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Facts
The assessee, BSST India Pvt. Ltd., received an unsecured loan of Rs.85,65,720/- from M/s IGCAP Compliance Ltd. The sole shareholder of the lender company, Mr. Praveen Tyagi, was also a 49% beneficial owner in the assessee company. The Assessing Officer and CIT(A) treated this loan as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, citing the accumulated profits in the lender company and the common beneficial shareholder.
Held
The Tribunal held that despite a common beneficial shareholder (Mr. Praveen Tyagi) in both the lender and assessee companies, the assessee company itself was not a shareholder in the lender company. Relying on various precedents, the Tribunal concluded that a loan or advance provided to a concern that is not a shareholder or member of the payer company cannot be deemed as dividend under Section 2(22)(e) of the Act.
Key Issues
Whether a loan received by a company from a lender company, where an individual is a common beneficial shareholder in both but the recipient company is not a shareholder of the lender company, can be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
Sections Cited
250, 2(22)(e)
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Income Tax Appellate Tribunal, DELHI BENCH “B”NEW DELHI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI SANJAY AWASTHI
सुनवाईक�तारीख/ Date of hearing: 18.12.2025 18.12.2025 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order dated 23.06.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A)-NFAC, Delhi. In this case, the solitary issue for adjudication pertains to an addition made u/s 2(22)(e) of the Act. The facts in brief are that the assessee received an unsecured loan of Rs.85,65,720/- from one M/s IGCAP Compliance Ltd. (hereafter “Lender Company”). The Lender Company has only one shareholder-Mr. Praveen Tyagi. Shri Tyagi is also a beneficial owner of 49% shares in the assessee company. Considering the 1 fact that there were accumulated profits in the Lender Company the impugned loan amount was considered to be a deemed dividend by the Ld. AO u/s 2(22)(e) of the Act.
1.1 The assessee approached the Ld. CIT(A), where also he could not succeed on the basis of the reasoning that Shri Praveen Tyagi is a 100% shareholder in the LenderCompany and a 49% shareholder in the assessee company. The Ld. CIT(A) distinguished several case laws filed by the assessee and thereafter upheld the action of Ld. AO.
1.2 The aggrieved assessee has approached the ITAT with a single ground of appeal challenging the action of Ld. AO. An additional ground has also been tendered for our consideration, challenging the fact that the Ld. AO could not have made this addition within the purview of “Limited Scrutiny”. The Ld. AR submitted that the additional ground may be taken up in case the assessee is not considered to be covered for relief under the regular ground of appeal.
The Ld. AR filed a paper book and written submissions, which were extensively referred to by him. For the sake of capturing his arguments relevant portions from written submissions may be extracted as under: -
“The above action of Ld. AO is challenged on the ground that definition of dividend enlarged by the deeming provision of section 2(22)(e) is applicable based on the concept that dividend is always given to shareholder and not to any other entity even including entity not being beneficial shareholder. Based on the above concept, a concern which is given loan or advance by a company cannot be treated as shareholder/member of the latter simply because a shareholder of the lender company holding voting power of 10% or more therein has substantial interest in such concern and such loan or advance cannot be treated as deemed dividend u/s 2(22)(e) of the Act at the hands of the concern. According to decision of Hon’ble Delhi High Court in case of CIT vs. Ankitech P. Ltd. 340 ITR 14 (Del) which was approved by Hon’ble Apex Court in case of CIT vs. Madhur Housing & Developing Company 401 ITR 152 (SC) where there is an arrangement where entity has borrowed a loan from another entity than it is a lender which holds share of borrower which should be held to be liable to pay tax on such deemed dividend and not the borrower itself. Any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified u/s 2(22)(e) of the Act, viz., a concern (like the appellant herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of deeming shareholder, then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. The above view has been upheld in the following catena of decisions: a. CIT vs. Raj Kumar Singh & Co. 295 ITR 9 (All) (Jurisdictional High Court); b. PCIT vs. Verizon (India) P. Ltd. dated 22.08.2019 (Del) where besides the above decisions, the decision in case of National Travel Services vs. CIT 401 ITR 154 (SC) was also relied to the extent the Ankitech P. Ltd. (supra) decision relates to expression “shareholder” which include beneficial owner of shares, implying that the deemed dividend cannot be taxed even in the hands of the beneficial holder of shares. c. DCIT vs. Solitaire Real Infra P. Ltd. to 1335/Del/2021 dated 08.12.2023; d. Himgiri Realtors P. Ltd. vs. ITO dated 09.07.2025; e. The Reliance Motor Company P. Ltd. vs. ACIT dated 15.06.2022.”
2.1 The Ld. DR relied on the orders of the authorities below and stated that since Shri Praveen Tyagi was a beneficial shareholder in both the Lender Company and the assessee company hence the provisions of section 2(22)(e) of the Act were attracted.
We have carefully considered the rival submissions and have gone through the records. A plain reading of the section under consideration reveals that any loan or advance by a company in which the public are not substantially interested, to a shareholder who is a beneficial owner of shares (not less than 10% of the voting power), or a loan to any concern in which such shareholder is a member or a partner or he has a substantial interest, would be covered for the purposes of this section.
The fact in this case is that while Shri Praveen Tyagi is the common beneficial shareholder in both the Lender Company and the assessee company but the assessee itself is not a shareholder in the Lender Company. This critical difference brings this case within the purview of the case laws relied upon by the Ld. AR, viz. Raj Kumar Singh & Company (Allahabad) (supra), Verizon (India) Pvt. Limited (Del.) (supra), etc. and respectfully following such judgments it is held that the impugned transaction cannot be considered to be deemed dividend u/s 2(22)(e) of the Act.
In the result, appeal is allowed.
Order pronounced in the open court on 18.12.2025