The Tax Publishers2021 TaxPub(DT) 0925 (Karn-HC) : (2021) 432 ITR 0146


Section 2(22)(e)

Where assessee was a shareholder in a company and was onwing certain land and company agreed to take building to be constructed on such land on rent and for this purpose the company advanced certain sum to the assessee which was to be adjusted against rent payable in future, then such loan cannot be deemed as dividend because it was a commercial transaction.

Dividend - Deemed dividend under section 2(22)(e) - Amount advanced to assessee for construction of building - Advance adjusted towards rent payable for building

Assessee was a director in a company where she held more than 10% of shares. Assessee was the owner of plot and company agreed to take the building on rent if the building was constructed on the aforesaid plot of land. For the purposes of construction of building, the company agreed to pay certain amounts depending upon the availability of the funds. It was further agreed between the parties that the amount advanced by the company for the purposes of construction shall be adjusted towards security deposit and the balance towards rent payable by the company to the assessee. Payments were directly made by the company to the suppliers or the contractors. AO, by an Order, completed the assessment and determined the total income by making an addition as deemed dividend under section 2(22)(e) as amount received in lieu of Security Deposit and Lease Rentals. Held: The assessee received certain sum from the company which was subsequently adjusted with the security deposit. The company did not give loan to the assessee to construct a building but kept a deposit as any other commercial transaction. The sum so paid has been adjusted towards security deposit which was evident from the books of the company and therefore, the aforesaid deposit was outside the purview of section 2(22)(e) of the Act. The sum amounts to trade advances which was recovered from rentals during the usual course of business. The trade advances arising during usual course of business and not for individual benefit of the assessee and the same amounts to advance payment of the rents adjusted monthly with the ledgers of the assessee. The CIT(A) has also held that under the commercial transactions, the assessee had given prime property and after construction to the company and the company was benefited as the building after construction was let out to the company at much lower rate than the market price and therefore, the transaction in question was commercial transaction and was outside the purview of section 2(22)(e) of the Act.

Relied:Vijay Kumar Talwar v. CIT (2011) 330 ITR 1 (SC) : 2011 TaxPub(DT) 693 (SC) and CIT v. Mukundray K Shah' (2007) 290 ITR 433 (SC) : 2007 TaxPub(DT) 1150 (SC).


FAVOUR : In assessee's favour.

A.Y. : 2007-08



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