Deemed dividend does not arise where shareholder advances are genuine business transactions and are squared up within the year.

Advances and repayments between a company and its shareholder arising from genuine real estate dealings were treated as commercial transactions, not as loans for personal benefit. Because the parties were engaged in regular business dealings and the amounts were substantially squared up by the end of the financial year, the Tribunal held that section 2(22)(e) of the Income-tax Act, 1961 did not apply. On that basis, the amounts were outside the scope of deemed dividend treatment, and the department's challenge failed for want of any substantial question of law.

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Issues: Whether the amounts advanced and repaid between the company and the assessee, in the course of their real estate dealings, constituted deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.

Analysis: The Tribunal found that the parties were engaged in real estate business, the transactions between them were regular, and the assessee had repaid more than what was received from the company. It further held that the advances were supported by business dealings and were not mere loans for personal benefit. On the facts, the amounts were squared up by the end of the financial year, and the transactions were treated as having a commercial character rather than a dividend distribution.

Conclusion: The transactions were not liable to be treated as deemed dividend under section 2(22)(e), and the assessee succeeded on this issue.

Final Conclusion: No substantial question of law arose from the Tribunal's view that the transactions were commercial in nature and outside the ambit of deemed dividend, so the Department's appeal failed.

Ratio Decidendi: Where advances between a company and its shareholder are shown to arise from genuine business transactions and are substantially squared up, they do not attract deemed dividend treatment under section 2(22)(e) of the Income-tax Act, 1961.

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