Registered shareholder or beneficial shareholder or both to attract sec 2 (22)(e)?

National Travel Service vs. CIT (Supreme Court)- 29 Jan 2018

Some of the important pointers of the case for easy reference:

1- “With the deletion of Section 104 to 109 there was a likelihood of closely held companies not distributing their profits to shareholders by way of dividends but by way of loans or advances so that these are not taxed in the hands of the shareholders. To forestall this manipulation, sub-clause (e) of clause (22) of Section 2 has been suitably amended. Under the existing provisions, payments by way of loans or advance to shareholders having substantial interest in a company to the extent to which the company possesses accumulated profits is treated as dividend.....

2- A reading of the amended definition would indicate that, after 31.05.1987, a “shareholder” is now a person who is the beneficial owner of shares holding not less than 10% of the voting power of the Company. Also, a new category has been added to the definition by introducing concerns in which such shareholder is a member or partner and in which he has a substantial interest.

3- It answered the first question by stating that the expression “being a person who is a beneficial owner of shares” would be in addition to the shareholder first being a registered shareholder of the Company. The Division Bench then states that, therefore, in order to attract Section 2(22)(e) both conditions have to be satisfied. So far as the second question is concerned, the Division Bench went on to state that a partnership firm can be treated as a shareholder but that it is not necessary that it has to be a registered shareholder.

4- 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...

For reading full text of the case please refer link - http://itatonline.org/archives/national-travel-service-vs-cit-supreme-court-s-222e-deemed-dividend-the-term-shareholder-post-amendment-has-only-to-be-a-person-who-is-the-beneficial-owner-of-shares-one-can/national-travel-service-deemed-dividend/