Deemed dividend requires registered shareholding, not mere beneficial ownership; loan to a Hindu undivided family falls outside the provision.

Section 2(6A)(e) of the Indian Income-tax Act, 1922, was construed strictly as an artificial dividend provision, applying only to loans or advances made to a shareholder in the registered sense, or to payments made on behalf of or for the individual benefit of a shareholder. A Hindu undivided family could not be treated as a shareholder because it could not be registered as one, and beneficial ownership did not substitute for registered shareholding. On that basis, a loan advanced to the family was outside the provision and was not taxable as deemed dividend in its hands.

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Issues: Whether a loan advanced by a company to a Hindu undivided family, which was the beneficial owner of the shares but not the registered shareholder, could be treated as deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922.

Analysis: Section 2(6A)(e) creates an artificial definition of dividend and must be strictly construed. The provision applies to an advance or loan to a shareholder, meaning the registered shareholder in the books of the company, or to a payment made on behalf of or for the individual benefit of a shareholder. A Hindu undivided family cannot be a shareholder because it cannot be registered as such. The earlier decisions relied on the distinction between actual dividend received by a family and deemed dividend under the statute, and held that beneficial ownership does not substitute for registered shareholding. The alternative contention based on payment on behalf of or for individual benefit could not be examined, as it had not been raised and no factual basis was found for it.

Conclusion: A loan advanced to the Hindu undivided family was not a loan advanced to a shareholder within section 2(6A)(e), and the amount could not be treated as deemed dividend in the hands of the family.

Ratio Decidendi: For the purpose of deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922, the term shareholder means only the registered shareholder, not the beneficial owner; therefore, a loan to a Hindu undivided family that is not the registered shareholder is outside the provision.

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