1993 (2) TMI 130 - AT - Income Tax

Summary

Issues Involved:
The main issue in this case is the assessment of income u/s 2(22)(e) of the Income-tax Act, 1961 for the assessment year 1982-83.

Assessment of Income u/s 2(22)(e):
The dispute arose when the ITO assessed Rs. 66,930 as income of the assessee u/s 2(22)(e) based on a loan amount advanced to the assessee by a company where she was a director. The DCIT(A) upheld this assessment, considering the substantial interest of the assessee in the company due to her shareholding along with her husband and son, totaling 5,300 equity shares out of 14,700. The DCIT(A) concluded that the addition of Rs. 66,930 was legally tenable.

Interpretation of Section 2(22)(e) and 2(32) of the Act:
The legal counsel argued that the assessee's shareholding did not meet the criteria of having substantial interest as defined in section 2(32) of the Act, which requires beneficial ownership of at least 20% of voting power. The ITO's assertion that being a director automatically triggers section 2(22)(e) was challenged, as the section specifically applies to shareholders with substantial interest, not directors. The DCIT(A) justified the application of the section based on the combined shareholding of the assessee, her husband, and son, but the legal interpretation highlighted that ownership of the shareholder alone should determine substantial interest, not the collective family shareholding.

Conclusion and Decision:
The Tribunal ruled in favor of the assessee, emphasizing that the provisions of section 2(22)(e) were not applicable in this case due to the lack of substantial interest based on the assessee's individual shareholding. The Tribunal clarified that the ownership or shareholding of family members should not be considered in determining the substantial interest of a shareholder for the purpose of this section. The appeal was allowed, and the addition of Rs. 66,930 as income u/s 2(22)(e) was deemed unnecessary. The Tribunal also noted that the levy of interest under section 217 of the Act was consequential and required no further discussion.