JUDGMENT 1. This appeal by the Revenue against the judgment of the Tribunal dated September 16, 2004, was admitted, vide order dated March 29, 2005, by framing the following substantial questions of law : " 1. Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in upholding the order of learned Commissioner of Income-tax (Appeals) deleting the addition of Rs. 10 lakhs as deemed dividend under section 2(22)(e) of the Income-tax Act ? 2. Whether the assessee-firm whose partners hold 100% share in M/s. Hilltop Palace Hotels (P.) Ltd., had received the payment of Rs. 10 lakhs by way of security and not as an advance is perverse?" 2. The necessary facts are that a return was filed by the assessee (firm) M/s. Hotel Hilltop, 5, Ambavgarh, Udaipur, declaring income of Rs. 72,000 on January 3, 1992. The case was taken under scrutiny and notices were issued. It appeared that the assessee had shown liability of Rs. 12,46,058 under the head " other liabilities" out of which a liability to the extent of Rs.10,87,747 pertained to M/s. Hilltop Palace Hotels (P.) Ltd. It also transpired to the Assessing Officer that this liability consisted of Rs. 10 lakhs received as an advance against the security from the company to the firm under the agreement to hand over the management of the firm's hotel to the company and the balance amount of Rs. 87,747 are of trade credits.The assessee, vide order-sheet dated August 13, 1993, was asked to explain why the security of Rs. 10 lakhs be not treated as dividend under section 2(22)(e) of the Income-tax Act and added to the income of the firm. It is not in dispute that the amount of Rs. 10 lakhs proceeded from the company to the firm. It is also not in dispute that the shareholding pattern of the company is as under : "Shareholding pattern of M/s. Hilltop Palace Hotels (P.) Ltd. (1) Shri Roop Kumar Khurana 23.33% (2) Smt. Saroj Khurana 4.67% (3) Vikas Khurana 22% (4) Deshbandhu Khurana 25% (5) Shri Rajiv Khurana 25%" 3. Likewise, it is also not in dispute that at the relevant time constitution of the firm was as under : "Constitution of M/s Hotel Hilltop : 1. Shri Roop Kumar Khurana 45% 2. Shri Deshbandhu Khurana 55%" 4. Likewise, it is also not in dispute that at the relevant time constitution of the firm was as under : "Constitution of M/s Hotel Hilltop : 1. Shri Roop Kumar Khurana 45% 2. Shri Deshbandhu Khurana 55%" 4. The Assessing Officer, in these circumstances, found the amount to be deemed dividend under section 2(22)(e) and assessed it in the hands of the firm. This order was challenged in appeal and the learned Commissioner (Appeals) found that since the firm is not a shareholder of the company the amount of Rs. 10 lakhs cannot be assessed to tax under section 2(22)(e) and thus it was deleted.5. Against this order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the learned Tribunal and the Tribunal found that the provisions under section 2(22)(e) are deeming provisions and are aimed at including the obvious or what is uncertain or to impose for the purpose of a statute an artificial construction of a word or phrase that would not otherwise prevail. Then the definition, as given in section 2(22)(e) was also considered and found that since the firm is not a shareholder of the company the amount of Rs. 10 lakhs could not be assessed to tax under section 2(22)(e). It was also found that this amount cannot be stated to be an advance or loan as the agreement specifically mentions it as security. It was also considered that as on April 1, 1990, the company has accumulated profits of Rs. 44,825 only. Thus, the ingredients of the deeming clause are not satisfied. It was reiterated that unless the firm is a registered shareholder of the company any amount of advance to the partner cannot be taxed in the hands of the firm as such. Thus, the appeal was dismissed.6. We have heard learned counsel on the questions framed.7. Long drawn arguments were made on either side. It was reiterated that unless the firm is a registered shareholder of the company any amount of advance to the partner cannot be taxed in the hands of the firm as such. Thus, the appeal was dismissed.6. We have heard learned counsel on the questions framed.7. Long drawn arguments were made on either side. However, before proceeding further, we may gainfully quote the provisions of section 2(22)(e), which read as under : " 2.(22)(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a share holder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or with out a right to participate in profits) holding not less than ten per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (here after in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ;" 8. From a reading of the above provision, it is clear that it comprehends manifold requirements, the first being the payment should be made by way of loan or advance to the concern. Of course on this aspect, the conclusion has been recorded by the Tribunal against the Revenue but then on a bare reading of the agreement and considering the totality of circumstances including the very nature of the term "security" and the fact that substantial portion of this Rs. 10 lakhs of amount, say more than Rs. 9 lakhs, have been advanced only during January 7, 1991, to March 22, 1991, it is difficult to accept it as a security in the sense of the term as comprehended in the agreement rather it clearly appears to be simply a nomenclature used to borrow the words of the Assessing Officer "transparent cover". Be that as it may.9. 9 lakhs, have been advanced only during January 7, 1991, to March 22, 1991, it is difficult to accept it as a security in the sense of the term as comprehended in the agreement rather it clearly appears to be simply a nomenclature used to borrow the words of the Assessing Officer "transparent cover". Be that as it may.9. The more important aspect, being the requirement of section 2(22)(e) is that "the payment may be made to any concern, in which such shareholder is a member or partner and in which he has substantial interest or any payment by any such company on behalf or for the individual benefit of any such shareholder..." Thus, the substance of the requirement is that the payment should be made on behalf of or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf or for whose individual benefit the amount is paid by the company whether to the shareholder or to the concerned firm. In which event, it would fall within the expression "deemed dividend". Obviously, income from dividend is taxable as income from other source under section 56 of the Act and in the very nature of things the income has to be of the person earning the income. The assessee in the present case is not shown to be one of the persons being shareholder. Of course, the two individuals being Roop Kumar and Devendra Kumar are the common persons holding more than requisite amount of shareholding and having requisite interest in the firm but then thereby the deemed dividend would not be deemed dividend in the hands of the firm rather it would obviously be deemed dividend in the hands of the individuals on whose behalf or on whose individual benefit being such shareholder the amount is paid by the company to the concern.10. Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax as deemed dividend could be attracted in the hands of the individuals being the shareholders and not in the hands of the firm.11. Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax as deemed dividend could be attracted in the hands of the individuals being the shareholders and not in the hands of the firm.11. Thus, the result of the aforesaid discussion is that question No. 2, as framed, is answered in favour of the Revenue, and against the assessee, while question No. 1 is answered against the Revenue and in favour of the assessee though for different reasons.12. The net result of the answer to the above questions is, that the appeal fails and is dismissed. *******