Summary
A partnership firm challenged taxation of a company loan as deemed dividend under section 2(22)(e), where its partners held the shares for its benefit. The Court questioned the registered-shareholder requirement adopted in Ankitech and referred the appeals for reconsideration by a three-judge Bench.
Issues
- Whether the amended section 2(22)(e) requires a beneficial shareholder also to be a registered shareholder, and whether Ankitech required reconsideration.
Provisions considered
- Section 2(22)(e), including Explanation 3, Income Tax Act, 1961The amended beneficial-ownership language, voting-power threshold and concern provisions formed the basis of the prima facie disagreement with Ankitech. (¶¶ 10, 12, 17–19)
Held
- The expression “such shareholder” in the second limb refers to the shareholder in the first limb; the meaning cannot differ between the two limbs. (¶ 17)
- Prima facie, the amended provision targets beneficial shareholders holding at least ten per cent voting power, without additionally requiring registration as members. The Court considered Ankitech’s contrary reasoning incorrect, but referred the issue rather than finally deciding the appeals. (¶ 18–19)
- Whether these facts satisfied the second limb and other questions were left unexamined pending reconsideration by an appropriate three-judge Bench. (¶ 19)
Result
Appeals placed before the Chief Justice of India for constitution of an appropriate three-judge Bench; no final determination of the tax liability.