Tribunal rules against Revenue: Minor's shareholding not included in assessee's under Section 2(22)(e)

The Tribunal dismissed the Revenue's appeals for both AY 2012-13 and AY 2013-14, affirming that the shareholding of the minor should not be included in the assessee's shareholding for the purposes of Section 2(22)(e). It was held that the deeming provisions must be strictly construed, and the assessee did not meet the criteria for deemed dividend under the said section. The Tribunal emphasized that the shares held by the minor were independently sourced and not beneficially owned by the assessee, leading to the dismissal of the appeals.

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Issues Involved:
1. Deletion of addition made under Section 2(22)(e) of the Income Tax Act.
2. Consideration of minor's shareholding for determining substantial interest.
3. Validity of additions not based on incriminating material found during the search.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 2(22)(e):

The Revenue contested the deletion of Rs. 13,97,50,223/- added under Section 2(22)(e) of the Income Tax Act by the Assessing Officer (AO). The AO argued that the minor could not legally enter into contracts for purchasing shares, and thus, the shares held by the minor should be considered as beneficially owned by the father. The AO included the minor's shareholding with the assessee's to conclude that the assessee held more than 10% in Vapi Care Pharma Ltd. and more than 20% in Veritas Biovention Pvt. Ltd., thereby attracting the provisions of Section 2(22)(e). The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, holding that the shares held by the minor independently sourced and the father did not have beneficial ownership. The Tribunal upheld the CIT(A)'s decision, noting that the deeming provisions of Section 2(22)(e) must be strictly construed and that the assessee did not meet the criteria for deemed dividend under Section 2(22)(e).

2. Consideration of Minor's Shareholding for Determining Substantial Interest:

The AO included the minor's shareholding in the assessee's total shareholding to determine substantial interest, arguing that the minor's income is assessed in the hands of the guardian father. The CIT(A) and the Tribunal disagreed, stating that the shares held by the minor should not be included in the assessee's shareholding for the purposes of Section 2(22)(e). The Tribunal referenced multiple case laws, including CIT Vs C.P. Sarathy Mudaliar and ITO Vs S.S. Barodawala, to support the position that shares held by a minor should not be considered as beneficially owned by the guardian for the purposes of determining substantial interest.

3. Validity of Additions Not Based on Incriminating Material Found During the Search:

The assessee argued that the additions were not based on any incriminating material found during the search proceedings. The Tribunal did not delve deeply into this issue, as it had already affirmed the CIT(A)'s decision on the primary ground that the provisions of Section 2(22)(e) were not applicable.

Conclusion:

The Tribunal dismissed the Revenue's appeals for both AY 2012-13 and AY 2013-14, affirming the CIT(A)'s order that the shareholding of the minor should not be included in the assessee's shareholding for the purposes of Section 2(22)(e). The Tribunal emphasized that the deeming provisions must be strictly construed and that the assessee did not meet the criteria for deemed dividend under the said section. The Tribunal also noted that the shares held by the minor were independently sourced and not beneficially owned by the assessee. The appeals were dismissed as the primary contention was resolved in favor of the assessee, making other arguments academic.

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