Sec 2(22) e - Deemed dividend - Scope & Concept of Shareholder ?

CIT vs. Madhur Housing And Development Co (Supreme Court) - Oct 2017

Question of law : Invoking of sec 2(22) e  which is related to dividend can extend a scope of the concept of SHAREHOLDER?

Some important notes and facts of the case (by author):

1- The SC has taken a view by referring earlier decided case laws in  which the said concept had already been discussed and hence agreed with the stand which had been taken by the preceding courts. The such case laws are CIT Vs. Ankitech pvt limited (2012) 340 ITR 14 & Bhaumik Colour 313 ITR 146 (Mumbai)

2- The learned court has observed and pointed out the fact that "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"


3- The concern which is getting such loans & advances should be shareholder in order to establish a fact for receiving benefits of such loans or advances,


4- Merely a fact that a shareholder is having substantial interest in both the company will not extend the scope of taxation to be imposed on such concerns who receives loans/ advances or any other sum,


Sec 2(22) e can be read as below -

(e)

any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits,

(Highlighted portion can be referred for better understanding)

For reading judgement of the case please refer link - http://itatonline.org/archives/cit-vs-madhur-housing-and-development-co-supreme-court-s-222e-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/madhur-housing-ankitech-deemed-dividend/