1986 (2) TMI 105 - AT - Income Tax

Summary

Issues:
- Whether the loan taken by the assessee from a company should be treated as deemed dividend under section 2(22)(e) and included in the assessee's income.
- Whether the assessee was a person having substantial interest in the company.
- Whether the gift of shares to the assessee's daughter's minor children was genuine and should be excluded from the assessee's shareholding.
- Whether interest disallowance of Rs. 7,909 should be sustained.

Analysis:

Issue 1:
The appeal by the revenue contended that the loan taken by the assessee from a company should be considered as deemed dividend under section 2(22)(e) and included in the assessee's income. The Income-tax Officer argued that the assessee had substantial interest in the company due to shareholding. However, the Commissioner of Income-tax (Appeals) held that the assessee was not the beneficial owner of the shares until they were registered in the names of the minors. Therefore, the loan amount was deleted from the assessee's income.

Issue 2:
The departmental representative argued that the transfer of shares was only effected in the company's books on a later date, questioning the genuineness of the gift. The representative relied on previous court decisions to support the claim that the assessee was the shareholder of the shares. However, the counsel for the assessee provided evidence, including share transfer forms and legal opinions, to prove the genuineness of the gift. The Tribunal found that the gift of shares was genuine and should be excluded from the assessee's shareholding.

Issue 3:
The Tribunal considered the date of execution of the transfer forms as the relevant date for the transfer of shares, following legal precedents. The shares gifted by the assessee to her daughter's minor children were held to belong to the donees, not the assessee, as the transfer was executed before the registration in the company's books. Therefore, the loan amount could not be treated as deemed dividend as the assessee did not have substantial interest in the company.

Issue 4:
Regarding the cross-objection on the disallowance of interest, the Tribunal upheld the Commissioner of Income-tax (Appeals) decision to sustain the disallowance of Rs. 7,909 as the assessee failed to provide evidence on how the borrowings were utilized and for which head of income deduction was claimed.

In conclusion, both the appeal and the cross-objection were dismissed by the Tribunal, affirming the decisions made by the Commissioner of Income-tax (Appeals) on the issues raised.