Deemed dividend under section 2(22)(e) cannot be taxed in a non-shareholder recipient's hands, the ITAT followed High Court precedent.

Section 2(22)(e) deemed dividend applies only where the payment is received by a shareholder of the payer company. The ITAT Ahmedabad followed the jurisdictional High Court view, consistent with the Delhi High Court, that the deeming fiction cannot be extended to a recipient company that is not itself the shareholder from whom the payment was made, even if the amount may otherwise represent accumulated profits. On that basis, the addition under section 2(22)(e) was deleted and the Revenue's appeal failed.

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Issues: Whether deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 could be assessed in the hands of the recipient company when the payment was received from a person other than the shareholder.

Analysis: The Tribunal noted that the recipient of the loan was not the shareholder from whom the amount was received. It followed the jurisdictional High Court view, consistent with the Delhi High Court's decision, that the deeming fiction in section 2(22)(e) operates only where the payment is received by a shareholder of the payer company. Where the payment is received from a non-shareholder, the provision cannot be invoked against the recipient company merely because the payment may otherwise fall within the description of accumulated profits.

Conclusion: The addition under section 2(22)(e) was rightly deleted and the Revenue's appeal failed.

Ratio Decidendi: Deemed dividend under section 2(22)(e) cannot be taxed in the hands of a recipient who is not a shareholder of the payer company.

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