2012 (2) TMI 84 - HC - Income Tax

Deemed Dividends - 70 laks was advanced to respondent/assessee - Revenue claimed respondent was registered holder thus beneficial ownership is inconsequential - Held That - In view of Bhaumik Colour Lab Pvt. Ltd (2008 -TMI - 59371 - ITAT BOMBAY-E) for applicability of deemed dividends beneficial ownership to be established.

Summary

Issues:
1. Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend.
2. Determining the applicability of the provision based on beneficial ownership of shares.
3. Requirement of the payee being a registered shareholder.
4. Judicial precedents and interpretations related to the definition of "shareholder" under the Act.

Analysis:
1. The primary issue in this case revolves around the interpretation of Section 2(22)(e) of the Income Tax Act, 1961, specifically concerning the concept of deemed dividend. The Tribunal held that the provision was not applicable as the respondent/assessee was not the beneficial owner of the shares in question, emphasizing the requirement that the shareholder should also be the beneficial owner of the shares.

2. The case involved a situation where M/s. Wecan Services Ltd. had advanced funds to the respondent/assessee. The Revenue contended that since the respondent/assessee was a registered shareholder of Wecan Services Limited, the identity of the beneficial owner, Saumya Meattle, was irrelevant. The Revenue relied on Section 153 of the Companies Act, 1956 and a decision of the Madras High Court to support their argument.

3. The Delhi High Court, referencing a previous decision, clarified that for the provision of Section 2(22)(e) to apply, the payment must be made to a person who is a registered holder of shares. The Court highlighted the distinction between a registered shareholder and a beneficial shareholder, emphasizing that only a registered shareholder can be considered a "shareholder" under the Act.

4. Judicial precedents, including the decision in CIT v. C.P. Sarathy Mudaliar, were cited to establish the interpretation of the term "shareholder" under the Act. The Court reiterated that the term "shareholder" refers to a registered shareholder, and the condition of being a beneficial owner of shares does not negate the requirement of being a registered shareholder for the application of Section 2(22)(e).

5. The Court further referenced decisions by the Special Bench of the ITAT and the Division Bench of the Delhi High Court, which affirmed the strict interpretation of Section 2(22)(e) and the necessity of the payee being a registered shareholder. The judgments emphasized that even if a person is a beneficial shareholder but not a registered shareholder, the provisions of Section 2(22)(e) would not apply.

6. Considering the consistent judicial interpretations and precedents on the matter, the Court concluded that there was no substantial question of law to be considered in this case. The appeal was dismissed based on the established legal principles and previous decisions, with no costs awarded.

By analyzing the issues and the detailed judgment, it is evident that the Court's decision was based on a strict interpretation of the statutory provisions and established legal principles regarding deemed dividend under the Income Tax Act, 1961.