1983 (1) TMI 110 - AT - Income Tax

Summary

Issues:
Reopening of assessment under section 147(a) of the Income-tax Act, 1961 for the assessment year 1967-68 based on deemed dividend under section 2(22)(e) - Whether the amount can be considered as deemed dividend - Whether the assessee can be deemed the beneficial owner of shares held by minor sons.

Analysis:
The appeal before the Appellate Tribunal ITAT BOMBAY-B pertained to the reopening of assessment for the assessment year 1967-68 under section 147(a) of the Income-tax Act, 1961, based on the belief that income amounting to Rs. 1,88,242, treated as deemed dividend under section 2(22)(e), had escaped assessment. The original assessment was reopened by the ITO, and the amount was brought to tax. The Commissioner (Appeals) set aside this addition, leading to the department's appeal. The main contention was whether the amount could be considered as deemed dividend under section 2(22)(e).

The assessee, a shareholder in a company, had drawn substantial amounts during the relevant period, leading to the treatment of Rs. 1,88,242 as deemed dividend by the ITO. The ITO considered the assessee as the beneficial owner of shares held by his minor sons, leading to a voting power exceeding 20 percent. The Commissioner (Appeals) disagreed, holding that the assessee did not control 20 percent of the voting power, as the benefit of ownership did not accrue to him. The department contended that the assessee should be deemed the beneficial owner of shares held by his minor sons, relying on legal principles of beneficial ownership.

The Tribunal analyzed the concept of beneficial ownership, emphasizing that owning beneficial interest is distinct from the legal ownership of shares. It was established that the benefit arising from the shares held by the minor sons accrued only to them, not the assessee. The Tribunal concurred with the Commissioner (Appeals) that the assessee could not be deemed the beneficial owner of the shares, even though he managed them as the guardian. Reference was made to relevant provisions of the Income-tax Act, highlighting the distinction between beneficial interest and ownership by relatives. The Tribunal concluded that the amount in question could not be deemed as dividend under section 2(22)(e).

In the final judgment, the Tribunal dismissed the appeal, affirming the decision of the Commissioner (Appeals) that the assessee could not be considered the beneficial owner of the shares held by his minor sons. The Tribunal's decision was based on the principle that the benefit of ownership must accrue to the individual to be deemed the beneficial owner, which was not the case in this scenario. The Tribunal's analysis focused on the legal interpretation of beneficial ownership and its application to the specific facts of the case, ultimately leading to the dismissal of the appeal.