TaxTMI 
TaxTMI 
2018 (1) TMI 1159
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....r Goyal totaling 48.19 per cent of the total shareholding. Thus Mr. Naresh Goyal and Mr. Surinder Goyal are shareholders on the Company's register as members of the Company. They hold the aforesaid shares for and on behalf of the firm, which happens to be the beneficial shareholder. 4) The question that arises in these appeals is as to whether Section 2(22)(e) of the Act gets attracted inasmuch as a loan has been made to a shareholder, who after the amendment, is a person who is the beneficial owner of shares holding not less than 10% of the voting power in the Company, and whether the loan is made to any concern in which such shareholder is a partner and in which he has a substantial interest, which is defined as being an interest of 20% or more of the share of the profits of the firm. 5) The Income Tax Act, 1922 contained the definition of "dividend" which reads as follows:- "2. (6A) `dividend' includes- ... (e) any payment by a company, not being a company, in which the public are substantially interested within the meaning of Section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or lo....
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....e of by that provision is a deemed dividend and not a real dividend. The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder. For certain purposes, the Legislature has deemed such a loan as "dividend". Hence, Section 2 (6A) (e) must necessarily receive a strict construction. When Section 2(6A)(e) speaks of "shareholder", it refers to the registered shareholder and not the beneficial owner. The H.U.F. cannot be considered as a shareholder either under Section 2 (6A)(e) or under Section 23A or under Section 16(2) read with Section 18(5) of the Act. Hence, a loan given to an H.U.F. cannot be considered as a loan advanced to a "shareholder" of a company." 7) This judgment was followed by another judgment of this Court in M/s Rameshwari Lal Sanwarmal vs. Commissioner of Income Tax, Assam (1980) 2 SCC 371 which again arose in the context of a Hindu Undivided Family. Sarathy Mudaliar's case was followed in this judgment, and it was expressly stated that there was no conflict between this judgment and another judgment, namely, C.I.T. vs. Rameshwari Lal Sanwarmal, (1972) 4 SCC 342, and that the Revenue's contention to....
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.... concern), or any payment by any such company on behalf or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits'" Explanation 2. - the expression "accumulated profits", in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, {but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place; Explanation 3. - For the purposes of this clause,- (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any tim....
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....ssessment year 1988-89 and subsequent years." 12) A reading of the amended definition would indicate that, after 31.05.1987, a "shareholder" is now a person who is the beneficial owner of shares holding not less than 10% of the voting power of the Company. Also, a new category has been added to the definition by introducing concerns in which such shareholder is a member or partner and in which he has a substantial interest. Explanation (3) of the amended provision states that "concern" means Hindu Undivided Family, firm, association of persons, body of individuals, or a Company and further goes on to state that a person shall be deemed to have a substantial interest in a concern other than a Company if he is, at any time during the previous year, beneficially entitled to not less than 20% of the income of such concern. 13) Shri Ujjwal A. Rana, learned advocate, appearing on behalf of the appellants, has argued before us that a judgment had been delivered by the very Division Bench in another case C.I.T. vs. Ankitech Private Limited reported in [2012] 340 ITR 14 (Del). The same Division Bench had arrived at a conclusion, following other judgments of other Courts and Tribuna....
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....as purchased the shares in the name of the two partners." 16) It answered the first question by stating that the expression "being a person who is a beneficial owner of shares" would be in addition to the shareholder first being a registered shareholder of the Company. The Division Bench then states that, therefore, in order to attract Section 2(22)(e) both conditions have to be satisfied. So far as the second question is concerned, the Division Bench went on to state that a partnership firm can be treated as a shareholder but that it is not necessary that it has to be a registered shareholder. 17) We are of the view that it is very difficult to accept the reasoning of the Division Bench. It is not enough to say that Ankitech's case refers to the second limb of the amended definition, whereas the present case refers to the first limb, for the simple reason that the word "shareholder" in both limbs would mean exactly the same thing. This is for the reason that the expression "such shareholder" in the second limb would show that it refers to a person who is a "shareholder" in the first limb. 18) This being the case, we are of the view that the whole object of the amended pro....