Deemed dividend requires a loan to a registered shareholder; advances to a Hindu undivided family fall outside the provision.

A loan is not chargeable as deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922 unless it is advanced to a registered shareholder. The Rajasthan HC held that a Hindu undivided family, even if the beneficial owner of shares, cannot satisfy the statutory requirement of registered shareholding, so advances made to it do not fall within the deeming fiction. The court also held that a contention not separately argued before the Tribunal may still be examined on reference if it forms part of the referred question and can be decided on the existing material. The deemed-dividend addition in respect of the advances was therefore not sustainable.

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Issues: (i) whether the High Court could entertain the assessee's contention that the loans were not advanced to a registered shareholder but to a Hindu undivided family; and (ii) whether loans advanced by the companies to the Hindu undivided family were liable to be assessed as deemed dividends under section 2(6A)(e) of the Indian Income-tax Act, 1922.

Issue (i): whether the High Court could entertain the assessee's contention that the loans were not advanced to a registered shareholder but to a Hindu undivided family.

Analysis: A question not separately argued before the Tribunal may still be examined if it is only an aspect of the question referred and can be decided on the existing material. The contention that the advances were made to the Hindu undivided family and not to the registered shareholder was treated as part of the larger question whether section 2(6A)(e) applied.

Conclusion: The contention was entertainable and was answered on the reference.

Issue (ii): whether loans advanced by the companies to the Hindu undivided family were liable to be assessed as deemed dividends under section 2(6A)(e) of the Indian Income-tax Act, 1922.

Analysis: The deeming provision applies only where the company advances a loan to a registered shareholder. A Hindu undivided family cannot be a registered shareholder, and the fact that it may be the beneficial owner of shares does not satisfy the statutory requirement. The restriction on shareholding and the scheme of company law were read together with the deeming fiction to hold that a loan to a non-registered holder does not fall within the provision.

Conclusion: The loans were not assessable as deemed dividends under section 2(6A)(e) and the answer was in favour of the assessee.

Final Conclusion: The reference was answered against the Revenue on the substantive tax question, and the deemed-dividend addition in respect of the advances to the Hindu undivided family could not be sustained.

Ratio Decidendi: For the purposes of the deemed-dividend provision, the loan must be advanced to a registered shareholder, and an advance to a beneficial owner or Hindu undivided family that is not the registered shareholder does not attract the fiction.

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