2020 (10) TMI 1154 - HC - Income Tax

Deemed dividend u/s 2 (22) (e) - Whether for attracting the provisions of Section 2(22)(e) a shareholder has not only to be a beneficial shareholder but also a registered share holder? - to be assessed in the hands of the share holder or in the hands of the firm - share holder of the company had substantial interest in the firm - HELD THAT - Substantial Questions of Law raised by the Revenue in the instant case was considered by this Court earlier in the case of The Commissioner of Income Tax, Chennai Vs. M/s T.Abdul Wahid Co 2020 (9) TMI 977 - MADRAS HIGH COURT wherein held records placed before the assessing officer clearly shows the nature of transaction between the firm and the company and it is neither a loan nor an advance, but a deferred liability. These facts have been noted by the assessing officer. Tribunal rightly reversed the order passed by the CIT(A) affirming the order of the assessing officer. - Decided against revenue.

Summary

Issues involved:
1. Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend additions.
2. Requirement for a shareholder to be both a beneficial and registered shareholder.
3. Analysis of the term "concern" in Explanation 3(a) to Section 2(22).

Issue 1: Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend additions:
The High Court considered an appeal by the Revenue against the Income Tax Appellate Tribunal's order. The main issue was whether the Tribunal was correct in holding that the additions made under deemed dividend as per Section 2(22)(e) of the Act cannot be sustained. The Court referenced previous cases to analyze the interpretation of this provision. It was noted that loans or advances could be treated as dividend under Section 2(22)(e) if given directly to the shareholder or for their benefit. The Court cited various decisions, including those by the Hon'ble Supreme Court, to support its conclusion that the Assessing Officer was right in treating the loan as deemed dividend. Consequently, the Court dismissed the Tax Case Appeal and answered the Substantial Questions of Law against the Revenue.

Issue 2: Requirement for a shareholder to be both a beneficial and registered shareholder:
The Court examined whether, for the provisions of Section 2(22)(e) to apply, a shareholder must be both a beneficial and registered shareholder. The judgment did not explicitly delve into this issue, focusing more on the interpretation of the provision itself and the treatment of loans or advances as deemed dividends. Therefore, there was no specific analysis provided on this aspect of shareholder requirements in the judgment.

Issue 3: Analysis of the term "concern" in Explanation 3(a) to Section 2(22):
The Court discussed the reasoning of the Tribunal and whether it was flawed, especially in light of the definition of "concern" in Explanation 3(a) to Section 2(22). The explanation includes entities like HUF, Firm, Association of persons, or a company where shareholders have substantial interest. The Court referenced previous judgments to support its decision and ultimately rejected the Tax Case Appeal, answering the Substantial Questions of Law against the Revenue.

In conclusion, the High Court's judgment primarily focused on the interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend additions. It referenced previous cases and decisions to support its findings and ultimately dismissed the Revenue's appeal while providing detailed analysis on the application of the relevant provisions.