2014 (9) TMI 88 - BOMBAY HIGH COURT

Deemed dividend u/s 2(22)(e) - Assessee company was not a shareholder in the lending company – Held that:- The legislature has incorporated and inserted the definition of the term “dividend” - It is made inclusive of distribution of profits, any distribution to the shareholders by a company of debentures, debenturestock, or deposit certificate in any form, or distribution made to the shareholders upon liquidation of a company - Equally, amount distributed on reduction of capital is termed as dividend - What is also then included is a payment made by a company to its shareholder - That is by way of advance or loan to him - This is included so as to visit the shareholder with a liability to pay tax - It is eventually, the shareholder who will pay tax on the same - The shareholder cannot escape that liability merely because the loan or advance has been made over to any concern in which such shareholder is a member or a partner and in which he has substantial interest - legislature noted that the shareholder would receive the sum from a company and which is not strictly falling within the concept of “dividend”.

Any reference to Explanation 3 and particularly the definition of term “concern” will not advance or carry the Revenue's case any further - it is the shareholder who is registered as such who is entitled to receive the dividend - Merely because the payment is made to him by way of advance or loan was not termed as such earlier that the legislature has inserted such a payment in the definition of the term “dividend” and made the definition wide and broad so also inclusive - The view taken in the present case that the recipient/assessee was not a shareholder, thus is in consonance with the legal position.

Relying upon Commissioner of Income Tax v/s C. P. Sarathy [1971 (10) TMI 8 - SUPREME Court] - the beneficial owner of shares whose name does not appear in the register of the shareholders of the company cannot be said to be a shareholder though he may be beneficially entitled to the shares but he is not a shareholder - by the deeming provision, such payment by the company is treated as dividend - The purpose is to tax dividend in the hands of the shareholder - so long as the Tribunal in the matters and the Appeals which are brought on hold that the assessee company before it was not a shareholder in any of the entities which have advanced and lent sums, then, the addition is required to be deleted – following the decision in Commissioner of Income-tax Versus Universal Medicare Private Limited [2010 (3) TMI 323 - BOMBAY HIGH COURT] - if the payment cannot be termed as loan or advance to the shareholder, then, even such a view cannot be termed in the given facts and circumstances and without anything more as perverse or vitiated by error of law apparent on the face of the record – Decided against revenue.