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DATE: June 24, 2020 (Date of pronouncement)
DATE: June 29, 2020 (Date of publication)
AY: 2013-2014
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CITATION:
S. 2(22)(e) is a deeming provision & should be construed strictly. The section uses the expression "by way of advances or loans" which shows that all payments received from the sister company cannot be treated as deemed dividend but only payments which bear the characteristics of loans and advances. Under the law, all loans and advances are debts, but all debts are not loans and advances. The term 'loans and advances' is not defined & has to be understood in the commercial sense. Advances given for purely temporary financial accommodation for business purposes does not attract the deeming fiction (All imp judgements referred)

After hearing both the parties and perusing the relevant records, it reveals that they are in the form of current and inter banking accounts and contain both types of entries i.e. giving and taking the amount and appear to be a current account and cannot be considered as loans and advances as contemplated u/s 2(22)(e) of the IT Act

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DATE: October 3, 2018 (Date of pronouncement)
DATE: October 5, 2018 (Date of publication)
AY: 2007-08
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CITATION:
S. 2(22)(e) Deemed Dividend: Law explained on whether only a proportionate addition of deemed dividend can be made taking into consideration the percentage of the shareholding in the borrowing company in cases where (a) there is only one shareholder that has a shareholding in the lending company as well as in the borrowing company & (b) two or more shareholders are shareholders of the same lending company and the same borrowing company

There cannot be any proportionate addition of deemed dividend taking into consideration the percentage of the shareholding in the borrowing company. Section 2(22)(e) of the I. T. Act, 1961 does not postulate any such situation. This is especially as there is only one shareholder that has a shareholding in the lending company as well as in the borrowing company. Different considerations may arise if two or more shareholders are shareholders of the same lending company and the same borrowing company. In such a factual position it could possibly be argued that the addition ought to be made on a proportionate basis.

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DATE: June 20, 2018 (Date of pronouncement)
DATE: August 4, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 2(22)(e) Deemed Dividend: The argument of the Dept, based on Gopal and Sons (HUF) vs CIT 77 TM.com 71 (SC), that even though the assessee-recipient of money is neither the registered nor the beneficial shareholder of the payer company, the money should be assessed as "deemed dividend" is not correct (Scope of Gopal and Sons (HUF) vs CIT explained)

So far as the reliance placed by the Revenue on the judgment of the Hon’ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is concerned, the same, in our view, is quite inapplicable to the facts of the present case. Firstly, the assessee before the Hon’ble Supreme Court was a HUF and the issue was as to whether the loans and advances received by the HUF could be treated as ‘deemed dividend’ within the meaning of Sec. 2(22)(e) of the Act. Notably, in the case before the Hon’ble Supreme Court, the payment was made by the company to the HUF and the shares in the company were held by the karta of the HUF. It is in this context that the Hon’ble Supreme Court upheld the addition in the hands of the HUF as factually the HUF was the beneficial shareholder

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DATE: January 18, 2018 (Date of pronouncement)
DATE: January 29, 2018 (Date of publication)
AY: -
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CITATION:
S. 2(22)(e) Deemed Dividend: The term “shareholder”, post amendment, has only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. The moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect. Prima facie, Ankitech/ Madhur Housing is wrongly decided and should be reconsidered by larger bench

The whole object of the provision is clear from the Explanatory memorandum and the literal language of the newly inserted definition clause which is to get over the two judgments of this Court referred to hereinabove. This is why “shareholder” now, post amendment, has only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It is clear therefore that the moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect. Also, what is important is the addition, by way of amendment, of such beneficial owner holding not less than 10% of voting power. This is another indicator that the amendment speaks only of a beneficial shareholder who can compel the registered owner to vote in a particular way, as has been held in a catena of decisions starting from Mathalone vs. Bombay Life Assurance Co. Ltd., [1954] SCR 117

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DATE: October 5, 2017 (Date of pronouncement)
DATE: October 20, 2017 (Date of publication)
AY: -
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CITATION:
S. 2(22)(e): Any payment by a closely-held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. However, the legal fiction in s. 2(22)(e) does not extend to, or broaden the concept of, a “shareholder”

U/s 2(22)(e), any payment by a closely-held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The legal fiction in s. 2(22)(e) enlarges the definition of dividend but does not extend to, or broaden the concept of, a “shareholder”. As the assessee was not a shareholder of the paying company, the “dividend” was not assessable in its hands

