2024 (10) TMI 353

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.... 9,50,000/- as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 (the Act). 3. Briefly stated facts are that the assessee in the instant case is a private limited company which has taken a loan from a company, namely M/s Nikunjam Constructions Pvt. Ltd. amounting to Rs. 9,50,000/- only. According to the Revenue the Directors of the assessee company also have substantial interest in the company, Nikunjam Constructions Pvt. Ltd. Thus, accordingly the Revenue treated the amount of loan received by the assessee from Nikunjam Constructions Pvt. Ltd. as deemed dividend u/s 2(22)(e) of the Act and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal to the learned CIT(A) who has confirmed the order of t....

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.... company, namely Nikunjam Constructions Pvt. Ltd. According to the learned A.R. this fact was also accepted by the learned CIT(A) in his order. Accordingly, the learned A.R. contended that the provision of deemed dividend u/s 2(22)(e) cannot be applied in view of the fact that the assessee is not a registered shareholder. 7. On the other hand, the learned Sr. DR vehemently supported the order of the authorities below. 8. We have heard the rival contentions of both the parties and perused the materials available on record. It is the admitted position as arising from the order of the learned CIT(A) that the assessee is not a registered shareholder in the company named Nikunjam Constructions Pvt. Ltd. This fact could also be verified fro....

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....ial share may brought under the scanner of deemed dividend. In this regard we find pertinent to refer the provisions of section 2(22)(e) of the Act which reads as under: (22) "dividend" includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder i....

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.... tried to justify the decision of the Delhi Court in the case of AnkitechPvt. Ltd. (Supra) and has vehemently submitted that the Delhi High Court has not considered the third category i.e. shareholder in the assessee Company holding not less than 10% of the voting power in the Company from whom the loan or advance is taken. However, on considering Section 2(22)(e) of the Act, we are not at all impressed with the aforesaid. If the contention on behalf of the revenue is accepted, in that case, it will be creating the third category / class, which is not permissible. What is provided under Section 2(22)(e) of the Act seems to be that the assessee company must be a shareholder in the Company from whom the loan or advance has been taken and shou....

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....ived a loan from a company in which it had 37.12% of the total shareholdings. The shares were issued in the name of Karta and in the return filed to the ROC it was stated by the company that the registered ownership was in the name of Karta and the HUF was the beneficial shareholder. The apex court held that the payment was made to the HUF which was covered by the term 'concern' given in Explanation 3 to section 2(22). The karta was a member of the HUF and he had not less than 20% of the income of the HUF as his entitlement. The apex court, accordingly, held that the amount of loan given by the company to the HUF was taxable as deemed dividend. 8.5 However, we note that in the case which arose before the Madras High Court i....