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of Deemed dividend u/s 2(22)(e) is not taxable in the hands of the assessee company if it is not a shareholder in the companies that extended loans. It is chargeable to tax in the hands of the individual who held shares in the loan-giving companies. The Tribunal held that the deemed dividend shall be taxed in the hands of the shareholder, not the loan-receiving entity which is not a shareholder. As the assessee company was not a shareholder in the loan-giving companies, the deemed dividend was not taxable in its hands. Regarding deemed interest income u/s 56(1), the Tribunal upheld the CIT(A)'s order that there is no provision to tax the notional saving of interest on borrowed funds in the hands of the borrower if the loan is interest-free. The CIT(A) correctly held that the saving of interest on borrowed funds cannot be taxed as deemed income in the hands of the assessee company when the sister concerns took interest-bearing loans and provided interest-free loans to the assessee for property acquisition. The claim of interest expenditure by the sister entities may be disallowable u/s 37.
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