Deemed dividend under section 2(22)(e) cannot be taxed in the hands of a non-shareholder recipient.

Amounts received by a company that is not a shareholder in the lending companies cannot be assessed as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, because the enlarged definition of dividend does not extend the tax charge beyond the shareholder. A payment to a concern is therefore not taxable in the hands of a non-shareholder recipient. The analysis follows binding jurisdictional High Court precedent and concludes that the addition under section 2(22)(e) was not sustainable against the assessee and was rightly deleted.

---

---

Issues: Whether amounts received by a company which is not a shareholder in the lender companies can be assessed as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.

Analysis: The assessee company was not a shareholder in either of the lender companies. The provision enlarges the meaning of dividend, but the taxable incidence remains confined to the shareholder. The amount advanced to a concern cannot be taxed as deemed dividend in the hands of a non-shareholder recipient. The view was supported by binding precedent of the jurisdictional High Court.

Conclusion: The addition under section 2(22)(e) was not sustainable in the hands of the assessee and was rightly deleted.

---