The HC of Calcutta’s decision was based on the Supreme Court precedent that deemed dividends under Section 2(22)(e) should be taxed only in the hands of shareholders.

In the recent case, the High Court Of Calcutta, upholding the Income Tax Appellate Tribunal’s ( ITAT ) decision that deemed dividends under Section 2(22)(e) of the Income Tax Act,1961 can only be taxed in the hands of shareholders. The court found no new evidence or arguments to overturn this established interpretation. Apeejay Pvt Ltd., the respondent-assessee,the revenue petitioner filed an appeal under Section 260A of the act. The appeal was filed against the order dated May 30,2023 passed by the bench of Kolkata Tribunal for the assessment year (AY) 2013-14. The main issue raised by the revenue petitioner was whether the tax authorities can add deemed dividends under Section 2(22)(e) of the Act to the income of a person who is not a registered or beneficial shareholder of the company. Get a Copy of Income Tax Rules with FREE e-book access, Click here Deemed dividends under Section 2(22)(e) of the Act refer to certain payments by a company to shareholders or their associates that are treated as dividends for tax purposes. This includes loans or advances where the company has accumulated profits. Such deemed dividends are taxable in the recipient’s hands, ensuring that income distributed in this manner is taxed like regular dividends to prevent tax avoidance. The counsel for the respondent, in response to the revenue petitioner’s appeal, argued that the legal question raised had already been settled in favor of the respondent. This argument was based on the Supreme Court’s decision in Commissioner of Income Tax vs. Madhur Housing & Development Co. (2018), which established that deemed dividends under Section 2(22)(e) should be taxed in the hands of the shareholders. Get a Copy of Income Tax Rules with FREE e-book access, Click here The counsel emphasized that this ruling, along with subsequent supportive decisions from the Delhi and Madras High Courts, clearly addressed and resolved the issue. The division bench of Chief Justice T.S Sivagnanam and Justice Hiranmay Bhattacharyya noted that the revenue petitioner did not provide any new evidence or arguments to overturn the decisions. Therefore, the court upheld the ITAT’s ruling and dismissed the appeal