act was filed which was also rejected. The appellant thereafter preferred an appeal before the High Court under Section 260A of the Act, being Income Tax Appeal No.190 of 2014, in which it was held that the Tribunal had not considered the nature of the transaction of the Company before determining as to whether the exclusionary clause (ii) of Section 2(22)(e) of the Act was attracted or not and, accordingly, remanded the matter to the Tribunal for a decision afresh. The Tribunal thereafter decided the matter and again rejected the appeal of the assessee holding that the alleged loan given by the Sarnath Finance Ltd. to the assessee was in the ordinary course of business and was not covered by the exclusionary Class (ii) of Section 2(22)(e) of the Act.

(3.) The Tribunal found that the object as per the memorandum of association of the Finance Company is business of lending money, but, contended that as per the balance sheet, the loans and advances shown by the Finance Company had been grouped under different heads, namely, "loans and advances" and "stock on hire including hire purchase". The Tribunal further found that the balance sheet showed Rs.426.32 lacs under the heading stocks on hire and Rs.56.23 lacs under the heading "loans and advances" and, therefore, concluded that a substantial business of the Finance Company was for hire purchase transactions and not for "loans and advances" and, therefore, the loan taken by the appellant was not covered under the exclusionary clause (ii) of Section 2(22)(e) of the Act.