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of <h1>Court deems company advance to individual as dividend under Income-tax Act despite intended future rent adjustments.</h1> <h3>Commissioner of Income-Tax Versus PK. Abubucker.</h3> Commissioner of Income-Tax Versus PK. Abubucker. - [2003] 259 ITR 507, 185 CTR 558, 135 TAXMANN 77 Issues:1. Whether the advance (rental) received by the assessee from the company can be termed as a deemed dividend for the purpose of section 2(22)(e) of the Income-tax ActRs.Analysis:The case involved the question of whether the advance (rental) received by an individual, who is the managing director of a company, from the company could be considered as a deemed dividend under section 2(22)(e) of the Income-tax Act. The individual had leased out a property to the company and received an advance of Rs. 10 lakhs from the company, which was to be adjusted against future rent for the premises. The Assessing Officer treated this advance as a loan and deemed it as dividend income of the individual. However, on appeal, the Tribunal held that the amount received was advance rent in a landlord-tenant transaction and could not be deemed as a dividend.The Supreme Court in a previous case had held that even if the loan or advance taken from the company was repaid or adjusted later, it would still be considered as dividend received during the relevant accounting period. The Court emphasized that the nature of the transaction as an advance was crucial, regardless of any future set-offs against rents. The Court noted that the advance was explicitly agreed upon to meet the construction costs of additional floors and was clearly intended to be adjusted against future rents.The individual's counsel argued that the term 'advance' implies payment of a sum not due at the time of payment, and since the amount was paid as per an agreement, it could not be considered as not due. However, the Court found that the agreement clearly stated the advance was to be set off against future rents, making it an advance even though it was intended for future adjustments. Consequently, the Court ruled in favor of the Revenue, holding that the advance received by the individual from the company should be deemed as a dividend for the purpose of section 2(22)(e) of the Income-tax Act.
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