2015 (7) TMI 1068 - AT - Income Tax

Deemed dividend addition u/s 2(22) - Held that - From the explanation 3(b) to section 2(22)(e), it is very clear 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 twenty per cent of the income of such concern. This explanation clearly mentions about any time during the previous year. It is not as stated by the ld. Counsel for the assessee between 01.04.2010 to 11.10.2010 and this has to be understood as 31.03.2011 because the assessment year involved is 2011-12 and for the purpose of section 2(22)(e) the share holding pattern has to be seen as on 31.03.2011. The assessee is having more than 25% as on 31.03.2011. Therefore section 2(22)(e) squarely applies to assessee s case. The transfer of shares has to be taken on the date of transfer forms and not on the date of company registered the shares in the names of done. Shares having been gifted to the assessee and found to be genuine and the deemed dividend could not assessed in her hands. The proviso to Explanation 3(b) to section 2(22)(e) was inserted by the Finance Act 1987. The facts of the case in hand are also different. Keeping in view of the above we find that section 2(22)(e) of the Act squarely applies to assessee s case and accordingly the appeal filed by the assessee is dismissed. - Decided against assessee.

Summary

Issues Involved:
Deemed dividend under section 2(22)(e) of the Income Tax Act.

Analysis:
1. The main issue in this case pertains to the treatment of a sum received by the assessee from a company as deemed dividend under section 2(22)(e) of the Income Tax Act. The Assessing Officer observed that the assessee, a Director of the company, had received a substantial sum as loans and advances, which fell under the purview of deemed dividend. The company had given a loan to the assessee, who held more than 20% shares in the company, thereby establishing a substantial interest. The Assessing Officer added the amount to the total income of the assessee for taxation under section 2(22)(e).

2. The assessee, in response, contended that certain transactions between the company and the assessee did not involve an outgoing flow of money, thus not attracting the provisions of section 2(22)(e). Additionally, the assessee argued that the shareholding pattern did not meet the required percentage until a specific date, excluding certain transactions from consideration under section 2(22)(e).

3. The Tribunal considered both arguments and examined the evidence on record. It noted that the company had shown the amount as loans and advances to the assessee, which was not disputed by the assessee. The Tribunal rejected the contention that certain transactions did not involve an outgoing flow of money, stating it was an afterthought and lacked substance. The Tribunal also clarified that the shareholding pattern had to be assessed as of the relevant assessment year, where the assessee did have a substantial interest, thus falling under section 2(22)(e).

4. Referring to a case law cited by the assessee, the Tribunal distinguished it based on the facts of the present case. It emphasized that the provisions of section 2(22)(e) applied squarely to the assessee's situation, leading to the dismissal of the appeal.

5. In conclusion, the Tribunal upheld the orders of the lower authorities, confirming the treatment of the sum received by the assessee as deemed dividend under section 2(22)(e) of the Income Tax Act, and dismissed the appeal filed by the assessee.