2011 (5) TMI 325 - HC - Income Tax

Deemed dividend - Section 2(22)(e) - assessee company had received advances by way of book entry from JGPL and the shareholders having substantial interest in the assessee company were also having 10% of the voting power in JGPL. - held that:- No doubt, the legal fiction/deemed provision created by the Legislature has to be taken to 'logical conclusion' as held in Andaleeb Sehgal (2010 (9) TMI 774 - DELHI HIGH COURT). The Revenue wants the deeming provision to be extended which is illogical and attempt is to create a real legal fiction, which is not created by the Legislature. - the definition of shareholder is not enlarged by any fiction - The assessee who was recipient of the amount was not the shareholder in the payer company and therefore, provisions of Section 2(22)(e) of the Act were not applicable. - Even the money which was paid was not in the nature of loan or advance simplicitor, but the amounts were advanced for business transaction.

Deemed dividend - liability of the shareholder - scope of the term "shareholder" for the purpose of section 2(22)(e) - beneficial share holder versus registered shareholder - The expression "shareholder being a person who is the beneficial owner of shares" referred to in the first limb of Section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial then the provision of Section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of Section 2(22)(e) will not apply.

The concept of 'voting power' was in built on the provisions of sec.2(22)(e) as it existed prior to 1987 amendment. The insertion of the words 'beneficial owner of shares holding not less than 10% of the voting power' to '10% of voting power'. - A beneficial owner of shares cannot exercise voting power because to exercise the right to vote his/her name must appear in the register of members. - In this view of the matter, it will not be correct to say that the ratio laid down by Hon'ble Supreme Court in Rameshwarlal Sanwarmal Vs. CIT (1979 (12) TMI 1 - SUPREME COURT] that word 'shareholder' in section 2(22)(e) is no more applicable. - Though the appeal has to fail on the ground that the assessee cannot be taxed as it is not a shareholder in M/s. Teletube Electronics Ltd., even on the aforesaid ground, i.e., it was not having 10/20% shareholding in M/s. Teletube Electronics Ltd., non-applicability of Section 2(22)(e) of the Act is apparent.