Deemed dividend requires proof of shareholder benefit; mere possible advantage to a family shareholder was insufficient.

Amounts advanced by a company to a Hindu undivided family were not automatically taxable as deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922. The provision extends beyond direct loans to a shareholder and also covers payments made on behalf of, or for the individual benefit of, a shareholder; however, that wider limb applies only where the Revenue proves such shareholder benefit on evidence. On the facts, the record did not show that the advances were made on behalf of or for the benefit of the shareholders, and a mere possibility of advantage to the family as beneficial owner was insufficient.

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Issues: Whether amounts advanced by a company to a Hindu undivided family could be treated as dividend income under section 2(6A)(e) of the Indian Income-tax Act, 1922 on the footing that the payment was made on behalf of or for the individual benefit of the shareholders.

Analysis: The definition of dividend under section 2(6A)(e) covers not only loans or advances to a shareholder, but also payments made on behalf of, or for the individual benefit of, a shareholder. The first limb was not pressed by the Revenue. On the second limb, the materials before the Court did not establish that the sums advanced were made on behalf of or for the benefit of the shareholders. The mere possibility that the assessee-family, as beneficial owner of the shares, might have derived some advantage was insufficient in the absence of evidence linking the advance to shareholder benefit.

Conclusion: The amounts could not be deemed to be dividend income of the Hindu undivided family and the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: A payment is not taxable as deemed dividend under the second limb of section 2(6A)(e) unless the Revenue establishes, on evidence, that the payment was made on behalf of or for the individual benefit of a shareholder.

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