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TMI Blog2017 (1) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... money towards share holding in the Company was given by the assessee/HUF. Though, the share certificates were issued in the name of the Karta, Shri Gopal Kumar Sanei, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. In any case, it cannot be doubted that it is the beneficial shareholder. Even if we presume that it is not a registered shareholder, as per the provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and shareholder (Mr. Sanei, karta, in this case) is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. This is the effect of Explanation 3 to the said Section, as noticed above. Therefore, it is no gainsaying that since HUF itself is not the registered shareholder, the provisions of deemed dividend are not attracted. For this reason, judgment in C.P. Sarathy Mudaliar,[1971 (10) TMI 8 - SUPREME Court ] relied upon by the learned counsel for the appellant, will have no application. That was a judgment rendered in the context of Section 2(6-A)(e) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t before the Registrar of Companies (ROC), it was found that the subscribed share capital of the said Company was ₹ 1,05,75,000/- (i.e., 10,57,500 shares of ₹ 10/- each). Out of this, 3,92,500 number of shares were subscribed by the assessee which represented 37.12% of the total shareholding of the Company. From this fact, the AO concluded that the assessee was both the registered shareholder of the Company and also the beneficial owner of shares, as it was holding more than 10% of voting power. On this basis, after noticing that the audited accounts of the Company was showing a balance of ₹ 1,20,10,988/- as Reserve Surplus as on 31st March, 2006, this amount was included in the income of the assessee as deemed dividend. 5) In the appeal filed by the assessee, the aforesaid addition was affirmed by the Commissioner of Income Tax (Appeals) (for short 'CIT(A)'). Though, this addition was questioned by the assessee on various grounds, we would take note of the submission which is advanced before us as the challenge is confined only on the basis of said submission. The assessee had argued that being a HUF, it was neither the beneficial shareholder nor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister maintained by the Company. Taking aid of the provisions of the Companies Act, the CIT(A) observed that a shareholder is a person whose name is recorded in the register of the shareholders maintained by the Company and, therefore, it is the assessee which was registered shareholder. The CIT(A) also opined that the only requirement to attract the provisions of Section 2(22)(e) of the Act is that the shareholder should be beneficial shareholder. On this basis, the addition made by the AO was upheld. 8) Undeterred, the assessee approached the next higher forum, i.e., ITAT in the form of appeal under Section 253 of the Act. In this endeavour, the assessee succeeded as appeal of the assessee was allowed holding that the ingredients of Section 2(22)(e) of the Act were not satisfied and, therefore, addition of the aforesaid nature could not be made. For this purpose, the ITAT referred to the judgment rendered by its Mumbai Bench in the case of Binal Sevantilal Koradia (HUF) Vs. Department of Income Tax ITA No. 2900/Mum/2011, AY 2007-08 dated 10.10.2012 . In fact, the only exercise done by the ITAT in the said order was to quote from the aforesaid judgment with the observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives an artificial definition of 'dividend'. It does not take into account that dividend which is actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purposes, the Legislature has deemed such a loan or payment as 'dividend' and made it taxable at the hands of the said shareholder. It is, therefore, not in dispute that such a provision which is a deemed provision and fictionally creates certain kinds of receipts as dividends, is to be given strict interpretation. It follows that unless all the conditions contained in the said provision are fulfilled, the receipt cannot be deemed as dividends. Further, in case of doubt or where two views are possible, benefit shall accrue in favour of the assessee. 13) A reading of clause (e) of Section 2(22) of the Act makes it clear that three types of payments can be brought to tax as dividends in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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