Registered shareholder test excludes beneficial owner from deemed dividend treatment under the income-tax provision.

For section 2(6A)(e) of the Indian Income-tax Act, 1922, "shareholder" means only a person whose name is entered in the register of shareholders, not a mere beneficial owner. A loan or advance made to a person who is not a registered shareholder does not fall within the deemed dividend provision, even if that person is beneficially entitled to the shares held in another name. The earlier authority was confined to the separate question of who is taxed once deemed dividend is attracted and did not alter this interpretation. The loans therefore could not be assessed as deemed dividend in the assessee's hands.

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Issues: Whether loans advanced by a company to business concerns of an Hindu undivided family, which was only the beneficial owner of shares and not the registered shareholder, could be treated as deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922 and taxed in the hands of that family.

Analysis: Section 2(6A)(e) fastens tax liability only where the advance or loan is made to a shareholder. The term "shareholder" in this provision was held to mean the person whose name stands entered in the register of shareholders, and not merely the beneficial owner of the shares. A loan advanced to a person who is not a registered shareholder does not fall within the mischief of the provision, even if that person is beneficially entitled to the shares held in another's name. The earlier decision was confined to the distinct question whether deemed dividend, once attracted, is taxable in the hands of the beneficial owner, and it did not decide the present question.

Conclusion: The loans could not be treated as deemed dividend under section 2(6A)(e) in the hands of the assessee, since the assessee was not the registered shareholder. The contention of the assessee succeeded.

Final Conclusion: The appeal was allowed and the assessment could not stand to the extent it proceeded on the footing that the impugned loans were deemed dividend in the hands of the assessee.

Ratio Decidendi: For the purpose of section 2(6A)(e), "shareholder" means only a registered shareholder, so a loan to a beneficial owner who is not so registered is outside the deeming provision.

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