TaxTMI 
TaxTMI 
2009 (9) TMI 43
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....Pvt. Ltd. have common shareholders/directors Mr. P.S. Uppal, Mr. P.M.S. Uppal, Mr. Surinder Uppal and so on. M/s. Pee Empro Exports Pvt. Ltd. also has a 50% shareholding in the assessee company. The said M/s. Pee Empro Exports Pvt. Ltd. in order to increase its export business and to compete with the international standards in garment exports had suggested modernization and expansion of the plant and machinery of the assessee company for which M/s. Pee Empro Exports Pvt. Ltd. made available a project report for such expansion on 28.7.2000 to the assessee company. The assessee company in turn vide its letter dated 30.9.2000 informed M/s. Pee Empro Exports that for increasing such capacity as desired by M/s. Pee Empro Exports a huge investment is required and showed its inability to invest such large amount out of the present available funds. M/s. Pee Empro agreed then to make available funds to the extent of 50% cost because it was not only in the interest of M/s. Pee Empro Exports but also on account of fact that M/s. Pee Empro itself owns 50% shares in the assessee company. The rest of the 50% project cost was to be made available by the directors Mr. P.S. Uppal and Mr. P.M.S. Upp....
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.... would not mean that the same would become a deemed dividend in as much as moneys are paid for transactions which are business transactions/commercial transactions and therefore such transactions cannot fall under the expression 'deemed dividend' within the provision of Section 2(22)(e). 6. Before we refer to the rival contentions of the parties, we would like to reproduce the following finding of facts arrived at by the Tribunal: " 7.5 In the present case the amount paid by M/s Pee Empro Exports to the appellant-company does not bear the characteristic of loans and advances. The amount has been paid by M/s Pee Empro Exports in its own interest and that too for the purpose of business because the ultimate beneficiary of the proposed expansion of plant and machinery is M/s. Pee Empro Exports itself. M/s. Pee Empro Exports has not made the payment to the appellant-company for the individual benefit of Mr. R.S.Uppal and Mr. P.M.S. Uppal and on the contrary these two Directors have also provided funds to the appellant-company as owners of the company as also made by M/s Pee Empro Exports. The assessee undertook expansion of its capacity, which was in mutual interest of assessee a....
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....d profits by way of loan or advance to one of its shareholders, it was plain that the object of such a loan or advance was to evade the payment of tax on accumulated profits under section 23A. It will be remembered that an advance or loan which falls within the mischief of the impugned section is advance or loan made by a company which does not normally deal in money-lending, and it is made with the full knowledge of the provisions contained in the impugned section. The object of keeping accumulated profits without distributing them obviously is to take the benefit of the lower rate of super-tax prescribed for companies. This object was defeated by section 23A which provides that in the case of undistributed profits, tax would be levied on the shareholders on the basis that the accumulated profits will be deemed to have been distributed against them. Similarly, section 12(1B) provides that it a controlled company adopts the device of making a loan or advance to one of its shareholders, such shareholders will be deemed to have received the said amount out of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It ....
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....s not the sum, which it otherwise would have distributed as dividend, cannot be brought within the deeming provision of treating such 'Advance' as deemed dividend" 10. We agree with the aforesaid observations. The finding of facts, arrived at by the Tribunal in the present case is that the transaction in question was a business transaction and which transaction would have benefited both the assessee company and M/s. Pee Empro Exports Pvt. Ltd. In fact, as stated above, the counsel for the appellant has conceded that the amount is in fact not a loan but only an advance because the amount paid to the assessee company would be adjusted against the entitlement of moneys of the assessee company payable by M/s. Pee Empro Exports Pvt. Ltd. in the subsequent years. 11. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this Court in Rajkumar's case(supra) deals with that part of the definition of deemed dividend under Section 2(22)(e) which states that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the bus....