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of <h1>Court rules recipient-shareholder liable for deemed dividends under Income Tax Act</h1> <h3>Dr. T.J. Jaikish P.V.S. Hospitals (P) Ltd. Versus The Commissioner of Income Tax, Kozhikode</h3> Dr. T.J. Jaikish P.V.S. Hospitals (P) Ltd. Versus The Commissioner of Income Tax, Kozhikode - [2018] 403 ITR 256 (Ker) Issues:Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividends and its tax implications under Section 10(34) and Section 115(O).Analysis:The case involved a major shareholder who received an advance from a company for setting up a nursing college, deemed as a dividend under Section 2(22)(e) of the Income Tax Act, 1961. The question was whether the recipient would be liable to tax for the advance amounts. The appellant argued that since the amount was exempted under Section 10(34) as dividend income, no tax should be levied on the recipient. However, the Revenue contended that only amounts levied with additional income tax under Section 115(O) would be excluded under Section 10(34).The Court analyzed Section 115(O) which specifies additional income tax on amounts disbursed as dividends by a company. It was clarified that the exemption under Section 10(34) applies to amounts disbursed as dividends that have been taxed under Section 115(O). Deemed dividends are not exempted as there is no payment of additional tax under Section 115(O). The exclusion under Section 10(34) is only applicable for amounts that have suffered tax under Section 115(O). Therefore, the Court ruled in favor of the Revenue, stating that the recipient-shareholder is liable to tax for the deemed dividends received.In conclusion, the appeal was rejected, and no costs were awarded. The judgment clarified the tax implications of deemed dividends under Section 2(22)(e) and the applicability of exemptions under Section 10(34) and Section 115(O) in such cases.
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