ITAT reiterates that Deemed Dividend is assessable from Partners, Not from Firm since they are the Beneficial Shareholders of the Lender Co. [Read Order]

The Cochin bench of ITAT in the case of M/s.Kerala Transport Co. Vs. The Asst.Commissioner of Income-tax recently ruled that deemed dividend is assessable from Partners, not from the Firm since they are the beneficial shareholders of the lender company.

The bench comprising of Judicial Member George George K and Accountant Member Chandra Pooraji of the Tribunal was dealing the appeal of department wherein the department rose an issue that whether the Firm is not a shareholder of the lender company, deemed dividend cannot be assessed from it.

According to assessee’s observation that the deemed dividend under Section 2 (22)(e) of the Income Tax Act has to be assessed only in the hands of the respective partners and not in the hands of the firm.

This findings of assessee as regards the assessability of deemed dividend in the hands of the partners, was made without examining the facts of the case in relation to the partners of the firm. The counsel for assessee submitted various case law which agrees with their aforementioned observation.

The tribunal bench heard both the parties’ contention and perused the documents on record. The bench observed a fact that CIT (A) deleted the addition made under Section 2(22)(e) of the Income Tax Act as deemed dividend by following the order of the Tribunal in assessee’s own case for assessment year 2005-2006.

The Tribunal held that beneficial shareholders of the lender company are the partners of firm and not assessee firm and therefore, no deemed dividend can be assessed in the hands of the assessee-firm.

The tribunal bench also directed the appellant that if the partners of the firm are aggrieved by the reopening of the assessment in their hands, it is for the partner to challenge the same in appropriate forum and while doing so dismissed the Miscellaneous Petitions filed by the assessee.