2011 (11) TMI 318

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..... e the Tribunal was correct in holding that the deemed dividend under Section 2(22)(e) can be assessed in the hands of a registered shareholder as well as beneficiary shareholder and not in the hands of the assessee company?   B) Whether the decision of the Tribunal in ACIT vs Bhaumik Colours Pvt. Ltd. 314 ITR 80 (Mum) needs to be reconsidered as it has wrongly interpreted section 2(22)(e)?   C) Whether the correct interpretation is to be found in Skyline India vs ITO 24 SOT (Mum) and Ex Tempor Securities vs DCIT 116 TTJ 525 (Mum)?   2. The respondent-assessee is a private limited company and the assessment year involved is 2006-07. In the assessment made u/S.143(3) of the Act, the AO made additions of Rs.4,95,00,000/- and .....

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..... Division Bench has held that an assessee who is not a shareholder of the company, from which he received a loan or an advance cannot be treated as being covered by the definition of the word dividend as provided in Sec.2(22)(e) of the Act. It has been held:-   24. The intention behind enacting provisions of Section 2(22)(e) is that closely held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute the .....

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..... that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under Section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of deeming shareholder, then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for .....

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