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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the advance made by a company to its shareholder was liable to be treated as deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922, or was saved by the exception for loans made in the ordinary course of business where money-lending constituted a substantial part of the company's business.
Analysis: The company had ceased its earlier manufacturing activity and, on the facts found by the Tribunal, was carrying on only money-lending business during the relevant year. The Tribunal also found that the company had accumulated profits and that the advance to the shareholder was made in the course of that money-lending business. On those findings, the statutory exception in section 2(6A)(e)(iii) applied, because a loan made by a company in the ordinary course of its business, where lending of money is a substantial part of that business, does not fall within the deeming provision treating certain shareholder advances as dividend.
Conclusion: The advance was not assessable as deemed dividend and was protected by the statutory exception, so the issue was decided in favour of the assessee.
Ratio Decidendi: A shareholder advance is not deemed dividend where the company, on the facts found, is engaged in money-lending as a substantial part of its business and the loan is made in the ordinary course of that business.
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