Deemed dividend under Section 2(22)(e): taxability limited to registered or beneficial shareholders, not assessable in others.

Whether distributions characterised as deemed dividends under Section 2(22)(e) can be taxed in hands other than the registered or beneficial shareholder was examined; authoritative precedent construes fiscal incidence to attach to the registered or beneficial shareholder, requiring any addition under that provision to be made in their hands. The legal basis rests on statutory text and controlling decisions that confine taxability to the person who holds legal or beneficial title, and the conclusion disfavors revenue treatment that seeks to tax others.

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Issues: Whether an addition on account of deemed dividend under Section 2(22)(e) of the Income-tax Act, 1961 can be made otherwise than in the hands of the registered/beneficial shareholders.

Analysis: Legal framework: Section 2(22)(e) of the Income-tax Act, 1961 characterises certain distributions as deemed dividends. The question concerns the person in whose hands such deemed dividend can be taxed. Relevant precedent: the issue has been considered and decided by the Hon'ble Supreme Court and by High Courts in consistent decisions addressing the scope and application of Section 2(22)(e). Those decisions establish that the fiscal incidence of a deemed dividend under Section 2(22)(e) attaches to the registered or beneficial shareholder as the taxable person, and that additions under that provision must be made accordingly. Applying those authorities to the facts and statutory text leads to the same legal conclusion.

Conclusion: The issue is answered against the revenue and in favour of the assessee; additions under Section 2(22)(e) can be made only in the hands of the registered/beneficial shareholders.

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