{"id":3752,"date":"2011-10-01T20:31:06","date_gmt":"2011-10-01T15:01:06","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=3752"},"modified":"2011-10-01T20:31:06","modified_gmt":"2011-10-01T15:01:06","slug":"cit-vs-ms-national-travel-services-delhi-high-court-for-s-222e-firm-is-shareholder-even-though-shares-are-held-in-names-of-partners","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/cit-vs-ms-national-travel-services-delhi-high-court-for-s-222e-firm-is-shareholder-even-though-shares-are-held-in-names-of-partners\/","title":{"rendered":"CIT vs. M\/s National Travel Services (Delhi High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (national_travel_deemed_dividend_2_22_firm.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nFor s. 2(22)(e), firm is \u201cshareholder\u201d though shares held in names of partners
\n<\/strong><\/p>\n

The assessee was a partnership firm consisting of three partners being Naresh Goyal, Surinder Goyal and Jet Enterprises Pvt. Ltd. The assessee was the \u201cbeneficial owner\u201d of 48.18% of the share capital of Jetair Pvt. Ltd which were held in the name of its partners Naresh Goyal and Surinder Goyal<\/em>. The assessee took a loan of Rs. 28.52 crores from Jetair Pvt. Ltd. The AO held that the said loan was assessable as \u201cdeemed dividend\u201d u\/s 2(22)(e)<\/em> in the hands of the assessee which was reversed by the Tribunal. Before the High Court, the assessee argued, relying on Ankitech Pvt. Ltd<\/a><\/strong>, Universal Medicare<\/strong> 324 ITR 363 (Bom) and Bhaumik Colour<\/a><\/strong> 118 ITD 1 (Mum) (SB), that s. 2(22) could only apply in the hands of the \u201cshareholder\u201d and as the assessee was not a \u201cshareholder\u201d (its partners were), s. 2(22)(e) could not apply. HELD rejecting the assessee\u2019s plea: <\/p>\n

The first limb of s. 2(22)(e) is attracted if the payment is made by a company by way of advance or loan \u201cto a shareholder<\/em>, being a person who is the beneficial owner<\/em> of shares\u201d. While it is correct that the person to whom the payment is made should not only be a registered shareholder but a beneficial share holder, the argument that a firm cannot be treated as a \u201cshareholder\u201d only because the shares are held in the names of its partners is not acceptable<\/strong>. If this contention is accepted, in no case a partnership firm can come within the mischief of s. 2 (22)(e) because the shares would always be held in the names of the partners and never in the name of the firm<\/em><\/strong>. This would frustrate the object of s. 2(22)(e) and lead to absurd results. Accordingly, for s. 2(22)(e), a firm has to be treated as the \u201cshareholder\u201d even though it is not the \u201cregistered shareholder<\/strong>\u201d.\n<\/p><\/blockquote>\n

\nNote<\/strong>: The Court impliedly dissented from CIT vs. Raj Kumar Singh<\/a><\/strong> 295 ITR 9 (All) where it was held that s. 2(22)(e) would not apply to a firm as it was not the \u201cregistered shareholder\u201d\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The first limb of s. 2(22)(e) is attracted if the payment is made by a company by way of advance or loan \u201cto a share holder, being a person who is the beneficial owner of shares\u201d. While it is correct that the person to whom the payment is made should not only be a registered shareholder but a beneficial share holder, the argument that a firm cannot be treated as a \u201cshareholder\u201d only because the shares are held in the names of its partners is not acceptable<\/strong>. If this contention is accepted, in no case a partnership firm can come within the mischief of s. 2 (22)(e) because the shares would always be held in the names of the partners and never in the name of the firm<\/em><\/strong>. This would frustrate the object of s. 2(22)(e) and lead to absurd results. Accordingly, for s. 2(22)(e), a firm has to be treated as the \u201cshareholder\u201d even though it is not the \u201cregistered shareholder<\/strong>\u201d<\/p>\n

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