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2025 Supreme(Telangana) 2104
IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
P.SAM KOSHY, NARSING RAO NANDIKONDA, JJ.
Sri B.Dhanunjayarao - Appellant
Vs.
Deputy Commissioner of Income Tax - Respondent
Income Tax Tribunal Appeal Nos.354, 355, 469 And 476 of 2013
Decided On : 04-12-2025
Advocate Appeared:
For the Appellant : N. Purnachandra Rao
For the Respondent: Bokaro Sapna Reddy (Senior Sc Income Tax)
Advances taken by shareholders from a company can be classified as deemed dividends under Section 2(22)(e) of the Income Tax Act if shareholders fail to prove that these were not for individual benefit.
Headnote:(A) Income Tax Act, 1961 - Section 260-A and 2(22)(e) - Appeals filed against the common order passed by the Income Tax Appellate Tribunal treating advances from the company as deemed dividend - Tribunal's decision was based on the absence of sufficient evidence regarding mortgage benefits and individual advantage. (Paras 3, 17)
(B) Deemed Dividend - Definition under Section 2(22)(e) includes any advance or loan from a company to a shareholder with more than 10% voting rights, constituting deemed dividend as it was assessed as such by the Tribunal. (Paras 10, 12)
(C) Evidence and Burden of Proof - Appellants' claims regarding the lack of individual benefit from advances were dismissed due to insufficient evidence to substantiate their claims of property mortgaging for company benefit. (Paras 16, 18)
Facts of the case:
Appellants, directors and shareholders of the company, took substantial advances from the company, claiming these were necessary for constructing property pledged as collateral. The Assessing Officer treated these advances as deemed dividends under tax law.
Findings of Court:
The Tribunal reinstated the Assessing Officer's classifications of the advances as deemed dividends due to lack of evidence confirming no personal advantages.
Issues: The issues addressed included whether the advances constituted deemed dividends and the sufficiency of evidence regarding the mortgage benefits to the company.
Ratio Decidendi: The court held that the Tribunal's classification was valid as appellants failed to provide sufficient evidence to demonstrate that the property was mortgaged for the company’s benefit rather than for individual gain.
Result: Appeals dismissed.
JUDGMENT :
(per Hon’ble Sri Justice Narsing Rao Nandikonda)
Since the parties and issue involved in all these appeals being common, they are being heard together and are disposed of by way of this common judgment.
2. Heard Mr. N.Purnachandra Rao, learned counsel for the appellants and Ms. Bokaro Sapna Reddy, learned Senior Standing Counsel for Income Tax Department, appearing for the respondent.
3. These appeals are filed under Section 260 -A of the Income Tax Act, 1961 (for short, the Act, 1961’) aggrieved by the common order passed by the learned Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, Hyderabad (for short the ‘Tribunal’) in ITA Nos.443/Hyd/2012 CO 101/Hyd/2012, 444/Hyd/2012 CO 98/Hyd/2012, 445/Hyd/2012 CO 99/Hyd/2012 and 446/Hyd/2012 CO 100/Hyd/2012, dated 14.12.2012, for the Assessment Years 2002-2003, 2006-2007, 2003-2004 and 2006-2007 respectively.
4. Brief facts of the case are that these appeals are preferred by assessees. They are wife and husband. The appellants are Directors of M/s.BDR Projects Private Limited, Hyderabad, holding more than 10% shares in the Company and they are assessed to tax regularly. It is stated that during the Assessment Years 2002-2003, 2003-2004 and 2006-2007, both the Directors have taken advances from Andhra Bank against the credit facility be availed by the company for its business purposes for the purpose of construction of building jointly in respect of property bearing No.8-2-293/82/NL/6A, situated at MLA & MP Colony Road No.10C, Jubilee Hills, Hyderabad, admeasuring 600 square yards, which was acquired during the year 2000.
4.a. It is further stated that as the subject property was already pledged to the bank as a collateral security against the credit facilities availed by the company for development of its business purposes, any further loans could not be obtained on the said property to construct a house building. It is further stated that both the appellants who are wife and husband have no other option except to draw advances from the company and with the help of said advances to construct a building on the said open plot. On account of construction of the building, the value of property shoot up and the company availed further credit facilities for its business purposes from the said bank and the entire property including the building was under the custody of the bank by way of collateral security.
4.b. It is further stated that considering the above facts and circumstances of the case, the Assessing Officer while completing the Income Tax Assessment proceedings for all four years treated the above advances in both the hands as ‘deemed dividend’ by invoking the provision of Section 2 (22) (e) of the Act, 1961.
4.c. Being aggrieved by the said Assessment Order, the assessee preferred appeal before the learned Commissioner of Income Tax (Appeals)-II, Hyderabad, holding that there was no individual benefit to both the Directors on taking advances since the property / house building was pledged to the bankers as security for the loans obtained by the company for its business purposes and no further loan or advance could be obtained by the Directors on the said property as it was already pledged. It is further stated that even though there is a personal element of individual benefit to the assessee-appellant, the company from which the advances taken was also benefited by using the property as collateral security to the bank. It was further observed that the loan or advance given in return is an advantage upon the company and is not a gratuitous loan or advance given by the company and does not come under the permission of Section 22 (2) of the Act, 1961 and accordingly the Commissioner ‘deleted’ the advances made by the Assessing Officer.
4.d Being aggrieved by order passed by the learned Commissioner of Income Tax (Appeals); the Revenue filed an appeal before the Tribunal and contended that there was no need for a company to advance a loan, instead the company could have
