2011 (11) TMI 829 - AT - Income Tax

Summary

Issues involved: Appeal by revenue and cross objection by assessee on the issue of deemed dividend u/s 2(22)(e) of the Income Tax Act.

Summary:
The case involved the treatment of funds borrowed by an assessee company from certain sister concerns as deemed dividend u/s 2(22)(e) of the Act. The Assessing Officer added the borrowed amounts to the total income of the assessee. The assessee contended that since they were neither registered nor beneficial shareholders in the lending companies, the provisions of deemed dividend should not apply.

The Commissioner of Income Tax (Appeals) agreed with the assessee, citing a Special Bench decision and a High Court ruling. The Special Bench held that Section 2(22)(e) is attracted only when the assessee company is a registered and beneficial owner of shares in the lender company. The High Court emphasized that the shareholder must be a registered shareholder, and beneficial ownership alone is not sufficient.

During the appeal, the Senior DR relied on the Assessing Officer's order, while the assessee's counsel relied on the CIT(A)'s order. The Tribunal considered the arguments and upheld the CIT(A)'s decision. It was concluded that for Section 2(22)(e) to apply, the assessee must be both a registered and beneficial shareholder of the lender company. As the assessee did not meet these conditions, the deeming provisions under Section 2(22)(e) could not be invoked.

Therefore, the appeal by the revenue and the cross objection by the assessee were dismissed based on the requirement of the assessee being a registered and beneficial shareholder of the lender company for Section 2(22)(e) to apply.