1996 (1) TMI 117 - HC - Income Tax

Summary

Issues Involved:
1. Whether the loans aggregating to Rs. 6,25,000 received by the assessee could be treated as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961.
2. Whether the transfer of shares took place on the date the transfer forms were executed by the assessee or on the date the company registered the shares.
3. Whether the assessee could be treated as a person having substantial interest in the company u/s 2(32).

Summary:

Issue 1: Deemed Dividend u/s 2(22)(e)
The court examined whether the loan amount of Rs. 6,25,000 taken by the assessee from Kanthimathi Plantations Pvt. Ltd. could be treated as deemed dividend. The assessee argued that she had gifted 11,000 shares to her grandchildren on November 20, 1978, and thus was not the beneficial owner of 20% of the shares. The Income-tax Officer doubted the genuineness of the transaction. However, the appellate authority and the Tribunal found the gift genuine, supported by affidavits and evidence, and concluded that the amount should not be treated as deemed dividend.

Issue 2: Date of Transfer of Shares
The court considered whether the transfer of shares should be recognized on the date the transfer forms were executed or the date the company registered the shares. The Tribunal held that the transfer should be considered effective from the date the forms were executed and submitted, i.e., November 20, 1978, despite the registration occurring later on October 25, 1980. The Tribunal relied on the decision in CIT v. Smt. Suraj Bai, which stated that the gift of shares is complete upon delivery of the share certificates and transfer deeds.

Issue 3: Substantial Interest u/s 2(32)
The court examined whether the assessee could be treated as having substantial interest in the company. The Tribunal found that since the gift of shares was genuine and effective from November 20, 1978, the assessee did not hold 20% of the voting power at the relevant time. Consequently, she could not be treated as having substantial interest in the company, and the amount of Rs. 6,25,000 could not be treated as deemed dividend.

Conclusion:
The court rejected the reference and answered:
1. Question No. 1 in the negative'against the Revenue and in favour of the assessee.
2. Question No. 2 in the affirmative'against the Department and in favour of the assessee.
3. Question No. 3 in the negative'against the Revenue and in favour of the assessee, holding that she could not be treated as a person having substantial interest in the company u/s 2(32).