INCOME TAX ACT, 1961

Section 2(22)(e)

Dividend - Deemed dividend under section 2(22)(e) - Assessee's wife received loan from a company, wherein the assessee was a director and majority shareholder -

Assessee's wife received loan from a company named 'M', wherein the assessee was a director and majority shareholder. The said loan was deposited in two bank accounts held in joint names of the assessee and his wife. Before the AO, the assessee did not furnish any evidence with regard to the nature of loan advanced along with the supporting details. Therefore, the AO added the entire loan amount in the hands of the assessee as deemed dividend under section 2(22)(e). Assessee submitted that his wife was having exclusive control over the said bank accounts. He further submitted that the loan received from 'M' had clearly been shown as liability at the hands of his wife; therefore, no addition in respect of the same could be made in his hands. Held: It was found that 'M' was a closely-held company and its two directors were assessee and his wife. While the assessee was having substantial shareholding of 97.71% in 'M', his wife was having shareholding of 2.5%. Further, though, it might be a fact that the bank accounts wherein the loan was deposited were jointly held by the assessee and his wife and the wife was the first holder, however, looking at the shareholding pattern and also the fact that the assessee was a joint holder of the bank accounts, it had to be concluded that the entire affairs of 'M' as well as the transactions in the bank accounts were under effective control of the assessee. Further, the name of assessee's wife appearing as the first joint holder in the bank accounts was only a smokescreen created by the assessee to wriggle out of the rigors of section 2(22)(e). Therefore, the conditions of section 2(22)(e) were clearly attracted in the case of the assessee. Further, out of the total loan amount, part amount had directly accrued to the benefit of the assessee and thus, the same was added as deemed dividend. However, the balance amount was paid by the assessee to two entities, namely, 'V' and 'MR'. Further, out of the said two entities, the assessee was having substantial interest in only 'MR' and not in 'V'. Hence, the amount paid to 'MR' was treated as deemed dividend and the amount paid to 'V' was excluded from being treated as deemed dividend.

REFERRED :

FAVOUR : Partly in favour of assessee

A.Y. : 2014-15

SUBSCRIBE FOR FULL CONTENT