Deemed dividend under common shareholding rejected where the recipient company is not a shareholder of the lending company.

Section 2(22)(e) of the Income-tax Act, 1961 cannot be applied to treat a loan as deemed dividend in the hands of a company that is not itself a shareholder of the lending company, even where the two companies have a common individual shareholder. The Tribunal's deletion of the addition was upheld by following the jurisdictional High Court ruling in Ankitech, which recognises that common shareholding alone does not satisfy the shareholder requirement for this deeming provision. On that basis, no substantial question of law arose under section 260A, and the Revenue's appeal was dismissed.

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Issues: Whether addition as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 was sustainable where the assessee was not a shareholder of the lending company and the loan was advanced between two companies with common shareholders.

Analysis: The addition had been deleted by the Tribunal by following the binding decision of the jurisdictional High Court in Ankitech. The governing principle applied was that section 2(22)(e) cannot be invoked merely because the same individual holds shares in both companies, where the recipient company itself is not a shareholder of the payer company. In such circumstances, no substantial question of law arose under section 260A.

Conclusion: The deemed dividend addition was not sustainable, and the appeal of the Revenue was dismissed.

Ratio Decidendi: Section 2(22)(e) of the Income-tax Act, 1961 cannot be applied to tax a loan as deemed dividend in the hands of a company that is not itself a shareholder of the lending company, even if common shareholding exists through an individual shareholder.

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