SC division bench refers to
larger bench on the issue of whether shareholder must be a 'registered
shareholder' and also a ‘beneficial shareholder’ to trigger deemed dividend
taxability us. 2(22)(e), ‘prima facie’ opines that the co-ordinate bench ruling
in Ankitech Pvt. Ltd. requires reconsideration; SC notes that assessee (a
partnership firm) had taken a loan from a company in which it beneficially held
48.19% shareholding in the name of 2 of its partners who were on company's
register as members; Assessee had argued that in view of the recent co-ordinate
bench ruling approving Delhi HC ruling in Ankitech Pvt. Ltd., provisions of
Sec. 2(22)(e) would not apply to assessee firm which is not a registered
shareholder of lender company; Firstly, SC examines the legislative history of
'deemed dividend' provisions including provisions under 1922 Act, perusing 1988
amendment to Sec. 2(22)(e) of the Income-tax Act, 1961, observes that under
amended provisions, a ‘shareholder’ is a person who is the beneficial owner of
shares and a new category was added to the definition by introducing concerns
in which such shareholder is a member or partner; SC then takes note of Delhi
HC rulings in Ankitech Pvt. Ltd. (approved by co-ordinate bench) and Madhur
Housing and Development Company wherein it was held that the expression
‘shareholder’ would continue to mean a registered shareholder even after the
amendment; Further, SC notes that HC in present assessee’s case had held 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, but it had ruled that a partnership firm can be treated as a
shareholder even if its not a registered shareholder, observes that "it is
very difficult to accept the reasoning of the Division Bench"; SC
remarks that “the whole object of the amended provision would be stultified if
the Division Bench judgment were to be followed. Ankitech’s case, in stating
that no change was made by introducing the deeming fiction insofar as the
expression ‘shareholder’ is concerned is, according to us, wrongly decided.”;
Referring to Explanatory memorandum to 1988 amendment, SC notes that purpose
was to get over the two SC judgments in C.P. Sarathy Mudaliar and Rameshwari
Lal Sanwarmal and “'shareholder’ now, post amendment, has only to be a person
who is the beneficial owner of shares”, explains that one cannot be a
registered owner and beneficial owner in the sense of a beneficiary of a trust
or otherwise at the same time; Further, referring to additional condition of
beneficial owner holding not less than 10% of voting power, remarks that “This
is another indicator that the amendment speaks only of a beneficial shareholder
who can compel the registered owner to vote in a particular way”; Observing
that "To state, therefore, that two conditions have to be satisfied,
namely, that the shareholder must first be a registered shareholder and
thereafter, also be a beneficial owner is not only mutually contradictory but is
plainly incorrect", places the matter before the Chief Justice to
constitute an appropriate Bench of three Judges in order to have a relook at
the entire question.:SC
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