2016 (1) TMI 1242

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.... a Director as well as a Member Shareholder of this company. He had a running account from the company, a copy of which was placed at page 3 of the assessee's paper book. The assessee was having a credit balance of Rs. 41,25,880.71 at the beginning of the F.Y. 1.4.2006. He withdrew an amount of Rs. 40 lakhs on 22.5.2006 from the company. He further withdrew an amount of Rs. 10 lakhs on 10.6.2006, which resulted in a debit balance of Rs. 8,84,029/-. This amount was treated as deemed dividend u/s 2(22)(e) of the Act by the A.O. The contention of the assessee is that, he along with his other family members furnished personal guarantees to the bank, for enabling the assessee company to obtain a bank guarantee and the company passed a resolution....

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....d.Counsel for the parties and after going through the aforesaid provisions of the Act, we are of the opinion that the phrase "by way of advance or loan" appearing in sub clause (e) must be construed to mean those advances or loans which a share holder enjoys for simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, but if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to the company received from such a share holder, in such case, such advance or loan cannot be said to be a deemed divi....

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....o attract the provisions of S.2(22)(e), the important consideration is that there should be loan/advance by a company to its shareholder. Every amount paid must make the company a creditor of the shareholder of that amount. At the same time, it is to be borne in mind that every payment by a company to its shareholders may not be loan/advance. In the present case, the amount was withdrawn by the assessee from the company only to meet her short term cash requirements. By virtue of offering personal guarantee and collateral security for the benefit of the company, the liquidity position of the assessee had gone down. In the strict sense if it is to be construed the amount forwarded by the company to the assessee was not in the shape of adva....