{"id":4057,"date":"2011-12-13T11:43:01","date_gmt":"2011-12-13T11:43:01","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4057"},"modified":"2011-12-13T11:43:01","modified_gmt":"2011-12-13T11:43:01","slug":"pradip-kumar-malhotra-vs-cit-calcutta-high-court-s-222e-does-not-apply-to-non-gratuitous-advances-to-substantial-shareholder","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/pradip-kumar-malhotra-vs-cit-calcutta-high-court-s-222e-does-not-apply-to-non-gratuitous-advances-to-substantial-shareholder\/","title":{"rendered":"Pradip Kumar Malhotra vs. CIT (Calcutta High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (pradip_kumar_malhotra_deemed_dividend.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nS. 2(22)(e) does not apply to \u201cnon-gratuitous\u201d advances to substantial shareholder
\n<\/strong><\/p>\n

The assessee, a substantial shareholder in a closely held company, let out his flat to the company and also permitted it to place it on mortgage. In consideration, the company passed a resolution authorizing the assessee to obtain from the company an interest-free deposit up to Rs.50 lakhs<\/em>. He also received an amount by way of \u201csecurity deposit<\/em>\u201d. The AO assessed the said \u201cadvances\/ deposits\u201d as \u201cdeemed dividend<\/em>\u201d u\/s 2(22)(e). The CIT (A) deleted the addition though the Tribunal upheld it. On appeal by the assessee, HELD reversing the Tribunal:<\/p>\n

The phrase \u201cby way of advance or loan<\/em>\u201d s. 2(22)(e) must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares<\/strong>. If such loan or advance is given to such share holder as a consequence of any further consideration received from the shareholder, then such advance or loan cannot be said to be \u201cdeemed dividend\u201d u\/s 2(22)(e). Thus, while gratuitous loan or advance given by a company to a substantial shareholder comes within the purview of s. 2(22)(e), a case where the loan or advance is given in return to an advantage conferred upon the company by the share holder does not<\/em><\/strong>. On facts, as the advance was in lieu of the company being permitted to mortgage the assessee\u2019s falt, it was not \u201cgratuitous\u201d and so not assessable as \u201cdeemed dividend\u201d (Creative Dyeing<\/strong> 318 ITR 476 (Del) & Nagindas Kapadia<\/strong> 177 ITR 393 (Bom) followed).<\/p><\/blockquote>\n

\nSee CIT vs. Arvind Kumar Jain<\/a><\/strong> (Delhi High Court) on whether “trade advances” are assessable u\/s 2(22)(e)\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The phrase \u201cby way of advance or loan<\/em>\u201d s. 2(22)(e) must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares<\/strong>. If such loan or advance is given to such share holder as a consequence of any further consideration received from the shareholder, then such advance or loan cannot be said to be \u201cdeemed dividend\u201d u\/s 2(22)(e). Thus, while gratuitous loan or advance given by a company to a substantial shareholder comes within the purview of s. 2(22)(e), a case where the loan or advance is given in return to an advantage conferred upon the company by the share holder does not<\/em><\/strong>. On facts, as the advance was in lieu of the company being permitted to mortgage the assessee\u2019s falt, it was not \u201cgratuitous\u201d and so not assessable as \u201cdeemed dividend\u201d (Creative Dyeing<\/strong> 318 ITR 476 (Del) & Nagindas Kapadia<\/strong> 177 ITR 393 (Bom) followed)<\/p>\n

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