Deemed dividend applies only to loans made to the registered shareholder, not merely to a beneficial owner.

Loans advanced by a company are treated as deemed dividend only when they are made to the registered shareholder, because shareholder status for this purpose depends on the name entered in the register of shareholders. A beneficial owner who is not the registered shareholder does not attract section 2(22)(e) of the Income-tax Act, 1961. Applying this principle and treating the provision as pari materia with section 2(6A)(e) of the 1922 Act, the court held that a loan advanced to a Hindu undivided family could not be taxed as deemed dividend where the shares stood in the karta's name and the loan was not advanced to the registered shareholder as such.

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Issues: Whether loans advanced by the companies to the Hindu undivided family could be treated as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, when the shares stood registered in the name of the karta and the loan was not advanced to the registered shareholder as such.

Analysis: The applicable provision in section 2(22)(e) of the Income-tax Act, 1961 was held to be in pari materia with section 2(6A)(e) of the Income-tax Act, 1922. The controlling rule applied was that deemed dividend is taxable only where the loan is advanced to the registered shareholder, since for company law purposes the shareholder is the person whose name is entered in the register of shareholders. A loan advanced merely to a beneficial owner who is not the registered shareholder does not fall within the mischief of the provision. On that basis, the advance to the Hindu undivided family could not be brought to tax under the deeming provision.

Conclusion: Section 2(22)(e) of the Income-tax Act, 1961 was held inapplicable to the loans advanced to the Hindu undivided family, and the answer to the referred question was in favour of the assessee.

Ratio Decidendi: Deemed dividend can be assessed only when the loan is advanced to the registered shareholder, not merely to a beneficial owner who is not entered in the register of shareholders.

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