S.2(22) (e):Dividend-Deemed dividend-Loans and advances-Legal fiction does not extend to broaden the
concept of shareholderto make tax loans or advances as deemed dividend in the hands of deemed share
holder. (Companies Act, S.153, 187C)
Duringsearch various papers relatingshare holding pattern of Amod Stampings Pvt Ltd were seized. It was found that said company had granted loans to various companies wherein share holdings and voting power exceeded 10 percent.It was explained that on creation of Trust a part of said company were settled in favour of Trust and after excluding of shares the assessee did not have more than 10 percent voting power and the assessee had no beneficial interest in the said Trust. The Assessing Officer held that creation of Trust was an afterthoughtand taxed theamount as deemed dividend.Before Commissioner (Appeals) it was contended that as per section 153 of the Companies Acta company is not permitted to include the name of the trust in the register of members. It was also contended that the provision of section 187C have been madeineffective w.e.f.13th December, 2000 and therefore there is no requirement at present to declare beneficial interest etc., therefore suchbeneficial interest was is not declared in the register of the Company or the Registrar of the Companies. However Commissioner (Appeals) up held the addition.On appeal the Tribunal held that since the said Company was not permitted to include name of Trust in its register, name which was earlier noted as shareholders remainedsame, howeverthrougha Board meeting it was resolved to acknowledge change in vesting of shares, hence in view of the facts deemed dividendcould not be taxed in hands of assessee.Legal fiction created under section 2(22) (e) does not extend further for broadening concept of shareholder so as to tax loans or advances as 'deemed dividend' in hands of a 'deeming shareholder'. (.AY. 2006-07)
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