Loans to Firm Not Deemed Dividends; Shares Held Individually, Not by Firm Under Section 2(22)(e) Income-tax Act.

The Tribunal upheld the CIT(A)'s decision, concluding that the assessee-firm was not a registered shareholder of M/s. Jetair Pvt. Ltd., as the shares were held by the partners individually. Consequently, the loans received by the firm could not be treated as deemed dividends under section 2(22)(e) of the Income-tax Act. The additions made by the AO for assessment years 2003-04 and 2004-05 were deleted, and the revenue's appeals were dismissed.

---

---

Issues Involved:
1. Addition of loan as deemed dividend under section 2(22)(e) of the Income-tax Act for the assessment years 2003-04 and 2004-05.

Issue-wise Detailed Analysis:

Issue 1: Addition of Rs. 21,95,21,000 as deemed dividend for AY 2003-04

The Assessing Officer (AO) observed that the assessee, a partnership firm consisting of three partners, had taken a loan of Rs. 28,52,41,516 from M/s. Jetair Pvt. Ltd. during the year under consideration. The AO required details of the shareholding of the assessee-firm or its partners in M/s. Jetair Pvt. Ltd. The details revealed that the partners, Shri Naresh Goyal and Shri Surender Goyal, held shares in M/s. Jetair Pvt. Ltd., with Naresh Goyal holding 51% and Surender Goyal holding 7.02%. The AO noted that M/s. Jetair Pvt. Ltd. had accumulated profits of Rs. 21,95,21,000 as on 31-3-2003.

The AO concluded that since the assessee-firm was the beneficial owner of more than 10% of the voting power in M/s. Jetair Pvt. Ltd., the loan taken by the assessee-firm should be treated as deemed dividend under section 2(22)(e) of the Act. Consequently, the AO added Rs. 21,95,21,000 to the assessee's total income as deemed dividend.

Issue 2: Addition of Rs. 95,78,000 as deemed dividend for AY 2004-05

Similarly, for the assessment year 2004-05, the AO made an addition of Rs. 95,78,000 on account of a loan treated as deemed dividend under section 2(22)(e) of the Act.

CIT(A) Decision:

The CIT(A) held that the assessee-firm was not a shareholder as per law and, therefore, the loan received from M/s. Jetair Pvt. Ltd. could not be treated as deemed dividend within the meaning of section 2(22)(e) of the Act. This decision was based on the interpretation that only a registered shareholder could be assessed for deemed dividend.

Tribunal's Analysis:

The Tribunal referred to the Special Bench decision in the case of Asstt. CIT v. Bhaumik Colour (P.) Ltd. [2009] 27 SOT 270, which clarified that deemed dividend under section 2(22)(e) can only be assessed in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. The Special Bench further held that the term "shareholder" refers to both a registered shareholder and a beneficial shareholder. If a person is either a registered shareholder without being a beneficial shareholder, or a beneficial shareholder without being a registered shareholder, the provisions of section 2(22)(e) would not apply.

Tribunal's Conclusion:

The Tribunal concluded that the assessee-firm could not be considered a registered shareholder of M/s. Jetair Pvt. Ltd. The shares were held by the partners in their individual capacities and not on behalf of the firm. Therefore, the loan received by the assessee-firm could not be treated as deemed dividend under section 2(22)(e).

Outcome:

The Tribunal upheld the CIT(A)'s order, deleting the additions made by the AO for both assessment years 2003-04 and 2004-05. The appeals filed by the revenue were dismissed.

---