Deemed dividend u/s 2(22)(e) arises when an interest-free loan...

Deemed dividend u/s 2(22)(e) arises when an interest-free loan is provided by a company to a substantially related concern in shareholding. The issue was whether the deemed dividend is taxable in the hands of the concern receiving the loan or in the hands of the common shareholder. The Tribunal, relying on Delhi and Bombay High Court decisions, held that the deemed dividend u/s 2(22)(e) is taxable only in the hands of the shareholder. The contention that since a common entity held more than 10% shares in both the lender and borrower companies, the loan attracted section 2(22)(e) was rejected. The Tribunal ruled that the addition made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) in the hands of the assessee-borrower was required to be deleted.