Inter-corporate deposit in a commercial transaction not treated as deemed dividend under section 2(22)(e).

An inter-corporate deposit made in the course of a commercial transaction, with interest charged, does not fall within the deeming fiction of deemed dividend under section 2(22)(e) of the Income-tax Act, 1961. The transaction's commercial character was not rebutted by the revenue authorities, and CBDT Circular No. 19/2017 supported exclusion of such arrangements from the provision. The addition was therefore unsustainable and was deleted in favour of the assessee.

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Issues: Whether the inter-corporate deposit received by the company could be assessed as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.

Analysis: The assessee maintained that the amount represented an inter-corporate deposit, and this character was not rebutted by the assessment or appellate authorities. The transaction was in the nature of a commercial arrangement and interest was also charged. Reliance was placed on judicial authority and CBDT Circular No. 19/2017 to hold that such commercial transactions fall outside the scope of the deeming fiction in section 2(22)(e).

Conclusion: The addition as deemed dividend was not sustainable and was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned deemed-dividend addition stood deleted.

Ratio Decidendi: An inter-corporate deposit made in the course of a commercial transaction does not attract the deeming fiction of deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.

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