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2021 (1) TMI 460 - AT - Income TaxDeemed dividend u/s 2(22)(e) - shares held in the name of minor children - whether the minor legally cannot enter into contract with the companies for purchase of shares and hence shares held by minor, who is not having voting rights cannot be treated as beneficial owner of shares? - Commissioner (Appeals) deleted the additions by holding that the shareholding of assessee, as father and his minor cannot be added for the purpose of section 2(22(e) read with section 2(32) - HELD THAT:- As none of the shareholders was holding more than 10% of voting power in Vapi Care Pharma and had more than 20% shares in Varieties Pharma and /or in Veritas Biovention - source of shareholding of Master Yes Shah is independent and he is entitled to the benefit of ownership. Assessee does not have any beneficial interest in the Shares held by Minor son Master Yes Shah. Commissioner (Appeals) also held that the issue for consideration was whether the share held on behalf of Minor child, who could not exercise voting power, should be excluded from the total share holding for ascertaining whether assessee is a substantial shareholder. If shares were excluded from the total shares issued by the company, the assessee’s interest would exceed 20%, but if such shares are included, his interest would fall below 20%. In CIT Vs C.P. Sarathy Mudaliar [1971 (10) TMI 8 - SUPREME COURT] while considering the (corresponding section 2(6A)(e) of Indian Income tax Act 1922) held that the section speaks of "shareholder", it refers to the registered shareholder and not to the beneficial owner. Also in Minnie Cama Vs ITO [1984 (11) TMI 77 - ITAT AHMEDABAD] held that it is well settled that a deeming provision like section 2(22)(e) must be strictly construed. For determination of question as to whether the assessee had substantial interest in company, shares held by trust in which assessee was trustee, or held in joint names or held in name of minor children of the assessee could not be considered as shares held by the assessee. If so considered, it could be seen from the list of shareholders, that the assessee was not holding shares ‘carrying not less than twenty per cent of the voting power’ and, therefore, she could not be treated to be a ‘person who has substantial interest in the company’ within the meaning of the provisions of section 2(22). Hon’ble Bombay High Court in ITO Vs S.S. Barodawala [1983 (1) TMI 110 - ITAT BOMBAY-B] held that when a father as a guardian may manage the affairs with regard to the shares standing in the name of his minor sons, but this will not make him the beneficial owner of the shares. To make him a beneficial owner the benefit or advantage arising out of the shares must accrue to him. In the present case, no such benefit accrued, and hence the assessee could not be said to be the beneficial owner of the shares standing in the name of his minor sons. Commissioner (Appeals) was, thus, right in holding that the amounts withdrawn from the company could not be deemed to be dividend under section 2(22)(e). Thus in view of the above said factual and legal discussion, we affirm the order of learned Commissioner (Appeals). - Decided against revenue.
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