TaxTMI 
TaxTMI 
2012 (10) TMI 126
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....any which is engaged in the business of printing. The return of income for the year under consideration was filed by it on 27-09-2008 declaring a loss of Rs.47,59,740/-. During the course of assessment proceedings, it was noticed by the AO from the balance sheet filed by the assessee along with its return of income that it has received unsecured loan from a sister concern M/s Max Print System (Bom) Pvt. Ltd. It was also noticed by the AO that the Directors and shareholders of the assessee company are shareholders of the said sister concern having substantial interest. Since the said sister concern was having sufficient accumulated profit, the AO invoked the provisions of section 2(22)(e) and the amount of Rs.1,02,67,725/- received....
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.... on record. 5. It is observed that although the shareholders and Directors of the assessee company were having substantial interest in M/s Max Print System (Bom) Pvt. Ltd. which had advanced the loan amount in question to the assessee, the assessee company itself was not a shareholder of M/s Max Print System (Bom) Pvt. Ltd.. The contention raised on behalf of the assessee before the learned CIT(Appeals) was that although the provisions of section 2(22)(e) were attracted to the loan transaction, the amount of loan could not be added as deemed dividend in the hands of the assessee company as it was not shareholder in M/s Max Print System (Bom) Pvt. Ltd. In support of this contention, reliance was placed on behalf of the assessee on the dec....
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....r of shares. The expression "shareholder being a person who is the beneficial owner of shares" referred to the first limb of s. 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial then the provision of s. 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of s. 2(22)(e) will not apply. The new category of payments which was considered as dividend introduced by the Finance Act, 1987 w.e.f. 1st April, 1988 by the second limb of s. 2(22)(e) is payment "to any concern in which such shareholder is a member or a partner and in which he has a substantial interest." T....
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....case of the assessee it is seen that the three trustees of NNT held shares in UPPL and BCPL only as a legal and registered owner. They held shares for and on behalf of 5 beneficiaries of the trust who are different individuals. They were therefore not beneficial owners of the shares. Therefore, the first requirement of holding of shares both as a legal registered owner and beneficial owner of such shares is not satisfied in the case of the assessee. Therefore, provisions of s. 2(22)(e) would not be applicable at all to the case of the assessee. Seamist Proeprties Private Ltd. vs. ITO (2005) 95 TTJ (Mumbai) 201 approved Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the han....
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.... the legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern. The basis of bringing in the amendment to s. 2(22)(e) by the Finance Act, 1987, w.e.f. 1st April, 1988 is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can draw the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore proper to construe those provisions as contemplating a charge to ....