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TMI Blog2018 (1) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... son who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It is clear therefore that the moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect. Also, what is important is the addition, by way of amendment, of such beneficial owner holding not less than 10% of voting power. This is another indicator that the amendment speaks only of a beneficial shareholder who can compel the registered owner to vote in a particular way, as has been held in a catena of decisions starting from Mathalone vs. Bombay Life Assurance Co. Ltd., [1953 (5) TMI 25 - SUPREME COURT OF INDIA]. This being the case, we are prima facie of the view that the Ankitech judgment (2011 (5) TMI 325 - DELHI HIGH COURT ) itself requires to be reconsidered, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits; 6) This provision came up for consideration before a Bench of this Court in C.I.T., Andhra Pradesh vs. C.P. Sarathy Mudaliar , (1972) 4 SCC 531. In the context of the Assessee being a Hindu Undivided Family, the question of law set out in the aforesaid judgment is as follows:- Whether, on the facts and in the circumstances of the case, the amounts of ₹ 5,790 and ₹ 39,085 could be deemed to be the dividend income of the Hindu undivided family in the respective assessment years? After setting out the aforesaid section, this Court held: 6. Before a payment can be considered as dividend under Section 2 (6A)(e), the following conditions will have to be satisfied: 1. It must be a payment by a company not being a company in which the public are substantially interested within the meaning of Section 23A, any sum whether as representing a part of the assets of the company or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al , (1972) 4 SCC 342, and that the Revenue s contention to refer Sarathy Mudaliar s case to a larger Bench was turned down. 8) The effect of these two judgments is clearly to hold that before Section 2(6A) (e) of the 1922 Act can be attracted, the shareholder referred to in the said provision must be a shareholder whose name is on the register of members of the Company. When the Income Tax Act, 1961 came into force and repealed the 1922 Act, the definition of dividend contained in Section 2(22)(e) was as follows:- Section 2. Definition In this Act, unless the context otherwise requires,- (22) dividend includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company or any payment by any such company on behalf or for the individual benefits, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; 9) A cursory look at the aforesaid definition would go to show that the sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern; 11) The Explanatory memorandum to the amendment thus made reads as follows:- With the deletion of Section 104 to 109 there was a likelihood of closely held companies not distributing their profits to shareholders by way of dividends but by way of loans or advances so that these are not taxed in the hands of the shareholders. To forestall this manipulation, sub-clause (e) of clause (22) of Section 2 has been suitably amended. Under the existing provisions, payments by way of loans or advance to shareholders having substantial interest in a company to the extent to which the company possesses accumulated profits is treated as dividend. The shareholders having substantial interest are those who have a shareholding carrying not less than 20 per cent voting power as per the provisions of clause (32) of Section 2. The amendment of the definition extends its application to payments made (i) to a shareholder holding not less than 10 per cent of the voting power, or (ii) to a concern in which the shareholder has substantial interest. Concern as per the newly inserted Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould continue to mean a registered shareholder even after the amendment, and that, this being the case, it is clear that the impugned judgment has taken an about turn and has sought to distinguish the earlier judgment when it was squarely applicable. He has also placed before us an order dated 05.10.2017 passed in Civil Appeal No. 3961 of 2013 [C.I.T., Delhi-II vs. Madhur Housing and Development Company] in which this Court has expressly affirmed the reasoning of the aforesaid earlier judgment. In his view, therefore, this judgment ought to have been followed, and if it had been followed, it is clear that the firm, not being a registered shareholder, could not possibly be a person to whom Section 2(22)(e) would apply. 14) As opposed to this, Shri Guru Krishnakumar, learned senior advocate, appearing on behalf of the Revenue, has sought to support the impugned judgment by pointing out that the impugned judgment itself has made a distinction between the facts in Ankitech (supra) and in the present case. According to him, the impugned judgment has reference only to the second limb of the amended definition, namely, to the limb which deals with any concern in which such shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment were to be followed. Ankitech s case, in stating that no change was made by introducing the deeming fiction insofar as the expression shareholder is concerned is, according to us, wrongly decided. The whole object of the provision is clear from the Explanatory memorandum and the literal language of the newly inserted definition clause which is to get over the two judgments of this Court referred to hereinabove. This is why shareholder now, post amendment, has only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It is clear therefore that the moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect. Also, what is important is the addition, by way of amendment, of such beneficial owner hold ..... 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