Deemed dividend claims need supporting evidence, while inherited asset indexation follows the previous owner's holding period.

A payment received from a closely held company was not accepted as outside the deemed-dividend rule because the claim that it was only a business accommodation lacked supporting material; the issue was remanded for fresh verification by the Assessing Officer. For inherited capital assets, indexation of cost was held available from the year the previous owner first held the asset, because the deeming rules on holding period and acquisition apply to succession cases. The Revenue's objection on indexation failed, while the deemed-dividend issue required reconsideration on evidence.

---

---

Issues: (i) Whether the amount received from a closely held company could be taxed as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 when the assessee claimed that the funds were routed for the company's business purpose; (ii) Whether, for computing indexed cost of acquisition on inherited property, indexation was to be allowed from the year in which the previous owner first held the asset.

Issue (i): Whether the amount received from a closely held company could be taxed as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 when the assessee claimed that the funds were routed for the company's business purpose.

Analysis: The claim that the transaction was only a business accommodation for keeping margin money was not supported by material such as the credit sanction documents or the fixed deposit records. In the absence of such evidence, the nature of the transaction and its use for the company's business could not be conclusively verified on the existing record. The matter therefore required fresh examination by the Assessing Officer after giving the assessee an opportunity to furnish supporting material.

Conclusion: The issue was restored to the Assessing Officer for fresh assessment and was not finally decided in the assessee's favour.

Issue (ii): Whether, for computing indexed cost of acquisition on inherited property, indexation was to be allowed from the year in which the previous owner first held the asset.

Analysis: The entitlement to indexation had to be read with the deeming provisions governing holding period and cost of acquisition. The binding view applied was that where the asset devolves by inheritance or similar succession, the assessee is treated as having held the asset from the date on which the previous owner held it, and the same notional holding period governs indexed cost of acquisition.

Conclusion: The assessee was entitled to indexation from the year in which the previous owner first held the asset, and the Revenue's objection on this issue failed.

Final Conclusion: The Revenue's appeal succeeded only on the deemed-dividend issue to the limited extent of remand, while the assessee's claim on indexation was sustained.

Ratio Decidendi: For inherited or similarly devolved capital assets, the statutory deeming of holding period extends to computation of indexed cost of acquisition, while a claim that a payment to a shareholder was made solely for the company's business purpose must be substantiated by cogent material before the deeming dividend provision can be displaced.

---