S. 2(22)(e) — Deemed dividend can be assessed only in the hands of a person who is a registered shareholder of lender company.

Dy. CIT v. National Travel Services

A.Ys. : 2003-04 and 2004-05

Dated : 31-3-2009

S. 2(22)(e) — Deemed dividend can be assessed only in the
hands of a person who is a registered shareholder of lender company.

For the relevant assessment year, the Assessing Officer
invoked the provisions of S. 2(22)(e) in respect of a loan taken by the
assessee-firm from a company in which the assessee-firm was a shareholder
through its partners. The AO treated the loan of Rs.21.95 lacs given by the
company to the assessee-firm as deemed dividend. The CIT(A) held that since
the assessee-firm was not a registered shareholder, the loan could not be
treated as deemed dividend in the hands of the assessee-firm.

The Tribunal, relying on the Special Bench decision of the
Mumbai Tribunal in the case of ACIT v. Bhaumik Colour (P.) Ltd., (2009)
27 SOT 270 upheld the CIT(A)’s order. The Tribunal noted as under :

(1) The assessee-firm on whose behalf the partners had
become the shareholders in the company which had given the loan to it could
not be said to be a registered shareholder for the purpose of S. 2(22)(e).

(2) Since the assessee-firm was not a registered
shareholder of the company, the condition necessary to invoke S. 2(22)(e)
was not satisfied.

(3) The deemed dividend can be assessed only in the hands
of a person who is a registered shareholder of the lender company and not in
the hands of a person other than a registered shareholder.