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DATE: January 4, 2017 (Date of pronouncement)
DATE: January 6, 2017 (Date of publication)
AY: 2006-07
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CITATION:
S. 2(22)(2) Deemed Dividend: The argument that as the shares are issued in the name of the Karta, the HUF is not the “registered shareholder” and so s. 2(22)(e) will not apply to loans paid to the HUF is not correct because in the annual returns filed with the ROC, the HUF is shown as the registered and beneficial shareholder. In any case, the HUF is the beneficial shareholder. Even if it is assumed that the Karta is the registered shareholder and not the HUF, as per Explanation 3 to s. 2(22), any payment to a concern (i.e. the HUF) in which the shareholder (i.e. the Karta) has a substantial interest is also covered

Section 2(22)(e) of the Act creates a fiction, thereby bringing any amount paid otherwise than as a dividend into the net of dividend under certain circumstances. It gives an artificial definition of ‘dividend’. It does not take into account that dividend which is actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purposes, the Legislature has deemed such a loan or payment as ‘dividend’ and made it taxable at the hands of the said shareholder. It is, therefore, not in dispute that such a provision which is a deemed provision and fictionally creates certain kinds of receipts as dividends, is to be given strict interpretation. It follows that unless all the conditions contained in the said provision are fulfilled, the receipt cannot be deemed as dividends. Further, in case of doubt or where two views are possible, benefit shall accrue in favour of the assessee

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DATE: April 6, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 2(22)(d): Redemption of preference shares does not constitute "deemed dividend"

As can be seen by s. 2(22)(d), there should be a reduction of its capital and distribution to the shareholders out of the accumulated profits. Section 80(3) of the Companies Act states that the redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorised share capital. By virtue of section 80(3) redemption of preference shares cannot be considered as reduction of authorised share capital, therefore, treating them as deemed dividend does not arise, as the provisions of section 2(22)(d) can only be invoked only when there is distribution of accumulated profits by way of reduction of share capital. Therefore the question of invoking deemed dividend provision on this transaction does not arise, eventhough the redemption of shares are to be made out of the profits of the company by virtue of section 80(1) of the Companies Act. However, since it cannot be treated as reduction of authorised share capital by virtue of section 80(3) of the Companies Act, the amount received by assessee on redemption of preference shares cannot be treated as deemed dividend

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DATE: May 29, 2015 (Date of pronouncement)
DATE: June 10, 2015 (Date of publication)
AY: 2005-06
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CITATION:
S. 2(22)(e): loans and advances given for business transaction between the parties does not fall within the definition of “deemed dividend”

Payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained in section 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or a loan as such and not in any other context. The law does not prohibit business transactions between related concerns, and, therefore, payments made in the ordinary course of business cannot be treated as loans and advances

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DATE: March 11, 2015 (Date of pronouncement)
DATE: March 23, 2015 (Date of publication)
AY: 2009-10
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CITATION:
Companies, if authorized by the MoA & AoA, are competent to make and receive gifts. Natural love and affection is a not necessary requirement for a gift. The gift is neither taxable as income s. 56 (pre-amendment) nor as capital gain nor as income u/s.2(22)(e) nor u/s.115JB

Three elements are essential in determining whether or not a gift has been made, a) delivery. b) donative intent,’ and c) acceptance by the donee. Companies are competent to make and receive gifts and natural love and affection are not necessary requirement. Only requirement for company is to make gifts as per respective memorandum and article of association, which authorize the company for the same

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DATE: January 20, 2015 (Date of pronouncement)
DATE: January 23, 2015 (Date of publication)
AY: 2007-08
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CITATION:
S. 2(22)(e) has to be construed strictly. If assessee is not a shareholder of lending co, s. 2(22)(e) does not apply even if funds are ultimately paid by Co in which assessee is a shareholder

The submission on behalf of the Revenue made before us is that one has to look at the substance of the transaction and that if one looks at the substance, then the Assessee would be chargeable to tax. This is not acceptable as fiscal status have to be interpreted strictly. Section 2 (22)(e) of the Act creates a fiction by bringing to tax an amount as dividend when the amount so received is otherwise then dividend. On a strict interpretation of Section 2(22)(e) of the Act, unless the Assessee is the shareholder of the company lending him money, no occasion to apply it can arise

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