Deemed dividend under section 2(22)(e) not attracted where payments were ordinary business transactions, not loans or advances.

Regular commercial dealings between a travel agency and two tourism-sector concerns were treated as ordinary business transactions rather than loans or advances. Because the payments lacked the character of loan or advance, the deeming fiction under section 2(22)(e) of the Income-tax Act, 1961 did not apply to treat them as deemed dividend. The tax consequence was therefore rejected and the assessee succeeded.

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Issues: Whether the financial transactions between the assessee and the two concerns constituted loans or advances so as to attract section 2(22)(e) of the Income-tax Act, 1961.

Analysis: The assessee carried on travel agency business and had regular commercial dealings with concerns engaged in the tourism industry. The transactions were found to be normal business transactions arising in the course of day-to-day business and not advances or loans. As the amounts did not fall within the character of loans or advances, the deeming provision treating certain payments as dividend had no application.

Conclusion: Section 2(22)(e) of the Income-tax Act, 1961 was not applicable to the transactions in question, and the assessee succeeded.

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