SC: Legal fiction in Sec 2(22)(e) does not extend to, or broaden the concept of a shareholder

Last updated: 11 October 2022

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The Supreme Court has clarified that the legal fiction in Section 2(22)(e) of the Income Tax Act, which deems certain loans or advances from a closely held company to another concern as 'dividend', does not expand the definition of a 'shareholder'. Therefore, if the recipient company is not a shareholder of the company providing the loan, the amount received cannot be taxed as a deemed dividend in the recipient company's hands. The revenue can, however, pursue taxation in the hands of the actual shareholders.

Court :
Supreme Court of India

Brief :
Held that - 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. However, the legal fiction in s. 2(22)(e) does not extend to, or broaden the concept of, a "shareholder"

Citation :
CIVIL APPEAL NO. 3961 OF 2013

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Judgement posted by

FCS Deepak Pratap Singh

Associate Vice President - Secretarial & Compliance (SBI General Insurance Co. Ltd.)

Dear Friends, MyselfFCSDeepak P. Singh ( B.Sc.. LLB, FCS. FIII, CIAFP, CRMP, ID) , A Fellow Member of ICSI, Law Graduate ,Fellow Member of Insurance Institute of India, Certified Independent Director ,Certified Insurance Anti Fraud Professional , Certified Risk Governance Professional ( ICSI-III) and cleared Limited I ... Read more

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