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2005 (7) TMI 91 - ALLAHABAD HIGH COURTDeemed dividend income u/s 2(22)(e) - interest payment - disallowance u/s 40(b) - assessee is the Hindu undivided family - HELD THAT:- Clause (e) of section 2(22) of the Act as it existed clearly provides that if the loan is received by the shareholder, it is only then the said loan can be deemed to be dividend in his hands. In the present case, admittedly, the assessee-firm was not the shareholder of the company M/s. Jai Prakash Associates (P.) Ltd. and the partners of the firm were the shareholders in the books of the company, therefore, the loan advanced by the company to the firm cannot be deemed to be dividend inasmuch as loan was not to the shareholder but to the partnership firm which was not the shareholder in the books of the company. It is settled principle of law that the deeming provision has to be construed strictly. In the present case, the Tribunal has decided the issue on the merits and the question involved is not of jurisdiction to invoke the provision of section 263 of the Act on the facts and circumstances of the case, but the question is whether the Tribunal has rightly treated the loan given by the company to the assessee as deemed dividend income within the purview of section 2(22)(e) of the Act. Thus, we are of the opinion that the principle laid down by the apex court in the cases of CIT v. C.P. Sarathy Mudaliar[1971 (10) TMI 8 - SUPREME COURT] and Rameshwarlal Sanwarmal v. CIT [1979 (12) TMI 1 - SUPREME COURT] applies to the present case and the order of the Tribunal is in conformity with the decisions of the apex court. We accordingly uphold the same. So far as question No. 4 is concerned, the Tribunal has recorded a categorical finding on a consideration of the clause of the partnership deed that Smt. Rekha Dixit became the partner in a partnership firm with effect from November 1, 1985, and, therefore, the finding of the Tribunal is a finding of fact. There is no reason to interfere with such finding. In view of the aforesaid finding, the interest paid to Smt. Rekha Dixit prior to November 1, 1985, the provision of section 40(b) cannot be invoked. The order of the Tribunal is, accordingly, upheld. In view of our opinion on questions Nos. 2 and 3, question No. 1 has become academic and the same is returned unanswered. In the result, questions Nos. 2, 3 and 4 referred to us are answered in the affirmative, i.e., in favour of the assessee and against the Revenue and question No. 1 is returned unanswered.
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