2019 (1) TMI 798 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - assessee was found having received amounts/loans from and has paid various amounts to its group Concern - Keyman Insurance policy - Held that - Whether an assessee who is neither a registered nor beneficial share holder in relative concerns would be governed by Section 2(22)(e) of 1961 Act, is no more res integra and is settled at rest by Division Bench of Delhi High Court in Commissioner of Income Tax Vs. Ankitech Pvt. Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT which has been affirmed by the Supreme Court in C.I.T., Delhi-II vs. Madhur Housing and Development Company 2017 (10) TMI 1279 - SUPREME COURT OF INDIA . The deletion made on account of deemed dividend cannot be faulted with. Addition of expenditure towards Keyman Insurance policy premium of the assessee Director, is an allowable expenses in view of the Circular by the CBDT No.38/2016, dated 22/11/2016. As we are not commended to any cogent material as would nullify the effect of the said circular no interference is caused in respect of said finding of facts and law. We are of the considered opinion that no substantial question of law arises for consideration as would warrant any indulgence.

Summary

Issues:
1. Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend.
2. Treatment of Keyman insurance policy premium as an allowable expense.

Analysis:

Issue 1: Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend:
The case involved the recipient being found to have received amounts from related concerns, triggering the application of Section 2(22)(e) of the Income Tax Act. The Assessing Officer added an amount as deemed dividend, which was contested by the assessee. The Commissioner, Income Tax in Appeal, reversed the order, emphasizing that the dividend under Section 2(22)(e) can only be taxed in the hands of a shareholder. The Tribunal upheld this decision. The appellant raised substantial questions of law regarding the interpretation of Section 2(22)(e) and the common shareholding between the assessee and the concerned entity. However, the High Court referred to precedent judgments, including one by the Delhi High Court, to establish that the recipient would be a shareholder by deeming provision, and such loans or advances are not considered income. Consequently, the deletion of the deemed dividend amount was upheld.

Issue 2: Treatment of Keyman insurance policy premium as an allowable expense:
The Assessing Officer had disallowed an amount contributed towards a Keyman Insurance Policy, treating it as an investment. However, the Commissioner(Appeal) found that the expenditure was allowable, citing a Circular by the CBDT. The Tribunal also confirmed this decision. The appellant challenged this deletion of addition, arguing that the insurance policy was not adequately proven to be a Keyman Insurance Policy during the assessment proceedings. The High Court, after considering the circular and lack of contradictory evidence, upheld the finding that the expenditure towards the Keyman Insurance policy premium was an allowable expense. Therefore, no interference was warranted in this respect.

In conclusion, the High Court dismissed the appeal, stating that no substantial question of law arose for consideration. The judgment affirmed the decisions regarding the deemed dividend and the treatment of the Keyman insurance policy premium, based on legal interpretations and precedents cited during the proceedings.