Commercial advances for land acquisition were not deemed dividend where funds were used for business development and not personal benefit.

Advances received from a closely held company for land acquisition and a related lease deposit were outside the scope of deemed dividend under section 2(22)(e) because they were made pursuant to board resolutions, immediately used for the company's property-development projects, and reflected commercial expediency rather than a loan or advance for the assessee's personal benefit. The arrangement of holding land in the assessee's name while development was undertaken by the company was treated as a business arrangement adopted to reduce stamp duty and remain commercially competitive. The lease advance was also characterised as a security deposit. The addition was therefore deleted, except for the amount not in appeal.

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Issues: Whether advances received by the assessee from a closely held company for acquisition of land and related lease deposit were liable to be treated as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.

Analysis: The payments were made pursuant to board resolutions and were utilised immediately for acquiring land for the company's property-development projects. The arrangement of holding land in the assessee's name while development was undertaken by the company was found to be a business arrangement adopted to reduce stamp duty and remain commercially competitive. The funds were not retained by the assessee for any meaningful period, and the materials on record showed commercial expediency rather than a loan or advance for the assessee's personal benefit. The lease advance was also found to be only a security deposit.

Conclusion: The advances did not fall within the mischief of section 2(22)(e) and were not taxable as deemed dividend in the assessee's hands; the addition was rightly deleted, save for the amount not in appeal.

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